<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998
REGISTRATION NO. 333-____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
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 CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</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:
<TABLE>
<S> <C>
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
</TABLE>
----------------
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE (1) OFFERING PRICE (1) FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.001 par value per share)..... 5,750,000 $12.00 $69,000,000 $20,355
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
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 June 19, 1998
5,000,000 SHARES
[LOGO]
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 9.
______________
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.
<TABLE>
<CAPTION>
=============================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY/(1)/ STOCKHOLDERS
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...... $ $ $ $
- -----------------------------------------------------------------------------
Total/(2)/..... $ $ $ $
=============================================================================
</TABLE>
(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
<PAGE>
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 75,000 pounds per acre for the quarter ended March 31, 1998, which
represents an approximately 19% increase from the same quarter in 1996. The
Company also has increased its acreage by approximately 56% and increased its
net sales by approximately 104% 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.
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 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"),
4
<PAGE>
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 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 and although
at least part of the crop in Brush #1 was salvaged, the vines suffered hail
damage and a further decrease in production may result. As a result of this
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. The Company anticipates
that it will be able to recover under its insurance policy all of its property
damage (estimated to be $1.5 million) and most of its crop damage (estimated to
be $700,000) and loss of income (estimated to be $1.8 million) from the hail
storm, less deductibles of $50,000. See "Risk Factors--Risk of Catastrophic
Loss of Crop and Other 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 any dividends
distributed by Greenver.
______________
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.
5
<PAGE>
THE OFFERING
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<S> <C>
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."
</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 3,030,997 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."
6
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- --------- -------- -------- --------- ------- ---------
(Dollars 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 $5,809 $10,070
Cost of goods sold..................... -- 9,961 15,431 19,293 22,257 4,208 5,671
------ ------- ------- ------- ------- ------ -------
Gross profit........................... -- 3,977 4,704 8,114 2,687 1,601 4,399
Operating expenses (2)................. 156 2,207 2,502 4,434 4,609 1,094 1,517
------ ------- ------- ------- ------- ------ -------
Operating income (loss)................ (156) 1,770 2,202 3,680 (1,922) 507 2,882
Interest and other income
(expense), net....................... 54 (33) 329 63 193 41 (138)
------ ------- ------- ------- ------- ------ -------
Income (loss) before income tax
provision............................ (102) 1,737 2,531 3,743 (1,729) 548 2,744
Provision (benefit) for income
taxes (3)............................ (39) 659 962 1,422 (653) 203 1,042
------ ------- ------- ------- ------- ------ -------
Net income (loss) (3).................. (63) 1,078 1,569 2,321 (1,076) 345 1,702
Accretion of preferred stock........... -- -- -- -- -- -- (75)
------ ------- ------- ------- ------- ------ -------
Net income available to common
stockholders......................... $ (63) $ 1,078 $ 1,569 $ 2,321 $(1,076) $ 345 $ 1,627
====== ======= ======= ======= ======= ====== =======
Pro forma diluted earnings (loss)
per share............................ $(0.01) $ 0.17 $ 0.25 $ 0.37 $ (0.11) $ 0.04 $ 0.17
Pro forma weighted average shares
outstanding (in thousands)........... 6,200 6,200 6,200 6,356 9,848 9,094 10,189
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 4,228 8,312
Average yield sold per acre
(in thousands of pounds) (4).......... -- 329 460 423 350 60 75
Average sale price per pound........... -- $ 0.80 $ 0.83 $ 0.91 $ 0.95 $ 1.37 $ 1.21
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------
AS AS FURTHER
ACTUAL ADJUSTED(5) ADJUSTED(6)
--------- ------------ ---------------
(In thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 2,262 $ 8,212 $ 26,050
Working capital......................................... 3,158 9,108 28,677
Total assets............................................ 41,494 47,444 65,282
Long-term debt.......................................... 12,162 12,162 --
Mandatorily redeemable convertible securities........... 13,904 19,854 --
Stockholders' equity.................................... 7,684 7,684 57,538
</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.
(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 for 1997 is a weighted average based on the
increase of total acres in production during the year as a result of the
Estancia greenhouse, which began production in October 1998.
7
<PAGE>
(5) Adjusted to give effect to the Company's $5.9 million net sale of Series C
Convertible Preferred Stock in the May 1998 private placement. Upon
consummation of this offering, all shares of Series C Convertible Preferred
Stock will convert automatically into Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
(6) Further 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."
8
<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 only recently filed
claims on account of the hail storm in Brush and cannot predict when or whether
the insurance carriers will pay the entire amount of these claims. The Company
also 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. 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
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
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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 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. 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
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), Gargulio (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 Pennsylvania and Texas) and BC
Hothouse (with greenhouses in California). The Company estimates that
worldwide, hydroponic greenhouse tomatoes currently originate from approximately
460 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 ___% 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 __________ 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 $5.89 in the net tangible book value per share of the
Common Stock. See "Dilution."
FORWARD-LOOKING STATEMENTS
The information set forth in this Prospectus contains forward-looking
statements that involve a number of risks and uncertainties. A number of
important factors could cause the actual results, performance and achievements
of the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. These factors include, but are not limited to, the risk
factors set forth above and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other factors mentioned in
this Prospectus. Such forward-looking statements are necessarily dependent upon
assumptions and estimates that may prove to be incorrect or imprecise and
involve known and unknown risks, uncertainties and other factors. Accordingly,
any forward-looking statements included herein do not purport to be predictions
of future events or circumstances and the results referred to therein may not be
realized. Forward-looking statements can be identified by, among other things,
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," "seeks," "anticipates," "intends" or the negative of any
thereof, or other variations thereon or comparable terminology, or by
discussions of competitive strengths, strategy or intentions. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligations to
update or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
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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); (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 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.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998, (i) on an actual basis, (ii) as adjusted for the sale by the Company
of its Mandatorily Redeemable Series C Convertible Preferred Stock (the "May
1998 Private Placement") as if it had occurred on March 31, 1998, and (iii) as
further 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 MARCH 31, 1998
--------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
--------- ------------ -----------
(In thousands)
<S> <C> <C> <C>
Long-term debt, including current maturities............................ $12,162 $12,162 $ --
------- ------- -------
Mandatorily Redeemable Securities:
Series B Convertible Preferred Stock ($.001 par value); 1,894,000,
1,894,000 and no shares authorized; 1,875,000 1,875,000 and
no shares issued and outstanding (1)................................... $13,864 $13,864 $ --
Series C Convertible Preferred Stock ($.001 par value); 0, 1,275,000
and no shares authorized; 0, 1,091,000 and 0 shares issued and
outstanding............................................................ -- 5,950 --
Warrant; exercisable for 18,500 shares of Series B Convertible
Preferred Stock........................................................ 40 40 --
------- ------- -------
Total Mandatorily Redeemable Securities............................. $13,904 $19,854 $ --
======= ======= =======
Stockholders' equity:
Series A Convertible Preferred Stock ($.001 par value); 6,200,000,
6,200,000 and no shares authorized; 6,200,000, 6,200,000 and no
shares issued and outstanding......................................... $ 6 $ 6 $ --
Common Stock ($.001 par value); 55,000,000 shares authorized,
53,000, 53,000 and 14,029,101 shares issued; 22,000, 22,000 and
13,998,361 shares outstanding (2)..................................... -- -- 14
Treasury Stock; 31,000, 31,000 and 31,000 shares of Common Stock....... (130) (130) (130)
Additional paid-in capital............................................. 1,315 1,315 53,161
Retained earnings...................................................... 6,493 6,493 4,493
------- ------- -------
Total stockholders' equity........................................... 7,684 7,684 57,538
------- ------- -------
Total capitalization................................................ $33,750 $39,700 $57,538
======= ======= =======
</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 3,030,997 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."
18
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1998, as adjusted
for the May 1998 Private Placement, conversion of all outstanding preferred
stock and the cashless exercise of the Warrant, was approximately $27.5 million
or $2.62 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 March 31, 1998 would have been
$57.5 million or $4.11 per share. This represents an immediate increase in net
tangible book value of $1.49 per share to existing stockholders and an immediate
dilution in net tangible book value of $5.89 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.................. $2.62
Increase per share attributable to new investors... 1.49
-----
Net tangible book value per share after offering........... $ 4.11
------
Dilution per share purchased by new investors.............. $ 5.89
======
</TABLE>
The following table sets forth as of March 31, 1998, as adjusted for the May
1998 Private Placement, 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 3,030,997 shares of Common Stock.
19
<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 three month periods ended March 31, 1997 and 1998, and as of December 31,
1993, March 31, 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
three months ended March 31, 1998 are not necessarily indicative of results that
may be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------ --------------------
1993 1994 1995 1996 1997 1997 1998
-------- --------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
STATEMENT OF OPERATIONS DATA (1):
Net sales........................... $ -- $13,938 $20,135 $27,407 $24,944 $ 5,809 $10,070
Cost of goods sold.................. 9,961 15,431 19,293 22,257 4,208 5,671
------- ------- ------- ------- ------- ------- -------
Gross profit........................ -- 3,977 4,704 8,114 2,687 1,601 4,399
Operating expenses(2)............... 156 2,207 2,502 4,434 4,609 1,094 1,517
------ ------- ------- ------- ------- ------- -------
Operating income (loss)............. (156) 1,770 2,202 3,680 (1,922) 507 2,882
Interest and other income
(expense), net..................... 54 (33) 329 63 193 41 (138)
------ ------- ------- ------- ------- ------- -------
Income (loss) before income tax
provision.......................... (102) 1,737 2,531 3,743 (1,729) 548 2,744
Provision (benefit) for income
taxes (3).......................... (39) 659 962 1,422 (653) 203 1,042
------ ------- ------- ------- ------- ------- -------
Net income (loss) (3).............. (63) 1,078 1,569 2,321 (1,076) 345 1,702
Accretion of preferred stock........ -- -- -- -- -- -- (75)
------ ------- ------- ------- ------- ------- -------
Net income available to common
stockholders....................... $ (63) $ 1,078 $ 1,569 $ 2,321 $(1,076) $ 345 $ 1,627
====== ======= ======= ======= ======= ======= =======
Pro forma diluted earnings (loss)
per share.......................... $(0.01) $0.17 $0.25 $0.37 $(0.11) $0.04 $0.17
Pro forma weighted average shares
outstanding (in thousands)......... 6,200 6,200 6,200 6,356 9,848 9,094 10,189
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 4,228 8,312
Average yield sold per acre
(in thousands of pounds) (4)....... -- 329 460 423 350 60 75
Average sale price per pound........ -- $0.80 $0.83 $0.91 $0.95 $1.37 $1.21
AT DECEMBER 31, AT MARCH 31,
---------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------ ------- ------- ------- ------- ------- -------
(In thousands)
BALANCE SHEET DATA:
Working capital (5)................. $ (426) $ 2,106 $ 2,736 $ 2,237 $ 3,034 $14,089 $ 3,158
Total assets........................ 451 5,883 8,532 9,966 37,869 24,237 41,494
Long-term debt...................... -- -- -- -- 10,972 -- 12,162
Mandatorily redeemable
convertible securities............. -- -- -- -- 13,829 13,604 13,904
Stockholders' equity
(deficit).......................... (102) 1,636 4,168 6,945 6,127 7,316 7,684
</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
20
<PAGE>
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.
(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 for 1997 is a weighted average based on the
increase of total acres in production during the year as a result of the
Estancia greenhouse, which began production in October 1998.
(5) Working capital as of March 31, 1997, includes the net proceeds from the
issuance of the Series B Convertible Preferred Stock, less amounts expended
through that date.
21
<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 75,000 pounds per
acre for the quarter ended March 31, 1998, which represents an approximately 19%
increase from the same quarter in 1996. The Company also has increased its
acreage by approximately 56% and increased its net sales by approximately 104%
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
22
<PAGE>
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 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 at the Brush #1
and Brush #2 greenhouses. The Company anticipates that it will be able to
recover under its insurance policy all of its property damage and at least a
majority of its crop damage and lost profits from this hail storm, less
deductibles in the amount of $50,000.
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%.
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
--------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
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 72.4 56.3
----- ----- ----- ----- -----
Gross profit............................... 23.4 29.6 10.8 27.6 43.7
Operating expenses (1)..................... 12.4 16.2 18.5 18.8 15.1
----- ----- ----- ----- -----
Operating income (loss).................... 11.0 13.4 (7.7) 8.7 28.6
Interest and other income (expense), net... 1.6 0.2 0.8 0.7 (1.4)
----- ----- ----- ----- -----
Income (loss) before income tax provision.. 12.6 13.6 (6.9) 9.4 27.2
Provision (benefit) for income taxes (2)... 4.8 5.2 (2.6) 3.5 10.3
----- ----- ----- ----- -----
Net income (loss)(2)....................... 7.8% 8.4% (4.3)% 5.9% 16.9%
===== ===== ===== ===== =====
</TABLE>
- -----------------------
(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.
(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%.
23
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Net Sales. Net sales increased by $4.3 million, or 74.1%, to $10.1 million on
sales of 8.3 million pounds of tomatoes for the quarter ended March 31, 1998,
compared to net sales of $5.8 million on sales of 4.2 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
25% to 75,000 pounds per acre in the first quarter of 1998 from 60,000 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 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 $1.37 average sale
price per pound of tomatoes during the first quarter of 1997, compared to $1.21
for the comparable period in 1998.
Gross Profit. The Company's gross profit for the three months ended March 31,
1998 was $4.4 million, or 43.7% of net sales, compared to $1.6 million, or 27.6%
of net sales, for the three months ended March 31, 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 quarter of 1997. Greenhouse
labor costs in the first quarter of 1997 were higher than normal as a result of
training expenses for additional greenhouse personnel.
Operating Expenses. During the quarter ended March 31, 1998, operating
expenses were $1.5 million, or 15.1% of net sales, compared to $1.1 million, or
18.8% of net sales, for the quarter ended March 31, 1997. The components of the
dollar increase were: (i) a $0.2 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 74.1% increase in net sales during the
first quarter of 1998 caused the substantial decline in operating expenses as a
percentage of net sales. Management expects that operating expenses may
increase as a percentage of net sales 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 $2.9
million, or 28.6% of net sales, for the three months ended March 31, 1998,
compared to operating income of $0.5 million, or 8.7% of net sales, for the
comparable period in 1997. This improvement resulted from the 74.1% increase in
net sales and the higher gross margin in the first quarter of 1998.
Interest and Other Income (Expense), Net. The Company incurred interest and
other expense of $0.1 million for the three months ended March 31, 1998,
compared to interest and other income of $41,000 for the three months ended
March 31, 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 $1.7 million, or 16.9%
of net sales, for the three months ended March 31, 1998, compared to a net
income of $0.3 million, or 5.9% of net sales, for the comparable period in 1997.
The Company's provision for income taxes was $1.0 million and $0.2 million for
the quarters ended March 31, 1997 and 1998, respectively, representing an
effective tax rate of 38% in both periods.
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.
24
<PAGE>
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%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $3.0 million and $3.2 million at December
31, 1997, and March 31, 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:
25
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- -------------------
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) $ (405) $ 640
Net cash provided by (used in) investing activities... (590) (1,032) (23,592) (1,707) (1,478)
Net cash provided by (used in) financing activities... (157) (1,748) 24,507 13,055 1,045
------ ------- -------- ------- -------
Net increase (decrease) in cash and cash equivalents.. $1,928 $(1,516) $ 533 $10,943 $ 207
====== ======= ======== ======= =======
</TABLE>
The $1.0 million increase in cash flow from operations from the quarter ended
March 31, 1997 to the quarter ended March 31, 1998 was due primarily to the
substantial increase in operating income. The $1.7 million decrease in
operating cash flow 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 operating cash flow 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 $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 $12.0 million decline in net cash provided by financing activities in the
first quarter of 1998 from the first quarter of 1997 was due to the $13.5 of net
proceeds from the sale of the Series B Convertible Preferred Stock in January
1997. The $26.3 million increase in net cash provided by financing activities
from 1996 to 1997 was primarily from 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 1996, the Company made
distributions of $1.7 million to cover its LLC members' income tax obligations
on the Company's taxable income.
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 nine-year term loan in May 1998, bearing interest at 8.19%
per annum. At December 31, 1997, the balance on the construction loan was
approximately $11.0 million and increased to $12.2 million at March 31, 1998, as
a result of completion of construction of the Fort Lupton #2 greenhouse in
January 1998.
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 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.
26
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------
1996 1997(1) 1998
----------------------------------------- ---------------------------------------- --------
STATEMENT OF OPERATIONS DATA: MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
(Dollars in thousands)
<S> <C> <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 $10,070
Gross profit (1).................. 1,773 2,331 1,410 2,600 1,601 189 (619) 1,516 4,399
Operating expenses (2)............ 859 1,135 1,297 1,143 1,094 1,160 1,239 1,116 1,517
Operating income (loss)........... 914 1,196 113 1,457 507 (971) (1,858) 400 2,882
Net income (loss) (3)............. 580 164 342 1,235 345 (459) (1,128) 166 1,702
Accretion of preferred stock...... -- -- -- -- -- -- -- -- (75)
Net income available to common
stockholders.................... $ 580 $ 164 $ 342 $ 1,235 $ 345 $ (459) $ (1,128) $ 166 $ 1,627
OPERATING DATA:
Number of greenhouses operated
(at end of period).............. 4 4 4 4 4 4 4 5 6
Acres in production
(at end of period)............... 71 71 71 71 71 71 71 91 111
Total pounds sold (in thousands).. 4,499 11,011 7,821 6,687 4,228 9,322 6,593 6,024 8,312
Average yield sold per acre (in
thousands of pounds)(4)......... 63 155 110 94 60 131 93 66 75
Average sale price per pound ..... $1.10 $0.74 $0.63 $1.40 $1.37 $0.80 $0.77 $1.09 $1.21
</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. 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."
(4) Average yield sold per acre for the quarter ended December 31, 1997 is a
weighted average based on the increase of total acres in production during
the year as a result of the Estancia greenhouse, which began production in
October 1998.
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. The Company also is
in the process of determining whether its major suppliers, service providers and
customers are year 2000 compliant. The financial impact of Year 2000 compliance
to the Company is not anticipated to be material.
27
<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 75,000 pounds per
acre for the quarter ended March 31, 1998, which represents an approximately 19%
increase from the same quarter in 1996. The Company also has increased its
acreage by approximately 56% and increased its net sales by approximately 104%
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.
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 1996, 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 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
28
<PAGE>
to a consumer survey in the same produce industry trade journal, 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, driven by health and dietary concerns as well as by
changing tastes and the demographic profile of the U.S. population. 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.
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:
29
<PAGE>
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.
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.
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
30
<PAGE>
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
--------------------------- ------------------------------
THREE MONTHS ENDED MARCH 31, THREE MONTHS ENDED MARCH 31,
---------------------------- ------------------------------
1997 1998 1997 1998
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Superpremium display pack singles....... 55.1% 71.8% $1.53 $1.32
Pre-pack................................ 22.7 10.3 1.14 1.15
On-the-vine............................. 9.3 7.2 1.95 1.76
Standard grade display pack singles:
USDA #1 or better..................... 10.5 7.9 1.47 1.12
USDA #2............................... 2.4 2.8 0.79 0.77
----- -----
Total/average wholesale price (1). 100.0% 100.0% $1.41 $1.28
===== =====
</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, a
Company sales representative works with the supermarket chain to tailor a sales
program to the customer's needs. Each week, the sales representative quotes the
customer prices for the following week and the customer's program is filled 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.
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
31
<PAGE>
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.
GREENHOUSE PRODUCTION
Current Greenhouse Production. The following table sets forth information
regarding the Company's existing greenhouses.
<TABLE>
<CAPTION>
YEAR CONSTRUCTED ACREAGE GREENHOUSE TYPE
---------------- ------- ---------------
<S> <C> <C> <C>
COLORADO
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
32
<PAGE>
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 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,
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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.
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
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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 approximately a 13% decline in total
production 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
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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 any dividends 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. 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, 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 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.
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
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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.
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. 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), Gargulio (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
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in Arizona), Village Farms (with greenhouses in Pennsylvania and Texas) and BC
Hothouse (with greenhouses in California). The Company estimates that worldwide,
hydroponic greenhouse tomatoes currently originate from approximately 460 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, $853,089 for Brush #1, $1,042,169 for Brush #2 and $1,033,768 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) 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 $149,000 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
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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.
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. 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.
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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. 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.
40
<PAGE>
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.
41
<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
42
<PAGE>
the University of Colorado at Boulder's Optoelectronic Computing Systems Center
(a National Science Foundation 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 purchased 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. Prior to 1992, Mr. Sakin spent over ten
years in merchant banking and investment banking.
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 is now a 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 is now a 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
43
<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.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
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.
44
<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,
45
<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
46
<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
3,030,997 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."
47
<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
Name of Beneficial Owner (1) Prior to Offering After Offering (2)
- ---------------------------- ----------------------- Number of Shares ----------------------
Number Percent Being Offered (2) Number Percent
------------ --------- ----------------- --------- -----------
<S> <C> <C> <C> <C> <C>
James R. Rinella (3).................... 255,891 2.4%
Matthew B. Cook......................... 152,043 1.5
Alan R. Fine (4)........................ 100,000 *
R.C. Mercure, Jr........................ 71,196 *
Charles A. Hurth, Jr.................... 53,830 *
Craig H. Sakin.......................... 10,000 *
Edward J. Wetherbee..................... 260,879 2.5
All directors and Named Executive
Officers as a group (7 persons)........ 903,839 8.6
Cogen Technology, Inc.(5)............... 3,686,877 35.1
Catterton-Simon Partners III, L.P.(6)... 1,728,916 16.5
BCI Growth IV, L.P.(7).................. 1,669,297 15.9
Vernon J. Twombly (8)................... 1,201,293 11.4
</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.
(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 amounts of Common Stock in this
offering: ____________ (_______ shares), _________ (____ shares),
_____________ (_____ shares) and _____________ (______ shares). The
numbers of shares and percents in the table above assume no exercise of the
Underwriters' over-allotment option.
(3) 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) The address of Cogen Technology, Inc. is 4845 Pearl East Circle, Boulder,
Colorado 80302.
(6) 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"). The address of Catterton-Simon
Partners III, L.P. and Catterton-CGH Partners, L.L.C. is c/o Catterton
Partners, Inc., 9 Greenwich Office Park, Greenwich, Connecticut 06830.
Catterton-Simon Managing Partner III, L.L.C. is the general partner of
Catterton Simon Partners III, L.P. and Catterton Partners Managing Company,
L.L.C. is the managing member of Catterton-CGH Partners, L.L.C. Craig
Sakin, a director of the Company is an officer of Catterton-Simon Managing
Partner III, L.L.C. and Catterton Partners Managing Company, L.L.C. Mr.
Sakin disclaims beneficial ownership of all of the shares held by Catterton.
(7) The address of BCI Growth IV, L.P. is c/o BCI Advisors, Inc., Glenpointe
Center West, Teaneck, New Jersey 07666.
(8) Includes 1,067,764 shares and 123,529 shares of Common Stock owned by Vernon
J. Twombly, Inc. and Twombly LLC, respectively. The address of Vernon J.
Twombly, Inc. and Twombly, LLC is 642 Sinclair Road, Snowmass Village,
Colorado 81615. Mr. Twombly is the Chief Executive Officer and sole
shareholder of Vernon J. Twombly, Inc. and the Manager and sole member of
Twombly LLC.
48
<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 $10.00 per share.
REGISTRATION RIGHTS
Holders of ________ 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.
49
<PAGE>
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 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% 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.
50
<PAGE>
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 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 _________ 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 139,984 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
51
<PAGE>
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.
52
<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:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
BT Alex. Brown Incorporated.................................
Hambrecht & Quist LLC.......................................
----------------
Total................................................ 5,000,000
================
</TABLE>
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.
53
<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 at least $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.
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
54
<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.
55
<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 March 31, 1998 (unaudited) F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997, and for the three months ended
March 31, 1997 and 1998 (unaudited) F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997, and for the three months ended
March 31, 1998 (unaudited) F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997, and for the three months ended
March 31, 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>
DECEMBER 31, MARCH 31,
-------------------
1996 1997 1998
--------- ------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $1,522 $ 2,055 $ 2,262
Accounts receivable, net of allowance of $237, $101
and $392, respectively 1,661 2,508 2,944
Other receivables 67 956 275
Inventories 1,455 3,927 5,664
Deferred taxes, current (Note 8) - 946 946
Other current assets 373 149 168
------ ------- -------
Total current assets 5,078 10,541 12,259
PROPERTY AND EQUIPMENT, net (Note 3) 2,136 25,024 26,213
DEPOSITS AND PREPAID RENT (Note 4) 2,655 1,882 2,602
OTHER ASSETS, net (Note 5) 97 422 420
------ ------- -------
Total assets $9,966 $37,869 $41,494
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Line of credit $ - $ 500 $ 500
Long-term debt, current (Note 6) - 972 1,731
Obligation under capital leases, current 133 155 133
Accounts payable 789 3,994 3,232
Accrued rent 857 984 857
Other accrued expenses 1,062 902 1,606
Income taxes payable - - 1,042
------ ------- -------
Total current liabilities 2,841 7,507 9,101
LONG-TERM DEBT (Note 6) - 10,000 10,431
CAPITAL LEASE OBLIGATION, non-current 180 112 80
DEFERRED TAXES, non-current (Note 8) - 294 294
------ ------- -------
Total liabilities 3,021 17,913 19,906
------ ------- -------
COMMITMENTS (Notes 4, 7, 10 and 11)
MANDATORILY REDEEMABLE SERIES B CONVERTIBLE PREFERRED STOCK;
$.001 par value; 1,894 shares authorized, 1,875 shares issued and
outstanding; $8 per share redemption price - 13,789 13,864
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 shares
authorized, issued and outstanding; liquidation preference of $18,600 6 6 6
Common stock, $.001 par value; 11,400 shares authorized;
0, 0 and 53 issued; 0,0 and 22 outstanding, respectively - - -
Treasury stock, 0, 0 and 31 shares of common stock at cost, respectively - - (130)
Additional paid-in capital 715 1,255 1,315
Retained earnings 6,224 4,866 6,493
------ ------- -------
Total stockholders' equity 6,945 6,127 7,684
------ ------- -------
Total liabilities and stockholders' equity $9,966 $37,869 $41,494
====== ======= =======
</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>
Three Months
Year Ended December 31, Ended March 31,
----------------------------------- -----------------------
1995 1996 1997 1997 1998
------- ------- ------ -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $20,135 $27,407 $24,944 $5,809 $ 10,070
COST OF GOODS SOLD 15,431 19,293 22,257 4,208 5,671
------- ------- ------- ------ ---------
GROSS PROFIT 4,704 8,114 2,687 1,601 4,399
------- ------- ------- ------ ---------
OPERATING EXPENSES:
General and administrative 1,681 3,604 4,511 803 1,123
Sales and marketing 821 830 900 291 394
Insurance proceeds (Note 9) - - (802) - -
------- ------- ------- ------ ---------
2,502 4,434 4,609 1,094 1,517
------- ------- ------- ------ ---------
Income (loss) from operations 2,202 3,680 (1,922) 507 2,882
------- ------- ------- ------ ---------
OTHER (INCOME) EXPENSE:
Interest expense 10 71 137 10 181
Interest income and other (339) (134) (330) (51) (43)
------- ------- ------- ------ ---------
(329) (63) (193) (41) 138
------- ------- ------- ------ ---------
INCOME (LOSS) BEFORE INCOME TAXES 2,531 3,743 (1,729) 548 2,744
INCOME TAX (BENEFIT) EXPENSE (Note 8) - - (653) 203 1,042
------- ------- ------- ------ ---------
NET INCOME (LOSS) $ 2,531 $ 3,743 $(1,076) $ 345 1,702
======= ======= ======= ======
ACCRETION OF PREFERRED STOCK (75)
---------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $ 1,627
=========
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 $ - $ - $ - $ - $6,581.48
======= ======= ======= ====== =========
Diluted earnings (loss) per share $ 0.41 $ 0.59 $ (0.11) $ 0.04 $ 0.17
======= ======= ======= ====== =========
PRO FORMA PER SHARE INFORMATION:
Basic earnings (loss) per share $ 0.25 $ 0.37 $ (0.11) $ 0.04 $ 0.17
======= ======= ======= ====== =========
Diluted earnings (loss) per share $ 0.25 $ 0.37 $ (0.11) $ 0.04 $ 0.17
======= ======= ======= ====== =========
</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 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 March 31, 1998 (unaudited) 6,200 $6 53 $ - (31) $(130)
====== ===== ===== ==== ==== =====
</TABLE>
<TABLE>
<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 preferred stock - (75) (75)
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 21 - 21
Net income - 1,702 1,702
------ ------- -------
Balances at March 31, 1998 (unaudited) $1,315 $ 6,493 $ 7,684
====== ======= =======
</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>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------- -----------------------
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) $ 345 $ 1,702
Adjustments to reconcile net income (loss) to
net cash flow from operating activities:
Depreciation and amortization 230 338 806 92 289
Allowance for doubtful accounts - 139 (136) 19 291
Stock-based compensation expense - 715 540 83 21
Income tax benefit - - (653) - -
Changes in operating assets and liabilities-
Accounts receivable 329 678 (511) (277) (727)
Other receivables - (39) (890) 42 681
Inventories 9 (452) (2,472) (843) (1,737)
Other current assets 58 (332) 65 205 (19)
Deposits, prepaid rent and other assets (757) (1,897) 773 - (718)
Accounts payable 387 (718) 4,220 507 (762)
Accrued expenses (112) (911) (1,048) (658) 577
Income taxes payable - - - 80 1,042
------ ------- -------- -------- -------
Net cash flow from operating
activities 2,675 1,264 (382) (405) 640
------ ------- -------- -------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (590) (1,032) (23,592) (1,707) (1,478)
------ ------- -------- -------- -------
Net cash flow from investing activities (590) (1,032) (23,592) (1,707) (1,478)
------ ------- -------- -------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from sale of Series B preferred stock - - 13,507 13,507 -
Proceeds from options exercised - - - - 39
Payment to repurchase common stock - - - - (130)
Proceeds from line of credit - 1,586 500 - -
Proceeds from long-term debt - - 10,972 - 1,190
Repayment of line of credit - (1,586) - - -
Deferred financing costs - - (426) (418) -
Payments on capital leases (157) (68) (46) (34) (54)
Distributions to stockholders - (1,680) - - -
------ ------- -------- -------- -------
Net cash flow from financing activities (157) (1,748) 24,507 13,055 1,045
------ ------- -------- -------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,928 (1,516) 533 10,943 207
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 $ 12,465 $ 2,262
====== ======= ======== ======== =======
SUPPLEMENTAL DISCLOSURES:
Interest paid, net of amounts capitalized $ 10 $ 45 $ 62 $ 10 $ 181
====== ======= ======== ======== =======
Income taxes paid $ - $ - $ - $ - $ -
====== ======= ======== ======== =======
</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. 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.
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. In
addition, 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,
------------------------ March 31,
1996 1997 1998
-------- -------- ----------
(unaudited)
<S> <C> <C> <C>
Raw materials $ 382 $ 942 $1,185
Crop inventory 979 2,957 4,435
Finished goods 94 28 44
------ ------ ------
Total $1,455 $3,927 $5,664
====== ====== ======
</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.
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.
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 $101,000, 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
F-8
<PAGE>
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.
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
F-9
<PAGE>
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>
Three Months
Year Ended December 31, Ended March 31,
------------------------------------- -----------------------
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) $ 345,000 $1,702,000
========== ========== =========== ==========
Accretion of Preferred Stock (75,000)
----------
Net income available to common
stockholders $1,627,000
==========
DENOMINATOR FOR BASIC
PER SHARE INFORMATION:
Weighted average common shares
outstanding - - - - 247
========== ========== =========== ========== ==========
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 2,464,583 3,168,750
Weighted Average Common Shares
outstanding - - - - 247
Options issued to directors, officers and
employees - 156,174 436,391 429,772 473,351
---------- ---------- ----------- ---------- ----------
6,200,000 6,356,174 9,631,511 9,094,355 9,842,348
========== ========== =========== ========== ==========
</TABLE>
New Accounting Pronouncement
----------------------------
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.
F-10
<PAGE>
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.
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
-------------------------------
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 March 31, 1998, and for the three months ended
March 31, 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.
Due to the seasonal nature of the operations of the Company, the results of
operations for the three months ended March 31, 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.
F-11
<PAGE>
(3) PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------- March 31,
1996 1997 1998
-------- ------ -----------
(unaudited)
<S> <C> <C> <C>
Land and improvements $ - $ 880 $ 394
Buildings and improvements 461 10,972 22,520
Machinery and equipment 1,401 3,143 3,011
Furniture and fixtures 25 104 106
Computer equipment 412 1,189 1,221
Construction in progress - 9,604 194
Capitalized leases 385 385 385
------ ------- -------
2,684 26,277 27,831
Less accumulated depreciation (548) (1,253) (1,618)
------ ------- -------
Total $2,136 $25,024 $26,213
====== ======= =======
</TABLE>
(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 3rd 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 March 31, 1998, the deposits were
approximately $2,314,000, $1,583,000 and $2,314,000, respectively.
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.
The unamortized amount of the prepaid rent as of December 31, 1996 and 1997, was
$341,000 and $299,000, respectively.
F-12
<PAGE>
(5) OTHER ASSETS
------------
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------- March 31,
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) (244)
------- ----- -------
Total $ 97 $ 422 $ 420
======= ===== =======
</TABLE>
(6) LONG-TERM DEBT
--------------
Long-term debt consists of the following as of December 31, 1997 (in thousands):
<TABLE>
<S> <C>
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
=======
</TABLE>
At December 31, 1997, the aggregate amounts of long-term debt principal
repayments are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31-
<S> <C>
1998 $ 972
1999 1,667
2000 1,667
2001 1,667
2002 1,667
Thereafter 3,332
-------
Total $10,972
=======
</TABLE>
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
F-13
<PAGE>
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.
(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.
F-14
<PAGE>
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):
<TABLE>
<S> <C>
Current income tax benefit:
Federal $ (727)
State (112)
------
(839)
------
Deferred income tax expense:
Federal 169
State 17
------
186
------
Total income tax benefit $ (653)
======
</TABLE>
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>
F-15
<PAGE>
The tax effects of significant temporary differences representing deferred tax
assets and liabilities as of December 31, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
Current Non-Current
------- -----------
<S> <C> <C>
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)
==== =====
</TABLE>
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.
(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.
F-16
<PAGE>
The Company will pay future primary fees to the greenhouse facilities, not to
exceed the following amounts (in thousands):
<TABLE>
<CAPTION>
Related
Parties Other Total
------- ----- --------
<S> <C> <C> <C>
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
======= ====== =======
</TABLE>
(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.
Future minimum lease payments as of December 31, 1997, are as follows (in
thousands):
<TABLE>
<CAPTION>
Capital Operating Total
------- --------- -----
<S> <C> <C> <C>
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
====
</TABLE>
F-17
<PAGE>
(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.
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, March 31, 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 88,695 $1.12
======= ======= =====
Exercisable at March 31, 1998
(unaudited) 421,145 35,901 $1.64
======= ======= =====
</TABLE>
F-18
<PAGE>
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:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1996 1997
------------ ------------
<S> <C> <C>
Risk-free interest rate 6.47% 5.70%
Dividend rate 0% 0%
Expected volatility 37% 37%
Expected life 2.64 years 3 years
</TABLE>
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
F-19
<PAGE>
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 $(1,050)
====== =======
Basic earnings per share:
As reported $ - $ -
====== =======
Pro forma $ - $ -
====== =======
Diluted earnings (loss) per share:
As reported $ 0.59 $ (0.12)
====== =======
Pro forma $ 0.61 $ (0.12)
====== =======
</TABLE>
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 three months ended March 31, 1998, were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1996 1997 Three Months Ended March 31, 1998
--------------------------------- --------------------------------- ---------------------------------
(unaudited)
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Number of Estimated Exercise Number of Estimated Exercise Number Estimated Exercise
Options Fair Value Price Options Fair Value Price of Options Fair Value Price
--------- ---------- -------- --------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <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 70,000 4.25 4.25
------- ----- ----- ------- ----- ----- ------ ----- -----
557,495 $3.23 $0.74 490,000 $4.25 $4.25 70,000 $4.25 $4.25
======= ===== ===== ======= ===== ===== ====== ===== =====
</TABLE>
F-20
<PAGE>
The following table summarizes information about stock options outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ------------------------------
Weighted Number of
Number of Average Weighted Options Weighted
Options Remaining Average Exercisable at Average
Outstanding at Contractual Exercise December 31, Exercise
Exercise Prices December 31, 1997 Life in Years Price 1997 Price
--------------- ----------------- ------------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$0.74 519,485 8.63 $0.74 392,782 $0.74
$4.25 490,000 9.75 $4.25 47,058 $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.
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.
F-21
<PAGE>
The company anticipates that it will be able to recover, under its insurance
policy, most of its property damage, lost profits and crop damage, estimated to
be approximately $4 million.
F-22
<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
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 9
Use of Proceeds.............................. 17
Dividend Policy.............................. 17
Capitalization............................... 18
Dilution..................................... 19
Selected Consolidated Financial and
Operating Data.............................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 22
Business..................................... 28
Management................................... 42
Certain Transactions and Relationships....... 46
Principal Stockholders....................... 48
Description of Capital Stock................. 49
Shares Eligible for Future Sale.............. 51
Underwriting................................. 53
Legal Matters................................ 54
Experts...................................... 54
Available Information........................ 54
Index to Financial Statements................ F-1
</TABLE>
----------------------
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 OF COLORADO GREENHOUSE
HOLDINGS, INC.]
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:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.... $ 20,355
NASD fees.............................................. *
Printing and engraving expenses........................ *
Accounting fees........................................ *
Legal fees and expenses................................ *
Miscellaneous.......................................... *
--------
Total............................................. $ *
========
</TABLE>
______________
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the Company's Amended and Restated Certificate of Incorporation
and Article VI of the Company's Amended and Restated Bylaws, both to become
effective upon consummation of this offering, provide that, to the fullest
extent permitted by the Delaware General Corporation Law ("DGCL"), directors of
the Company shall not be liable to the Company or any of its stockholders for
monetary damages for breach of a fiduciary duty by such director and further
provide that, to the fullest extent permitted by the DGCL, the Company may so
indemnify officers and other employees..
Section 145 of the DGCL authorizes the indemnification of directors and
officers against liability incurred by reason of the fact that such person was a
director or officer and against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with defending any action seeking to establish such
liability if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification is also authorized with respect to any criminal action or
proceeding where the officer or director had no reasonable cause to believe his
conduct was unlawful. No person shall be entitled to indemnification under the
DGCL, however, if such person shall have been adjudged to be liable to the
corporation unless the Court of Chancery or the court in which such action or
suit was brought determines that despite such adjudication of liability, such
person is fairly and reasonably entitled to indemnification.
The above discussion of the Company's Certificate of Incorporation and Bylaws
and Section 145 of the Delaware General Corporation Law is intended to be only a
summary and is qualified in its entirety by the full text of each of the
foregoing.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since the Company's formation in October 1996, the Company has issued the
following securities that were not registered under the Securities Act of 1933,
as amended (the "Securities Act"). Except as otherwise noted, no underwriters
were engaged in connection with any of the following transactions, and
accordingly, no underwriting discounts or commissions were paid. The shares of
capital stock and other securities issued in the following transactions were
offered and sold in reliance upon the following exemptions: (i) in the case of
the transactions described in (a), below, Section 4(2) of the Securities Act or
Regulation D promulgated thereunder relative to sales by an issuer not involving
a public offering; and (ii) in the case of the transactions described in (b),
below, Section 3(b) of the Securities Act and Rule 701 promulgated thereunder
relative to sales pursuant to certain compensatory benefits plans.
(a) Issuances of Capital Stock:
(i) On December 31, 1996 and January 2, 1997, the Company issued 6,200,000
shares of Series A Preferred Stock to Brush Greenhouse Partners and Brush
Greenhouse Partners II, LLC in exchange for all of the outstanding membership
interests of Colorado Greenhouse LLC, a Colorado limited liability company;
(ii) on January 21, 1997, the Company issued a total of 1,875,000 shares of
Series B Convertible Preferred Stock to Catterton-Simon Partners III, L.P.
(875,000 shares, $7,000,000 total purchase price), BCI Growth IV, L.P. (875,000
shares, $7,000,000 total purchase price), H&Q Colorado Greenhouse Investors, LLC
(93,750 shares, $750,000 total purchase price) and Catterton-CGH Partners,
L.L.C. (31,250 shares, $250,000 total purchase price). In connection therewith,
Hambrecht & Quist, LLC was issued a warrant to purchase 18,500 shares of Series
B Convertible Preferred Stock at an exercise price of $8.00 per share and was
paid fees totaling $897,050; (iii) on May 8, 1998, the Company issued a total of
1,090,910 shares of Series C Convertible Preferred Stock for a total purchase
price of $6,000,000 to its existing preferred stockholders and their related
parties (as such term is defined in the Company's Shareholders Agreement).
Messrs. Rinella, Mercure, Hurth and Wetherbee all purchased shares of Series C
Convertible Preferred Stock in the May 8, 1998 offering. These transactions
were completed without registration under the Securities Act of 1933 in reliance
on the exemption provided by Section 4(2) of the Securities Act of 1933.
(b) Grants of Stock Options:
On August 21, 1996, the Company issued to Company officers and employees stock
options to acquire a total of 557,495 shares of common stock of the Company at
an exercise price of $0.74, which the board of directors determined was the fair
market value of the Company's Common Stock at such time. Options covering
52,794 shares of Common Stock have been exercised at a price per share of $0.74.
Of those options, options representing a total of 38,010 shares of Common Stock
were canceled and options were exercised to acquire a total of 52,794 shares of
Common Stock. On September 15, 1997, the Company issued to officers and
employees options to acquire a total of 140,000 shares of Common Stock at an
exercise price of $4.25 per share, which was the effective conversion price per
share to which the Company's Series B Preferred Stock were adjusted in September
1997 as a result of 1997 production problems. On October 15 and 31, the Company
issued to newly employed officers options to acquire a total of 100,000 shares
and 250,000 shares, respectively, at an exercise price of $4.25. On January 2,
1998, the Company issued options to acquire a total of 70,000 shares of Common
Stock to its then directors at an exercise price of $4.25 per share.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
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.*
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
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
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 BGP
and BGP II
10.9 First Amendment to Amended and Restated Cogeneration and Greenhouse Lease Agreement dated May, 1996,
between BGP 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
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
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")*
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*
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
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
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
</TABLE>
______________
* To be filed by amendment.
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 advised 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-5
<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 19TH DAY OF JUNE,
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 June 19, 1998
- ------------------------------------------
R.C. Mercure, Jr.
/s/ James R. Rinella Chief Executive Officer, President and June 19, 1998
- ------------------------------------------ Director
James R. Rinella
* Vice President of Finance (acting chief June 19, 1998
- ------------------------------------------ financial officer and chief accounting
Alan R. Fine officer)
* Director June 19, 1998
- ------------------------------------------
Charles A. Hurth, Jr.
* Director June 19, 1998
- ------------------------------------------
Craig H. Sakin
* Director June 19, 1998
- ------------------------------------------
Edward J. Wetherbee
*By: /s/ James R. Rinella
--------------------------------------
James R. Rinella, attorney-in-fact
</TABLE>
II-6
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
COLORADO GREENHOUSE HOLDINGS, INC.
(PURSUANT TO SECTION 245)
Colorado Greenhouse Holdings, Inc. (the "Corporation"), a corporation
-----------
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows for the purpose of restating
its Certificate of Incorporation:
1. That the Corporation was originally incorporated under the name
Colorado Greenhouse, Inc., and the original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
October 30, 1996.
2. That the Board of Directors of the Corporation duly adopted
resolutions containing the provisions of this Restated Certificate of
Incorporation of the Corporation in accordance with Section 245 of the General
Corporation Law of the State of Delaware.
3. That this Restated Certificate of Incorporation only restates and
integrates and does not further amend the Corporation's Certificate of
Incorporation. There is no discrepancy between the provisions of this Restated
Certificate of Incorporation and the Corporation's Certificate of Incorporation
as heretofore amended and supplemented. The Corporation did not seek the
approval of its stockholders.
4. That the Corporation's Certificate of Incorporation be restated in its
entirety as follows:
ARTICLE I
NAME
The name of the Corporation is Colorado Greenhouse Holdings, Inc.
ARTICLE II
REGISTERED OFFICE AND AGENT
<PAGE>
The address of its registered office in the State of Delaware is 1209
Orange Street, in the City of Wilmington, County of New Castle 19801. The name
of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
NATURE OF BUSINESS
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activities for which corporations may be
organized under the Delaware General Corporation Law.
ARTICLE IV
CAPITAL; SHAREHOLDERS
4.1 Authorized Capital. The aggregate number of shares of all classes of
------------------
stock that the Corporation shall have authority to issue is 22,050,000 shares,
each having a par value of $.001 per share, of which 12,675,000 shares shall be
classified as common stock ("Common Stock"), and 9,375,000 shares shall be
------------
classified as preferred stock ("Preferred Stock"). The Preferred Stock
---------------
authorized by this Certificate of Incorporation shall be issued in series,
including Series A Preferred Stock (the "Series A Preferred Stock"), which shall
------------------------
consist of 6,200,000 shares, Series B Convertible Preferred Stock (the "Series B
--------
Preferred Stock"), which shall consist of 1,893,000 shares, and Series C
- ---------------
Convertible Preferred Stock (the "Series C Preferred Stock"), which shall
------------------------
consist of 1,275,000 shares.
4.2 Relative Rights and Preferences. The designations, preferences,
-------------------------------
limitations and relative rights of the shares of each class of stock which the
Corporation is authorized to issue, and the limitations thereof, are set forth
in the following provisions of this Section 4.2:
(a) Common Stock.
------------
(i) General. The dividend and liquidation rights of the holders of
-------
the Common Stock are junior to, subject to and qualified by, the rights of the
holders of each class of Preferred Stock.
(ii) Dividends. Subject to Section 4.2(a)(i), dividends may be
---------
declared and paid on the Common Stock out of the assets lawfully available
therefor when, as and if determined by the Board of Directors.
2
<PAGE>
(iii) Liquidation. Subject to Section 4.2(a)(i), after the completion
-----------
of all distributions required to be made to the holders any then-existing
series of Preferred Stock, upon the dissolution, liquidation or winding up of
the Corporation, if assets remain in this Corporation, all such assets shall be
distributed ratably among the holders of shares of the Common Stock.
(iv) Voting. Each holder of Common Stock of record shall have one
------
vote for each share of stock outstanding in his name and on the books of the
Corporation, except that in the election of directors he shall have the right to
vote each such share for as many persons as there are directors to be elected.
Cumulative voting shall not be allowed in the election of directors or for any
other purpose.
(v) Redemption. The Common Stock is not redeemable.
----------
(b) Series A Preferred Stock. The rights, preferences, privileges and
------------------------
restrictions granted to and imposed on the Series A Preferred Stock are as
follows:
(i) Dividends. The holders of Series A Preferred Stock shall be
---------
entitled to receive when, as and if declared by the Board of Directors, the same
cash dividends, if any, per share, as are paid to holders of the Common Stock.
(ii) Liquidation.
-----------
(A) In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary, the holders
of the Series A Preferred Stock shall be entitled to receive, after the payment
of all preferential amounts required to be paid to the holders of any then-
existing senior series of Preferred Stock, out of the assets of the Corporation
available for distribution to its shareholders, if any, an amount equal to the
greater of (I) the Liquidation Price (as defined below), or (II) such amount per
share of Series A Preferred Stock as would have been payable had each such share
been converted into Common Stock pursuant to Section 4.2(b)(iv) immediately
prior to such liquidation, dissolution or winding up of the affairs of the
Corporation (the greater of such amount or the Liquidation Price is referred to
hereafter as the "Series A Liquidation Amount"), and no more, before any payment
---------------------------
shall be made or any assets distributed to the holders of the Common Stock.
(B) For purposes of this Section 4.2(b), "Liquidation Price"
-----------------
means $3.00 per share of Series A Preferred Stock (as adjusted for any
subsequent stock dividends, stock splits, combinations and the like), plus any
declared but unpaid dividends payable in respect to such share of Series A
Preferred Stock pursuant to Section 4.2(b)(i), provided,
3
<PAGE>
however, in the event of a (X) consolidation or merger of the Corporation into
or with another corporation or corporations; (Y) sale, lease, transfer,
conveyance of all or substantially all of the assets of the Corporation to
another corporation or any other entity; or (Z) any other transaction in which
control of the Corporation is transferred, the Liquidation Price shall mean the
greater of (i) $3.00 per share of Series A Preferred Stock (as adjusted for any
subsequent stock dividends, stock splits, combinations and the like), plus any
declared but unpaid dividends payable in respect to such share of Series A
Preferred Stock pursuant to Section 4.2(b)(i); and (ii) the fair market value of
the Series A Preferred Stock upon the closing of such event as determined by the
board of Directors of the Corporation in good faith. Any determination pursuant
to subsection (ii) of the preceding sentence shall be conclusive.
(C) If upon any such liquidation, dissolution or winding up of
the affairs of the Corporation, the remaining assets of the Corporation
available for distribution to its shareholders, after payment of all amounts due
to the holders of any then-existing senior series of Preferred Stock, shall be
insufficient to satisfy fully the Series A Liquidation Amount, the holders of
shares of Series A Preferred Stock shall share ratably among themselves in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(iii) Voting Rights.
-------------
(A) Each holder of Series A Preferred Stock shall have one vote
for each share (but not for any fractional share) of Common Stock that such
holder would then be entitled to receive if he were to convert his shares of
Series A Preferred Stock into shares of Common Stock pursuant to Section
4.2(b)(iv) hereof and shall have the right to vote on all matters in like manner
as the holders of the Common Stock. Except as may be otherwise required by law
or set forth herein, the holders of the Series A Preferred Stock and the holders
of the Common Stock shall at all times vote together as one class. Cumulative
voting shall not be allowed in the election of directors or for any other
purpose.
(B) So long as any Series A Preferred Stock is outstanding, the
Corporation shall not, without the affirmative vote or written consent of the
holders representing at least 66 2/3% of the then outstanding Series A Preferred
Stock, voting separately as a class, alter or change the preferences, special
rights or powers given to Series A Preferred Stock.
4
<PAGE>
(iv) Optional Conversion. The holders of Series A Preferred Stock
-------------------
shall have the right, at their option, to convert shares of Series A Preferred
Stock into shares of Common Stock of the Corporation at any time and from time
to time on the following terms and conditions:
(A) Each share of Series A Preferred Stock shall be converted at
the option of the holder thereof, without the payment of additional
consideration, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $3.00 by the Series A Conversion Rate (as
defined below) in effect at the time of conversion. For purposes of this
section, the "Series A Conversion Rate" initially shall be $3.00 and shall be
------------------------
subject to adjustment as provided in Section 4.2(b)(iv)(D) below.
(B) The Corporation shall not issue, in connection with the
conversion of shares of Series A Preferred Stock, certificates for fractional
shares, but in lieu thereof shall pay to any person who would otherwise be
entitled thereto an amount of cash equal to such fraction multiplied by the fair
value of one share of Common Stock, as determined by the board of directors,
whose determination shall be conclusive.
(C) In order for any holder of shares of Series A Preferred
Stock to convert the same into Common Stock, he shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation and
shall give written notice to the Corporation that he elects to convert all or
part of the shares represented by the certificate or certificates and shall
state in writing therein the name or names in which he wishes the certificate or
certificates for Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver to such holder of shares of Series A
Preferred Stock, or to his nominee or nominees, certificates for the full number
of shares of Common Stock to which he shall be entitled as aforesaid. Shares of
Series A Preferred Stock shall be deemed to have been converted as of the date
of the surrender of such shares for conversion as provided above, and the person
or persons entitled to receive Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
on such date.
(D) The Series A Conversion Rate shall be subject to adjustment
as follows:
(I) In case the Corporation shall (i) pay a dividend or make
a distribution on its Common Stock in shares of Common Stock of the Corporation,
(ii) subdivide or split its outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, the Series A
Conversion Rate following the effective date of such event shall be equal to the
product of the Series A Conversion Rate in
5
<PAGE>
effect immediately prior to such adjustment multiplied by a fraction, the
denominator of which is the number of shares of Common Stock outstanding
immediately after such event and the numerator of which is the number of shares
outstanding immediately prior to such event.
(II) In the event the Corporation at any time or from time
to time shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, then
and in each such event provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had Series A Preferred Stock been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, giving application to all adjustments called for during such period
under this section with respect to the rights of the holders of Series A
Preferred Stock; and provided further, however, that no such adjustment shall be
made if the holders of Series A Preferred Stock simultaneously receive a
dividend or other distribution of such securities as they would have received if
all outstanding shares of Series A Preferred Stock had been converted into
Common Stock on the date of such event.
(III) If Common Stock issuable upon the conversion of
Series A Preferred Stock shall be changed into the same or a different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of each such share of Series A Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of Common
Stock into which such share of Series A Preferred Stock might have been
converted immediately prior to such reorganization, reclassification, or change,
all subject to further adjustment as provided herein.
(E) Whenever the Series A Conversion Rate is adjusted as
herein provided, the Corporation shall prepare a certificate setting forth such
adjustment and showing in detail the facts upon which such adjustment is based,
and such certificate shall then be delivered to each holder of record of Series
A Preferred Stock.
6
<PAGE>
(F) The adjustments herein provided for shall become
effective immediately following the record date for any event for which a record
date is designated and on the effective date for any other event.
(G) So long as any shares of Series A Preferred Stock remain
outstanding, and the holders thereof have the right to convert them into shares
of Common Stock, the Corporation shall reserve from the authorized and unissued
shares of its Common Stock a sufficient number of shares to provide for such
conversion.
(H) Shares of Series A Preferred Stock that have been
converted as provided herein shall revert to the status of authorized but
unissued shares of Preferred Stock.
(I) The holders of Series A Preferred Stock shall waive
their right to receive the preferred portion of accumulated but unpaid dividends
upon conversion.
(v) Automatic Conversion. Each share of Series A Preferred Stock shall
--------------------
automatically be converted into shares of the Corporation's common stock at the
Series A Conversion Rate (as adjusted) upon the closing of the sale of the
Corporation's Common Stock in a firm commitment, underwritten public offering
registered under the Securities Act of 1933, as amended, at a per share offering
price (prior to underwriting commissions and expenses) of no less than $8.00 and
for a total offering in excess of $20 million.
The mechanics of conversion under this Section 4.2(b)(v) shall be the same as
that set forth for optional conversion provided in Section 4.2(b)(iv).
(c) Series B Preferred Stock. The rights, preferences, privileges and
------------------------
restrictions granted to and imposed on the Series B Preferred Stock are as
follows:
(i) Certain Definitions. Unless the context otherwise requires, the
-------------------
terms defined in Section 4.2(c) shall have, for all purposes of Section 4.2(c)
(but not for any other Section of this Certificate of Incorporation), the
meanings specified in Section 4.2(c) (with terms defined in the singular having
comparable meanings when used in the plural).
"Adjustment Percentage" shall mean, with respect to any Return on
---------------------
Investment in connection with a Liquidity Event, the "Adjustment Percentage" as
set forth on Schedule 3 to the Stock Purchase Agreement for such Return on
----------
Investment as of the closing date of such Liquidity Event.
7
<PAGE>
"Affiliate" shall have the meaning given to such term under Rule 12b-2
---------
of the rules promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
"Business Day" shall mean a day other than a Saturday, a Sunday or any
------------
other day on which banking institutions in New York, New York are authorized or
obligated by law to close.
"Common Equity" shall mean all shares now or hereafter authorized of
-------------
any class of common stock of, or equity interest in, the LLC or any other
subsidiary (including without limitation membership interests in the LLC,
however designated, including the Common Stock, and any other stock of the
Corporation, howsoever designated, authorized after the Initial Issue Date,
which has the right (subject always to prior rights of any class or series of
preferred stock) to participate in the distribution of the assets and earnings
of the Corporation without limit as to per share amount.
"Common Stock" shall mean the common stock, par value $.001 per share,
------------
of the Corporation.
"Conversion Date" shall have the meaning set forth in Section
---------------
4.2(c)(iv)(A)(II) below.
"Debt" shall mean any indebtedness, contingent or otherwise, of any
----
person in respect of borrowed money (whether or not the recourse of the lender
is to the whole of the assets of such person or only to a portion thereof) or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or representing the balance deferred and unpaid of the purchase price of
any property or interest therein, except any such balance that constitutes a
trade payable, if and to the extent such indebtedness would appear as a
liability upon a balance sheet of such person prepared on a consolidated basis
in accordance with generally accepted accounting principles.
"Debt to Equity Ratio" shall mean the ratio of (i) the total
--------------------
Indebtedness to (ii) Total Stockholders' Equity.
"Delinquent Mandatory Redemption Price" shall mean, with respect to
-------------------------------------
each share of Series B Preferred Stock, $8.00 (adjusted to reflect the effect of
any stock split, subdivision, reclassification, combination or like event) plus
an amount thereon accruing from the applicable Mandatory Redemption Date at an
annual rate equal to the Prime Rate plus 3.75%.
8
<PAGE>
"Equivalent Common Dividend" shall have the meaning set forth in
--------------------------
Section 4.2(c)(ii)(A) below.
"Final Mandatory Redemption Date" shall have the meaning set forth in
-------------------------------
Section 4.2(c)(v)(A) below.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the Initial Issue Date.
"IPO Price" shall mean $8.00 per share. The IPO Price shall be
---------
adjusted to reflect the effect of any stock split or any subdivision,
reclassification, combination or like event of or with respect to the
outstanding shares of Common Stock occurring after the Initial Issue Date.
"Indebtedness" shall mean the Debt of the Corporation or a subsidiary
------------
of the Corporation plus, to the extent not otherwise included: (i) the guaranty
of any Debt of any other person; (ii) obligations in respect of borrowed money
secured by any Lien to which any property or asset owned or held by the
Corporation or a subsidiary is subject, whether or not the obligations secured
thereby shall have been assumed by the Corporation or such subsidiary; and (iii)
capitalized lease obligations.
"Initial Issue Date" shall mean the date that shares of Series B
------------------
Preferred Stock are first issued by the Corporation.
"Initial Mandatory Redemption Date" shall have the meaning set forth in
---------------------------------
Section 4.2(c)(V)(A) below.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
9
<PAGE>
"Liquidation Price" shall mean $8.00 per share of Series B Preferred
-----------------
Stock (adjusted for stock splits, subdivisions, combinations and similar
transactions), provided, however, in the event of a (i) consolidation or merger
-------- -------
of the Corporation into or with another corporation or corporations; (ii) sale,
lease, transfer or conveyance of all or substantially all of the assets of the
Corporation to another corporation or any other entity; or (iii) any other
transaction in which control of the Corporation is transferred, the Liquidation
Price shall mean the greater of (1) $8.00 per share of Series B Preferred Stock
(adjusted for stock splits, subdivisions, combinations and similar
transactions); and (2) the fair market value of the Series B Preferred Stock
upon the closing of such event as determined by the Board of Directors of the
Corporation pursuant to Section 4.2(c)(iv)(C)(XIV) herein.
"Liquidity Event" shall mean (i) a Qualified Initial Public Offering or
---------------
(ii) the sale to an unaffiliated third party of all of the capital stock or
assets of the Corporation for cash or securities listed on a national securities
exchange or the Nasdaq National Market System.
"LLC" shall mean Colorado Greenhouse, LLC.
---
"Mandatory Redemption Date" shall mean the Initial Mandatory Redemption
-------------------------
Date and the Final Mandatory Redemption Date.
"Mandatory Redemption Obligation" shall have the meaning set forth in
-------------------------------
Section 4.2(c)(v)(C) below.
"Mandatory Redemption Price" shall mean, with respect to each share of
--------------------------
Series B Preferred Stock, $8.00 (adjusted for stock splits, subdivisions,
combinations and similar transactions).
"Person" means any individual, corporation, partnership, joint venture,
------
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Prime Rate" shall mean the rate announced as the "prime rate" by
----------
NationsBank, N.A. whether or not such rate is actually charged.
"Qualified Initial Public Offering" shall mean an underwritten public
---------------------------------
offering pursuant to an effective registration statement under the Securities
Act of 1933 of shares of the Common Stock: (i) the aggregate gross proceeds of
which equal or exceed $20,000,000; and (ii) the per share offering price of
which equals or exceeds the IPO Price.
10
<PAGE>
"Quoted Price" shall mean with respect to any security shall mean the
------------
arithmetic mean of the last bid and ask price for one (1) share of the
applicable security as reported by the National Association of Securities
Dealers, Inc., Automatic Quotations System, National Market System ("Nasdaq"),
------
or, if the applicable security is listed or admitted for trading on a securities
exchange, the arithmetic mean of the high and low trading prices during the
relevant trading day for one (1) share of the applicable security on the
principal exchange on which the applicable security is listed or admitted for
trading (which shall be for consolidated trading if applicable to such
exchange), in each case, on the Trading Day in question.
"Redemption Price" shall mean, with respect to each share of Series B
----------------
Preferred Stock, $8.00 (adjusted for stock splits, subdivisions, combinations
and similar transactions).
"Required Consent" shall mean the affirmative written consent of the
----------------
holders of at least 66 2/3% of the outstanding shares of Series B Preferred
Stock; provided, however, that in the event that either Catterton or BCI shall
-------- -------
no longer control, directly or through their respective Affiliates, 66 2/3% of
the Series B Preferred Stock that Catterton (and Catterton-CGH Partners, L.L.C.)
or BCI, as the case may be, originally purchased pursuant to the Stock Purchase
Agreement (including shares issued in respect thereof), the Required Consent
shall thereupon be a majority of the outstanding shares of Series B Preferred
Stock.
"Return on Investment" shall mean a percentage calculated by dividing
--------------------
(i) the per share fair market value of the Series B Preferred Stock upon the
closing of a Liquidity Event (after giving effect to any adjustment pursuant to
Section 4.2(c)(iv)(C)(XVI) relating to such Liquidity Event), by (ii) $8.00
(adjusted for stock splits, subdivisions, combinations and similar
transactions). The Return on Investment shall be determined on the closing of
the Liquidity Event. For purposes of this definition, "fair market value" per
share of Series B Preferred Stock shall mean the product of (i) (A) if the
Liquidity Event is a Qualified Initial Public Offering, the per share price to
the public of Common Stock in such Liquidity Event, (B) if the Liquidity Event
is the sale of all of the capital stock or assets of the Company, the amount
determined by dividing (1) the aggregate consideration paid or payable in
connection with such Liquidity Event (valuing any securities included in such
consideration at the ten-day average closing prices of such securities ending
five trading days prior to the closing date of such Liquidity Event, by (2) the
number of fully diluted shares of Common Stock (assuming conversion of all
outstanding shares of Series A Preferred Stock and Series B Preferred Stock and
all outstanding exercisable warrants and vested options), multiplied by (ii) the
number of shares of Common Stock issuable upon
11
<PAGE>
conversion of such share of Series B Preferred Stock (after giving effect to any
adjustment pursuant to Section 4.2(c)(iv)(C)(XVI) relating to such Liquidity
Event).
"Series A Preferred Stock" shall mean the Series A Preferred Stock, par
------------------------
value $.001 per share, of the Corporation.
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement
------------------------
dated January 21, 1997, by and among the Corporation, Catterton-Simon Partners
III, L.P., BCI Growth IV, L.P. and certain other co-investors named therein as
may be amended from time to time.
"Subordinate Stock" shall mean (i) the Common Equity, (ii) any class or
-----------------
series of capital stock or other ownership or membership interests issued by any
subsidiary, and (iii) any class or series of capital stock of the Corporation,
however designated, which is junior in right to the Series B Preferred Stock,
including without limitation the Series A Preferred Stock and such Capital Stock
that is not entitled to receive (i) any dividends unless all dividends required
to have been paid or declared and set apart for payment on the Series B
Preferred Stock shall have been so paid or declared and set apart for payment or
(ii) any assets upon liquidation, dissolution or winding up of the affairs of
the Corporation until the Series B Preferred Stock shall have received the
entire amount to which such stock is entitled upon such liquidation, dissolution
or winding up.
"Subsidiary" shall mean (i) any corporation, at least 50% of the total
----------
combined voting power of all classes of capital stock of which shall, at the
time as of which any determination is being made, be beneficially owned by the
Company either directly or through subsidiaries, and (ii) any partnership or
other entity in which the Company or any subsidiary beneficially owns more than
a 50% equity interest and controls the management of such entity.
"Total Stockholders' Equity" shall mean the stockholders' equity of the
--------------------------
Corporation as it appears in the monthly balance sheet of the Corporation.
"Trading Day" shall mean any day on which any market in which the
-----------
applicable security is then traded and in which a Quoted Price may be
ascertained is open for business.
(ii) Dividends.
---------
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<PAGE>
(A) If at any time during which any shares of Series B Preferred Stock
remain outstanding, the Corporation declares, pays or sets apart for payment any
dividend on any Common Equity, whether in cash, property or otherwise (a "Common
------
Dividend"), each holder of shares of Series B Preferred Stock shall be entitled
- --------
to receive a per share dividend (an "Equivalent Common Dividend"), when and as
--------------------------
declared by the Corporation, equal to: (i) the number of shares of Common Equity
on which such Common Dividend is declared into which each share of Series B
Preferred Stock is convertible on the record date, multiplied by (ii) the amount
-------------
of cash or property paid, or the number of shares of capital stock issued, per
share of Common Equity as part of such Common Dividend. For any Equivalent
Common Dividend that is not paid in full when due, then on such due date such
accrued and unpaid Equivalent Common Dividend shall be added to the Liquidation
Price, the Mandatory Redemption Price and the Redemption Price of the Series B
Preferred Stock effective at such due date when such Equivalent Common Dividend
was not paid. If any accrued and unpaid Equivalent Common Dividend is so added
to the Liquidation Price, the Mandatory Redemption Price and the Redemption
Price of the Series B Preferred Stock, such Liquidation Price, Mandatory
Redemption Price and Redemption Price shall be reduced, effective on the date of
payment, to the extent any accrued and unpaid Equivalent Common Dividend is
subsequently paid.
(B) So long as any shares of Series B Preferred Stock shall be
outstanding, the Corporation shall not declare, pay or set apart for payment on
any Subordinate Stock any dividends or distributions whatsoever, whether in
cash, property or otherwise, nor shall any Subordinate Stock be purchased,
redeemed (except for the redemption of not more than 222,222 shares of
outstanding Series A Preferred Stock) or otherwise acquired by the Corporation
or any of its subsidiaries of which it owns not less than a majority of the
outstanding voting power, nor shall any monies be paid or made available for a
sinking fund for the purchase or redemption of any Subordinate Stock, without
the prior Required Consent of Series B Preferred Stock and unless all dividends
to which the holders of Series B Preferred Stock shall have been entitled shall
have been (i) paid or (ii) declared and a sum of money, in the case of dividends
payable in cash, sufficient for the payment thereof has been set apart.
(C) In the event that full dividends are not paid or made available to
the holders of all outstanding shares of Series B Preferred Stock and funds
available for payment of dividends shall be insufficient to permit payment in
full to holders of all such stock of the full preferential amounts to which they
are then entitled, then the entire amount available for payment of dividends
shall be distributed ratably among all such holders of Series B Preferred Stock
in proportion to the full amount to which they would otherwise be respectively
entitled.
13
<PAGE>
(D) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series B Preferred Stock shall be declared by the Board
of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time if such declaration or payment shall be restricted or
prohibited by law.
(iii) Distributions Upon Liquidation, Dissolution or Winding Up.
---------------------------------------------------------
(A) The Corporation shall deliver to each holder of Series B
Preferred Stock notice of any voluntary or involuntary liquidation, dissolution
or other winding up of the affairs of the Corporation (each a "Dissolution") at
least ninety (90) days prior to such event, which notice shall state all
material facts and common terms relating to such Dissolution, including without
limitation: (i) the nature of such Dissolution, including without limitation the
nature, amount, terms and conditions of payment to the holders of Series B
Preferred Stock and the holders of Common Stock in connection with such
Dissolution, (ii) the date on which such Dissolution shall occur and (iii) the
procedures that must be followed (and the latest date that such procedures must
be completed) in order for such holder to effect a conversion of shares of
Series B Preferred Stock into shares of Common Stock. In the event of any such
Dissolution, before any payment or distribution shall be made to the holders of
Subordinate Stock, the holders of Series B Preferred Stock shall be entitled to
be paid out of the assets of the Corporation in cash, or, if the Corporation
does not have sufficient cash on hand to pay such amounts, property of the
Corporation at its fair market value as determined by the Board of Directors of
the Corporation, the greater of (i) the Liquidation Price per share of Series B
Preferred Stock, or (ii) such amount per share of Series B Preferred Stock as
would have been payable had each such share been converted into Common Stock
pursuant to Section 4.2(c)(iv) immediately prior to such Dissolution.
Immediately preceding such Dissolution, adjustment shall be made for accrued but
unpaid dividends.
(B) If, upon any such liquidation, dissolution or other winding up of
the affairs of the Corporation, the assets of the Corporation shall be
insufficient to permit the payment in full of the Liquidation Price for each
share of the Series B Preferred Stock, then the assets of the Corporation shall
be ratably distributed among the holders of Series B Preferred Stock in
proportion to the full amounts to which they would otherwise be respectively
entitled if all amounts thereon were paid in full.
(iv) Conversion Rights.
-----------------
(A) Conversion at the Option of the Holder.
---------------------------------------
14
<PAGE>
(I) At any time before the close of business on the Final
Mandatory Redemption Date (unless the Corporation shall default in payment of
the Redemption Price or the Delinquent Mandatory Redemption Price, in which
case, the conversion rights set forth in this paragraph shall continue until the
cure of any such default), each holder of Series B Preferred Stock may, at its
option, convert each share of Series B Preferred Stock held by such holder into
such number of shares of Common Stock determined by dividing $8.00 by $4.25,
subject to adjustment pursuant to Section 4.2(d)(iv)(C). Upon such conversion,
the rights of the holders of converted Series B Preferred Stock with respect to
the shares of Series B Preferred Stock so converted shall cease.
(II) To convert Series B Preferred Stock in accordance with
this Section 4.2(c)(iv)(A), a holder must (i) surrender the certificate or
certificates evidencing the shares of Series B Preferred Stock to be converted,
duly endorsed in a form satisfactory to the Corporation, at the office of the
Corporation or transfer agent for the Series B Preferred Stock; (ii) notify the
Corporation at such office that it elects to convert Series B Preferred Stock,
and the number of shares it wishes to convert; (iii) state in writing the name
or names in which it wishes the certificate or certificates for shares of Common
Stock to be issued, and (iv) pay any transfer or similar tax with respect to the
transfer of the shares of Series B Preferred Stock converted, if required. The
date on which the holder satisfies the foregoing requirements shall be the
"Conversion Date." As soon as practical but in any event within five (5)
----------------
Business Days of the Conversion Date, the Corporation shall deliver a
certificate for the number of shares of Common Stock issuable upon the
conversion, a check for the amount payable in respect of any fractional share
pursuant to Section 4.2(c)(iv)(A)(III) and a new certificate representing the
unconverted portion, if any, of the shares of Series B Preferred Stock
represented by the certificate or certificates surrendered for conversion. The
person in whose name the Common Stock certificate is registered shall be treated
as the stockholder of record on and after the Conversion Date. Adjustment (or
cash payment, if applicable) shall be made for accrued and unpaid dividends, as
of the Conversion Date, on converted shares of Series B Preferred Stock. If the
last day on which Series B Preferred Stock may be converted is not a Business
Day, Series B Preferred Stock may be surrendered for conversion on the next
succeeding day that is a Business Day.
(III) The Corporation will not issue a fractional share
of Common Stock upon conversion of Series B Preferred Stock. Instead the
Corporation will deliver its check in an amount equal to the applicable fraction
multiplied by the fair market value of the Common Stock (subject to adjustment
for stock splits, subdivisions, combinations or other similar transactions).
15
<PAGE>
(IV) If a holder converts shares of Series B Preferred Stock,
the Corporation shall pay any documentary, stamp or similar issue or transfer
tax due on the issue of shares of Common Stock upon the conversion; provided,
--------
however, that pursuant to Section 4.2(c)(iv)(A)(II) the holder shall pay any
- -------
such tax which is due because the shares are issued in a name other than the
holder's name.
(B) Mandatory Conversion.
--------------------
Each share of the Series B Preferred Stock shall be automatically
converted into such number of shares of Common Stock determined by dividing
$8.00 by $4.25, subject to adjustment pursuant to Section 4.2(d)(iv)(C), on the
date a Qualified Initial Public Offering is consummated ("Mandatory Conversion
--------------------
Date"). At least sixty (60) days prior to the occurrence of the Mandatory
- ----
Conversion Date, the Corporation shall: (i) notify all holders of the Series B
Preferred Stock of such event: (ii) demand that all shares representing the
Series B Preferred Stock be returned to the Corporation's offices or to the
designated transfer agent; and (iii) pay any transfer or similar tax with
respect to the conversion, if any. As soon as practical but in any event within
thirty (30) days after the Mandatory Conversion Date, the Corporation shall
deliver a certificate to and in the name of the holder of the Series B Preferred
Stock for the number of shares of Common Stock issuable upon the conversion and
a check in an amount calculated in accordance with Section 4.2(c)(iv)(A)(III)
for any fractional shares, if any, for the shares of Series B Preferred Stock
represented by the certificate. The name of the person in which the Series B
Preferred Stock was issued shall be treated as the stockholder of record of the
Common Stock in which the Series B Preferred Stock was converted on and after
the Mandatory Conversion Date. Adjustment (or cash payment, if applicable)
shall be made for accrued and previously declared and unpaid dividends, as of
the Mandatory Conversion Date, on shares of Series B Preferred Stock converted
pursuant to this Section 4.2(c)(iv)(B). Upon such conversion, the rights of the
holders of converted Series B Preferred Stock with respect to the shares of
Series B Preferred Stock so converted shall cease.
(C) Certain Matters With Respect to Conversion.
------------------------------------------
(I) The Corporation has reserved and shall continue to reserve
out of its authorized but unissued Common Stock or its Common Stock held in
treasury enough shares of Common Stock to permit the conversion of the Series B
Preferred Stock in full. All shares of Common Stock which may be issued upon
conversion of Series B Preferred Stock shall be duly authorized, validly issued,
fully paid and nonassessable. The Corporation shall comply with all securities
laws regulating the offer and delivery of shares
16
<PAGE>
of common stock upon conversion of Series B Preferred Stock and will list such
shares on each national securities exchange on which the common stock is listed.
(II) If the Corporation:
(1) pays a dividend or makes a distribution on its Common
Stock or any other class of the Corporation's stock other than the Series B
Preferred Stock in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock
into a greater number of shares;
(3) combines its outstanding shares of Common Stock into
a smaller number of shares;
(4) issues by reclassification of its Common Stock any
shares of its capital stock;
or effects any similar transaction, then an appropriate and proportionate
adjustment shall be made to the number of shares into which each share of Series
B Preferred Stock is convertible so that immediately after the occurrence of
such event the holders of Series B Preferred Stock shall be entitled to receive
the same percentage of the issued and outstanding Common Stock upon conversion
of the Series B Preferred Stock as such holders would have received if converted
immediately prior to such dividend, distribution, subdivision, combination or
reclassification. The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date of a subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(III) If the corporation distributes any rights, options or war
rants to all holders of its Common Stock entitling them for a period expiring
within sixty (60) days after the record date mentioned below to purchase
additional shares of Common Stock at a price per share less than $4.25 (as
adjusted to reflect any stock split or any subdivision, reclassification,
combination of or with respect to outstanding shares of Common Stock or any
similar transaction) on that record date, the number of shares of Common Stock
into which each share of Series B Preferred Stock is convertible shall be If the
Corporation distributes any rights, options or war adjusted in accordance with
the following formula:
N x (O+A)
-------------------
N' = O + AxP
---
M
17
<PAGE>
where:
N' = the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible after such distribution.
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of shares of Common Stock into which each share of
Series B Preferred Stock was convertible prior to such
distribution, which shall be determined immediately prior to the
first adjustment pursuant to this Section 4.2(c)(iv)(C)(III) by
dividing 8.00 by 4.25.
P = the offering price per share of the additional shares of Common
Stock.
M = $4.25.
A = the number of additional shares of Common Stock offered.
The adjustment shall be made successively whenever any such rights, options or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the rights, option or
warrants. If at the end of the period during which such warrants, options or
rights are exercisable, not all warrants, options or rights shall have been
exercised, the number of shares of Common Stock into which each share of Series
B Preferred Stock is convertible shall be immediately readjusted to what it
would have been if "A" in the above formula had been the number of shares
actually issued. No adjustment shall be made pursuant to this Section
4.2(c)(iv)(C)(III) unless such adjustment results in a greater number of shares
of Common Stock issuable upon conversion of the Series B Preferred Stock.
(IV) If the Corporation issues shares of Common Stock for a
consideration at a price less than $4.25 per share (as adjusted to reflect the
effect of any stock split or any subdivision, reclassification, combination of
or with respect to outstanding shares of Common Stock or any similar
transaction) on the date the Corporation fixes the offering price of such
additional shares, the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible shall be adjusted in accordance with the
following formula:
18
<PAGE>
N x A
-------------
N' = O + P
-
M
where:
N' = the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible after such issuance.
N = the number of shares of Common Stock into which each share of
Series B Preferred Stock was convertible prior to such issuance,
which shall be determined immediately prior to the first issuance
pursuant to this Section 4.2(c)(iv)(C)(IV) by dividing 8.00 by
4.25.
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = $4.25.
A = the number of shares outstanding immediately after the issuance
of such additional shares.
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective immediately after such issuance. This Section
4.2(c)(iv)(C)(IV) does not apply to: (i) any transaction or issuance described
in Section 4.2(c)(iv)(C)(II) or Section 4.2(c)(iv)(C)(III) above or Section
4.2(c)(iv)(C)(V) below, including issuances of Common Stock pursuant to
warrants, options, rights or other convertible securities described in Section
4.2(c)(iv)(C)(III) and Section 4.2(c)(iv)(C)(V); (ii) the conversion of Series B
Preferred Stock, or the conversion, exchange or exercise of other securities
convertible into or exchangeable or exercisable for Common Stock; (iii) Common
Stock issued to the Corporation's employees under bona fide employee benefit
plans adopted by the Board of Directors of the Corporation and approved by the
holders of Common Stock when required by law, if such Common Stock would
otherwise be covered by this Section 4.2(c)(iv)(C)(IV) (but only to the extent
that the aggregate number of shares excluded hereby (together with the aggregate
number of shares issuable upon conversion, exchange or exercise of the
securities excluded by clause (iii) of Section 4.2(c)(iv)(C)(V) below) and
issued shall not
19
<PAGE>
exceed 15% of the Common Stock of the Corporation on a fully diluted basis at
the time of any such issuance); or (iv) Common Stock issued in a Qualified
Initial Public Offering. No adjustment shall be made pursuant to this Section
4.2(c)(iv)(C)(IV) unless such adjustment results in a greater number of shares
of Common Stock issuable upon conversion of the Series B Preferred Stock.
(V) If the Corporation issues any options, warrants or other
securities convertible into or exchangeable or exercisable for Common Stock
(other than Series B Preferred Stock or securities issued in transactions
described in Section 4.2(c)(iv)(C)(III) above) for a consideration per share of
Common Stock initially deliverable upon conversion, exchange or exercise of such
securities of a price less than $4.25 per share of Common Stock (as adjusted to
reflect the effect of any stock split or any subdivision, reclassification,
combination of or with respect to outstanding shares of Common Stock or any
similar transaction) on the date of issuance of such securities, the number of
shares of Common Stock into which each share of Series B Preferred Stock is
convertible shall be adjusted in accordance with the following formula:
N x (O+D)
---------------------
N' = O + P
-
M
where:
N' = the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible immediately after such
issuance.
N = the number of shares of Common Stock into which each share of
Series B Preferred Stock was convertible immediately prior to
such issuance, which shall be determined immediately prior to the
first issuance pursuant to this Section 4.2(c)(iv)(C)(V) by
dividing 8.00 by 4.25.
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such securities.
P = the aggregate consideration received for the issuance of such
securities.
M = $4.25.
20
<PAGE>
D = the maximum number of shares deliverable upon conversion or in
exchange for or upon exercise of such securities at the initial
conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. If all of the
Common Stock deliverable upon conversion, exchange or exercise of such
securities has not been issued when such securities are no longer outstanding,
then the number of shares of Common Stock into which each share of Series B
Preferred Stock is convertible shall promptly be readjusted to the basis of the
actual number of shares of Common Stock issued upon conversion, exchange or
exercise of such securities. This Section 4.2(c)(iv)(C)(V) does not apply to:
(i) the issuance of any such securities in a Qualified Initial Public Offering;
or (ii) the issuance of any such securities to the Corporation's employees under
bona fide employee benefit plans adopted by the Board of Directors of the
Corporation and approved by the holders of Common Stock when required by law, if
such securities would otherwise be covered by Section 4.2(c)(iv)(C)(V) (but only
to the extent that the aggregate number of shares issuable upon the conversion,
exchange or exercise of the aggregate number of securities excluded hereby
(together with the aggregate number of shares excluded by clause (iii) of
Section 4.2(c)(iv)(C)(IV) above) and issued shall not exceed 15% of the Common
Stock of the Corporation on a fully diluted basis at the time of any such
issuance). No adjustment shall be made pursuant to this Section
4.2(c)(iv)(C)(III)(V) unless such adjustment results in a greater number of
shares of Common Stock issuable upon conversion of the Series B Preferred Stock.
(VI) For the purpose hereof, the current market price per share
of any security on any date is the average of the Quoted Prices for thirty (30)
consecutive Trading Days commencing forty-five (45) Trading Days before the date
in question. If the Quoted Price is not ascertainable, the current market price
per share of any security on any date shall be the current market price as
determined by the Board of Directors of the Corporation in its reasonable
judgment exercised in good faith. Notwithstanding the foregoing, the current
market price per share of any security shall be deemed to be the greater of: (i)
the current market price as determined above; and (ii) the Liquidation Price.
(VII) For purposes of any computation of the number of shares of
Common Stock outstanding, such computation shall be made assuming conversion of
all then outstanding shares of Series A Preferred Stock and Series B Preferred
Stock and all outstanding currently exercisable warrants and vested options. For
purposes of any
21
<PAGE>
computation respecting consideration received pursuant to Section
4.2(c)(iv)(C)(IV) and Section 4.2(c)(iv)(C)(V) above, the following shall apply:
(1) in case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Corporation for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined by
the Board of Directors of the Corporation in its reasonable judgment exercised
in good faith (irrespective of the accounting treatment thereof); and
(3) in the case of the issuance of options, warrants or
other securities convertible into or exchangeable or exercisable for shares of
Common Stock, the aggregate consideration received therefor shall be deemed to
be the consideration received by the Corporation for the issuance of such
options, warrants or other securities plus the additional minimum consideration,
if any, to be received by the Corporation upon the conversion or exchange or
exercise thereof (the consideration in each case to be determined in the same
manner as provided in clauses (1) and (2) of this Section 4.2(c)(iv)(C)(VII).
(VIII) No adjustment in the number of shares of Common Stock into
which each share of Series B Preferred Stock is convertible need be made unless
the adjustment would require an increase or decrease of at least one-half of one
percent (.5%) in the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible. Any adjustments that are not made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 4.2(c)(iv)(C) shall be made to the nearest cent
or to the nearest 1/100th of a share, as the case may be.
(IX) No adjustment in the number of shares of Common Stock into
which each share of Series B Preferred Stock is convertible need be made under
this Section 4.2(c)(iv)(C) for: any change in the par value or no par value of
the Common Stock. If an adjustment is made to the number of shares of Common
Stock into which each share of Series B Preferred Stock is convertible upon the
establishment of a record date for a distribution subject to Section
4.2(c)(iv)(C) above and if such distribution is subsequently canceled, the
number of shares of Common Stock into which each share of Series B Preferred
Stock is convertible then in effect shall be readjusted, effective as of the
date when
22
<PAGE>
the Board of Directors of the Corporation determines to cancel such
distribution, to the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible as would have been in effect if such
record date had not been fixed. No adjustment need be made under Section
4.2(c)(iv)(C) if the Corporation issues or distributes to each holder of Series
B Preferred Stock the shares of Common Stock, evidences of indebtedness, assets,
rights, options or warrants referred to in such paragraph which each holder
would have been entitled to receive had Series B Preferred Stock been converted
into Common Stock prior to or simultaneously with the happening of such event or
the record date with respect thereto.
(X) Whenever the number of shares of Common Stock into which
each share of Series B Preferred Stock is convertible is adjusted, the
Corporation shall promptly mail to holders of Series B Preferred Stock, first
class, postage prepaid, a notice of the adjustment. The Corporation shall file
with the transfer agent, if any, for Series B Preferred Stock a certificate from
the Corporation's independent public accountants briefly stating the facts
requiring the adjustment and the manner of computing it. Subject to Section
4.2(c)(iv)(C)(XIV) below, the certificate shall be conclusive evidence that the
adjustment is correct.
(XI) If:
(1) the Corporation takes any action that would
require an adjustment pursuant to Section 4.2(c)(iv)(C);
(2) the Corporation consolidates or merges with, or
transfers all or substantially all of its assets to, another corporation, and
stockholders of the Corporation must approve the transaction; or
(3) there is a dissolution or liquidation of the
Corporation;
a holder of Series B Preferred Stock may want to convert such stock into shares
of Common Stock prior to the record date for or the effective date of the
transaction so that it may receive the rights, warrants, securities or assets
which a holder of shares of Common Stock on that date may receive. Therefore,
the Corporation shall mail to such holders, first class, postage prepaid, a
notice stating the proposed record or effective date, as the case may be. The
Corporation shall mail the notice at least thirty (30) days before such date.
23
<PAGE>
(XII) If the Corporation is party to a consolidation or merger
which reclassifies or changes its Common Stock or to the sale of all or
substantially all of the assets of the Corporation, upon consummation of such
transaction the Series B Preferred Stock shall automatically become convertible
into the kind and amount of securities, cash or other assets which the holder of
Series B Preferred Stock would have owned immediately after the sale,
consolidation or merger, if such holder had converted Series B Preferred Stock
immediately before the effective date of the transaction, and an appropriate
adjustment (as determined by the Board of Directors of the Corporation) shall be
made in the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of Series B Preferred Stock, to
the end that the provisions set forth herein (including provisions with respect
to changes in and other adjustment of the number of shares of Common Stock into
which each share of Series B Preferred Stock is convertible) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other securities or property thereafter deliverable upon the conversion of
Series B Preferred Stock. If this Section 4.2(c)(iv)(C)(XII) applies, Section
4.2(c)(iv)(C)(II) - (V) do not apply.
(XIII) In any case in which this Section 4.2(c)(iv)(C) shall
require that an adjustment as a result of any event become effective from and
after a record date, the Corporation may elect to defer until after the
occurrence of such event: (i) the issuance to the holder of any shares of Series
B Preferred Stock converted after such record date and before the occurrence of
such event of the additional shares of Common Stock issuable upon such
conversion over and above the shares issuable immediately prior to adjustment;
and (ii) the delivery of a check for any remaining fractional shares as provided
in Section 4.2(c)(iv)(A)(III) above.
(XIV) Except as provided in the immediately following sentence,
any determination that the Corporation or its Board of Directors must make
pursuant to this Section 4.2(c)(iv)(C) shall be conclusive. Whenever the
Corporation or its Board of Directors shall be required to make a determination
under this Section 4.2(c)(iv)(C), such determination shall be made in good faith
and may be challenged in good faith by the holders of a majority of the Series B
Preferred Stock, and any dispute shall be resolved promptly (and in no event
later than ninety (90) days after any challenge), at the Corporation's expense,
by an investment banking firm of recognized national standing selected by the
Corporation and acceptable to such holders of Series B Preferred Stock. Any such
determination shall be deemed approved if the requisite holders have not
notified the Corporation of any challenge within thirty (30) days after
receiving notice (including a statement in reasonable detail of the bases
therefor) of such determination.
(XV) Intentionally omitted.
24
<PAGE>
(XVI) The number of shares of Common Stock into which each
share of Series B Preferred Stock is convertible shall be adjusted, upon the
occurrence of a Liquidity Event, in accordance with the following formula:
N' = N - [(N- 1.333) * E]
where:
N' = the number of shares of Common Stock into which each share
of Series B Preferred Stock is convertible immediately after
such Liquidity Event, provided, however, that, regardless of
-------- -------
the determination of N'based on the calculations set forth
in this Section 4.2(c)(iv)(C)(XVI), in no event shall N' be
less than 1.333.
N = the number of shares of Common Stock into which each share
of Series B Preferred Stock was convertible immediately
prior to such Liquidity Event.
E = Adjustment Percentage.
This adjustment shall be made in connection with the closing of a
Liquidity Event but prior to any mandatory conversion of the Series B
Preferred Stock.
v. Redemption by the Corporation.
-----------------------------
(A) To the extent the Corporation shall have funds legally
available for such payment under the DGCL, the Corporation shall redeem, at the
option of each holder of shares of Series B Preferred Stock, on the date that is
five (5) years after the Initial Issue Date or, if such day is not a Business
Day, the next succeeding Business Day (the "Initial Mandatory Redemption Date"),
---------------------------------
a number of shares not to exceed fifty percent (50%) of the then outstanding
shares of Series B Preferred Stock of each holder at the Redemption Price. In
addition, to the extent the Corporation shall have funds legally available for
such payment under the DGCL, the Corporation shall redeem, at the option of each
holder of shares of Series B Preferred Stock, on the date that is six (6) years
after the Initial Issue Date or, if such day is not a Business Day, the next
succeeding Business Day (the "Final Mandatory Redemption Date"), up to one
-------------------------------
hundred percent (100%) of the then
25
<PAGE>
outstanding shares of Series B Preferred Stock not subject to a redemption
obligation as of the Initial Mandatory Redemption Date at the Redemption Price.
(B) Shares of Series B Preferred Stock which have been issued and
converted or reacquired in any manner, including as a result of redemption,
shall (upon compliance with any applicable provisions of the Act) have the
status of authorized and unissued shares of the class of preferred stock of the
Corporation undesignated as to series, and may be redesignated and reissued as
part of any series of preferred stock of the Corporation; provided, however,
that no such issued and reacquired shares of Series B Preferred Stock shall be
reissued as Series B Preferred Stock.
(C) If on any Mandatory Redemption Date the Corporation is unable or
shall fail to discharge its obligation to redeem all outstanding shares of
Series B Preferred Stock required to be redeemed on such date pursuant to
Section 4.2(c)(v)(A) (the "Mandatory Redemption Obligation"), the Corporation
-------------------------------
shall redeem on such Mandatory Redemption Date the number of shares of Series B
Preferred Stock which it is able to redeem, ratably among the holders of Series
B Preferred Stock in proportion to the full amounts to which they would
otherwise be respectively entitled if all shares of Series B Preferred Stock
required to be redeemed on such date were redeemed. In such a case, the
remainder of the Redemption Price payable but not paid at the Mandatory
Redemption Date shall be converted into a debt obligation of the Corporation,
evidenced by a promissory note in a form acceptable to the holders of Series B
Preferred Stock to pay the Delinquent Mandatory Redemption Price and shall be
discharged as soon as the Corporation is able to discharge such Delinquent
Mandatory Redemption Price out of funds legally available therefor. If and so
long as any Mandatory Redemption Obligation (or any obligation in respect of the
Delinquent Mandatory Redemption Price) with respect to the Series B Preferred
Stock shall not be fully discharged and paid, the Corporation shall not declare
or pay any dividend or make any distribution on, or, directly or indirectly,
purchase, redeem or satisfy any mandatory redemption, sinking fund or other
similar obligation in respect of the Subordinate Stock (other than repurchases
of shares of Subordinate Stock in accordance with the terms of restricted stock
vesting agreements with employees of the Corporation approved by the Board of
Directors of the Corporation prior to such Mandatory Redemption Date).
(D) Notwithstanding the foregoing provisions of this Section
4.2(c)(v), unless the full cumulative dividends on all outstanding shares of
Series B Preferred Stock have been paid or contemporaneously are declared and
paid for all post dividend periods, none of the shares of Series B Preferred
Stock shall be redeemed or set aside for redemption, unless such shares of
Series B Preferred Stock subject to redemption are redeemed pro rata.
26
<PAGE>
(E) Notice of any redemption shall be sent by or on behalf of the
Corporation not more than sixty (60) days nor less than thirty (30) days prior
to any Mandatory Redemption Date, by first class mail, postage prepaid, to all
holders of record of the Series B Preferred Stock at their respective last
addresses as they shall appear on the books of the Corporation; provided,
however, that no failure to give such notice or any defect therein or in the
mailing thereof shall affect the validity of the proceedings for the redemption
of any shares of Series B Preferred Stock except as to the holder to whom the
Corporation has failed to give notice or except as to the holder to whom notice
was defective. In addition to any information required by law or by the
applicable rules of any exchange upon which Series B Preferred Stock may be
listed or admitted to trading, such notice shall state: (i) the Mandatory
Redemption Date; (ii) the Redemption Price; (iii) the number of shares of Series
B Preferred Stock to be redeemed; (iv) the place or places where certificates
for such shares are to be surrendered for payment of the Redemption Price; (v)
that dividends on the shares to be redeemed will cease to accrue on the
Mandatory Redemption Date; (vii) the number of shares of Common Stock into which
each share of Series B Preferred Stock is convertible; (vii) that Series B
Preferred Stock called for redemption may be converted at any time before the
close of business on the Mandatory Redemption Date; and (viii) that holders of
Series B Preferred Stock must satisfy the requirements of Section
4.2(c)(iv)(A)(II) above if such holders desire to convert such shares. Upon the
mailing of any such notices of redemption, the Corporation shall become
obligated to redeem at the time of redemption specified therein all shares
called for redemption other than shares converted into Common Stock prior to the
Mandatory Redemption Date.
(F) If notice has been mailed in accordance with Section 4.2(c)(v)
above and provided that on or before the Mandatory Redemption Date specified in
such notice, all funds necessary for such redemption shall have been set aside
by the Corporation, separate and apart from its other funds in trust for the pro
rata benefit of the holders of the shares so called for redemption, so as to be,
and to continue to be available therefor, then, from and after the Mandatory
Redemption Date, dividends on the shares of the Series B Preferred Stock so
called for redemption shall cease to accrue, and said shares shall no longer be
deemed to be outstanding and shall not have the status of shares of Series B
Preferred Stock, and all rights of the holders thereof as shareholders of the
Corporation (except the right to receive from the Corporation the Redemption
Price) shall cease, irrespective of whether any certificates for shares called
for redemption have been surrendered to the Corporation. Upon surrender, in
accordance with said notice, of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer), such shares shall be redeemed by
the Corporation at the Redemption Price and no holder of shares called for
redemption shall be entitled to receive payment of the Redemption Price therefor
until such surrender to the Corporation has been accomplished or a duly executed
affidavit
27
<PAGE>
of lost certificate shall have been delivered to the Corporation. In case fewer
than all the shares represented by any such certificate are redeemed, a new
certificate or certificates shall be issued representing the unredeemed shares
without cost to the holder thereof (so long as such certificate is issued to the
holder).
(G) Any funds deposited with a bank or trust company for the purpose
of redeeming Series B Preferred Stock shall be irrevocable except that:
(I) the Corporation shall be entitled to receive from such bank
or trust company the interest or other earnings, if any, earned on any money so
deposited in trust, and the holders of any shares redeemed shall have no claim
to such interest or other earnings; and
(II) any balance of monies so deposited by the Corporation and
unclaimed by the holders of the Series B Preferred Stock entitled thereto at the
expiration of two (2) years from the applicable Mandatory Redemption Date shall
be repaid, together with any interest or other earnings earned thereon, to the
Corporation, and after any such repayment, the holders of the shares entitled to
the funds so repaid to the Corporation shall look only to the Corporation for
payment without interest or other earnings.
(H) Notwithstanding anything to the contrary herein, no shares of
Series B Preferred Stock may be redeemed except with funds legally available
from the Corporation or any of its subsidiaries (including without limitation
the LLC) for the payment of the Redemption Price.
(I) In the event that the Corporation shall not have received the
Letters (as defined in the Stock Purchase Agreement) and delivered fully
executed copies thereof to the holders of the Series B Preferred Stock on or
before July 21, 1997, then thereafter the Corporation shall be obligated, at any
time and from time to time upon the giving of a notice (a "Redemption Notice")
-----------------
from any holder of Series B Preferred Stock on or before January 21, 1998,
requesting redemption of any or all of such holder's shares of Series B
Preferred Stock pursuant to this Section 4.2(c)(v)(I), to redeem the shares of
Series B Preferred Stock so requested to be redeemed in each such Redemption
Notice (or cause any of its subsidiaries including the LLC to redeem such
shares) at a redemption price equal to the Redemption Price, plus interest
accruing at an annual rate of six percent from the date of such Redemption
Notice, payable on or before January 21, 1998. If the Corporation is unable or
shall fail to discharge or cause to be discharged its obligation to redeem all
shares of Series B Preferred Stock required to be redeemed on such date pursuant
to this Section 4.2(c)(v)(I), the Corporation shall redeem on such date the
number of shares of Series B
28
<PAGE>
Preferred Stock which it is able to redeem, ratably among the holders of Series
B Preferred Stock in proportion to the full amounts to which they would
otherwise be respectively entitled if all shares of Series B Preferred Stock
required to be redeemed on such date were redeemed. In such a case, the
remainder of the Redemption Price payable but not paid at such date shall be
converted into a debt obligation of the Corporation, evidenced by a promissory
note in a form acceptable to the holders of Series B Preferred Stock to pay the
Redemption Price, plus interest accruing from the date of the applicable
Redemption Notice at an annual rate of six percent, and shall be discharged as
soon as the Corporation is able to discharge such amount evidenced by such note
out of funds legally available therefor. If and so long as any such payment
obligation with respect to the redemption of the Series B Preferred Stock shall
not be fully discharged and paid, the Corporation shall not declare or pay any
dividend or make any distribution on, or, directly or indirectly, purchase,
redeem or satisfy any mandatory redemption, sinking fund or other similar
obligation in respect of the Subordinate Stock (other than repurchases of shares
of Subordinate Stock in accordance with the terms of restricted stock vesting
agreements with employees of the Corporation approved by the Board of Directors
of the Corporation prior to the date of the Redemption Notice).
(vi) Voting Rights.
-------------
(A) Except as otherwise set forth in this Section
4.2(c)(vi) or as otherwise required by law, each share of Series B Preferred
Stock issued and outstanding shall have the right to vote on all matters
presented to the holders of the Common Stock for vote (other than as to the
election of directors, for which provision is made in subparagraph 6(b) below),
in the number of votes equal at any time to the number of shares of Common Stock
into which each share of Series B Preferred Stock would then be convertible, and
the holders of the Series B Preferred Stock shall vote with the holders of the
Common Stock (other than as to the election of directors, for which provision is
made in Section 4.2(c)(vi)(B) below) as a single class.
(B) The holders of Series B Preferred Stock, voting as a
single class, shall have the right to elect to the Board of Directors two (2)
individuals designated by the holders of more than a majority of the issued and
outstanding shares of Series B Preferred Stock (the "Designated Directors"). The
--------------------
Corporation shall cause the Board of Directors to consist of no more than eight
(8) directors and shall cause the Board of Directors of any subsidiary of the
Corporation to be composed of the same individuals who comprise the
Corporation's Board of Directors.
(C) In addition to any vote or consent of shareholders
required by law or the Certificate of Incorporation of the Corporation, so long
as at least
29
<PAGE>
twenty-five percent (25%) of the originally issued Series B Preferred Stock
remains outstanding, the Required Consent of the holders, either in writing
without a meeting or by vote at any meeting called for the purpose, shall be
necessary for effecting, validating or permitting:
(I) any amendment, alteration or repeal of any of the provisions of
the Certificate of Incorporation (including without limitation this Certificate
of Designations), by-laws or other governing or charter document of the
Corporation or any subsidiary;
(II) (1) any authorization, issuance or creation of, or increase in
the authorized amount of, any shares of any class or any security of any class
ranking senior to or in parity with the shares of Series B Preferred Stock in
the distribution of assets on any liquidation, dissolution or winding up of the
Corporation or in the payment of dividends or (2) any authorization, issuance or
creation by the LLC or any other subsidiary of any additional class of security
or any additional membership or similar interests;
(III) any increase or decrease (other than by redemption or
conversion) in the total number of authorized shares of Series B Preferred Stock
or any issuance of the currently authorized shares of the Series B Preferred
Stock other than the issuance of shares of Series B Preferred Stock pursuant to
the Stock Purchase Agreement and other than pursuant to the terms of the warrant
for the purchase of 18,500 shares of Series B Preferred Stock granted to
Hambrecht & Quist LLC in connection therewith;
(IV) any acquisition or transaction or series of related transactions
by the Corporation, the LLC or any other subsidiary having a value greater than
$10 million (measured by the fair market value at the date of such transaction),
excluding the financing of construction of new greenhouses;
(V) any consolidation or merger involving the Corporation, the LLC
or any other subsidiary (other than a consolidation or merger in which the
Corporation is the surviving entity and no change in the capital stock or
ownership of the Corporation occurs), or any reclassification or
recapitalization of any capital stock of the Corporation, any reorganization or
restructuring of the LLC or any subsidiary, or any dissolution, liquidation, or
winding up of the Corporation, the LLC or any subsidiary, or any sale of all or
substantially all of the assets of the Corporation, the LLC or any subsidiary,
or any agreement to become so obligated;
30
<PAGE>
(VI) the incurrence of, or agreement to incur, any Indebtedness
(excluding debt incurred as a result of the construction of new greenhouses)
which would result in a Debt to Equity Ratio at the time the Indebtedness is
incurred (after giving effect to such incurrence) of greater than 1:1.5, as
measured based upon the consolidated balance sheet of the Corporation, the LLC
and the Corporation's other subsidiaries prepared as of the last day of the
immediately preceding month, with a pro forma adjustment for the Indebtedness
--- -----
incurred by, and any equity invested in, the Corporation and its subsidiaries
(including the LLC) since such date;
(VII) any loan, advance or guarantee to, or for the benefit of, or
any sale, lease, transfer or disposition of any of the properties or assets of
the Corporation or its subsidiaries (including the LLC) to, or for the benefit
of, or any purchase or lease of any property or assets from, or the execution,
performance or amendment of any contract, agreement or understanding with, or
for the benefit of, any Affiliate of the Corporation or its subsidiaries
(including the LLC); provided, however, that this clause III shall not apply to
-------- -------
(1) any payment pursuant to the terms of contracts or agreements existing on the
date hereof or (2) transactions in the ordinary course of business consistent
with the past practice of the Corporation or its subsidiaries (including the
LLC) involving individually or in the aggregate no more than $250,000 per year,
which transactions shall have been promptly reported to the Board of Directors
of the Corporation;
(VIII) any declaration or payment of any dividends on or any
declaration or making of any other distribution, directly or indirectly, through
subsidiaries or otherwise, on account of any Subordinate Stock (except for
subsidiaries that are wholly owned (directly or indirectly) by the Corporation)
or the setting apart of any sum for any such purpose;
(IX) any redemption or repurchase of any class of equity securities
of the Corporation, the LLC or any other Corporation's other subsidiaries (other
than (A) the redemption pursuant to the Redemption Agreement (as defined in the
Stock Purchase Agreement) of Series A Preferred Stock for an aggregate
redemption price not to exceed $1,500,000 and (B) redemptions or repurchases by
subsidiaries that are wholly owned (directly or indirectly) by the Corporation
of equity securities beneficially owned by the Corporation);
(X) any transaction or any act that would result in taxation of the
holders of Series B Preferred Stock under Section 305 of the Internal Revenue
Code;
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<PAGE>
(XI) any amendment, alteration or repeal of any of the
provisions of the Certificate of Designations setting forth the rights and
powers of the Series B Preferred Stock;
(XII) any sale, lease or other transfer of any greenhouse
facility owned or operated by the Company, the LLC or any of the Corporation's
other subsidiaries now or in the future; or
(XIII) any agreement to do any of the foregoing.
The Required Consent of Series B Preferred Stock required pursuant to the
provisions of Section 4.2(c)(vi)(C)(I) shall not be unreasonably withheld. In
the event there is a disagreement among the parties to this Agreement as to
whether such consent has been withheld unreasonably, and to the extent such
disagreement is not resolved by the parties within ten (10) days after the
holders have declined to grant such consent, such dispute (a "Dispute") shall be
-------
resolved as follows. A Dispute shall be completely and finally settled by
submission of any such Dispute to arbitration under the Rules of the American
Arbitration Association ("AAA") then in effect. There shall be one arbitrator,
---
and such arbitrator shall be chosen by mutual agreement of the parties, or if
the parties cannot mutually agree, in accordance with AAA rules. The arbitration
proceedings shall take place in Boulder, Colorado. Notice of demand for
arbitration shall be filed in writing with the other party to this Agreement and
with the AAA. The findings of the arbitrator shall be final and binding on the
parties. Judgment on such award may be entered in any court of competent
jurisdiction, or application may be made to that court for a judicial acceptance
of the award and an order or enforcement, as the party seeking to enforce that
award may elect.
(D) The rights of the holders of the Series B Preferred Stock may be
exercised either at a special meeting of the holders of Series B Preferred
Stock, called as hereinafter provided, or at any annual meeting of stockholders
held for the purpose of electing directors, and thereafter at such annual
meetings or by a holder of Series B Preferred Stock designated in writing by the
written consent of the holders of Series B Preferred Stock.
(E) A special meeting of the holders of Series B Preferred Stock for
purposes of voting on matters with respect to which the holders of such shares
are entitled to vote as a class may be called by the Secretary of the
Corporation or by a holder of Series B Preferred Stock designated in writing by
the holders of record of ten percent (10%) of the shares of Series B Preferred
Stock then outstanding. Such meeting may be called at the expense of the
Corporation by either such person. At any meeting of the holders of
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<PAGE>
Series B Preferred Stock, the presence in person or by proxy of the holders of a
majority of the shares of Series B Preferred Stock then outstanding shall
constitute a quorum of the Series B Preferred Stock for the purpose of electing
directors by holders of the Series B Preferred Stock. The directors to be
elected pursuant to Section 4.2(c)(vi)(B) hereof shall be elected by a plurality
of the holders of Series B Preferred Stock present in person or by proxy at any
such meeting.
(F) If any of the directors so elected by the holders of
Series B Preferred Stock shall cease to serve as a director before his or her
term shall expire, the holders of Series B Preferred Stock then outstanding may,
at a special meeting of the holders called as provided above, elect a successor
to hold office for the unexpired term of the director whose place shall be
vacant.
(vii) Exclusion of Other Rights. Except as may otherwise be required
-------------------------
by law, the shares of Series B Preferred Stock shall not have any voting powers,
preferences and relative, participating, optional or other special rights, other
than those specifically set forth in this Section 4.2(c) (as such resolution may
be amended from time to time) and in the Certificate of Incorporation of the
Corporation.
(viii) Headings of Subdivisions. The headings of the various
------------------------
subdivisions of this Section 4.2(c) are for convenience of reference only and
shall not affect the interpretation of any of the provisions of this Section
4.2(c).
(xi) Severability of Provisions. If any voting powers, preferences
--------------------------
and relative, participating, optional and other special rights of the Series B
Preferred Stock and qualifications, limitations and restrictions thereof set
forth in this Section 4.2(c) (as such Section may be amended from time to time)
is invalid, unlawful or incapable of being enforced by reason of any rule of law
or public policy, all other voting powers, preferences and relative,
participating, optional and other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this Section
4.2(c) (as so amended) which can be given effect without the invalid, unlawful
or unenforceable voting powers, preferences and relative, participating,
optional and other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.
33
<PAGE>
(d) Series C Preferred Stock. The rights, preferences, privileges and
------------------------
restrictions granted to and imposed on the Series C Preferred Stock are as
follows:
(i) Certain Definitions. Unless the context otherwise requires, the
-------------------
terms defined in Section 4.2(d) shall have, for all purposes of Section 4.2(d)
(but not for any other Section of this Certificate of Incorporation), the
meanings specified in Section 4.2(d) (with terms defined in the singular having
comparable meanings when used in the plural).
"Business Day" shall mean a day other than a Saturday, a Sunday or any
------------
other day on which banking institutions in New York, New York are authorized or
obligated by law to close.
"Common Equity" shall mean all shares now or hereafter authorized of
-------------
any class of common stock of, or equity interest in, the LLC or any other
subsidiary (including without limitation membership interests in the LLC,
however designated, including the Common Stock, and any other stock of the
Corporation, howsoever designated, authorized after the Initial Issue Date,
which has the right (subject always to prior rights of any class or series of
preferred stock) to participate in the distribution of the assets and earnings
of the Corporation without limit as to per share amount.
"Common Stock" shall mean the common stock, par value $.001 per share,
------------
of the Corporation.
"Conversion Date" shall have the meaning set forth in Section
---------------
4.2(d)(iv)(A)(III) below.
"Delinquent Mandatory Redemption Price" shall mean, with respect to
-------------------------------------
each share of Series C Preferred Stock, $5.50 (adjusted to reflect the effect of
any stock split, subdivision, reclassification, combination or like event) plus
an amount thereon accruing from the applicable Mandatory Redemption Date at an
annual rate equal to the Prime Rate plus 3.75%.
"Equivalent Common Dividend" shall have the meaning set forth in
--------------------------
Section 4.2(d)(ii)(A) below.
"Final Mandatory Redemption Date" shall mean December 31, 2004.
-------------------------------
"IPO Price" shall mean $8.00 per share. The IPO Price shall be
---------
adjusted to reflect the effect of any stock split or any subdivision,
reclassification, combination or like
34
<PAGE>
event of or with respect to the outstanding shares of Common Stock occurring
after the Initial Issue Date.
"Initial Issue Date" shall mean the date that shares of Series C
------------------
Preferred Stock are first issued by the Corporation.
"Initial Mandatory Redemption Date" shall mean December 31, 2003.
---------------------------------
"Liquidation Price" shall mean $5.50 per share of Series C Preferred
-----------------
Stock (adjusted for any subsequent stock dividends, stock splits, combinations
and similar transactions), plus any declared but unpaid dividends payable in
respect to such share of Series C Preferred Stock pursuant to Section
4.2(d)(ii), provided, however, in the event of a (i) consolidation or merger of
the Corporation into or with another corporation or corporations; (ii) sale,
lease, transfer, or conveyance of all or substantially all of the assets of the
Corporation to another corporation or any other entity; or (iii) any other
transaction in which control of the Corporation is transferred, each of which
shall be treated like a Dissolution, the Liquidation Price shall mean the
greater of (1) $5.50 per share of Series C Preferred Stock (adjusted for any
subsequent stock dividends, stock splits, combinations and similar
transactions), plus any declared but unpaid dividends payable in respect to such
share of Series C Preferred Stock pursuant to Section 4.2(d)(ii); and (2) the
fair market value of the Series C Preferred Stock upon the closing of such event
as determined by the Board of Directors of the Corporation in good faith. Any
determination pursuant to subsection (2) of the preceding sentence shall be
conclusive.
"Liquidity Event" shall mean (i) a Qualified Initial Public Offering
---------------
or (ii) the sale to an unaffiliated third party of all of the capital stock or
assets of the Corporation for cash or securities listed on a national securities
exchange or the Nasdaq National Market System.
"LLC" shall mean Colorado Greenhouse, LLC, a Colorado limited
---
liability company.
"Mandatory Redemption Date" shall mean the Initial Mandatory
-------------------------
Redemption Date and the Final Mandatory Redemption Date.
"Mandatory Redemption Obligation" shall have the meaning set forth in
-------------------------------
Section 4.2(d)(v)(C) below.
35
<PAGE>
"Mandatory Redemption Price" shall mean, with respect to each share of
--------------------------
Series C Preferred Stock, $5.50 (adjusted for stock splits, subdivisions,
combinations and similar transactions).
"Preferred Stock" shall mean any authorized series of Preferred Stock
---------------
of the Corporation.
"Prime Rate" shall mean the rate announced as the "prime rate" by
----------
NationsBank, N.A. whether or not such rate is actually charged.
"Qualified Initial Public Offering" shall mean an underwritten public
---------------------------------
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, of shares of the Common Stock: (i) the aggregate gross
proceeds of which equal or exceed $20,000,000; and (ii) the per share offering
price of which equals or exceeds the IPO Price.
"Redemption Price" shall mean, with respect to each share of Series C
----------------
Preferred Stock, $5.50 (adjusted for stock splits, subdivisions, combinations
and similar transactions).
"Series A Preferred Stock" shall mean the Series A Preferred Stock,
------------------------
par value $.001 per share, of the Corporation.
"Series B Preferred Stock" shall mean the Series B Convertible
------------------------
Preferred Stock, par value $.001 per share, of the Corporation.
"Series C Initial Purchase Price" shall mean $5.50 per share of Series
-------------------------------
C Preferred Stock (adjusted for stock split;, subdivisions, combinations and
similar transactions).
"Subordinate Stock" shall mean (i) the Common Equity, (ii) any class
-----------------
or series of capital stock or other ownership or membership interests issued by
any subsidiary, and (iii) any class or series of capital stock of the
Corporation, however designated, which is junior in right to the Series C
Preferred Stock, including without limitation the Series A Preferred Stock and
such capital stock that is not entitled to receive (i) any dividends unless all
dividends required to have been paid or declared and set apart for payment on
the Series C Preferred Stock shall have been so paid or declared and set apart
for payment or (ii) any assets upon liquidation, dissolution or winding up of
the affairs of the Corporation until the Series C Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up. In no event shall Subordinate Stock
include the Series B Preferred Stock.
36
<PAGE>
"Subsidiary" shall mean (i) any corporation, at least 50% of the total
----------
combined voting power of all classes of capital stock of which shall, at the
time as of which any determination is being made, be beneficially owned by the
Company either directly or through subsidiaries, and (ii) any partnership or
other entity in which the Company or any subsidiary beneficially owns more than
a 50% equity interest and controls the management of such entity.
(ii) Dividends.
---------
(A) If at any time during which any shares of Series C Preferred
Stock remain outstanding, the Corporation declares, pays or sets apart for
payment any dividend on any Common Equity, whether in cash, property or
otherwise (a "Common Dividend"), each holder of shares of Series C Preferred
---------------
Stock shall be entitled receive a per share dividend (an "Equivalent Common
-----------------
Dividend"), when and as declared by the Corporation, equal to: (i) the number of
- --------
shares of Common Equity on which such Common Dividend is declared into which
each share of Series C Preferred Stock is convertible on the record date,
multiplied by (ii) the amount of cash or property paid, or the number of shares
- -------------
of capital stock issued, per share of Common Equity as part of such Common
Dividend. For any Equivalent Common Dividend that is not paid in full when due,
then on such due date such accrued and unpaid Equivalent Common Dividend shall
be added to the Liquidation Price, the Mandatory Redemption Price and the
Redemption Price of the Series C Preferred Stock effective at such due date when
such Equivalent Common Dividend was not paid. If any accrued and unpaid
Equivalent Common Dividend is so added to the Liquidation Price, the Mandatory
Redemption Price and the Redemption Price of the Series C Preferred Stock, such
Liquidation Price, Mandatory Redemption Price and Redemption Price shall be
reduced, effective on the date of payment, to the extent any accrued and unpaid
Equivalent Common Dividend is subsequently paid.
(B) So long as any shares of Series C Preferred Stock shall be
outstanding, the Corporation shall not declare, pay or set apart for payment on
any Subordinate Stock any dividends or distributions whatsoever, whether in
cash, property or otherwise, nor shall any Subordinate Stock be purchased,
redeemed or otherwise acquired by the Corporation or any of its subsidiaries of
which it owns not less than a majority of the outstanding voting power, nor
shall any monies be paid or made available for a sinking fund for the purchase
or redemption of any Subordinate Stock, without the prior consent of a majority
of the outstanding shares of Series B Preferred Stock and Series C Preferred
Stock voting together as a single class, and unless all dividends to which the
holders of Series C Preferred Stock shall have been entitled shall have been (i)
paid or (ii) declared and a sum of money, in the case of dividends payable in
cash, sufficient for the payment thereof has been set apart.
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<PAGE>
(C) In the event that full dividends are not paid or made
available to the holders of all outstanding shares of Series B Preferred Stock
and Series C Preferred Stock and funds available for payment of dividends shall
be insufficient to permit payment in full to holders of all such stock of the
full preferential amounts to which they are then entitled, then the entire
amount available for payment of dividends shall be distributed ratably among all
such holders of Series B Preferred Stock and Series C Preferred Stock in
proportion to the full amount to which they would otherwise be respectively
entitled.
(D) Notwithstanding anything contained herein to the contrary,
no dividends on shares of Series C Preferred Stock shall be declared by the
Board of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time if such declaration or payment shall be restricted or
prohibited by law.
(iii) Distributions Upon Liquidation, Dissolution or Winding Up.
---------------------------------------------------------
(A) The Corporation shall deliver to each holder of Series C
Preferred Stock notice of any voluntary or involuntary liquidation, dissolution
or other winding up of the affairs of the Corporation (each a "Dissolution") at
least 90 days prior to such event, which notice shall state all material facts
and common terms relating to such Dissolution, including without limitation: (i)
the nature of such Dissolution, including without limitation the nature, amount,
terms and conditions of payment to the holders of Series C Preferred Stock and
Series B Preferred Stock and to the holders of Subordinate Stock in connection
with such Dissolution, (ii) the date on which such Dissolution shall occur and
(iii) the procedures that must be followed (and the latest date that such
procedures must be completed) in order for such holder to effect a conversion of
shares of Series C Preferred Stock into shares of Common Stock. In the event of
any such Dissolution, before any payment or distribution shall be made to the
holders of Subordinate Stock, the holders of Series C Preferred Stock shall be
entitled to be paid, pari passu with the holders of Series B Preferred Stock,
out of the assets of the Corporation in cash, or, if the Corporation does not
have sufficient cash on hand to pay such amounts, property of the Corporation at
its fair market value as determined by the Board of Directors of the
Corporation, the greater of (i) the Liquidation Price per share of Series C
Preferred Stock, or (ii) such amount per share of Series C Preferred Stock as
would have been payable had each such share been converted into Common Stock
pursuant to Section 4.2(d)(iv) immediately prior to such Dissolution.
Immediately preceding such Dissolution, adjustment shall be made for accrued but
unpaid dividends.
(B) If, upon any such Dissolution, the assets of the Corporation
shall be insufficient to permit the payment in full of the Liquidation Price for
each share of the Series C Preferred Stock and any liquidation price then
payable to the holders of the
38
<PAGE>
Series B Preferred Stock, then the assets of the Corporation shall be ratably
distributed among the holders of Series C Preferred Stock and Series B Preferred
Stock, pari passu, in proportion to the full amounts to which such holders would
otherwise be respectively entitled if all amounts thereon were paid in full.
(iv) Conversion Rights.
-----------------
(A) Conversion at the Option of the Holder. At any time before
--------------------------------------
the close of business on the Final Mandatory Redemption Date (unless the
Corporation shall default in payment of the Redemption Price or the Delinquent
Mandatory Redemption Price, in which case, the conversion rights set forth in
this paragraph shall continue until the cure of any such default), the holders
of Series C Preferred Stock shall have the right to convert each share of Series
C Preferred Stock held by such holder into shares of Common Stock on the
following terms and conditions :
(I) Each share of Series C Preferred Stock shall be
converted at the option of the holder thereof, without the payment of additional
consideration, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Series C Initial Purchase Price by the
Series C Conversion Rate (as defined below) in effect at the time of conversion.
For purposes of this section, the "Series C Conversion Rate" initially shall be
------------------------
equal to the Series C Initial Purchase Price and shall be subject to adjustment
as provided in Section 4.2(d)(iv)(C) below.
(II) To convert Series C Preferred Stock in accordance with
this Section 4.2(d)(iv)(A), a holder must (i) surrender the certificate or
certificates evidencing the shares of Series C Preferred Stock to be converted,
duly endorsed in a form satisfactory to the Corporation, at the principal office
of the Corporation or transfer agent for the Series C Preferred Stock; (ii)
notify the Corporation in writing at such office that it elects to convert
Series C Preferred Stock, and the number of shares it wishes to convert; (iii)
state in writing the name or names in which it wishes the certificate or
certificates for shares of Common Stock to be issued, and (iv) pay any transfer
or similar tax with respect to the transfer of the shares of Series C Preferred
Stock to be converted, if required. The date on which the holder satisfies the
foregoing requirements shall be the "Conversion Date." As soon as practical but
---------------
in any event within five Business Days of the Conversion Date, the Corporation
shall deliver a certificate for the number of shares of Common Stock issuable
upon the conversion, a check for the amount payable in respect of any fractional
share pursuant to Section 4.2(d)(iv)(A)(III) and a new certificate representing
the unconverted portion, if any, of the shares of Series C Preferred Stock
represented by the certificate or certificates surrendered for conversion. The
person in whose name the Common Stock certificate is registered shall be treated
as the stockholder of record of such Common Stock
39
<PAGE>
on and after the Conversion Date. Adjustment (or cash payment, if applicable)
shall be made for accrued and unpaid dividends, as of the Conversion Date, on
converted shares of Series C Preferred Stock. If the last day on which Series C
Preferred Stock may be converted is not a Business Day, Series C Preferred Stock
may be surrendered for conversion on the next succeeding day that is a Business
Day. Upon such conversion, the rights of the holders of converted Series C
Preferred Stock with respect to the shares of Series C Preferred Stock so
converted shall cease.
(III) The Corporation will not issue a fractional share
of Common Stock upon conversion of Series C Preferred Stock. Instead the
Corporation will deliver its check in an amount equal to the applicable fraction
multiplied by the fair market value of the Common Stock on the Conversion Date
as determined by the Corporation in its sole discretion (subject to adjustment
for stock splits, subdivisions, combinations or other similar transactions).
(B) Mandatory Conversion. Subject to the adjustments set forth
--------------------
in Section 4.2(d)(iv)(C), each share of the Series C Preferred Stock
automatically shall be converted into one share of Common Stock (subject to
adjustment pursuant to Section 4.2(d)(iv)(C)) on the date a Qualified Initial
Public Offering is consummated or upon the consent of 66 2/3% of the outstanding
shares of Series C Preferred Stock ("Mandatory Conversion Date"). At least 60
-------------------------
days prior to the occurrence of the Mandatory Conversion Date, the Corporation
shall: (i) notify all holders of the Series C Preferred Stock of such event:
(ii) demand that all shares representing the Series C Preferred Stock be
returned to the Corporation's offices or to the designated transfer agent; and
(iii) pay any transfer or similar tax with respect to the conversion, if any. As
soon as practical but in any event within 30 days after the Mandatory Conversion
Date, the Corporation shall deliver a certificate to and in the name of the
holder of the Series C Preferred Stock for the number of shares of Common Stock
issuable upon the conversion and a check in an amount calculated in accordance
with Section 4.2(d)(iv)(A)(III) for any fractional shares, if any, for the
shares of Series C Preferred Stock represented by the certificate. The name of
the person in which the Series C Preferred Stock was issued shall be treated as
the stockholder of record of the Common Stock in which the Series C Preferred
Stock was converted on and after the Mandatory Conversion Date. Adjustment (or
cash payment, if applicable) shall be made for accrued and previously declared
and unpaid dividends, as of the Mandatory Conversion Date, on shares of Series C
Preferred Stock converted pursuant to this Section 4.2(d)(iv)(B). Upon such
conversion, the rights of the holders of converted Series C Preferred Stock with
respect to the shares of Series C Preferred Stock so converted shall cease.
(C) Certain Matters With Respect to Conversion.
------------------------------------------
40
<PAGE>
(I) The Corporation has reserved and shall continue to
reserve out of its authorized but unissued Common Stock or its Common Stock held
in treasury enough shares of Common Stock to permit the conversion of the Series
C Preferred Stock in full. All shares of Common Stock which may be issued upon
conversion of Series C Preferred Stock shall be duly authorized, validly issued,
fully paid and nonassessable.
(II) The Series C Conversion Rate shall be subject to
adjustment as follows:
(1) In case the Corporation shall (i) pay a dividend
or make a distribution on its outstanding shares of Common Stock, or any other
class of the corporation's stock other than Series B Preferred Stock or Series C
Preferred Stock, in shares of Common Stock of the Corporation, (ii) subdivide or
split its outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, the Series C Conversion Rate following
the effective date of such event shall be equal to the product of the Series C
Conversion Rate in effect immediately prior to such adjustment multiplied by a
fraction, the denominator of which is the number of shares of Common Stock
outstanding immediately after such event and the numerator of which is the
number of shares outstanding immediately prior to such event.
(2) In the event the Corporation at any time or from
time to time shall make or issue, or fix a record date for the determination of
holders of Common Equity entitled to receive a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, then
and in each such event provision shall be made so that the holders of Series C
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they each would have received had the Series C Preferred Stock
been converted into Common Stock on the date of such event and had they each
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, giving application to all adjustments called for during such period
under this section with respect to the rights of the holders of Series C
Preferred Stock; provided, however, that no such adjustment shall be made if the
-------- -------
holders of Series C Preferred Stock simultaneously receive a dividend or other
distribution of such securities as they would have received if all outstanding
shares of Series C Preferred Stock had been converted into Common Stock on the
date of such event.
(3) If Common Stock issuable upon the conversion of
Series C Preferred Stock shall be changed into the same or a different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise
41
<PAGE>
(other than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of each such share
of Series C Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such share of
Series C Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(III) Adjustments to the Series C Conversion Rate also
shall be made for certain dilutive issuances of additional shares of capital
stock by the Corporation as set forth in this Section 4.2(d)(iv)(C)(III).
(1) Special Definitions. For purposes of this
-------------------
Section 4.2(d)(iv)(C)(III), the following definitions shall apply:
(a) "Option" shall mean rights, options,
------
warrants or other securities convertible into or exchangeable or
exercisable for shares of Common Stock or Preferred Stock.
(b) "Additional Shares of Stock" shall mean
--------------------------
all shares of Common Stock or Preferred Stock and all Options issued by the
Corporation after the Initial Issue Date for which the consideration per
share (determined pursuant to Section 4.2(d)(iv)(C)(III)(3) below) is less
than the Series C Conversion Rate in effect on the date of, and immediately
prior to, the issuance of such Additional Shares of Stock, other than
shares of Common Stock or Preferred Stock issued or issuable:
(i) upon exercise of any Options
outstanding on the Initial Issue Date; provided, however, that if the
-------- -------
Corporation, after the Initial Issue Date, amends the exercise price
or the number of shares covered by any Options outstanding on the
Initial Issue Date, then such Options, as so amended, shall be deemed
to have been issued after the Initial Issue Date;
(ii) by reason of a dividend, stock
split, split-up or other distribution on shares of Common Stock that
is covered by Section 4.2(d)(iv)(C)(II) above; or
42
<PAGE>
(iii) upon exercise of Options granted to
employees or directors of, or consultants to, the Corporation pursuant
to any Incentive or Non-Qualified Option Plan adopted by the
Corporation's Board of Directors.
(2) Adjustment of Series C Conversion Rate Upon
-------------------------------------------
Issuance of Additional Shares of Stock. In the event the Corporation shall at
- --------------------------------------
any time issue one or more Additional Shares of Stock, then and in such event,
the Series C Conversion Rate shall be reduced, concurrently with such issuance,
to a price (calculated to the nearest cent) determined by multiplying the Series
C Conversion Rate then in effect by a fraction:
(a) the numerator of which shall be (i)
the number of shares of Common Stock outstanding immediately prior to such
issue plus (ii) the number of shares of Common Stock that the aggregate
consideration received or to be received by the Corporation for the total
number of Additional Shares of Stock so issued would purchase at such
Series C Conversion Rate; and
(b) the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Stock so issued.
(3) Determination of Consideration. For purposes
------------------------------
of this Section 4.2(d)(iv)(C)(III)(3), the consideration per share received by
the Corporation for the issue of any Additional Shares of Stock shall be
computed as follows:
(a) in case of the issuance of shares of
Common Stock for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Corporation for any
underwriting of the issue or otherwise in connection therewith;
(b) in the case of the issuance of shares
of Common Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the fair market
value thereof as determined by the Board of Directors in its reasonable
judgment exercised in good faith (irrespective of the accounting treatment
thereof); and
(c) in the case of the issuance of
Options, the aggregate consideration received therefor shall be deemed to
be the
43
<PAGE>
consideration received by the Corporation for the issuance of such Options
plus the additional minimum consideration, if any, to be received by the
Corporation upon the conversion or exchange or exercise thereof (the
consideration in each case to be determined in the same manner as provided
in clauses (a) and (b) of this Section 4.2(d)(iv)(C)(III)(3)).
(IV) Whenever the number of shares of Common Stock
into which each share of Series C Preferred Stock is convertible is adjusted,
the Corporation shall promptly mail to holders of the Series C Preferred Stock,
first class, postage prepaid, a notice of the adjustment. The Corporation shall
file with the transfer agent, if any, for the Series C Preferred Stock a
certificate from the Corporation's independent public accountants briefly
stating the facts requiring the adjustment and the manner of computing it. The
certificate shall be conclusive evidence that the adjustment is correct.
(V) The adjustments herein provided for shall be
made successively when the event giving rise to such adjustment occurs and shall
become effective immediately following the record date for any event for which a
record date is designated and on the effective date for any other event.
(VI) Shares of Series C Preferred Stock that have
been converted as provided herein shall revert to the status of authorized but
unissued shares of Series C Preferred Stock.
(VII) For purposes of any computation of the number of
shares of Common Stock outstanding, such computation shall be made assuming
conversion of all then outstanding shares of all series of Preferred Stock and
exercise of all outstanding currently exercisable warrants and vested options.
(VIII) No adjustment in the Conversion Rate need be
made unless the adjustment would require an increase of at least one-half of one
percent (.5%) in the number of shares of Common Stock into which each share of
Series C Preferred Stock is convertible. Any adjustments that are not made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 4.2(d)(iv)(C) shall be made to the nearest cent
or to the nearest 1/100th of a share, as the case may be.
(XI) In any case in which this Section 4.2(d)(iv)(C)
shall require that an adjustment as a result of any event become effective from
and after a record date, the Corporation may elect to defer until after the
occurrence of such event (a) the issuance to the holder of any shares of Series
C Preferred Stock converted after such record date and before the occurrence of
such event of the additional shares of Common Stock
44
<PAGE>
issuable upon such conversion over and above the shares issuable immediately
prior to adjustment; and (b) the delivery of a check for any remaining
fractional shares as provided in Section 4.2(d)(iv)(A)(III) above.
(XII) Any determination that the Corporation or its
Board of Directors must make pursuant to this Section 4.2(d)(iv)(C) shall be
conclusive. Whenever the Corporation or its Board of Directors shall be
required to make a determination under this Section 4.2(d)(iv)(C), such
determination shall be made in good faith.
(XIII) If:
(1) the Corporation takes any action that would
require an adjustment pursuant to Section 4.2(d)(iv);
(2) the Corporation consolidates or merges
with, or transfers all or substantially all of its assets to, another
corporation, and stockholders of the Corporation must approve the transaction;
or
(3) there is a dissolution or liquidation of
the Corporation; a holder of Series C Preferred Stock may want to convert such
stock into shares of Common Stock prior to the record date for or the effective
date of the transaction so that it may receive the rights, warrants, securities
or assets which a holder of shares of Common Stock on that date may receive.
Therefore, the Corporation shall mail to such holders, first class, postage
prepaid, a notice stating the proposed record or effective date, as the case may
be. The Corporation shall mail the notice at least thirty (30) days before such
date.
(XIV) If the Corporation is party to a consolidation
or merger which reclassifies or changes its Common Stock or to the sale of all
or substantially all of the assets of the Corporation, upon consummation of such
transaction the Series C Preferred Stock shall automatically become convertible
into the kind and amount of securities, cash or other assets which the holder of
Series C Preferred Stock would have owned immediately after the sale,
consolidation or merger, if such holder had converted Series C Preferred Stock
immediately before the effective date of the transaction, and an appropriate
adjustment (as determined by the Board of Directors of the Corporation) shall be
made in the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of Series C Preferred Stock, to
the end that the provisions set forth herein (including provisions with respect
to adjustment of the Conversion Rate) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other securities or
property thereafter deliverable upon the conversion of Series C Preferred Stock.
If this
45
<PAGE>
Section 4.2(d)(iv)(C)(XIV) applies, Section 4.2(d)(iv)(C)(II) and
4.2(d)(iv)(C)(III) do not apply.
(v) Redemption by the Corporation.
-----------------------------
(A) To the extent the Corporation shall have funds legally
available for such payment under the DGCL, the Corporation shall redeem, at the
option of each holder of shares of Series C Preferred Stock, on the Initial
Mandatory Redemption Date or, if such day is not a Business Day, the next
succeeding Business Day, a number of shares not to exceed fifty percent (50%) of
the then outstanding shares of Series C Preferred Stock of each holder at the
Redemption Price. In addition, to the extent the Corporation shall have funds
legally available for such payment under the DGCL, the Corporation shall redeem,
at the option of each holder of shares of Series C Preferred Stock, on the Final
Mandatory Redemption Date or, if such day is not a Business Day, the next
succeeding Business Day, up to one hundred percent (100%) of the then
outstanding shares of Series C Preferred Stock not subject to a redemption
obligation as of the Initial Mandatory Redemption Date at the Redemption Price.
(B) Shares of Series C Preferred Stock which have been issued
and converted or reacquired in any manner, including as a result of redemption,
shall (upon compliance with any applicable provisions of the Act) have the
status of authorized and unissued shares of preferred stock of the Corporation
undesignated as to series, and may be redesignated and reissued as part of any
series of preferred stock of the Corporation; provided, however, that no such
issued and reacquired shares of Series C Preferred Stock shall be reissued as
Series C Preferred Stock.
(C) If on any Mandatory Redemption Date the Corporation is
unable or shall fail to discharge its obligation to redeem all outstanding
shares of Series C Preferred Stock required to be redeemed on such date pursuant
to Section 4.2(d)(v)(A) (the "Mandatory Redemption Obligation"), the Corporation
-------------------------------
shall redeem on such Mandatory Redemption Date the number of shares of Series C
Preferred Stock which it is able to redeem, ratably among the holders of Series
C Preferred Stock in proportion to the full amounts to which they would
otherwise be respectively entitled if all shares of Series C Preferred Stock
required to be redeemed on such date were redeemed. In such a case, the
remainder of the Redemption Price payable but not paid at the Mandatory
Redemption Date shall be converted into a debt obligation of the Corporation,
evidenced by a promissory note in a form acceptable to the holders of Series C
Preferred Stock to pay the Delinquent Mandatory Redemption Price and shall be
discharged as soon as the Corporation is able to discharge such Delinquent
Mandatory Redemption Price out of funds legally available therefor. If and so
long as any Mandatory Redemption Obligation (or any obligation in
46
<PAGE>
respect of the Delinquent Mandatory Redemption Price) with respect to the Series
C Preferred Stock shall not be fully discharged and paid, the Corporation shall
not declare or pay any dividend or make any distribution on, or, directly or
indirectly, purchase, redeem or satisfy any mandatory redemption, sinking fund
or other similar obligation in respect of the Subordinate Stock (other than
repurchases of shares of Subordinate Stock in accordance with the terms of
restricted stock vesting agreements with employees of the Corporation approved
by the Board of Directors of the Corporation prior to such Mandatory Redemption
Date).
(D) Notwithstanding the foregoing provisions of this Section
4.2(d)(v) unless the full cumulative dividends on all outstanding shares of
Series C Preferred Stock have been paid or contemporaneously are declared and
paid for all post dividend periods, none of the shares of Series C Preferred
Stock shall be redeemed or set aside for redemption, unless such shares of
Series C Preferred Stock subject to redemption are redeemed pro rata.
(E) Notice of any redemption shall be sent by or on behalf of
the Corporation not more than sixty (60) days nor less than thirty (30) days
prior to any Mandatory Redemption Date, by first class mail, postage prepaid, to
all holders of record of the Series C Preferred Stock at their respective last
addresses as they shall appear on the books of the Corporation; provided,
however, that no failure to give such notice or any defect therein or in the
mailing thereof shall affect the validity of the proceedings for the redemption
of any shares of Series C Preferred Stock except as to the holder to whom the
Corporation has failed to give notice or except as to the holder to whom notice
was defective. In addition to any information required by law or by the
applicable rules of any exchange upon which Series C Preferred Stock may be
listed or admitted to trading, such notice shall state: (i) the Mandatory
Redemption Date; (ii) the Redemption Price; (iii) the number of shares of Series
C Preferred Stock to be redeemed; (iv) the place or places where certificates
for such shares are to be surrendered for payment of the Redemption Price; (v)
that dividends on the shares to be redeemed will cease to accrue on the
Mandatory Redemption Date; (vii) the number of shares of Common Stock into which
each share of Series C Preferred Stock is convertible; (vii) that Series C
Preferred Stock called for redemption may be converted at any time before the
close of business on the Mandatory Redemption Date; and (viii) that holders of
Series C Preferred Stock must satisfy the requirements of Section
4.2(d)(iv)(A)(II) above if such holders desire to convert such shares. Upon the
mailing of any such notices of redemption, the Corporation shall become
obligated to redeem at the time of redemption specified therein all shares
called for redemption other than shares converted into Common Stock prior to the
Mandatory Redemption Date.
(F) If notice has been mailed in accordance with Section
4.2(d)(v)(E) above and provided that on or before the Mandatory Redemption Date
specified
47
<PAGE>
in such notice, all funds necessary for such redemption shall have been set
aside by the Corporation, separate and apart from its other funds in trust for
the pro rata benefit of the holders of the shares so called for redemption, so
as to be, and to continue to be available therefor, then, from and after the
Mandatory Redemption Date, dividends on the shares of the Series C Preferred
Stock so called for redemption shall cease to accrue, and said shares shall no
longer be deemed to be outstanding and shall not have the status of shares of
Series C Preferred Stock, and all rights of the holders thereof as shareholders
of the Corporation (except the right to receive from the Corporation the
Redemption Price) shall cease, irrespective of whether any certificates for
shares called for redemption have been surrendered to the Corporation. Upon
surrender, in accordance with said notice, of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer), such shares shall be
redeemed by the Corporation at the Redemption Price and no holder of shares
called for redemption shall be entitled to receive payment of the Redemption
Price therefor until such surrender to the Corporation has been accomplished or
a duly executed affidavit of lost certificate shall have been delivered to the
Corporation. In case fewer than all the shares represented by any such
certificate are redeemed, a new certificate or certificates shall be issued
representing the unredeemed shares without cost to the holder thereof (so long
as such certificate is issued to the record holder).
(G) Any funds deposited with a bank or trust company for the
purpose of redeeming Series C Preferred Stock shall be irrevocable except that:
(I) the Corporation shall be entitled to receive from such
bank or trust company the interest or other earnings, if any, earned on any
money so deposited in trust, and the holders of any shares redeemed shall have
no claim to such interest or other earnings; and
(II) any balance of monies so deposited by the Corporation
and unclaimed by the holders of the Series C Preferred Stock entitled thereto at
the expiration of two (2) years from the applicable Mandatory Redemption Date
shall be repaid, together with any interest or other earnings earned thereon, to
the Corporation, and after any such repayment, the holders of the shares
entitled to the funds so repaid to the Corporation shall look only to the
Corporation for payment without interest or other earnings.
(H) Notwithstanding anything to the contrary herein, no shares
of Series C Preferred Stock may be redeemed except with funds legally available
from the Corporation or any of its subsidiaries (including without limitation
the LLC) for the payment of the Redemption Price.
(vi) Voting Rights.
-------------
48
<PAGE>
(A) Each holder of Series C Preferred Stock shall have one vote
for each share (but not for any fractional share) of Common Stock that such
holder would be entitled to receive if he were to convert his shares of Series C
Preferred Stock into shares of Common Stock pursuant to Section 4.2(d)(iv)(A)
and shall have the right to vote on all matters in like manner as the holders of
the Common Stock. Except as may be otherwise required by law or set forth
herein, the holders of the Series C Preferred Stock shall at all times vote
together with the holders of the Common Stock as one class. Cumulative voting
shall not be allowed in the election of directors or for any other purpose.
(B) So long as at least 25% of the originally issued Series C
Preferred Stock remains outstanding, the Corporation cannot without the consent
of a majority of the holders of the then outstanding shares of the Series C
Preferred Stock voting as a single class either in writing without a meeting or
by vote at any meeting called for the purpose, effect, validate or permit:
(I) any material or adverse amendment or alteration of the
rights and preferences of the Series C Preferred Stock;
(II) any authorization, issuance or creation of, or
increase in the authorized amount of, any shares of any class or any security of
any class ranking senior to or in parity with the shares of Series C Preferred
Stock in the distribution of assets on any liquidation, dissolution or winding
up of the Corporation or in the payment of dividends; or
(III) any transaction or any act that would result in
taxation of the holders of Series C Preferred Stock under Section 305 of the
Internal Revenue Code.
(vii) Exclusion of Other Rights. Except as may otherwise be
-------------------------
required by law, the shares of Series C Preferred Stock shall not have any
voting powers, preferences and relative, participating, optional or other
special rights, other than those specifically set forth in this Section 4.2(d)
(as such Section may be amended from time to time) and as otherwise set forth in
this Certificate of Incorporation.
(viii) Headings of Subdivisions. The headings of the various
------------------------
subdivisions of this Section 4.2(d) are for convenience of reference only and
shall not affect the interpretation of any of the provisions hereof.
(ix) Severability of Provisions. If any voting powers, preferences
--------------------------
and relative, participating, optional and other special rights of the Series C
Preferred Stock and qualifications, limitations and restrictions thereof set
forth in this Section 4.2(d) (as such
49
<PAGE>
Section may be amended from time to time) is invalid, unlawful or incapable of
being enforced by reason of any rule of law or public policy, all other voting
powers, preferences and relative, participating, optional and other special
rights of Series C Preferred Stock and qualifications, limitations and
restrictions thereof set forth in this Section (as so amended) which can be
given effect without the invalid, unlawful or unenforceable voting powers,
preferences and relative, participating, optional and other special rights of
Series C Preferred Stock and qualifications, limitations and restrictions
thereof shall, nevertheless, remain in full force and effect, and no voting
powers, preferences and relative, participating, optional or other special
rights of Series C Preferred Stock and qualifications, limitations and
restrictions thereof herein set forth shall be deemed dependent upon any other
such voting powers, preferences and relative, participating, optional or other
special rights of Series C Preferred Stock and qualifications, limitations and
restrictions thereof unless so expressed herein.
(e) Issuance of Additional Preferred Stock. Subject to the rights and
--------------------------------------
preferences of any then-existing senior series of Preferred Stock, one or more
additional series of Preferred Stock may be created, authorized and issued by
the Board of Directors from time to time as hereafter provided.
The Board of Directors is hereby expressly authorized, by resolution
from time to time adopted providing for the issuance of Preferred Stock, to fix
and state the designations, powers, preferences and relative, optional and other
special rights of the shares of each series of Preferred Stock, and the
qualifications, limitations and restrictions thereof, including (but without
limiting the generality of the foregoing) any of the following with respect to
which the Board of Directors shall determine to make effective provisions:
(i) the distinctive name and serial designation;
(ii) the dividend payment dates;
(iii) the rate or rates at which dividends, if any, shall be paid;
(iv) whether dividends are to be cumulative or non-cumulative and any
preferential or other special rights with respect to the payment of dividends;
(v) whether any series shall be redeemable and, if so, the terms,
conditions and manner of redemption and the redemption price or prices;
50
<PAGE>
(vi) the rights of a series on voluntary or involuntary liquidation,
dissolution or winding up, including the amount or amounts of preferential or
other payment to which any series is entitled over any other series or over the
Common Stock;
(vii) any sinking fund or other retirement provisions and the
extent to which the charges therefor are to have priority over the payment of
dividends on or the making of sinking fund or other like retirement provisions
for shares of any other series or over dividends on the Common Stock;
(viii) the number of shares of such series;
(ix) the voting rights, if any, for such series; and
(x) the conversion rights, if any, for such series.
Unless otherwise provided in the resolution of the Board of Directors
providing for the issue thereof, shares of any series of Preferred Stock which
shall be issued and thereafter acquired by the Corporation through purchase,
redemption, conversion or otherwise, may by resolution of the Board of Directors
be returned to the status of authorized but unissued Preferred Stock of the same
or other series. Unless otherwise provided in the resolution of the Board of
Directors providing for the issue thereof, the number of authorized shares of
stock of any such series may be increased or decreased (but not below the number
of shares thereof then outstanding) by resolution of the Board of Directors. In
case the number of shares of any such series of Preferred Stock shall be
decreased, the shares representing such decrease shall, unless otherwise
provided in the resolution of the Board of Directors providing for the issuance
thereof, resume the status of authorized but unissued Preferred Stock,
undesignated as to series.
ARTICLE V
LIMITATION ON LIABILITY
To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, a director of the
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Any repeal or
modification of this Article by the stockholders of the Corporation shall be
prospective only and shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
51
<PAGE>
ARTICLE VI
INDEMNIFICATION
Each person who is or was a director or officer of the Corporation,
and each such person who is or was serving at the request of the Corporation as
a director or officer of another Corporation, or in a similar capacity of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans maintained or sponsored by the Corporation
(including the heirs, executors, administrators and estate of such person) shall
be indemnified by the Corporation, in accordance with the procedures specified
in the Bylaws of the Corporation, to the fullest extent permitted from time to
time by the General Corporation Law of the State of Delaware. The Corporation
may, to the extent authorized from time to time by the Board of Directors, grant
rights to indemnification and to the advancement of expenses to any employee or
agent of the Corporation to the fullest extent of the provisions of this Article
with respect to the indemnification and advancement of expenses of directors and
officers of the Corporation. Without limiting the generality of the foregoing,
the Corporation may enter into one or more agreements with any person that
provide for indemnification and advancement of expenses greater or different
than that provided in this Article. No amendment or repeal of this Article shall
adversely affect any right or protection existing under or pursuant to this
Article immediately before the amendment or repeal.
ARTICLE VII
ELECTION OF DIRECTORS
Elections of directors need not be by written ballot unless the
bylaws of the corporation so provide.
ARTICLE VIII
AMENDMENTS TO BYLAWS
The board of directors of the corporation is expressly authorized
to make, alter or repeal the bylaws of the corporation.
52
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation of the
Corporation has been signed this 29th day of May, 1998.
COLORADO GREENHOUSE HOLDINGS, INC.
By: /s/ James R. Rinella
--------------------
James R. Rinella
Chief Executive Officer
Attest:
/s/ Allan R Fine
- ----------------
Alan R. Fine
Secretary
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
COLORADO GREENHOUSE, INC.
ADOPTED OCTOBER 31, 1996
<PAGE>
INDEX TO BYLAWS
OF
COLORADO GREENHOUSE, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - OFFICES....................................................................................................... 1
Section 1.01 Business Offices................................................................................... 1
Section 1.02 Registered Office.................................................................................. 1
ARTICLE II - STOCKHOLDERS................................................................................................. 1
Section 2.01 Annual Meeting..................................................................................... 1
Section 2.02 Special Meetings................................................................................... 1
Section 2.03 Place of Meeting................................................................................... 2
Section 2.04 Notice of Meetings................................................................................. 2
Section 2.05 Fixing Date for Determination of Stockholders of Record........................................... 2
Section 2.06 Voting List........................................................................................ 3
Section 2.07 Proxies............................................................................................ 3
Section 2.08 Quorum and Manner of Acting........................................................................ 3
Section 2.09 Voting of Shares................................................................................... 3
Section 2.10 Voting of Shares by Certain Holders................................................................ 3
Section 2.11 Action Without a Meeting........................................................................... 4
ARTICLE III - BOARD OF DIRECTORS.......................................................................................... 5
Section 3.01 General Powers..................................................................................... 5
Section 3.02 Number, Tenure and Qualifications.................................................................. 5
Section 3.03 Resignation........................................................................................ 5
Section 3.04 Removal............................................................................................ 5
Section 3.05 Vacancies.......................................................................................... 5
Section 3.06 Regular Meetings................................................................................... 6
Section 3.07 Special Meetings................................................................................... 6
Section 3.08 Meetings by Telephone.............................................................................. 6
Section 3.09 Notice of Meetings................................................................................. 6
Section 3.10 Quorum and Manner of Acting........................................................................ 7
Section 3.11 Interested Directors............................................................................... 7
Section 3.12 Action Without a Meeting........................................................................... 7
Section 3.13 Executive and Other Committees..................................................................... 7
Section 3.14 Compensation....................................................................................... 8
ARTICLE IV - OFFICERS..................................................................................................... 8
Section 4.01 Number and Qualifications.......................................................................... 8
Section 4.02 Election and Term of Office........................................................................ 9
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
Section 4.03 Compensation....................................................................................... 9
Section 4.04 Resignation........................................................................................ 9
Section 4.05 Removal............................................................................................ 9
Section 4.06 Vacancies.......................................................................................... 9
Section 4.07 Authority and Duties............................................................................... 9
Section 4.08 Surety Bonds....................................................................................... 11
ARTICLE V - STOCK......................................................................................................... 11
Section 5.01 Issuance of Shares................................................................................. 11
Section 5.02 Stock Certificates; Uncertificated Shares.......................................................... 11
Section 5.03 Payment for Shares................................................................................. 12
Section 5.04 Lost Certificates.................................................................................. 12
Section 5.05 Transfer of Shares................................................................................. 12
Section 5.06 Registered Holders................................................................................. 13
Section 5.07 Transfer Agents, Registrars and Paying Agents...................................................... 13
ARTICLE VI - INDEMNIFICATION.............................................................................................. 13
Section 6.01 Definitions........................................................................................ 13
Section 6.02 Right to Indemnification........................................................................... 14
Section 6.03 Successful on the Merits........................................................................... 14
Section 6.04 Advancement of Expenses............................................................................ 15
Section 6.05 Proceedings by a Party............................................................................. 15
Section 6.06 Subrogation........................................................................................ 15
Section 6.07 Other Payments..................................................................................... 15
Section 6.08 Insurance.......................................................................................... 15
Section 6.09 Other Rights and Remedies.......................................................................... 15
Section 6.10 Applicability; Effect.............................................................................. 16
Section 6.11 Severability....................................................................................... 16
ARTICLE VII - MISCELLANEOUS.............................................................................................. 16
Section 7.01 Waivers of Notice.................................................................................. 16
Section 7.02 Presumption of Assent.............................................................................. 16
Section 7.03 Voting of Securities by the Corporation............................................................ 16
Section 7.04 Loans to Employees and Officers; Guaranty of Obligations of Employees and Officers................. 17
Section 7.05 Seal............................................................................................... 17
Section 7.06 Fiscal Year........................................................................................ 17
Section 7.07 Amendments......................................................................................... 17
</TABLE>
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<PAGE>
BYLAWS
OF
COLORADO GREENHOUSE, INC.
ARTICLE I
Offices
Section 1.01 Business Offices. The corporation may have such
----------------
offices, either within or outside Delaware, as the board of directors may from
time to time determine or as the business of the corporation may require.
Section 1.02 Registered Office. The registered office of the
-----------------
corporation required by the Delaware General Corporation Law to be maintained in
Delaware shall be as set forth in the certificate of incorporation, unless
changed as provided by law.
ARTICLE II
Stockholders
Section 2.01 Annual Meeting. An annual meeting of the stockholders shall
--------------
be held on such date and at such time as the board of directors shall fix in the
notice of meeting, beginning with the year 1997, for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day. If the election of
directors shall not be held on the day designated herein for any annual meeting
of the stockholders, or at any adjournment thereof, the board of directors shall
cause the election to be held at a meeting of the stockholders as soon
thereafter as conveniently may be. Failure to hold an annual meeting as
required by these bylaws shall not invalidate any action taken by the board of
directors or officers of the corporation.
Section 2.02 Special Meetings. Special meetings of the stockholders, for
----------------
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the chief operating officer or by the board of directors and shall be called
by the chief operating officer at the request of the holders of not less than a
majority of all the outstanding shares of the corporation.
<PAGE>
Section 2.03 Place of Meeting. Each meeting of the stockholders shall be
----------------
held at such place, either within or outside Delaware, as may be designated in
the notice of meeting, or, if no place is designated in the notice, at the
principal office of the corporation.
Section 2.04 Notice of Meetings. Except as otherwise required by law,
------------------
written notice of each meeting of the stockholders stating the place, day and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given, either personally
(including delivery by private courier) or by first class, certified or
registered mail, to each stockholder of record entitled to notice of such
meeting, not less than ten nor more than 60 days before the date of the meeting.
Such notice shall be deemed to be given, if personally delivered, when delivered
to the stockholder, and, if mailed, when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation, but if notice of two consecutive annual meetings and
all notices of meetings of or the taking of action by written consent without a
meeting to any stockholder during the period between such two consecutive annual
meetings, or all, and at least two, payments (if sent by first class mail) of
dividends or interest on securities during a 12-month period, have been mailed
addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice to
such person shall not be required until another address for such person is
delivered to the corporation. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business that might have been
transacted at the original meeting. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting in accordance with the foregoing
provisions of this Section 2.04.
Section 2.05 Fixing Date for Determination of Stockholders of Record.
--------------------------------------------------------
For the purpose of determining stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for any other lawful action, the board of directors may fix, in
advance, a date as the record date for any such determination of stockholders,
which date shall be not more than 60 nor less than ten days before the date of
such meeting, and not more than 60 days prior to any other action. If no record
date is fixed for determining stockholders entitled to notice of or to vote at a
meeting of stockholders, then the record date shall be the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, the close of business on the day next preceding the day on which the
meeting is held, or, for determining stockholders for any other purpose, the
close of business on the day on which the board of directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of directors may
fix a new record date for the adjourned meeting. Notwithstanding the foregoing
provisions of this Section 2.05, the record
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<PAGE>
date for determining stockholders entitled to take, or receive notice of,
corporate action in writing without a meeting as provided in Section 2.11 shall
be determined as provided in such Section.
Section 2.06 Voting List. The officer who has charge of the stock books
-----------
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 2.07 Proxies. Each stockholder entitled to vote at a meeting of
-------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
Section 2.08 Quorum and Manner of Acting. At all meetings of
---------------------------
stockholders, a majority of the outstanding shares of the corporation entitled
to vote, represented in person or by proxy, shall constitute a quorum. If a
quorum is present, the affirmative vote of a majority of the shares represented
at a meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the vote of a greater proportion or number or voting by
classes is otherwise required by law, the certificate of incorporation or these
bylaws. In the absence of a quorum, a majority of the shares so represented may
adjourn the meeting from time to time in accordance with Section 2.04, until a
quorum shall be present or represented.
Section 2.09 Voting of Shares. Unless otherwise provided in the
----------------
certificate of incorporation and subject to the provisions of Section 2.05, each
stockholder entitled to vote shall have one vote for each outstanding share of
capital stock held of record by such stockholder on each matter submitted to a
vote of the stockholders either at a meeting thereof or pursuant to Section
2.11. In the election of directors each record holder of stock entitled to vote
at such election shall have the right to vote the number of shares owned by him
for as many persons as there are directors to be elected, and for whose election
he has the right to vote. Cumulative voting shall not be allowed. If a
separate vote by a class or classes is required, a majority of the outstanding
shares of such class or classes, present in person or represented by proxy,
shall constitute a quorum entitled to take action with respect to that vote on
that matter and the affirmative vote of the majority of shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class.
Section 2.10 Voting of Shares by Certain Holders.
-----------------------------------
(a) Fiduciaries; Pledgors. Persons holding stock in a fiduciary
---------------------
capacity shall be entitled to vote the shares so held. Persons whose stock is
pledged shall be entitled to vote,
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<PAGE>
unless in the transfer by the pledgor on the books of the corporation he has
expressly empowered the pledgee to vote thereon, in which case only the pledgee
or his proxy may represent such shares and vote thereon.
(b) Joint Owners. If shares stand of record in the names of two
------------
or more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or if two or more
persons have the same fiduciary relationship respecting the same shares, unless
the secretary of the corporation is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effects: (i) if only one votes, his act binds all; (ii) if
more than one votes, the act of the majority so voting binds all; and (iii) if
more than one votes, but the vote is evenly split on any particular matter, each
faction may vote the shares in question proportionally, or any person voting the
shares, or a beneficiary, if any, may apply to any court having jurisdiction to
appoint an additional person to act with the persons so voting the shares, in
which case the shares shall then be voted as determined by a majority of such
persons. If the secretary of the corporation is given notice and is furnished a
copy of the instrument or order creating a tenancy held in unequal interests, a
majority or even split for the purpose of subparagraph (iii) shall be a majority
or even split in interest.
Section 2.11 Action Without a Meeting.
------------------------
(a) Written Consent. Unless otherwise provided in the
---------------
certificate of incorporation, any action required or permitted to be taken at
any meeting of the stockholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted (which consent may be signed in counterparts). Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within 60 days of the earliest dated consent delivered to the
corporation in the manner required by the Delaware General Corporation Law,
written consents signed by a sufficient number of stockholders to take the
action are delivered to the corporation in the manner required by the Delaware
General Corporation Law.
(b) Determination of Stockholders Entitled to Act By Consent.
--------------------------------------------------------
For purposes of determining stockholders entitled to consent to corporate action
in writing without a meeting, the board of directors may fix, in advance, a date
as the record date for any such determination of stockholders, which date shall
be not more than ten days after the date upon which the resolution fixing the
record date is adopted by the board of directors. If no record date has been
fixed by the board of directors, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the board of directors is required by the Delaware General
Corporation Law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in the manner required by the Delaware General Corporation Law. If
no record date
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<PAGE>
has been fixed by the board of directors and prior action by the board of
directors is required by the Delaware General Corporation Law, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting shall be the close of business on the day on which the board
of directors adopts the resolution taking such prior action.
(c) Notice to Non-Consenting Stockholders. Prompt written notice
-------------------------------------
of the taking of corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing. Such notice shall be given in accordance with the applicable provisions
of Section 2.04.
ARTICLE III
Board of Directors
Section 3.01 General Powers. The business and affairs of the corporation
--------------
shall be managed by or under the direction of its board of directors, except as
otherwise provided in the Delaware General Corporation Law or the certificate of
incorporation.
Section 3.02 Number, Tenure and Qualifications. The number of directors
---------------------------------
of the corporation shall be as fixed from time to time by resolution of the
board of directors. Except as otherwise provided in Sections 2.01 and 3.05,
directors shall be elected at each annual meeting of stockholders, by a
plurality of the votes present in person or represented by proxy at the meeting
and entitled to vote at the election of directors. Each director shall hold
office until his successor shall have been elected and qualified or until his
earlier death, resignation or removal. Directors need not be residents of
Delaware or stockholders of the corporation. Any reduction in the authorized
number of directors shall not have the effect of shortening the term of any
incumbent director unless such director is also removed from office in
accordance with Section 3.04.
Section 3.03 Resignation. Any director may resign at any time by giving
-----------
written notice to the corporation. A director's resignation shall take effect
at the time specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.04 Removal. Any director or the entire board of directors may
-------
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors; except that if the holders of
shares of any class or series are entitled to elect one or more directors by the
provisions of the certificate of incorporation, the provisions of this Section
shall apply, with respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
Section 3.05 Vacancies. Except as set forth below or unless otherwise
---------
provided in the certificate of incorporation, any vacancy or any newly
created directorship resulting from any increase in the authorized number
of directors may be filled by a majority of directors then in office,
although less than a quorum, or by a sole remaining director, or by the
stockholders if there are no directors remaining, and a director so chosen
shall hold office until the next annual election and until his successor is
duly elected and qualified. When one or more directors shall resign from
the board, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have the power to fill
such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in this Section for the filling of
other vacancies. Notwithstanding anything to the contrary contained in this
Section, in the event that the vacant office was held by a director
designated by the holders of the Series B Preferred Stock (the "Series B
Director") and such vacancy occurs during the period in which at least 25%
of the originally issued Series B Preferred Stock remains outstanding, the
vacancy shall be filled by an election : (a) if one or more of the
remaining directors is a Series B Director, only the Series B Directors are
entitled to vote to fill the vacancy if it is filled by directors, and they
may do so by the affirmative vote of a majority of the Series B Directors;
and (b) only the holders of shares of that voting group are entitled to
vote to fill the vacancy if it is filled by the stockholders. Any election
necessary to fill any vacancy of a Series B Director shall be held as soon
as practicable after the occurrence of any such vacancy, but in any event
within 20 business days after the occurrence thereof. Except in an
emergency situation as may be determined in good faith by the unanimous
written consent of all remaining directors, no action shall be taken by the
board of directors after the occurrence of any vacancy due to the death,
disability, resignation, retirement or removal of any director designated
by Catterton-Simon Partners III, L.P. (other than any action as may be
necessary to fill such vacancy) until such vacancy is filled in accordance
with the foregoing provisions of this Section.
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<PAGE>
Section 3.06 Regular Meetings. A regular meeting of the board of
----------------
directors shall be held immediately after and at the same place as the annual
meeting of stockholders, or as soon thereafter as conveniently may be, at the
time and place, either within or without Delaware, determined by the board, for
the purpose of electing officers and for the transaction of such other business
as may come before the meeting. Failure to hold such a meeting, however, shall
not invalidate any action taken by any officer then or thereafter in office.
The board of directors may provide by resolution the time and place, either
within or outside Delaware, for the holding of additional regular meetings
without other notice than such resolution.
Section 3.07 Special Meetings. Special meetings of the board of
----------------
directors may be called by or at the request of the chief operating officer or
any director. The person authorized to call special meetings of the board of
directors may fix any convenient place, either within or outside Delaware, as
the place for holding any special meeting of the board of directors called by
him.
Section 3.08 Meetings by Telephone. Unless otherwise restricted by the
---------------------
certificate of incorporation, members of the board of directors or any committee
thereof may participate in a meeting of such board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting in such manner shall constitute presence in person at the meeting.
Section 3.09 Notice of Meetings. Notice of each meeting of the board of
------------------
directors (except those regular meetings for which notice is not required)
stating the place, day and hour of the meeting shall be given to each director
at least five days prior thereto by the mailing of written notice by first class
mail, or at least three days prior thereto by personal delivery (including
delivery by courier) of written notice or by telephone, telegram, facsimile or
other similar form of communication, except that in the case of a meeting to be
held pursuant to Section 3.08 notice may be given by personal delivery or by
facsimile, telegram or telephone 24 hours prior thereto. The method of notice
need not be the same to each director. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, with postage thereon
prepaid, addressed to the director at his business or residence address. If
sent by telegram, facsimile or similar form of communication, such notice shall
be deemed to be given when sent by such method to the director during normal
business hours at the location of the recipient at the last address or facsimile
number of the director furnished by him to the corporation for such purpose. If
communicated by telephone, such notice shall be deemed to be given when
communicated directly to the director or to the person designated by the
director as a
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<PAGE>
person authorized to receive such notice. Neither the business to be transacted
at nor the purpose of any meeting of the board of directors need be specified in
the notice or waiver of notice of such meeting.
Section 3.10 Quorum and Manner of Acting. Except as otherwise may be
---------------------------
required by law, the certificate of incorporation or these bylaws, a majority of
the number of directors fixed in accordance with these bylaws, present in
person, shall constitute a quorum for the transaction of business at any meeting
of the board of directors, and the vote of a majority of the directors present
at a meeting at which a quorum is present shall be the act of the board of
directors. If less than a quorum is present at a meeting, the directors present
may adjourn the meeting from time to time without further notice other than
announcement at the meeting, until a quorum shall be present. No director may
vote or act by proxy or power of attorney at any meeting of the board of
directors.
Section 3.11 Interested Directors. No contract or transaction between
--------------------
the corporation and one or more of its directors or officers, or between a
corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the board or committee which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if the material facts as to his relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the shareholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the shareholders; or the contract or transactions is fair as to the
corporation as of the time it is authorized, approved or ratified, by the board
of directors, a committee or the shareholders. Common or interested directors
may be counted in determining the presence of a quorum at a meeting of the board
of directors or of a committee that authorizes the contract or transaction.
Section 3.12 Action Without a Meeting. Unless otherwise restricted by
------------------------
the certificate of incorporation, any action required or permitted to be taken
at any meeting of the board of directors or any committee thereof may be taken
without a meeting, without prior notice and without a vote, if all members of
the board or committee consent thereto in writing and the writing or writings
are filed with the minutes of the proceedings of the board or committee.
Section 3.13 Executive and Other Committees. The board of directors, by
------------------------------
resolution adopted by a majority of the whole board, may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously
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<PAGE>
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the board of directors, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to (a) amending
the certificate of incorporation (except as permitted by the Delaware General
Corporation Law with respect to fixing the terms and conditions of series of
stock); (b) adopting an agreement of merger or consolidation; (c) recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the corporation's property and assets; (d) recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution; (e) amending
the bylaws of the corporation; and (f) unless the resolution of the board
expressly so provides, declaring a dividend, authorizing the issuance of stock
or adopting a certificate of ownership and merger. The delegation of authority
to any committee shall not operate to relieve the board of directors or any
member of the board form any responsibility imposed by law. Subject to the
foregoing, the board of directors may provide such powers, limitations and
procedures for such committees as the board deems advisable. To the extent the
board of directors does not establish other procedures, each committee shall be
governed by the procedures set forth in Sections 3.06 (except as they relate to
an annual meeting), 3.07 through 3.11 and 7.01 and 7.02 as if the committee were
the board of directors. Each committee shall keep regular minutes of its
meetings, which shall be reported to the board of directors when required and
submitted to the secretary of the corporation for inclusion in the corporate
records.
Section 3.14 Compensation. Unless otherwise restricted by the
------------
certificate of incorporation, the board of directors shall have the authority to
fix the compensation of directors. The directors may be paid their expenses, if
any, of attendance at each meeting of the board of directors and each meeting of
any committee of the board of which he is a member and may be paid a fixed sum
for attendance at each such meeting or a stated salary or both a fixed sum and a
stated salary. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
Officers
Section 4.01 Number and Qualifications. The officers of the corporation
-------------------------
shall consist of a chairman of the board, a chief executive officer, a chief
operating officer, a secretary and such other officers, including a president,
one or more vice-presidents, a treasurer and a controller, as may from time to
time be elected or appointed by the board. In addition, the board of directors
or the chief operating officer may elect or appoint such assistant and other
subordinate officers including assistant vice-presidents, assistant secretaries
and assistant treasurers, as it or he shall deem necessary or appropriate. Any
number of offices may be held by the same person.
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<PAGE>
Section 4.02 Election and Term of Office. Except as provided in Sections
---------------------------
4.01 and 4.06, the officers of the corporation shall be elected by the board of
directors annually at the first meeting of the board held after each annual
meeting of the stockholders as provided in Section 3.06. If the election of
officers shall not be held as provided herein, such election shall be held as
soon thereafter as conveniently may be. Each officer shall hold office until
his successor shall have been duly elected and shall have qualified or until his
earlier death, resignation or removal.
Section 4.03 Compensation. Officers shall receive such compensation for
------------
their services as may be authorized or ratified by the board of directors and no
officer shall be prevented from receiving compensation by reason of the fact
that he is also a director of the corporation. Election or appointment as an
officer shall not of itself create a contract or other right to compensation for
services performed by such officer.
Section 4.04 Resignation. Any officer may resign at any time, subject to
-----------
any rights or obligations under any existing contracts between the officer and
the corporation, by giving written notice to the corporation. An officer's
resignation shall take effect at the time stated therein; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 4.05 Removal. Any officer may be removed at any time by the
-------
board of directors, or, in the case of assistant and other subordinate officers,
by the chief operating officer (whether or not such officer was appointed by the
chief operating officer), whenever in its or his judgment, as the case may be,
the best interests of the corporation will be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer shall not in itself create
contract rights.
Section 4.06 Vacancies. A vacancy occurring in any office by death,
---------
resignation, removal or otherwise may be filled by the board of directors, or,
if such office may be filled by the chief operating officer as provided in
Section 4.01, by the chief operating officer, for the unexpired portion of the
term.
Section 4.07 Authority and Duties. The officers of the corporation shall
--------------------
have the authority and shall exercise the powers and perform the duties
specified below, and as may be additionally specified by the chief executive
officer, the board of directors or these bylaws (and in all cases where the
duties of any officer are not prescribed by the bylaws or the board of
directors, such officer shall follow the orders and instructions of the chief
operating officer), except that in any event each officer shall exercise such
powers and perform such duties as may be required by law:
(a) Chairman of the Board. The chairman of the board, who
---------------------
shall be elected from among the directors, shall preside at all meetings of the
stockholders and directors of the corporation and shall have and may exercise
all such powers and perform such other duties as may be assigned to him from
time to time by the board of directors.
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<PAGE>
(b) Chief Executive Officer. The chief executive officer shall,
-----------------------
subject to the direction and supervision of the board of directors, (i) have
general and active control of its affairs and business and general supervision
of its officers, agents and employees; (ii) in the absence of the chairman of
the board, preside at all meetings of the stockholders and the board of
directors; (iii) see that all orders and resolutions of the board of directors
are carried into effect; and (iv) perform all other duties incident to the
office of Chief Executive Officer and as from time to time may be assigned to
him by the board of directors.
(c) Chief Operating Officer. The chief operating officer shall,
-----------------------
subject to the direction and supervision of the board of directors, (i) be the
chief operating officer of the corporation and have general and active control
of its affairs and business and general supervision of its officers, agents and
employees; (ii) unless there is a chairman of the board or chief executive
officer, preside at all meetings of the shareholders and the board of directors;
(iii) see that all orders and resolutions of the board of directors are carried
into effect; and (iv) perform all other duties incident to the office of chief
operating officer and as from time to time may be assigned to him by the board
of directors.
(d) Treasurer. The treasurer shall: (i) be the principal
---------
financial officer of the corporation and have the care and custody of all its
funds, securities, evidences of indebtedness and other personal property and
deposit the same in accordance with the instructions of the board of directors;
(ii) receive and give receipts and acquittances for moneys paid in on account of
the corporation, and pay out of the funds on hand all bills, payrolls and other
just debts of the corporation of whatever nature upon maturity; (iii) unless
there is a controller, be the principal accounting officer of the corporation
and as such prescribe and maintain the methods and systems of accounting to be
followed, keep complete books and records of account, prepare and file all
local, state and federal tax returns, prescribe and maintain an adequate system
of internal audit and prepare and furnish to the chief operating officer and the
board of directors statements of account showing the financial position of the
corporation and the results of its operations; (iv) upon request of the board,
make such reports to it as may be required at any time; and (v) perform all
other duties incident to the office of treasurer and such other duties as from
time to time may be assigned to him by the board of directors or the chief
operating officer. Assistant treasurers, if any, shall have the same powers and
duties, subject to the supervision by the treasurer.
(e) Vice-Presidents. The vice-president, if any (or, if there is
---------------
more than one, then each vice-president), shall assist the president and chief
operating officer and shall perform such duties as may be assigned to him by the
president or chief operating officer or by the board of directors. The vice-
president, if there is one (or, if there is more than one, then the vice-
president designated by the board of directors, or, if there be no such
designation, then the vice-presidents in order of their election), shall, at the
request of the president or chief operating officer or, in his absence or
inability or refusal to act, perform the duties of the president or chief
operating officer and when so acting shall have all the powers of and be subject
to all the restrictions upon the president or chief operating officer. Assistant
vice-presidents, if any, shall have such powers and perform such duties as may
be assigned to them by the president or chief operating officer or by the board
of directors.
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<PAGE>
(f) Secretary. The secretary shall: (i) prepare and
---------
maintain the minutes of the proceedings of the shareholders, the board of
directors and any committees of the board; (ii) see that all notices are duly
given in accordance with the provisions of these bylaws or as required by law;
(iii) be custodian of the corporate records and of the seal of the corporation;
(iv) keep at the corporation's registered office or principal place of business
within or outside Colorado a record containing the names and addresses of all
shareholders and the number and class of shares held by each, unless such a
record shall be kept at the office of the corporation's transfer agent or
registrar; (v) have general charge of the stock books of the corporation, unless
the corporation has a transfer agent; (vi) authenticate records of the
corporation; and (vii) in general, perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him by
the chief operating officer or by the board of directors. Assistant secretaries,
if any, shall have the same duties and powers, subject to supervision by the
secretary.
Section 4.08 Surety Bonds. The board of directors may require any
------------
officer or agent of the corporation to execute to the corporation a bond in such
sums and with such sureties as shall be satisfactory to the board, conditioned
upon the faithful performance of his duties and for the restoration to the
corporation of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
ARTICLE V
Stock
Section 5.01 Issuance of Shares The issuance or sale by the corporation
------------------
of any shares of its authorized capital stock of any class, including treasury
shares, shall be made only upon authorization by the board of directors, except
as otherwise may be provided by law. Every issuance of shares shall be recorded
on the books of the corporation maintained for such purpose by or on behalf of
the corporation.
Section 5.02 Stock Certificates; Uncertificated Shares. The shares of
-----------------------------------------
stock of the corporation shall be represented by certificates, except that the
board of directors may, in accordance with applicable provisions of law,
authorize the issuance of some or all of any or all classes or series of stock
of the corporation without certificates. If shares are represented by
certificates (or if a holder of uncertificated shares requests his shares to be
represented by a certificate), each certificate shall be signed by or in the
name of the corporation by the chairman or a vice-chairman of the board of
directors, or the chief operating officer or a vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of the corporation, representing the number of shares owned by him in the
corporation. Any of or all the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the
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<PAGE>
date of issue. Certificates of stock shall be in such form consistent with law
as shall be prescribed by the board of directors.
Section 5.03 Payment for Shares. Shares shall be issued for such
------------------
consideration (but not less than the par value thereof) as shall be determined
from time to time by the board of directors. Treasury shares shall be disposed
of for such consideration as may be determined from time to time by the board.
Such consideration shall be paid in such form and in such manner as the
directors shall determine. In the absence of actual fraud in the transaction,
the judgment of the directors as to the value of such consideration shall be
conclusive. The capital stock issued by the corporation shall be deemed to be
fully paid and non-assessable stock if: (a) the entire amount of the
consideration has been received by the corporation in the form of cash, services
rendered, personal property, real property, leases of real property or a
combination thereof; or (b) not less than the amount of the consideration
determined to be capital pursuant to statute has been received by the
corporation in such form and the corporation has received a binding obligation
of the subscriber or purchaser to pay the balance of the subscription or
purchase price; provided, however, nothing contained herein shall prevent the
board of directors from issuing partly paid shares pursuant to statute. The
directors may, from time to time, demand payment in respect of each share of
stock not fully paid in the manner prescribed by statute. In addition, when the
whole of the consideration payable for shares of a corporation has not been paid
in, and the assets shall be insufficient to satisfy the claims of its creditors,
each holder of or subscriber for such shares shall be bound to pay on each share
held or subscribed for by him the sum necessary to complete the amount of the
unpaid balance of the consideration for which such shares were issued or are to
be issued by the corporation. No person becoming an assignee or transferee of
shares or of a subscription for shares in good faith and without knowledge or
notice that the full consideration therefor has not been paid shall be
personally liable for any unpaid portion of such consideration, but the
transferor shall remain liable therefor, and no person holding shares in any
corporation as collateral security shall be personally liable as a stockholder
but the person pledging such shares shall be considered the holder thereof and
shall be so liable. No executor, administrator, guardian, trustee or other
fiduciary shall be personally liable as a stockholder, but the estate or funds
held by such executor, administrator, guardian, trustee or other fiduciary in
such fiduciary capacity shall be liable.
Section 5.04 Lost Certificates. In case of the alleged loss, destruction
-----------------
or mutilation of a certificate of stock the board of directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as it may prescribe. The board of directors may in its
discretion require a bond in such form and amount and with such surety as it may
determine before issuing a new certificate.
Section 5.05 Transfer of Shares. Upon presentation and surrender to the
------------------
corporation or to a transfer agent of the corporation of a certificate of stock
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, payment of all transfer taxes, if any, and the
satisfaction of any other requirements of law, including inquiry into and
discharge of any adverse claims of which the corporation has notice, the
corporation or the transfer agent shall issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction on the
books maintained for such purpose by or on behalf of the corporation. No
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<PAGE>
transfer of shares shall be effective until it has been entered on such books.
The corporation or a transfer agent of the corporation may require a signature
guaranty or other reasonable evidence that any signature is genuine and
effective before making any transfer. Transfers of uncertificated shares shall
be made in accordance with applicable provisions of law.
Section 5.06 Registered Holders. The corporation shall be entitled to
------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
Section 5.07 Transfer Agents, Registrars and Paying Agents. The board of
---------------------------------------------
directors may at its discretion appoint one or more transfer agents, registrars
and agents for making payment upon any class of stock, bond, debenture or other
security of the corporation. Such agents and registrars may be located either
within or outside Delaware. They shall have such rights and duties and shall be
entitled to such compensation as may be agreed.
ARTICLE VI
Indemnification
Section 6.01 Definitions. For purposes of this Article, the following
-----------
terms shall have the meanings set forth below:
(a) The Corporation. The term "the corporation" means the
---------------
corporation and shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this Article with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(b) Other Enterprises. The term "other enterprises" shall
-----------------
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and the
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<PAGE>
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this Article.
Section 6.02 Right to Indemnification. The corporation may indemnify any
------------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. The corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnify for such expenses
which the Court of Chancery or such other court shall deem proper. Any
indemnification under this section (unless ordered by a court) shall be made by
the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in this section. Such determination shall be made (1) by a majority vote
of the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders.
Section 6.03 Successful on the Merits. To the extent that a director,
------------------------
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in section
6.02, or in defense of any claim, issue or matter therein,
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<PAGE>
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
Section 6.04 Advancement of Expenses. Expenses (including attorneys'
-----------------------
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this Article VI.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 6.05 Proceedings by a Party. The corporation shall indemnify or
----------------------
advance expenses to a party in connection with any proceeding (or part thereof)
initiated by the party only if such proceeding (or part thereof) was authorized
by the board of directors of the corporation.
Section 6.06 Subrogation. In the event of any payment under this
-----------
Article, the corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of the indemnified party, who shall execute all
papers and do everything that may be necessary to assure such rights of
subrogation to the corporation.
Section 6.07 Other Payments. The corporation shall not be liable under
--------------
this Article to make any payment in connection with any proceeding against or
involving a party to the extent the party has otherwise actually received
payment (under any insurance policy, agreement or otherwise) of the amounts
otherwise indemnifiable hereunder. A party shall repay to the corporation the
amount of any payment the corporation makes to the party under this Article in
connection with any proceeding against or involving the party, to the extent the
party has otherwise actually received payment (under any insurance policy,
agreement or otherwise) of such amount.
Section 6.08 Insurance. The corporation shall have power to purchase and
---------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under this Article.
Section 6.09 Other Rights and Remedies. The indemnification and
-------------------------
advancement of expenses provided by, or granted pursuant to this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
-15-
<PAGE>
Section 6.10 Applicability; Effect. The indemnification and advancement
---------------------
of expenses provided by, or granted pursuant to, this section shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 6.11 Severability. If any provision of this Article shall be
------------
held to be invalid, illegal or unenforceable for any reason whatsoever (a) the
validity, legality and enforceability of the remaining provisions of this
Article (including without limitation, all portions of any Sections of this
Article containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (b) to the fullest extent
possible, the provisions of this Article (including, without limitation, all
portions of any Section of this Article containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent of this
Article that each party covered hereby is entitled to the fullest protection
permitted by law.
ARTICLE VII
Miscellaneous
Section 7.01 Waivers of Notice. Whenever notice is required to be given
-----------------
by law, by the certificate of incorporation or by these bylaws, a written waiver
thereof, signed by the person entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting or (in the case of a stockholder) by proxy shall constitute
a waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting need be specified in any written waiver of notice unless required by
these bylaws to be included in the notice of such meeting.
Section 7.02 Presumption of Assent. A director or stockholder of the
---------------------
corporation who is present at a meeting of the board of directors or
stockholders at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director or stockholder who voted in
favor of such action.
Section 7.03 Voting of Securities by the Corporation. Unless otherwise
---------------------------------------
provided by resolution of the board of directors, on behalf of the corporation
the chief operating officer or any vice-president shall attend in person or by
substitute appointed by him, or shall execute written instruments appointing a
proxy or proxies to represent the corporation at, all meetings of the
stockholders of any other corporation, association or other entity in which the
corporation holds
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<PAGE>
any stock or other securities, and may execute written waivers of notice with
respect to any such meetings. At all such meetings and otherwise, the chief
operating officer or any vice-president, in person or by substitute or proxy as
aforesaid, may vote the stock or other securities so held by the corporation and
may execute written consents and any other instruments with respect to such
stock or securities and may exercise any and all rights and powers incident to
the ownership of said stock or securities, subject, however, to the
instructions, if any, of the board of directors.
Section 7.04 Loans to Employees and Officers; Guaranty of Obligations of
-----------------------------------------------------------
Employees and Officers. The corporation may lend money to, or guarantee any
- ----------------------
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of any corporation at
common law or under any statute.
Section 7.05 Seal. The corporate seal of the corporation shall be in
----
such form as adopted by the board of directors, and any officer of the
corporation may, when and as required, affix or impress the seal, or a facsimile
thereof, to or on any instrument or document of the corporation.
Section 7.06 Fiscal Year. The fiscal year of the corporation shall be as
-----------
established by the board of directors.
Section 7.07 Amendments. These bylaws may be amended or repealed and new
----------
bylaws adopted by the board of directors or by the stockholders entitled to
vote.
(END)
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<PAGE>
EXHIBIT 10.2
AMENDMENT TO GREENHOUSE LEASE AGREEMENT
THIS AMENDMENT TO GREENHOUSE LEASE AGREEMENT (this "Amendment"), dated as
of December 29, 1994, is between COLORADO POWER PARTNERS ("CPP"), a Colorado
general partnership and BRUSH GREENHOUSE PARTNERS ("BGP"), a Colorado general
partnership.
RECITALS
--------
A. CPP and BGP have previously entered into that certain Greenhouse Lease
Agreement dated as of June 8, 1989 (the "Greenhouse Lease").
B. Contemporaneously with this Amendment, BGP is entering into a
Greenhouse Operation and Management Agreement (the "O&M Agreement") with
Colorado Greenhouse Limited Liability Company ("Colorado Greenhouse"), a copy of
which agreement is attached hereto as Exhibit A. Pursuant to the O&M Agreement,
Colorado Greenhouse will manage the Premises and will make payments (including
Primary Fees and Contingent Fees) to BGP out of proceeds from the greenhouse
facility.
C. CPP and BGP desire to further amend the Greenhouse Lease in the manner
hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
---------
1. All capitalized terms used herein but not otherwise defined shall have
the meanings given to such terms in the Greenhouse Lease or the O&M Agreement,
as appropriate. The definitions of terms incorporated from the O&M Agreement by
the preceding sentence may not be amended in the O&M Agreement without the prior
written consent of CPP.
2. Recital B is hereby deleted and Recital C is amended to be Recital B.
3. Paragraph 6 a. is hereby deleted and replaced in its entirety with the
following:
a: Rental Amount. All rents otherwise due prior to January 1, 1995
-------------
have been restructured and satisfied. Beginning on or before April 30,
1995 and thereafter by the 30th day after the end of each calendar
quarter Tenant shall pay to Landlord as rent an amount equal to the
Primary Fee. As additional contingent rent, Tenant
<PAGE>
shall pay to Landlord within ten business days of receipt thereof by
Tenant any other amount owed to Tenant pursuant to the O&M Agreement
including, without limitation, amounts paid with respect to a Primary
Fee Deficiency or the Primary Fee Deficiency Balance.
4. Paragraph 6 b. is hereby deleted in its entirety.
5. Paragraph 6 c. is hereby amended to read in its entirety as follows:
b. Payment of Rental. Tenant shall pay all rental when due and
-----------------
payable, without any setoff, counterclaim, abatement, deduction or
prior demand therefor whatsoever. In addition, any rental which is not
paid within ten days after the same is due shall bear interest at a
default rate equal to the rate of interest (the "Prime Rate") publicly
announced or published from time to time by Morgan Guaranty Trust
Company of New York as its "prime rate" plus two percent 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 Colorado National Bank for deposit in the Revenue Account
(as such term is defined in the Amended and Restated Deposit and
Disbursement Agreement (the "Deposit and Disbursement Agreement")
among Landlord, Lender and Colorado National Bank. The payment of rent
and all other sums due hereunder is independent of each and every
other covenant and agreement contained in this Lease.
6. Paragraph 6 d. is hereby deleted and replaced in its entirety with the
following:
c. Limitation on Distributions. Subject to the exception provided in
---------------------------
Paragraph 23.M Four. 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 426,454.50. Such account
shall be maintained in the name of Colorado Power Partners/Brush
Greenhouse Partners at Colorado National Bank or such other financial
institution as may be designated by Landlord and reasonably acceptable
to Lender; and Tenant, Landlord and Colorado National Bank or such
other financial institution designated by Landlord and reasonably
acceptable to Lender, shall enter into
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<PAGE>
an escrow agreement acceptable to Landlord and Lender providing that
in the event the Primary Fee payable with respect to any calendar
quarter is less than one-quarter of the Allocated Percentage of
$3,429,092 (such difference, if any, being known herein as the
"Deficiency"), Landlord shall be entitled to withdraw from such escrow
account by transferring from such account to the Revenue Account (as
defined in the Deposit and Disbursement Agreement) an amount equal to
the Deficiency.
7. Paragraph 6 e. is hereby amended by changing "6 e." to 6 d."
8. Paragraph 21 is hereby amended by replacing the addresses for CPP and
BGP with the following:
Colorado Power Partners
4845 Pearl East Circle, Suite 400
Boulder, Colorado 80301-2474
Brush Greenhouse Partners
4845 Pearl East Circle, Suite 300
Boulder, Colorado 80301-2474
9. Except as amended or modified by this Amendment, the Greenhouse Lease
remains in full force and effect and is hereby ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COLORADO POWER PARTNERS
By: /s/ Edward J. Wetherbee
----------------------------------
__________________________________
Management Committee Member
BRUSH GREENHOUSE PARTNERS
By: /s/ Edward J. Wetherbee
----------------------------------
__________________________________
Management Committee Member
and
By: /s/ William E. Coleman
----------------------------------
__________________________________
Management Committee Member
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<PAGE>
EXHIBIT 10.3
SECOND AMENDMENT
TO GREENHOUSE LEASE AGREEMENT
THIS SECOND AMENDMENT TO GREENHOUSE LEASE AGREEMENT (this "Amendment"),
dated as of December 29, 1995, is between COLORADO POWER PARTNERS ("CPP"), a
Colorado general partnership, and BRUSH GREENHOUSE PARTNERS ("BGP"), a Colorado
general partnership.
Recitals
--------
A. CPP and BGP have previously entered into that certain Greenhouse Lease
Agreement dated as of June 8, 1989, and that certain Amendment to Greenhouse
Lease Agreement dated as of December 29, 1994 (the "First Amendment") (as so
amended the "Greenhouse Lease").
B. Contemporaneously with this Amendment, CPP, The Prudential Insurance
Company of America ("Prudential") and Pruco Life Insurance Company ("Pruco") are
entering into that certain Second Amended and Restated Construction and Term
Loan Agreement and that certain Restructuring Agreement, both dated as of
December 29, 1995 (together the "Restructuring Documents").
C. Pursuant to the Restructuring Documents, CPP has agreed to make
certain changes in the Greenhouse Lease and Prudential and Pruco have agreed to
consent to such changes. To implement such changes, CPP and BGP desire to
further amend the Greenhouse Lease in the manner hereinafter set forth.
IN CONSIDERATION of the above Recitals and other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
Agreement
---------
1. Paragraph 6.a is hereby amended by deleting the first sentence
thereof.
2. Paragraph 6.c is hereby amended by (i) inserting at the beginning of
the first sentence threof the following: "Subject to the exception provided in
Paragraph 23.m FOURTH," (ii) deleting in line 7 of the First Amendment, the
phrase "an amount equal to the Reserve Amount" and replacing it with
"$426,549.50"; and (iii) deleting in the 20th line the amount $2,740,000 and
replacing it with $3,429,092.
3. A new paragraph 6.e is hereby added as follows:
1
<PAGE>
e. Supplemental Rent Payments. Tenant agrees to pay to Landlord, in
--------------------------
addition to the rents payable under paragraph 6.a hereof and any
other amounts payable to the Landlord hereunder, supplemental
rent payments (the "Supplemental Rent Payments") for each
calendar quarter in each of the years set forth below in the
amount set forth opposite such year:
<TABLE>
<CAPTION>
Each Calendar Quarterly
Quarter in Supplemental Rent
Year Payment
------------- -----------------
<S> <C>
1996 $56,250
1997 $56,250
1998 $62,500
1999 $62,500
2000 $68,750
2001 $68,750
2002 $75,000
2003 $75,000
2004 $81,250
2005 $81,250
</TABLE>
The Supplemental Rent Payment for each calendar quarter shall be
due and payable by the 30th day after the end of such calendar
quarter. Tenant shall pay all Supplemental Rent Payments when
due and payable, without any set-off, counterclaim, abatement,
deduction or prior demand therefor whatsoever. In addition, any
Supplemental Rent Payment that is not paid within six months
after the same is due shall bear interest at a rate equal to the
greater of 12.21% or the Prime Rate plus two percent per annum
from the date six months after such payment is due until paid.
All payments of Supplemental Rent shall be made as provided in
paragraph 6.b.
5. The Greenhouse Lease is further amended by adding a new paragraph 23 m
as follows:
m. Use of Rent and Other Proceeds. Tenant agrees for the benefit of
------------------------------
the Landlord and any Lender that all monies received by Tenant
from any source whatsoever, including, without limitation, any
payments received by Tenant from Colorado Greenhouse LLC
("Colorado Greenhouse"), or any successor operator of the
Greenhouse, whether as Primary Fee, Contingent Fee, rent,
dividends or other distributions, reimbursement of loan proceeds
or otherwise shall be retained by Tenant until the next Rent
Payment Date (as hereinafter defined) and shall be applied by
---
Tenant on the 30th day after the end of each calendar quarter
("Rent Payment Date") according to the following priority:
2
<PAGE>
FIRST, to the payment of any rent due under Paragraph 6.a
hereof ("Rent") on such Rent Payment Date, any unpaid Rent
due prior to such Rent Payment Date, any other amount
payable to Landlord hereunder on or prior to such Rent
Payment Date (other than Supplemental Rent Payments and
interest thereon), and any accrued and unpaid interest on
any of the foregoing;
SECOND, if, pursuant to Paragraph 6.c, any amount has been
withdrawn from the escrow account referred to in Paragraph
6.c (the "Escrow Account"), an amount equal to the aggregate
amount withdrawn from the Escrow Account, less the aggregate
amount theretofor transferred for deposit in the Escrow
Account pursuant to this clause SECOND, shall be paid to the
escrow agent under the escrow agreement referred to in
Paragraph 6.c (the "Escrow Agent") for deposit in the Escrow
Account;
THIRD, to the payment of all obligations of Tenant (other
than Supplemental Rent Payments and interest thereof) to any
person which is not an Affiliate (as defined in the
Restructuring Documents) of Tenant due on such Rent Payment
Date;
FOURTH, to the distribution to owners of partnership
interests in Tenant in an amount not to exceed 30% of (i)
the cash available to Tenant on such Rent Payment Date, less
(ii) the amounts applied on such Rent Payment Date pursuant
to clauses FIRST, SECOND and THIRD, above;
FIFTH, to the payment of Supplemental Rent Payments due on
such Rent Payment Date, any unpaid Supplemental Rent
Payments due prior to such Rent Payment Date and any accrued
and unpaid interest thereon;
SIXTH, to Escrow Agent, for deposit in the Escrow Account,
to the extent necessary to cause the amount in the Escrow
Account to equal $426,559.50; and
SEVENTH, subject to having made the deposit into the Escrow
Account as required by paragraph 6.c, the remainder may be
made to the owners of partnership interests in Tenant.
Notwithstanding the foregoing, upon the receipt by Tenant from
Colorado Greenhouse of the reimbursement of the $615,000 of prior advances made
by Tenant to Colorado Greenhouse, as contemplated by Section 3.4(c) of the O&M
Agreement, Tenant may distribute up to $615,000 from such reimbursement to the
owners of partnership interests in Tenant.
3
<PAGE>
6. Except as amended and modified by this Amendment, the Greenhouse Lease
remains in full force and effect and is hereby ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
COLORADO POWER PARTNERS
By: CTI Partners I LLC, general partner
By: /s/ Edward J. Wetherbee
-------------------------------
Manager
and
By: Twombly Partners, general partner
By: /s/ Nicholas G. Muller
-------------------------------
Management Committee Member
and
PEARL EAST POWER PARTNERS L.P.
By: CTI Partners I LLC, general partner
By: /s/ Edward J. Wetherbee
-------------------------------
Manager
and
By: Twombly Partners, general partner
By: /s/ Nicholas G. Muller
-------------------------------
Management Committee Member
BRUSH GREENHOUSE PARTNERS
By: /s/ Edward J. Wetherbee
-------------------------------
Management Committee Member
4
<PAGE>
EXHIBIT 10.4
GREENHOUSE OPERATION AND
MANAGEMENT AGREEMENT
(BGP)
This GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT (this "Agreement")
is made and entered into as of December 29, 1994 to be effective January 1,
1994, between BRUSH GREENHOUSE PARTNERS, a Colorado general partnership ("BGP")
and COLORADO GREENHOUSE LIMITED LIABILITY COMPANY, a Colorado limited liability
company ("Colorado Greenhouse").
RECITALS
A. Colorado Power Partners, a Colorado general partnership ("CPP") is
the owner and developer of a 50 megawatt gas-fired cogeneration facility
consisting of an electrical generating facility (the "Power Plant") and an
approximately 18-acre greenhouse facility and related packing facility
(collectively, the "Greenhouse") located in Brush, Colorado.
B. CPP and BGP have previously entered into a Greenhouse Lease
Agreement, dated as of June 8, 1989 (the "Greenhouse Lease"), a copy of which is
attached hereto as Exhibit A, pursuant to the terms of which CPP leased the
Greenhouse to BGP.
C. BGP has previously entered into a Greenhouse Management Agreement,
dated as of March 26, 1989, and as amended on August 16, 1989, and as further
amended on June 19, 1990 and July 11, 1990 (collectively, the "Management
Agreement") with Spring Gardens, Inc. ("Spring Gardens") pursuant to the terms
of which BGP retained Spring Gardens to manage the Greenhouse.
D. Spring Gardens' duties under the Management Agreement were
terminated pursuant to a Second Amendment to Greenhouse Management Agreement,
dated as of August 1, 1992, among BGP, Spring Gardens, Blaine B. Ford and CPP
Engineers and Constructors.
E. BGP and Colorado Greenhouse desire to enter into this Agreement in
order for BGP to engage Colorado Greenhouse to operate and manage the Greenhouse
on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
-1-
<PAGE>
AGREEMENT
Article 1. Engagement of Colorado Greenhouse.
---------------------------------------------
BGP hereby engages Colorado Greenhouse, and Colorado Greenhouse hereby
agrees to be engaged by BGP, to operate and manage the Greenhouse in accordance
with the terms and conditions of this Agreement.
Article 2. Definitions.
-----------------------
Unless otherwise specifically set forth in this Agreement, the
Definitions that shall apply are as set forth in this Article 2.
"Allocated Percentage" means the percentage set forth in Exhibit B
--------------------
attached hereto, as the same may be amended from time to time as provided in
Section 15.15.
"Annual Operating Budget" means an operating budget submitted by
-----------------------
Colorado Greenhouse to BGP and approved by BGP for two year operating periods
beginning with the Commencement Date, showing for each month of the following
two years (or, as the case may be, for the balance of the current calendar year
and then for the following calendar year) Greenhouse Revenues and Greenhouse
Operating Expenses.
"Applicable Laws" means all laws, treaties, ordinances, judgments,
---------------
decrees, injunctions, writs and orders of any court, arbitrator or governmental
agency or authority and rules, regulations, orders, interpretations and permits
of any federal, state, county, municipal, regional, environmental or other
governmental body, instrumentality, agency, authority, court or other body
having jurisdiction over performance of the Services to be performed hereunder,
or operation of the Greenhouse, as may be in effect and as amended from time to
time.
"Applicable Permits" means all permits, licenses and similar items
------------------
required to be obtained or maintained in connection with performance of the
Services to be performed hereunder, or operation of the Greenhouse, as may be in
effect from time to time and as amended from time to time.
"BGPII" means Brush Greenhouse Partners II Limited Liability Company, a
-----
Colorado limited liability company.
"BGPII Greenhouse" means the greenhouse leased to BGPII and to be
----------------
operated by Colorado Greenhouse, located adjacent to the Facility.
-2-
<PAGE>
"Colorado Greenhouse Gross Margin" means, with respect to any calendar
--------------------------------
year, Net Revenues for such year minus (a) the aggregate Primary Fee for such
year and (b) the aggregate primary fees for such year paid by Colorado
Greenhouse with respect to the Other Greenhouses.
"Colorado Greenhouse Operating Expenses" mean, with respect to any
--------------------------------------
period, the following amounts incurred (or accrued in accordance with prudent
accounting practices and the Annual Operating Budget) by Colorado Greenhouse
during such period in connection with the operation and management of the
Greenhouse and the Other Greenhouses (to the extent not reimbursed by BGP, CPP
or a third party): (i) all greenhouse labor and general and administrative
labor expenses, including all salaries, employee benefits (including related
taxes and contributions) and other compensation paid to Colorado Greenhouse's
employees and independent contractors, (ii) all packaging and delivery expenses,
(iii) all direct costs including propagation materials, seed, fertilizer,
fungicides, insect, biological, bee and CO costs, (iv) all operating expenses
including utilities (including costs of water), repairs and maintenance and
equipment leases, (v) insurance premiums, (vi) fees for accounting, legal and
other professional services, (vii) general and administrative expenses, (viii)
permitting fees and expenses, (ix) payments made with respect to loans made to
Colorado Greenhouse in connection with its formation and operations, (x) sales
and marketing expenses, and (xi) all other cash expenditures relating to the
operation, management, repair and maintenance costs of the Greenhouse and the
Other Greenhouses.
"Colorado Greenhouse Revenues" mean, with respect to any period, all
----------------------------
revenues and payments made to Colorado Greenhouse during such period in
connection with the operation of the Greenhouse and the Other Greenhouses,
including, without limitation, all amounts payable or owed to Colorado
Greenhouse under contracts relating to the Greenhouse and the Other Greenhouses,
all other payments received by Colorado Greenhouse from the sale of vegetables
or other produce or crops produced by the Greenhouse and the Other Greenhouses,
and proceeds received from business interruption insurance.
"Commencement Date" means the earlier of (i) the date specified by BGP
-----------------
in a written notice to Colorado Greenhouse or (ii) the date on which BGP
notifies Colorado Greenhouse that the Greenhouse is available for use.
"Contingent Fee" means an amount, payable within 30 days after the end
--------------
of each calendar year during the term of this Agreement, equal to either (a) the
Allocated Percentage of Colorado Greenhouse Gross Margin or (b) such lesser
amount as is necessary to
-3-
<PAGE>
cause the balance on deposit in the Reserve Account to equal the Reserve Amount.
"Facility" means the Power Plant and the Greenhouse.
--------
"FERC Order" means the Order Granting Application for Certification as
----------
a Qualifying Cogeneration Facility issued May 8, 1989, by the Federal Energy
Regulatory Commission, as the same may be amended, supplemented or replaced.
"Ft. Lupton Greenhouse" means the greenhouse leased to Rocky Mountain
---------------------
and to be operated by Colorado Greenhouse, located in Ft. Lupton, Colorado.
"Good Greenhouse Practices" mean the practices, methods and acts that
-------------------------
are applied by prudent operators of cogeneration facility related greenhouses in
a manner consistent with applicable industry codes, standards and regulations,
and Applicable Laws, and designed to optimize productivity, reliability, safety,
environmental protection, economy and expediency.
"Greenhouse Operating Expenses" mean, with respect to any period, the
-----------------------------
following amounts incurred (or accrued in accordance with prudent accounting
practices and the Annual Operating Budget) by Colorado Greenhouse during such
period in connection with the operation and management of the Greenhouse (to the
extent not reimbursed by BGP, CPP or a third party): (i) all greenhouse labor
and general and administrative labor expenses, including all salaries, employee
benefits (including related taxes and contributions) and other compensation paid
to Colorado Greenhouse's employees and independent contractors, (ii) all
packaging and delivery expenses, (iii) all direct costs including propagation
materials, seed, fertilizer, fungicides, insect, biological, bee and CO costs,
(iv) all operating expenses including utilities (including water), repairs and
maintenance and equipment leases, (v) insurance premiums, (vi) fees for
accounting, legal and other professional services, (vii) general and
administrative expenses, (viii) permitting fees and expenses, (ix) sales and
marketing expenses, and (x) all other cash expenditures relating to the
operation, management, repair and maintenance costs of the Greenhouse.
"Greenhouse Revenues" mean, with respect to any period, all revenues
-------------------
and payments made to Colorado Greenhouse during such period in connection with
the operation of the Greenhouse, including, without limitation, all amounts owed
to Colorado Greenhouse under contracts relating to the Greenhouse, all other
payments received by Colorado Greenhouse from the sale of vegetables or other
produce or crops produced by the Greenhouse and proceeds received from business
interruption insurance with respect to the Greenhouse.
-4-
<PAGE>
"Lender" means, collectively, the lender(s) providing the construction
------
and long-term financing for the Facility pursuant to the Loan Agreement
(including any other refinancing thereof), and any trustee or agent acting on
their behalf.
"Loan Agreement" means the agreement between CPP and the Lender
--------------
providing financing for construction and operation of the Facility, as such
agreement may be amended or supplemented from time to time.
"Other Greenhouses" mean, collectively, the BGPII Greenhouse and the
-----------------
Ft. Lupton Greenhouse (to the extent that the above are being operated and
managed by Colorado Greenhouse), or such other greenhouses as Colorado
Greenhouse may operate or manage during the term of this Agreement with the
consent of BGP and CPP.
"Net Revenues" mean, with respect to any period, Colorado Greenhouse
------------
Revenues minus Colorado Greenhouse Operating Expenses for such period.
"Party or Parties" means BGP or Colorado Greenhouse or both, as the
----------------
context may require.
"Primary Fee" means an amount, payable within 30 days after the end of
-----------
each calendar quarter during the term of this Agreement, equal to the Allocated
Percentage of Net Revenues, which amount shall not exceed (i) $500,000 for 1994
or (ii) the Allocated Percentage of $2,740,000 for any calendar year thereafter.
"Primary Fee Deficiency" means an amount, to be calculated by BGP
----------------------
within 30 days of the end of each calendar year during the term of this
Agreement, equal to the amount, if any, by which the Allocated Percentage of
$2,740,000 exceeds the aggregate payments made on account of the Primary Fee for
such calendar year.
"Primary Fee Deficiency Balance" means an amount determined at any time
------------------------------
equal to the difference between (a) the sum of each prior year's Primary Fee
Deficiency minus (b) the sum of all amounts withdrawn during the term of this
Agreement from the Reserve Account and applied against a Primary Fee Deficiency
or the Primary Fee Deficiency Balance.
"Program" means the program for marketing, production and maintenance
-------
of the Greenhouse as prepared by Colorado Greenhouse and reviewed and approved
at least annually by BGP, which program shall cover the marketing, production
and maintenance necessary for the Greenhouse (including capital improvements
which shall be specified as such), a detailed staffing plan providing for the
necessary personnel and all other matters relevant to the operation of the
Greenhouse and Colorado Greenhouse's duties under this Agreement.
-5-
<PAGE>
"Project Documents" mean any and all agreements, contracts and permits,
-----------------
now or hereafter existing, relating to or affecting the operation of the
Greenhouse, as the same may be amended, supplemented or replaced from time to
time.
"Qualifying Facility" means a facility meeting all of the requirements
-------------------
for a "qualifying cogeneration facility" set forth in the regulations
implementing the Public Utility Regulatory Policies Act of 1978, as amended from
time to time, and in Part 292 of Title 18 of the Code of Federal Regulations, as
amended from time to time.
"Reserve Account" means the account entitled "Greenhouse Reserve
---------------
Account" to be maintained by BGP.
"Reserve Amount" means an amount equal to the product of the Allocated
--------------
Percentage of $2,740,000.
"Rocky Mountain" means Rocky Mountain Produce Limited Liability
--------------
Company, a Colorado limited liability company.
"Services" mean the services and work performed by Colorado Greenhouse
--------
according to the terms and conditions of this Agreement, including, without
limitation, the work described in Article 3 as the duties of Colorado Greenhouse
and specified in the Program.
"Subcontractor" means, in relation to Colorado Greenhouse, any
-------------
individual, firm, organization, or supplier under contract to Colorado
Greenhouse for the performance of any part of Colorado Greenhouse's Services,
provided that any such contract under which Colorado Greenhouse has payment
obligations in excess of $250,000 in the aggregate in any one year period or
material liabilities or risks to the Greenhouse shall be subject to prior
approval by BGP.
"Uncontrollable Forces" mean any cause beyond the control of the Party
---------------------
affected, including but not limited to acts of God, flood, earthquake, storm,
fire, lightning, explosion, epidemic, war, riot, civil disturbance, sabotage,
and restraint by court order or public authority, strike or labor disturbance,
which by exercise of due foresight such Party could not reasonably have been
expected to avoid, and which by exercise of due diligence it is unable to
overcome. Neither Party shall, however, be relieved of liability for failure of
performance if such failure is due to causes arising out of its own negligence
or to removable or remediable causes which it fails to remove or remedy with
reasonable dispatch.
Article 3. Duties of Colorado Greenhouse.
- -----------------------------------------
3.1. Enumeration of Duties. Colorado Greenhouse hereby agrees to
---------------------
perform the activities as generally described in this
-6-
<PAGE>
Article, and as contained elsewhere in this Agreement related to the operation
and management of the Greenhouse consistent with the Annual Operating Budget and
the Program. From and after the Commencement Date, Colorado Greenhouse shall,
subject to BGP's discretion:
(a) Safely and efficiently operate and maintain the Greenhouse in
accordance with (i) the Annual Operating Budget, (ii) the Program and (iii)
operations and maintenance manuals and warranties and procedures provided by the
contractor for the Greenhouse.
(b) Continuously operate the Greenhouse exclusively for the growing,
processing, packaging and marketing of tomatoes and other greenhouse vegetables
as provided in the Greenhouse Lease, a copy of which is attached hereto as
Exhibit A.
(c) Assume and comply with the obligations of BGP under the
Greenhouse Lease (excluding the obligation to pay rent and establish rent
reserves) including, without limitation, utilizing the thermal heat from the
Power Plant in such quantities and for such purposes as necessary to maintain
the Qualifying Facility status of the Facility, provided, however, that such
quantities must be practicable without enlargement or other material alteration
of the Greenhouse or if enlargement or material alteration is required then the
cost thereof must be borne by BGP or other third parties. Upon request by BGP,
Colorado Greenhouse will provide satisfactory evidence of its compliance with
such lease terms.
(d) Pay, as the same become due, the Greenhouse Operating Expenses.
(e) Use its best efforts to market the produce from the Greenhouse.
(f) Employ, pay, train and supervise that number of personnel in
accordance with the staffing requirements set forth in the Annual Operating
Budget, and plan and administer all matters pertaining to such employed
personnel in the areas of labor relations, salaries, wages, working conditions,
hours of work, termination of employment, employee benefits, safety and related
matters. Colorado Greenhouse shall use reasonable care in the hiring of all its
employees. All employees shall be employees of Colorado Greenhouse and their
wages or other compensation shall be controlled and disbursed by Colorado
Greenhouse.
(g) Repair or replace, as may be necessary in accordance with a
manufacturer's directions, Good Greenhouse Practices and in a good and
workmanlike manner any Greenhouse equipment that fails or malfunctions (except
as otherwise provided in Section 4.1(d) of this
-7-
<PAGE>
Agreement). If any such failure or malfunction is covered by a warranty,
Colorado Greenhouse shall submit a timely warranty claim on behalf of BGP.
(h) Subject to BGP's approval as required for a Subcontractor, engage
any independent contractors necessary for making repairs to, or performing
maintenance on, or installing improvements to the Greenhouse in the event that
Colorado Greenhouse is not available or is otherwise unable to make or perform
such repairs, maintenance or installations.
(i) Maintain accurate records of all changes to the Greenhouse and up
to date as-built drawings of the Greenhouse reflecting such changes.
(j) Maintain regular communication with BGP, regarding the operation
and management of the Greenhouse, including monthly production and sales
reports, safety reports and other reports reasonably requested by BGP,
specifying all operations at the Greenhouse during such period and noting any
other material occurrences or operational results, and communicate in each
instance, either by telephone or in writing, material changes in the anticipated
operation of the Greenhouse or the marketing of produce therefrom, maintenance
problems related to the Greenhouse and any notice or knowledge of violation or
variance of any Applicable Law or Applicable Permit.
(k) Make, in the name of BGP, contracts for janitorial, water,
electricity, telephone and other applicable services, or such of them as
Colorado Greenhouse shall deem advisable, and place orders for such equipment,
tools, appliances, materials and supplies as are necessary to properly maintain
and operate the Greenhouse.
(l) Maintain a system of office records, books, and accounts with
respect to the Greenhouse as required by the Loan Agreement, which records shall
be subject to examination by BGP, CPP and the Lender or authorized agents or
designees of each during all regular business hours. Records, books, and
accounts shall be kept for a minimum of five years. So long as Colorado
Greenhouse operates all or any of the Other Greenhouses, Colorado Greenhouse
shall allocate costs and revenues for the Greenhouse in accordance with the
Allocation Percentage set forth on Exhibit B attached hereto.
(m) Be cognizant of and adhere to the requirements set forth in the
Project Documents insofar as they relate to the operation of the Greenhouse and
the duties of Colorado Greenhouse under this Agreement.
-8-
<PAGE>
(n) Prior to the Commencement Date, submit to BGP a proposed Annual
Operating Budget for the year in which this Agreement commences and the
following year and cooperate with BGP to review and modify the same as necessary
to obtain the approval of BGP's Management Committee prior to the Commencement
Date; and thereafter submit to BGP a proposed Annual Operating Budget by
November 1 of each year for the following two-year period and cooperate with BGP
to review and modify the same as necessary to obtain the approval of BGP's
Management Committee by December 1 of each year. If for any reason the approval
of BGP's Management Committee is not so obtained, the Annual Operating Budget
previously approved shall, until the approval of an Annual Operating Budget for
the following two-year period, be deemed to be in force and be effective as the
Annual Operating Budget for such year.
(o) Review all federal, state and local laws and regulations
establishing compliance requirements in connection with the operation and
management of the Greenhouse. Advise BGP on the need to secure or renew, as
necessary, appropriate permits, licenses and approvals, and assist BGP in
securing as appropriate, such permits, licenses and renewals as required.
(p) Keep the Greenhouse free of all materialmen's, mechanics' and
other liens for materials or services furnished to the Greenhouse at Colorado
Greenhouse's direction.
(q) Pay all real estate taxes attributable to the Greenhouse (as
equitably apportioned by BGP provided that in no event shall Colorado Greenhouse
be obligated for any portion of real estate or property taxes attributable to
the heat storage units or the heat generating portions of the Facility) within
five days of receipt of an invoice submitted by BGP. In addition, Colorado
Greenhouse shall be responsible for all taxes payable to the appropriate taxing
authorities for any sales, excise or other tax levied, imposed or assessed in
the State of Colorado or by any other taxing authority in connection with the
operation of the Greenhouse and the sale of produce therefrom.
(r) By November 1 of each year, submit to BGP a proposed Program and
cooperate with BGP to review and modify the same as necessary to obtain the
approval of BGP's Management Committee.
(s) Perform other normal business functions and otherwise operate and
manage the Greenhouse in accordance with and as limited by the Greenhouse Lease
and this Agreement.
3.2 Limitations on Authority. Notwithstanding any provision of this
------------------------
Agreement to the contrary, unless previously expressly approved in the Annual
Operating Budget or otherwise approved in writing by BGP, Colorado Greenhouse or
any
-9-
<PAGE>
Subcontractor, or any of their respective agents or representatives, shall not:
(a) sell, lease, pledge or mortgage, convey, or make any license,
exchange or other transfer of property or assets of BGP;
(b) make, enter into, execute, amend, modify or supplement any
contract or agreement on behalf of or in the name of BGP;
(c) make any recoverable expenditure or acquire on a recoverable cost
basis any equipment, materials, assets or other items, except for emergency
expenditures and except in substantial conformity with the Annual Operating
Budget and the Program; it being understood and agreed that Colorado Greenhouse
shall not be entitled to reimbursement for any expenditures not made in
accordance with this paragraph (c);
(d) take or agree to take any other action that materially varies
from the applicable Annual Operating Budget, the Program or any Applicable Law;
(e) take, agree to take or fail to take any action that would cause a
default under the Project Documents;
(f) settle, compromise, assign, pledge, transfer, release or consent
to the settlement, compromise, assignment, pledge, transfer or release of any
claim, suit, debt, demand or judgment against or due by BGP or Colorado
Greenhouse, or submit any such claim, dispute or controversy to arbitration or
judicial process, or stipulate in respect thereof to a judgment, or consent to
do the same;
(g) modify or alter the type of crop grown in the Greenhouse.
3.3 Limitation on Other Activities. During the term of this Agreement,
------------------------------
Colorado Greenhouse shall not:
(a) engage in any business or activity or make any investments
(either directly or indirectly) other than operating and managing the Greenhouse
and the Other Greenhouses, growing crops therein and marketing such crops and
products thereof;
(b) make any alterations, renovations, improvements or other
installations in or about any part of the Greenhouse in excess of $25,000 unless
and until Colorado Greenhouse shall cause plans and specifications therefor to
have been reviewed by BGP and shall have obtained BGP's written approval
thereof. If approval is
-10-
<PAGE>
granted, Colorado Greenhouse shall cause the work described in such plans and
specifications to be performed, at its expense, promptly, efficiently,
completely and in a good and workmanlike manner by duly qualified or licensed
persons or entities. All such work shall comply with all applicable codes,
rules, regulations and ordinances. Ordinary and customary repairs and
replacements in and on the Greenhouse shall be promptly undertaken and promptly
completed and need not have BGP's prior approval, unless such repairs or
replacements materially decrease the value of usefulness of the Greenhouse or
the Facility;
(c) without the prior written consent of BGP, agree to any increase of
the fees to be paid by Colorado Greenhouse under the greenhouse management and
operating agreements for the Other Greenhouses; or
(d) without the prior written consent of BGP and CPP, cause any
greenhouse or other business to be treated under this Agreement as an Other
Greenhouse except the BGP II Greenhouse, the Ft. Lupton Greenhouse and that
certain greenhouse near Rifle, Colorado built in connection with the American
Atlas cogeneration project.
3.4 Payments by Colorado Greenhouse. (a) During the term of this
-------------------------------
Agreement, Colorado Greenhouse shall pay BGP, on a timely basis (i) the Primary
Fee and (ii) the Contingent Fee, provided, however, that no Primary Fee shall be
due hereunder for any calendar quarter until the calendar quarter in which rent
is first due under the Greenhouse Lease. Any amount which is not paid within
ten days after the same is due shall bear interest at a default rate equal to
the rate of interest publicly announced or as published from time to time by
Bank of America NT and SA as its "reference rate" plus six percent per annum
from the first day due until paid.
(b) BGP and Colorado Greenhouse understand and agree, that except as
provided in this Section 3.4, all amounts paid on account of the Contingent Fee
shall be used by BGP as requested by CPP under the Greenhouse Lease. Without
limiting the foregoing, BGP shall withdraw from the Reserve Account, annually,
the lesser of (y) all of the funds in such account or (x) an amount equal to the
sum of (i) the Primary Fee Deficiency for such year and (ii) an amount equal to
the Primary Fee Deficiency Balance.
(c) In addition to the foregoing payments, Colorado Greenhouse shall
reimburse BGP for prior advances made to Colorado Greenhouse in connection with
its formation and start-up in the total amount of $615,000. Such amount
together with interest on any unpaid portion of such amount accruing from
January 1, 1995 at an annual rate of eight percent shall be payable as follows:
$375,000 plus accrued interest shall be paid on or before December 31, 1996
-11-
<PAGE>
and $240,000, or such other amount of remaining principal as shall be then
outstanding plus accrued interest shall be paid on or before December 31, 1997.
Article 4. Duties of BGP.
- -------------------------
4.1. Enumeration of Duties. The following shall be BGP's
---------------------
responsibility to provide in support of the uninterrupted operation and
maintenance of the Greenhouse:
(a) Use reasonable efforts to maintain the Greenhouse Lease or any
replacement contracts for the supply of thermal heat in sufficient quantities to
maintain the Facility's FERC Order.
(b) Providing a liaison person(s) available to Colorado Greenhouse
twenty-four hours per day, authorized to make decisions on the part of BGP.
(c) Enforcing diligently any claim BGP may have under insurance
policies, equipment guarantees and warranties pertaining to the Greenhouse.
(d) Paying for capital improvements as set forth in the Program.
Except as otherwise agreed by Colorado Greenhouse, BGP shall pay for all capital
improvements which (i) the Parties agree are required for continued usefulness
of the Greenhouse and (ii) are required in connection with the expansion of the
Greenhouse to maintain compliance with the FERC Order. Any other improvements
that are made at the request of Colorado Greenhouse or that, in BGP's reasonable
judgment, are to be made solely for the purpose of enhancing Colorado
Greenhouse's growing programs, shall be made at Colorado Greenhouse's cost and
expense, and may be made only with the prior written consent of BGP.
Article 5. Term.
- ----------------
5.1. Term. This Agreement shall continue for a term equal to the term
----
of the Greenhouse Lease, unless sooner terminated as hereinafter provided.
5.2. Termination Upon Default. If any of the following events occur,
------------------------
BGP shall have the right upon written notice to Colorado Greenhouse, to
terminate this Agreement:
(a) If Colorado Greenhouse defaults in the performance of any
obligation under this Agreement (other than the obligations under Section 3.4 of
this Agreement) and such default is not cured by Colorado Greenhouse within 5
days after receipt of a notice specifying the default.
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<PAGE>
(b) If (i) the Primary Fee Deficiency Balance exceeds $1,000,000
at any time before December 31, 1996, (ii) the Primary Fee Deficiency for
calendar year 1997 or any year thereafter exceeds $500,000 or (iii) the Primary
Fee Deficiency Balance exceeds $750,000 at any time after January 1, 1998.
(c) If Colorado Greenhouse is adjudicated a bankrupt or insolvent
and such adjudication is not vacated within ten (10) days.
(d) The filing of a voluntary or involuntary bankruptcy or
insolvency petition of Colorado Greenhouse or the reorganization of Colorado
Greenhouse whether pursuant to the federal Bankruptcy Act or any similar federal
or state proceedings, unless such petition is filed by a party other than
Colorado Greenhouse and is withdrawn or dismissed within 30 days after the date
of filing.
(e) The appointment of a receiver or trustee for the business or
property of Colorado Greenhouse, unless such appointment shall be vacated within
ten days of its entry.
(f) The making by Colorado Greenhouse of an assignment for the
benefit of its creditors, or in any other manner Colorado Greenhouse's interests
in this Agreement shall pass to another by operation of law.
5.3. Payment of Expenses and Allocation of Crops After Termination.
-------------------------------------------------------------
Except as set forth in this Section 5.3 and except for Colorado Greenhouse's
obligations under Article 7 and Article 11, on the effective date of a
termination, BGP and Colorado Greenhouse shall be relieved of all obligations
thereafter accruing under this Agreement. Notwithstanding such termination,
neither Party shall be relieved from any obligations or liabilities accruing
prior to the effective date of termination, including in the case of Colorado
Greenhouse, its obligation to make payment to BGP of all sums due BGP under this
Agreement. After the effective date of a termination BGP shall either grant
Colorado Greenhouse such use of the Greenhouse as is necessary to care for and
harvest any crop planted before such date or compensate Colorado Greenhouse for
the value of such crop as of the effective date of termination, subject to any
right of offset that BGP may have for amounts owed to it hereunder.
5.4. Termination Upon Loan Agreement Default. If there has been an
---------------------------------------
event of default under the Loan Agreement, then Lender or any successor owner of
the Facility may terminate this Agreement upon ten days advance written notice.
The provisions of this Section 5.4 were made for the express benefit of the
Lender as a third party beneficiary, and subject to the terms and conditions of
-13-
<PAGE>
this Section 5.4, the Lender shall have the right to exercise and enforce the
rights granted to it herein.
5.5. Termination of Greenhouse Lease. In the event that the Greenhouse
-------------------------------
Lease is terminated for any reason whatsoever, this Agreement shall
automatically terminate without any further act or instrument.
5.6. Surrender of Greenhouse. Upon the termination of this Agreement
-----------------------
but subject to the terms of Section 5.3, Colorado Greenhouse will surrender the
Greenhouse in as good condition as when received, excepting depreciation caused
by ordinary wear and tear.
5.7. Training of New Personnel. Upon termination of this Agreement,
-------------------------
Colorado Greenhouse will make available to BGP one qualified employee for a
period of two months after the termination of this Agreement for the purpose of
training new personnel in the operation and management of the Greenhouse.
Article 6. BGP's Right to Audit.
- --------------------------------
BGP shall have the right, at any time and from time to time to audit or
cause an independent audit to be made of Colorado Greenhouse's books and records
for the purposes of verifying compliance with the provisions of this Agreement.
In the event that any such audit indicates that Colorado Greenhouse underpaid
any amount due to BGP under this Agreement, Colorado Greenhouse shall pay such
additional sum and such audit shall be deemed to be binding and conclusive,
unless a request is made, within fifteen days after receipt of a copy of such
audit by Colorado Greenhouse, for a consultation with such auditors. Such
audit, after consultation and modification, if any, shall be binding and
conclusive unless the consultation results in irreconcilable differences with
respect to any material item in the report. In such event, the disputed item
will be submitted to a firm of independent certified public accountants,
acceptable to BGP, for resolution, and the fees of such firm shall be paid
equally by Colorado Greenhouse and BGP, unless Colorado Greenhouse is obligated
for full payment pursuant to this Article 6. If the submission to the
independent certified public accountants results in changes in the audit report,
the report as so changed shall be binding and conclusive. In the event that the
audit indicates that there were deficiencies in the aggregate amount of $10,000
or more in the amounts which should have been paid by Colorado Greenhouse to BGP
pursuant to this Agreement, Colorado Greenhouse shall pay all costs of audits
incurred by BGP under this Article 6 together with interest on the amount of the
deficiency payable at the interest rate set forth in Section 3.4(a) of this
Agreement.
-14-
<PAGE>
Article 7. Exclusive Warranties; Remedies.
- ------------------------------------------
7.1. Warranty. Colorado Greenhouse warrants to BGP that the Services
--------
performed under this Agreement shall be performed in a competent, prudent and
efficient manner, in accordance with this Agreement, Good Greenhouse Practices,
all warranties and procedures for the Greenhouse and all safety, fire protection
and other requirements of applicable insurance policies.
7.2. No Consequential Damages. In no event shall Colorado Greenhouse,
------------------------
BGP or any of their respective affiliates, owners, members, managers, employees
or agents, be liable for any consequential, incidental or special damages or any
other liabilities not expressly set forth herein, regardless of whether based on
contract, warranty, indemnity, tort, strict liability or otherwise.
7.3. No limitation on Claims Against Third Parties. Nothing contained
---------------------------------------------
in this Article 7 or any other provision of this Agreement shall be deemed to
waive, limit or impair in any way any claims that BGP may have against
Subcontractors, manufacturers of equipment or any other person.
Article 8. Insurance.
- ---------------------
8.1. Colorado Greenhouse's Coverage. At all times after the
------------------------------
Commencement Date, Colorado Greenhouse will carry and maintain, at its expense:
(a) public liability insurance including insurance against
assumed or contractual liability under this Agreement, in such amount as BGP may
request.
(b) all-risk casualty insurance covering all of the personal
property in, on or about the Greenhouse including all improvements installed in,
on or about the Greenhouse by or on behalf of Colorado Greenhouse, in such
amounts as BGP may request;
(c) if and to the extent required by law, workers compensation or
similar insurance in form and amounts required by law; and
(d) such other insurance as BGP may require, including, but not
limited to, insurance that BGP or CPP is required to provide pursuant to the
terms of any applicable credit agreement affecting the Facility.
8.2. Subcontractor's Coverage. Colorado Greenhouse shall require all
------------------------
of its Subcontractors engaged in work at the Greenhouse to maintain insurance
coverage of the types and in the amounts at
-15-
<PAGE>
least equal to the insurance coverage that Colorado Greenhouse is required to
maintain in accordance with Section 8.1 above.
8.3. Umbrella Coverage. Umbrella coverage may cover any portion of the
-----------------
limits of liability required in Sections 8.1 and 8.2 above, provided it has all
the coverages and requirements for the type of coverage.
8.4. Insurance Provisions. The company or companies writing such
--------------------
insurance policies, as well as the form of such insurance shall at all times be
subject to BGP's approval. Public liability and all-risk casualty insurance
policies evidencing such insurance shall name BGP or its designee as additional
insureds, and shall contain such other provisions and endorsements as BGP may
request.
8.5. Evidence of Insurance. Before the date on which such insurance
---------------------
first is required to be carried by Colorado Greenhouse, and thereafter, at least
30 days before the effective date of any renewal of any such policy, Colorado
Greenhouse will deliver to BGP either a duplicate original of the aforesaid
policy or a certificate evidencing such insurance.
Article 9. Applicable Permits.
- ------------------------------
All Applicable Permits shall be obtained and maintained by Colorado
Greenhouse on behalf of BGP. BGP shall cooperate with Colorado Greenhouse in
the securing of such Applicable Permits.
Article 10. Applicable Laws.
- ----------------------------
10.1. Applicable Laws. Colorado Greenhouse shall operate and
---------------
maintain the Greenhouse in conformance with all Applicable Laws and Applicable
Permits, including without limitation the disposing of any hazardous waste
generated by the Greenhouse in accordance with all Applicable Laws.
10.2. Changes in Laws. Colorado Greenhouse shall comply with
---------------
applicable changes in the Applicable Laws and shall inform BGP of such changes.
To the extent that such changes require alterations in the Greenhouse
configuration, operation, maintenance procedures or other aspects of Greenhouse
operation and maintenance, the cost thereof shall be borne by BGP. The parties
acknowledge that any material alteration in the Greenhouse may necessitate a
change in the Allocated Percentage for the Greenhouse and each of the Other
Greenhouses.
-16-
<PAGE>
Article 11. Indemnification.
- ----------------------------
11.1. Indemnification by Colorado Greenhouse. (a) Colorado
--------------------------------------
Greenhouse shall indemnify and hold harmless BGP and its partners and their
respective affiliates, officers, directors, managers, shareholders, partners,
employees and agents, from any loss, liability or damage incurred or suffered by
any such person by reason of Colorado Greenhouse's failure to perform its
obligations hereunder or its negligence or willful misconduct, including,
without limitation, any judgment, award or settlement, other costs and expenses,
and reasonable attorneys' fees incurred in connection with the defense of any
actual or threatened claim or action based on any such act or omission, unless
such loss, liability or damage results from such indemnified person's fraud,
negligence or willful misconduct. Such attorneys' fees shall be paid as
incurred.
(b) Colorado Greenhouse shall indemnify and hold harmless BGP and
Lender and their respective affiliates, officers, directors, managers,
shareholders, members, employees and agents from any and all liability, claims,
demands, actions and causes of action whatsoever (including without limitation
reasonable attorneys' fees and expenses, and costs and expenses reasonably
incurred in investigating, preparing or defending against any litigation or
claim, action, suit, proceeding or demand of any kind or character) arising out
of or related to alleged contamination of the property underlying the Facility
(the "Premises") by any hazardous or toxic substance, pollutant or contaminant,
or alleged injury or threat of injury, to health, safety or the environment, or
alleged noncompliance with any federal, state and local environmental statutes,
regulations, ordinances, and any permits, approvals or judicial or
administrative orders issued thereunder, giving rise to liability under any
federal, state or local environmental statutes or ordinances, including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S)(S) 9601 et seq., as amended from time to time, or under any
-- ---
common law claim, including claims for personal injury or property damage or for
any claim by any governmental or private party for remedial or removal costs,
natural resource damages, property damages, damages for personal injuries, or
other costs, expenses or damages or any claim for injunctive relief arising from
any alleged injury or threat of injury to health, safety or the environment
relating to the Premises.
11.2. Indemnification by BGP. BGP shall indemnify and hold
----------------------
harmless Colorado Greenhouse and its affiliates, managers, members, employees
and agents, from any loss, liability or damage incurred or suffered by any such
person by reason of BGP's failure to perform its obligations hereunder or its
negligence or willful misconduct, including, without limitation, any judgment,
award or settlement, other costs and expenses, and reasonable attorneys' fees
-17-
<PAGE>
incurred in connection with the defense of any actual or threatened claim or
action based on any such act or omission, unless such loss, liability or damage
results from such indemnified person's fraud, negligence or willful misconduct.
Such attorneys' fees shall be paid as incurred. Any such indemnification shall
be paid only from the assets of BGP and neither Colorado Greenhouse nor any
third party shall have recourse against the personal assets of any member of BGP
or their respective affiliates for such indemnification.
Any indemnification required herein to be made by BGP or Colorado Greenhouse
shall be made promptly following the determination of the loss, liability or
damage incurred or suffered by final judgment of any court, settlement, contract
or otherwise.
Article 12. Representations.
- ----------------------------
12.1 Representations of Colorado Greenhouse. Colorado Greenhouse
--------------------------------------
represents and warrants to BGP as follows:
(a) that it is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Colorado;
(b) that it has personnel available to it with the expertise in
connection with the management of greenhouses sufficient for it to perform its
obligations under this Agreement in a manner consistent with Good Greenhouse
Practices;
(c) that the execution, delivery and performance of this Agreement
by Colorado Greenhouse has been duly authorized by all necessary limited
liability company action and this Agreement has been duly executed and delivered
by Colorado Greenhouse and, subject to due execution and delivery by BGP, this
Agreement will be enforceable against Colorado Greenhouse in accordance with its
terms, and does not constitute a default under its operating agreement, or any
instrument to which it is a party, nor does it violate any provision of any law,
rule, regulation, order, judgment, decree, determination, or award presently in
effect having applicability to it;
(d) that it has all necessary permits, licenses, and other
governmental approvals required to perform its obligations hereunder, except for
permits BGP is required to obtain; and
(e) that there are no actions, suits, or proceedings pending or,
to its knowledge, threatened against it in any court or before any governmental
department, agency, instrumentality, or any arbitrator, in which there is a
reasonable possibility of an adverse decision which could materially and
adversely affect its ability to perform its obligations under this Agreement.
-18-
<PAGE>
12.2 Representations by BGP. BGP represents and warrants to Colorado
----------------------
Greenhouse as follows:
(a) that it is a general partnership duly organized and validly
existing under the laws of the State of Colorado;
(b) that the execution, delivery and performance of this Agreement
by BGP has been duly authorized by all necessary partnership action and this
Agreement has been duly executed and delivered by BGP and, subject to due
execution and delivery by Colorado Greenhouse, this Agreement will be
enforceable against BGP in accordance with its terms, and does not constitute a
default under its operating agreement, or any instrument to which it is a party,
nor does it violate any provision of any law, rule, regulation, order, judgment,
decree, determination, or award presently in effect having applicability to it;
and
(c) that there are no actions, suits, or proceedings pending or,
to its knowledge, threatened against it in any court or before any governmental
department, agency, instrumentality, or any arbitrator, in which there is a
reasonable possibility of an adverse decision which could materially and
adversely affect its ability to perform its obligations under this Agreement.
Article 13. Colorado Greenhouse as Independent Contractor.
- ----------------------------------------------------------
13.1 Independent Contractor. Colorado Greenhouse shall be an
----------------------
independent contractor in the performance of this Agreement and shall have
complete charge of the Services and personnel engaged in the performance of the
Services. Nothing contained herein shall be deemed to create a relationship of
employer-employee, master-servant, partnership, or joint venture.
13.2. Subcontractors. Colorado Greenhouse's Services may be
--------------
performed by Colorado Greenhouse acting in its own name, or by Colorado
Greenhouse's subcontracting portions to other Subcontractors or suppliers.
(a) For its Services, Colorado Greenhouse will assume the
responsibility for, and liability arising in connection with, negotiating with,
and performance by, its Subcontractors.
(b) Colorado Greenhouse will have authority and control over the
Subcontractors' work, including overtime and any special methods required, in
the judgment of Colorado Greenhouse, to complete the Subcontractors' work in a
correct and timely manner.
-19-
<PAGE>
Article 14. Survival.
- ---------------------
The provisions of Articles 7 and 11 shall survive termination,
cancellation or expiration of this Agreement.
Article 15. Miscellaneous.
- --------------------------
15.1 Notices. Notices and other communications with respect to
-------
this Agreement shall be in writing and shall be delivered by hand or overnight
courier service, mailed or sent by telecopy. Unless other addresses or telecopy
numbers are specified in writing pursuant to this Section 15.1 to each other
Party, such notices or other communications shall be sent to the following
addresses or telecopy numbers as the case may be.
BGP: Brush Greenhouse Partners
4845 Pearl East Circle, Suite 300
Boulder, Colorado 80301-2474
Attention: Edward J. Wetherbee
Telephone: (303) 442-5112 FAX: (303) 442-5113
Colorado Greenhouse:
Colorado Greenhouse Limited Liability Company
P.O. Box 309
Fort Lupton, Colorado 80621
Attention: Matthew Cook
Telephone: (303) 857-1100 FAX: (303) 857-1200
15.2 Arbitration. All claims, disputes and other matters in question
-----------
arising out of, or relating to this Agreement or the interpretation or breach
thereof, shall be decided by arbitration in accordance with the Arbitration
Rules of the American Arbitration Association then in effect unless the Parties
mutually agree otherwise. Said arbitration shall be before a panel of three
arbitrators and shall be held in Denver, Colorado. This agreement to arbitrate
shall be specifically enforceable under applicable law in any court of competent
jurisdiction. Notice of the demand for arbitration shall be filed in writing
with the other Party to this Agreement and with the American Arbitration
Association. The demand for arbitration shall be made within a reasonable time
after the claim, dispute or other matter in question has arisen, and in no event
shall it be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable contractual or other statute of limitations. The award
rendered by the arbitrators shall be final and judgment may be entered in
accordance with applicable law and in any court having jurisdiction thereof.
Attorneys' fees and expenses may be payable to the prevailing party in such
arbitration in the discretion of the arbitrators.
-20-
<PAGE>
15.3 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.
15.4 Headings. Titles and headings of the sections and subsections of
--------
this Agreement are for the convenience of reference only and do not form a part
of this Agreement, and shall not in any way affect the interpretation of this
Agreement.
15.5 Assignments. This Agreement shall not be assignable by either
-----------
Party hereto without the prior written consent of the other Party; provided,
however, that BGP's rights under this Agreement may be assigned to the Lender to
secure obligations under the Loan Agreement and, so long as is required by the
Loan Agreement, no change in the terms or provisions hereof shall be made
without prior written consent of the Lender.
15.6 Inspections and Access by BGP and Lenders. Colorado Greenhouse
-----------------------------------------
will permit BGP, its agents, employees and contractors and Lender and its
representative to enter all parts of the Greenhouse during Colorado Greenhouse's
business hours to inspect the same and to enable BGP to enforce or carry out any
provision of this Agreement.
15.7 Lender Protection. Colorado Greenhouse agrees to give any Lender
-----------------
by registered or certified mail, a copy of any notice or claim of default served
upon BGP by Colorado Greenhouse, provided that prior to such notice Colorado
Greenhouse has been notified in writing of the address of such Lender. Colorado
Greenhouse further agrees that if BGP shall have failed to cure such default
within 20 days after such notice to BGP (or if such default cannot be cured or
corrected within that time, then such additional time as may be necessary if BGP
has commenced within such 20 days and is diligently pursuing the remedies or
steps necessary to cure or correct such default), then any Lender shall have an
additional 30 days within which to cure or correct such default (or if such
default cannot be cured or corrected within that time and such default is not
having a material adverse effect on Colorado Greenhouse, then such additional
time as may be necessary if such Lender has commenced within such 30 days and is
diligently pursuing the remedies or steps necessary to cure or correct such
default, including the time necessary to obtain possession if possession is
necessary to cure or correct such default).
15.8 Force Majeure. Neither Party hereto shall be deemed to be in
-------------
breach or in violation of this Agreement if such Party is prevented from
performing any of its obligations hereunder by reason of Uncontrollable Forces
that in fact prevent or delay performance hereunder. To the extent that any
performance of any obligation is so prevented pursuant to this Section 15.6,
such performance shall
-21-
<PAGE>
be suspended during the continuance of the Uncontrollable Forces and during the
period following the cessation of such Uncontrollable Forces required to repair
and rebuild the Facility to the extent necessary to place it back into
commercial operation in accordance with Good Greenhouse Practices and Applicable
Laws. Notwithstanding the foregoing, in the event of the inability of Colorado
Greenhouse to substantially perform the Services for a period of 45 days or more
by virtue of Uncontrollable Forces (which Uncontrollable Forces are not of a
type affecting other persons generally), BGP may elect to terminate this
Agreement upon five days' prior written notice to Colorado Greenhouse; it being
understood and agreed that if such Uncontrollable Forces apply to, relate to or
affect all persons as a general matter, then BGP will not terminate this
Agreement pursuant to the provisions of this Section 15.8, unless such
Uncontrollable Forces continue for a period of 180 days.
15.9 Waiver. The waiver of any breach of any term or condition hereof
------
shall not be deemed a waiver of any other or subsequent breach, whether of like
or different nature. No failure to exercise and no delay in exercising, on the
part of either Party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies at law.
15.10 Severability. If any term or provision of this Agreement or the
------------
performance thereof shall to any extent be invalid or unenforceable, such
invalidity or unenforceability shall not affect or render invalid or
unenforceable any other provision of this Agreement, and this Agreement shall be
valid and enforced to the fullest extent permitted by law.
15.11 Amendment. No modification or amendment of this Agreement shall
---------
be valid unless in writing and executed by both Parties hereto.
15.12 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of Colorado. The parties hereby consent to the
jurisdiction of the courts of the State of Colorado for the purposes of
enforcing the arbitration provisions of Section 15.2.
15.13 Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding between the Parties hereto with respect to the subject matter
hereof and supersedes and replaces all prior written agreements and negotiations
and oral understandings, if any, with respect thereto.
-22-
<PAGE>
15.14 No Third Party Beneficiaries. Except as specifically provided
----------------------------
herein or by the Loan Agreement, no person or party except Lender shall have any
rights or interest, direct or indirect, in this Agreement or the Services to be
provided hereunder, or both, except Colorado Greenhouse and BGP. The Parties
specifically disclaim any intent to create any rights in any person or party as
a third-party beneficiary to this Agreement or the Services to be provided
hereunder except for the Lender and CPP.
15.15 Amendment of Allocated Percentage. The Allocated Percentage may
---------------------------------
be amended at any time by mutual agreement of the Parties hereto and shall be
amended to reflect any change in size of any Other Greenhouse. If any of the
Other Greenhouses decreases in size or is increased in size by the addition of
space of like quality to its existing space then the Allocated Percentage shall
be adjusted in proportion to the ratio that the change in size bears to the
total size of the Greenhouse and the Other Greenhouses.
This Agreement has been executed and delivered as of the date first
above written.
BGP:
----
BRUSH GREENHOUSE PARTNERS
By: /s/ Edward J. Wetherbee
---------------------------------
_________________________________
Management Committee Member
COLORADO GREENHOUSE LIMITED LIABILITY
COMPANY
By: /s/ Edward J. Wetherbee
---------------------------------
_________________________________
Manager
and
By: /s/ William E. Coleman
---------------------------------
_________________________________
Manager
-23-
<PAGE>
EXHIBIT B
---------
Allocation Percentage
A percentage, as the same may be modified from time-to-time, and as in
effect on the dates set forth below:
Commencement Date
until the Ft. Lupton
Commencement Date 50.000%
Commencement of Operation
of the Ft. Lupton Greenhouse 31.135%
<PAGE>
EXHIBIT 10.5
FIRST AMENDMENT
TO
GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT
THIS FIRST AMENDMENT TO GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT (this
"Amendment") is made as of this 30 day of April, 1996, between BRUSH GREENHOUSE
PARTNERS, a Colorado general partnership ("BGP") and COLORADO GREENHOUSE LLC, a
Colorado limited liability company ("CG").
Recitals
--------
A. BGP and CG have entered into that certain Greenhouse Operation and
Management Agreement dated December 29, 1994 to be effective January 1, 1994
(the "O&M Agreement"), whereby CG was engaged by BGP to operate and manage the
greenhouse facility (the "Greenhouse") located in Brush, Colorado.
B. CG has entered into a Loan Agreement dated as of December 29, 1995,
pursuant to which CG may borrow funds in the amount of up to $3,000,000 (the
"Revolving Credit Loan") from Cooperative Centrale Raiffeisen-Boerenleenbank
B.A., "Rabobank Nederland", New York Branch ("Rabobank").
C. In connection with the Revolving Credit Loan, BGP and CG desire
hereby to amend certain provisions of the O&M Agreement, as hereinafter set
forth.
NOW, THEREFORE, in consideration of the above Recitals and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Section 3.4 of the O&M Agreement is hereby amended by adding the
following subsection (d) thereto:
(d) Colorado Greenhouse agrees that if Colorado Greenhouse uses any
portion of the Revolving Credit Loan for repayment to Brush Greenhouse
Partners II, LLC for working capital advances (a "BGP II Repayment"), then,
after paying the Primary Fees required under Section 3.4(a) above for any
calendar year, and after paying any primary fees required in connection
with any Other Greenhouse for such calendar year, Colorado Greenhouse shall
use any remaining Colorado Greenhouse Gross Margin for such calendar year
to pay the then-outstanding principal balance on the Revolving Credit Loan
relating to funds borrowed for the sole purpose of making a BGP II
Repayment, together with any accrued and unpaid interest thereon, prior to
making any distributions of profits or other sums to the members of
Colorado Greenhouse pursuant to the Colorado Greenhouse operating
agreement; provided, however, that Colorado Greenhouse shall be permitted
to make distributions to its members, at any time and from time to time,
for the sole purpose of paying such member's personal taxes arising in
connection
<PAGE>
with such member's interest in, or any items of income as gain of, Colorado
Greenhouse.
2. Except as expressly amended pursuant to Section 1 above, the terms and
conditions of the O&M Agreement are unmodified and remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
BRUSH GREENHOUSE PARTNERS a Colorado general
partnership
By: /s/ Ed Wetherbee
-----------------------------------------
Name: Ed Wetherbee
Title: Management Committee Member
COLORADO GREENHOUSE LLC, a Colorado limited
liability company
By: /s/ Ed Wetherbee
-----------------------------------------
Name: Ed Wetherbee
Title: Manager
and
By: /s/ William E. Coleman
------------------------------------------
Name: William E. Coleman
Title: Manager
ACCEPTED AND AGREED to this 7 day
of May 1996.
THE PRUDENTIAL INSURANCE PRUCO LIFE INSURANCE COMPANY
COMPANY OF AMERICA
By: /s/ Ric E. Abel By: /s/ [SIGNATURE ILLEGIBLE]
------------------------------- ----------------------------
Name: /s/ Ric E. Abel Name:__________________________
-----------------------------
Title: Vice President Title:_________________________
----------------------------
<PAGE>
EXHIBIT 10.6
SECOND AMENDMENT
TO
GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT
THIS SECOND AMENDMENT TO GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT
(this "Amendment") is made as of this ___ day of September, 1996, between BRUSH
GREENHOUSE PARTNERS, a Colorado general partnership ("BGP") and COLORADO
GREENHOUSE LLC, a Colorado limited liability company ("CG").
Recitals
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A. BGP and CG have entered into that certain Greenhouse Operation and
Management Agreement dated December 29, 1994 to be effective January 1, 1994, as
amended by that certain First Amendment to Greenhouse Operation and Management
Agreement dated April 30, 1996 (as so amended, the "O&M Agreement"), whereby CG
was engaged by BGP to operate and manage the greenhouse facility (the
"Greenhouse") located in Brush, Colorado.
B. BGP and CG desire hereby to further amend certain provisions of the
O&M in connection with an expansion of the Greenhouse and the consolidation of
the greenhouse facility located in Rifle, Colorado (the "Rifle Greenhouse") with
the Greenhouse and Other Greenhouses, as defined in, and pursuant to the terms
of, the O&M Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreement
herein contained, the parties hereby covenant and agree as follows:
1. The definition of "Other Greenhouses" in Section 2 is hereby deleted
-----------------
in its entirety and the following is inserted in lieu thereof:
"Other Greenhouses" mean, collectively, the BGP II Greenhouse, the Ft.
-----------------
Lupton Greenhouse and the Rifle Greenhouse (to the extent that the above
are being operated and managed by Colorado Greenhouse), or such other
greenhouses as Colorado Greenhouse may operate or manage during the term of
this Agreement with the consent of BGP and CPP.
2. The definition of "Primary Fee" in Section 2 is hereby deleted in its
-----------
entirety and the following is inserted in lieu thereof:
"Primary Fee" means an amount, payable within 30 days after the end of each
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calendar quarter during the term of this Agreement, equal to the Allocated
Percentage of Net Revenue, which amount shall not exceed (i) $500,000 for
1994, (ii) the Allocated Percentage of $2,740,000 for 1995, (iii) the
Allocated Percentage of $3,240,000, for the period commencing as of January
1, 1996 through and including the second complete calendar quarter
following the
<PAGE>
completion date of the expansion of the Greenhouse, and (iv) thereafter,
the Allocated Percentage of $3,429,092.
3. The definition of "Primary Fee Deficiency" in Section 2 is hereby
----------------------
deleted in its entirety and the following is inserted in lieu thereof:
"Primary Fee Deficiency" means an amount, to be calculated by BGP II within
----------------------
30 days after the end of each calendar quarter during the term of this
Agreement, equal to the amount, if any, by which the Allocated Amount (as
defined below) exceeds the aggregate payments made on account of the
Primary Fee for such calendar year. "Allocated Amount" means, (i) for
1995, the Allocated Percentage of $2,740,000, (ii) for the period
commencing as of January 1, 1996 through and including the second complete
calendar quarter following the completion date of the expansion of the
Greenhouse, the Allocated Percentage of $3,240,000, and (iii) thereafter,
the Allocated Percentage of $3,429,092.
4. The following definition shall be inserted after the definition of
"Reserve Amount" and before the definition of "Rocky Mountain" in Section 2:
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"Rifle Greenhouse" means the greenhouse leased to Wolf Creek Rifle LLC and
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to be operated by Colorado Greenhouse, located in Rifle, Colorado.
5. Exhibit B is hereby deleted in its entirety and the following is
inserted in lieu thereof:
A percentage, as the same may be modified from time-to-time, as in effect
on the dates set forth below:
Commencement Date 50.000%
Commencement of Operation
of the Ft. Lupton Greenhouse 31.135%
Consolidation of the Rifle Greenhouse 26.330%
The Second Complete Calendar Quarter
Following the Completion Date of the
Greenhouse Expansion 24.878%
6. Except as expressly amended pursuant to Sections 1 through 5 above,
the terms and conditions of the O&M Agreement are unmodified and remain in full
force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
BRUSH GREENHOUSE PARTNERS, a Colorado general
partnership
By: ____________________________
Name: __________________________
Title: _________________________
COLORADO GREENHOUSE LLC, a Colorado limited
liability company
By: ____________________________
Name: __________________________
Title: _________________________
<PAGE>
[LETTERHEAD OF COLORADO POWER PARTNERS]
June 6, 1996
The Prudential Insurance Company of America
Pruco Life Insurance Company
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Re: Colorado Power Partners; Amended and Restated Construction and Term
Loan Agreement dated as of June 30, 1993
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Construction and
Term Loan Agreement (the "Loan Agreement") dated as of June 30, 1993 among
Colorado Power Partners ("Borrower"), The Prudential Insurance Company of
America and Pruco Life Insurance Company, and the parties named therein.
Capitalized terms used herein but not otherwise defined shall have the meaning
given to such terms in the Loan Agreement.
Section 8.6 of the Loan Agreement provides in part that Borrower will not,
without the prior written consent of the Lender, agree to any amendment,
supplement or modification of, any Basic Document. Borrower and Brush Greenhouse
Partners ("BGP") desire to enter into the consent letter, in the form of Exhibit
A attached hereto, in favor of Colorado Greenhouse LLC ("CG"). This consent
letter will allow CG to add as an Other Greenhouse that certain greenhouse
located in Rifle, Colorado and used in connection with the American Atlas
project. In connection with the current expansion of the BGP II Greenhouse,
Borrower and BGP also desire to consent to (i) a change in the allocation
percentage under the Greenhouse Operation and Management Agreement (the "O&M
Agreement") dated as of December 29, 1994 between BGP and CG, (ii) a change in
the definition of Reserve Amount in the O&M Agreement, and (iii) an increase in
the primary fee to be paid to Brush Greenhouse Partners II LLC, the lessee of
the BGP II Greenhouse (as defined in the O&M Agreement). Because the
contemplated amendments to the O&M Agreement will result in an amendment to the
Greenhouse Lease, a Basic Document, your consent to such amendments is required.
In addition, your consent to such amendments is also required because, pursuant
to Section 15.5 of the O&M Agreement, the parties thereto have agreed that no
change in the terms or provisions of the O&M Agreement shall be made without
your consent. We also note that the O&M Agreement has been assigned to the
Lender pursuant to that certain Collateral Assignment dated as of December 29,
1994.
<PAGE>
The Prudential Insurance Company of America
Pruco Life Insurance Company
June 6, 1996
Page 2
Borrower hereby requests that you consent to the execution of the attached
letter by Borrower and BGP.
Please confirm your agreement to the terms and provisions of this letter
agreement by signing where indicated below.
Sincerely,
COLORADO POWER PARTNERS
By: /s/ William E. Coleman
---------------------------
Management Committee Member
Accepted and Agreed to this
7 day of June, 1996:
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
BY: /s/ Ric E. Abel
----------------------
Title: Vice President
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PRUCO LIFE INSURANCE COMPANY
BY:[SIGNATURE ILLEGIBLE]
----------------------
Title: V.P.
--------------------
<PAGE>
EXHIBIT 10.7
AMENDED AND RESTATED
COGENERATION AND GREENHOUSE LEASE AGREEMENT
THIS AMENDED AND RESTATED COGENERATION AND GREENHOUSE LEASE AGREEMENT,
dated as of this 1st day of June, 1992, is between BRUSH COGENERATION PARTNERS,
a Colorado general partnership ("Landlord") and BRUSH GREENHOUSE PARTNERS II
Limited Liability Company, a Colorado limited liability company ("Tenant").
RECITALS
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A. Landlord and Tenant have entered into Cogeneration and Greenhouse
Lease Agreement dated as of March 19, 1992, and desire hereby to amend and
restate such agreement in its entirety.
B. Landlord is the owner of the real property described on Exhibit A
attached hereto (the "Project Property"). Landlord is constructing a net 68
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.
C. Tenant has entered into a Greenhouse Management Agreement (the
"Greenhouse Management Agreement"), dated January 22, 1992 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.
D. 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 Power Plant for
use in heating the greenhouse. The greenhouse, the packing facility and
Landlord's Power Plant and appurtenant facilities are collectively referred to
herein as the "Project."
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,
<PAGE>
consisting of that certain real property depicted on the Plot Plan attached
hereto as Exhibit A-1, 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 of the auxiliary equipment
building located on the Project Property and depicted on the Plot Plan attached
hereto as Exhibit A-1 (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,
provided that such use does not interfere with Landlord's use of the Project
Property.
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-1 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-1 attached hereto. It is also the
parties' intention that the easement to use the Auxiliary Building granted
pursuant to paragraph 1b. above cover such building even if not constructed in
the exact location depicted on Exhibit A-1 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 facility 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
----
earlier of (i) the date specified by Landlord in a written notice from Landlord
to Tenant (the date which
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<PAGE>
Landlord specifies the Term of the Lease is to commence is referred to herein as
the "Commencement Date") or (ii) the date on which Landlord notifies Tenant that
the greenhouse facility is completed and available for use. The Commencement
Date specified by Landlord in such notice must be on or before July 15, 1994.
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 Agreement, dated
August 29, 1988, between CTI Partners and Public Service Company of Colorado
(the "Power Purchase Agreement") (relating to Landlord's Power Plant adjacent to
the Premises), (ii) 15 years after the Date of Commercial Operation (as such
term is defined in the Power Purchase Agreement), (iii) the date mutually agreed
to in writing by the Landlord and Tenant, with the consent of Lender, or (iv) at
the option of Lender, its successors or assigns or the holder(s) of any mortgage
or deed of trust encumbering the Premises (collectively "Lender"), upon the
declaration of a default and the acceleration of indebtedness to any Lender of
its security interest in the Premises. The provisions of this paragraph 2(iv)
were made for the express benefit of the Lender as a third party beneficiary,
and subject to the terms and conditions of this paragraph 2(iv), the Lender
shall have the right to exercise and enforce the rights granted to it herein.
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 2(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 the 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 30 days' notice to the other party. If Tenant shall be in
possession of the Premises at
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<PAGE>
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 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 7(i) (below) and that the growing of
such crops will require the Greenhouse to be heated in a manner requiring the
useful application of thermal energy from the Power Plant into quantities
sufficient to maintain the Power Plant's status as a "qualifying cogeneration
facility" under the Federal Public Utility Regulatory Policies Act of 1978 and
the regulations promulgated thereunder by FERC (collectively "PURPA").
Notwithstanding the foregoing, in the event that Landlord determines that
Tenant's growing of any crops, including tomatoes in any way would fail to
require the Greenhouse to be heated in a manner requiring the useful application
of thermal energy from the Power Plant in quantities sufficient to maintain the
Power Plant's status as a qualifying cogeneration facility under PURPA, Tenant
shall immediately cease growing such crops and shall commence growing such crop
or crops as may be necessary for the Project to be a qualifying facility under
PURPA.
6. Rental.
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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 of $850,000 per year, payable in
equal monthly installments of $70,833.33 each, which installments
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<PAGE>
shall commence on the Commencement Date, and shall be due and payable in advance
on the first day of each and every month thereafter during the entire Term of
this Lease, except to the extent Tenant elects to defer up to the first four
monthly installments of rent as provided in paragraph 6b. below. Tenant shall
not be obligated for any rent hereunder with respect to its occupancy and use of
the greenhouse facility prior to the Commencement Date.
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 the event that Tenant elects to
defer any monthly installments of rent hereunder, Tenant shall provide Landlord
with a notice of its intention to defer payment of such monthly installment of
rent prior to the first due date of such rental payment. Tenant may exercise
such option only if Tenant is unable to pay the rent provided hereunder out of
cash flow to Tenant from its operation of the greenhouse facility. 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 per annum
above the rate of interest publicly announced or published from time to time by
Bank of America NT and SA as its "reference rate" (such reference rate being
referred to herein as the "Prime Rate") or (ii) ten percent per annum) shall be
payable in equal monthly installments commencing on the first day of the month
following the Deferral Period. If the Deferral Period is one or two months, the
Deferred Rental Amount plus interest shall be payable in nine equal monthly
installments. If the Deferral Period is three or four months, the Deferred
Rental Amount plus interest shall be payable 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 prepayment must be
at least $25,000.
c. Payment of Rental. Tenant shall pay all rental (including
-----------------
any Deferred Rental Amount) when due and payable, without any setoff,
counterclaim, abatement, deduction or prior demand therefor whatsoever. 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 a default rate equal to the Prime Rate plus six
percent per annum from the first day due until paid. Unless otherwise
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<PAGE>
directed in writing by Landlord and consented to by Lender, payment of rent
shall be made to Landlord in immediately available funds at its account
maintained at 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 (1) 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 and (2) paid the entire
Deferred Rental Amount plus all interest thereon. Such account shall be
maintained in the name of Brush Cogeneration Partners/Brush Greenhouse Partners
II LLC 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 (as such term may be defined in a Deposit and
Disbursement Agreement or similar agreement between Landlord, Lender and Central
Bank Denver, National Association or other bank acting as escrow agent) 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.
e. Payment for Additional Heat. It is the parties' intention
---------------------------
that Landlord provide only the amount of thermal energy set forth in paragraph
7a.(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
-6-
<PAGE>
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, to the extent that such amount is 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 provided for 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 energy 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 on behalf of
Landlord to the Federal Energy Regulatory Commission ("FERC"), Docket
No. QF 89-7-000. For all purposes of this Agreement, the term
Application shall include all filings, supplements and requests for
amendments and recertifications made with respect to the Project
whether or not under such docket number and whether made by or on
behalf of Landlord or any other party. 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
-7-
<PAGE>
purposes of this Section 7(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.
Notwithstanding the foregoing, Landlord shall have no obligation to
provide thermal energy prior to the Commencement Date. At all times
when Landlord is providing thermal energy from the Power Plant in an
amount equal to or greater than 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) To the extent it may do so under its contractual
arrangements with the City of Brush, 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 obligation to provide any such service if
to do so would (a) jeopardize its ability to meet, or
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<PAGE>
be in conflict with, its obligation to supply power pursuant to the
Power Purchase Agreement or any replacement or successor agreement, or
to meet its own internal demand, (b) jeopardize the Project's status
as a qualifying facility under PURPA, (c) subject Landlord to rate or
other regulation as an electric company or utility, or (d) cause
Landlord to incur any cost for equipment, services or fuel not
otherwise required to operate the Power Plant. 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
harmless Landlord 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 its primary
provider of electrical service for such amount of electrical power;
and
(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 on the contents and operations of the greenhouse.
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 any 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
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<PAGE>
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), (vi) the irrigation water storage tank located on the
Project Property and (vii) pumps, piping and similar facilities associated with
any irrigation well serving the Premises and the transporting of water from such
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.
Without limiting the foregoing, Tenant shall conduct its operations so as not to
contaminate or to damage any steam, water or equipment used in the Project's
cogeneration process. Landlord shall maintain the Auxiliary Building.
b. All repairs to the Premises and the Related Facilities 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
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<PAGE>
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, promptly, efficiently,
competently and in a good and workmanlike 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 by 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 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.
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<PAGE>
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 lien 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
planted crops allowed hereunder in place, and under production for a period in
excess of 90 consecutive days in any calendar year or for a total number of days
in any calendar year greater than 120 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 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 days' notice to Tenant, and any claims paid by Landlord on
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<PAGE>
behalf of Tenant will become immediately due and owing to Landlord and Landlord
may collect such sums paid together with default interest at the Prime Rate plus
six percent 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 Premises 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 irrigation system supplying water to the Premises, the
treatment of the water produced by such well or wells and any other cost or
expense of Landlord under the Water Lease Agreement dated as of November 1, 1991
(as amended from time to time), among Landlord, Colorado Power Partners and
Brungardt Farms Company, or such replacement water lease as Landlord may obtain.
Tenant shall also take and use quantities of water pursuant to such lease as may
be necessary to maintain the validity and priority of the permit or decree
associated with such lease.
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.
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<PAGE>
14. Indemnity and Insurance.
-----------------------
a. Indemnity by Tenant. To the extent permitted by law, Tenant
-------------------
shall and does hereby agree to indemnify Landlord and Lender 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 any applicable credit 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
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Landlord or its designee and Lender as additional insured, and shall contain
such other provisions and endorsements as Landlord may request.
d. Evidence of Insurance. Before the date on which such
---------------------
insurance first is required to be carried by Tenant, and thereafter, at least 30
days before the effective date of renewal of any such policy, Tenant will
deliver to Landlord either a duplicate original of the aforesaid policy or a
certificate evidencing such insurance.
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 days' written
notice, to pay Landlord promptly the cost thereof with default interest at the
Prime Rate plus six percent 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. 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, and 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
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<PAGE>
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 or 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.
18. Compliance with Laws and Regulations and Certain Agreements.
-----------------------------------------------------------
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 statutes, laws, rules, orders, regulations or ordinances
which may be hereafter enacted involve a change of policy on the part of the
governmental body enacting the same, and 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, (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 prevention of fire or the correction of hazardous conditions which
apply to the Premises or the Related Facilities, and (iii) the terms and
conditions of the Wastewater Agreement (insofar as such agreement regulates and
limits wastewater discharges from the Premises) so as not to jeopardize
Landlord's wastewater disposal rights thereunder (as reasonably determined by
Landlord) and the Grant Agreement (insofar as such agreement requires the hiring
of certain numbers of moderate and low-income workers), both dated August 12,
1991, between the City of Brush and CTI Partners, Landlord's predecessor in
interest.
19. 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
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<PAGE>
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 operation of
law;
(vi) failure of Tenant to pay any rental or any other sum
of money due hereunder 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 Tenant has created or
allowed to exist 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
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<PAGE>
in paragraph 19(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 (A)
Landlord shall determine that the status of the Power Plant as a
qualifying cogeneration facility under PURPA is not jeopardized by
such delay, and (B) 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;
(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 allowed hereunder in place for the production of fruit
or vegetables for a period greater than 90 consecutive days in any
calendar year or for a total number of days in any calendar year
greater than 120;
(xi) default by Tenant under the Working Capital Credit
Agreement, Security Agreement and Financing Statement (the "Credit
Agreement") of even date herewith between Landlord and Tenant, a copy
of which agreement is attached hereto as Exhibit B, unless such
default is cured within any applicable cure period as set forth in the
Credit Agreement; and
(xii) default by Tenant under the Greenhouse Management
Agreement, unless such default is cured within any applicable cure
period as set forth in the Greenhouse Management Agreement.
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
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<PAGE>
of which Landlord shall have given Tenant notice, the cost of which
performance by Landlord, together with interest thereon at the default
rate equal to the Prime Rate plus six percent per annum 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 reenter 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;
(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 reenter 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 if
owned by Landlord in its own right, and continue the operation of the
greenhouse in its 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 records 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
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<PAGE>
(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. If this Lease is terminated pursuant
to this Section 19(b), then, if requested by Landlord or its assigns, Tenant
shall assign to Landlord or its assigns Tenant's rights under the Greenhouse
Management Agreement.
20. 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 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 any 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
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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 default interest
at the Prime Rate plus six percent per annum until paid.
21. 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 any mortgage, deed
of trust or security agreement given by Landlord for the benefit of Lender, and
to any other mortgage, indenture, deed of trust or other encumbrance, together
with any conditions, renewals, extensions, modifications, 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 of 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
hereunder. 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.
22. Notices.
-------
Notices and other communications with respect to this Lease shall
be in writing and shall be delivered by hand or overnight courier service,
mailed or sent by telecopy. Unless other addresses or telecopy numbers are
specified in writing pursuant to this Section 21 to each other party to this
Lease, such notices or other communications shall be sent to the following
addresses or telecopy numbers, as the case may be:
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<PAGE>
(a) if to Landlord, at:
Brush Cogeneration Partners
4845 Pearl East Circle, Suite 300
Boulder, Colorado 80301-2474
Attn: Edward J. Wetherbee
with a copy to:
Noah I. Power Partners, L.P.
c/o Ark Energy, Inc.
23293 South Pointe Drive
Laguna Hills, California 92653
Attn: Kent Larsen
(b) if to Tenant, at:
Brush Greenhouse Partners II Limited
Liability Company
303 East 17th Avenue, Suite 1070
Denver, Colorado 80203
Attn: Nicholas G. Muller, Esq.
(c) if to Lender, at such address as Landlord shall notify Tenant
from time-to-time:
All notices and other communications given to the parties hereto shall be deemed
to have been given on the date of receipt.
23. 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 take and consume for useful purposes such
amounts of thermal energy as are required by, and shall otherwise comply with,
the terms of the annual thermal usage and output requirements required under
PURPA to maintain the Power Plant's status as a qualifying cogeneration facility
and to comply with that certain Order Granting Application for Certification as
a Qualifying Cogeneration Facility ("FERC Order") issued February 21, 1992, by
FERC, Docket No. QF 89-7-000, 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 or
that operating conditions in the Power Plant require that Tenant change its
thermal energy consumption rates, Tenant agrees to comply with all requests of
Landlord to assure maintenance of the Power Plant's status as a qualifying
cogeneration facility under
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<PAGE>
PURPA whether the requirements for the maintenance of such status are set forth
in such amended FERC Order, any application made by Landlord in connection
therewith, or otherwise, provided that if in order to take and consume for
useful purposes thermal energy in excess of what is practicable using the
greenhouse structure then in place, any enlargement or material alteration to
the greenhouse is necessary, the cost of such enlargement or alteration shall be
borne by Landlord. Landlord shall have the right to monitor Tenant's compliance
with the requirements described herein.
24. Miscellaneous.
-------------
a. Estoppel Certificates. At any time and from time to time,
---------------------
within ten days after Landlord or any Lender shall request the same, Tenant will
execute, acknowledge and deliver to Landlord and to such Lender or such other
party as may be designated by Landlord an estoppel certificate and consent to
collateral assignment in the form furnished by Landlord, 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 Lender.
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 Lender 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 its
representative 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 that 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
damage to such areas and indemnify and hold harmless the Indemnified Parties
from any damage resulting from Tenant's use of such areas and to hold harmless
the Indemnified Parties from any and all claims of any nature whatsoever arising
out of Tenant's use of such areas.
d. Remedies Cumulative. No reference to any specific right or
-------------------
remedy shall preclude Landlord from
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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 covenants and
----------------------
conditions herein contained shall inure to the benefit of and be binding upon
Landlord, 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. No Joint Venture. Any intention to create a joint venture
----------------
or partnership relation between the parties hereto is hereby expressly
disclaimed.
g. 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.
h. 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 valid and be
enforced to the fullest extent permitted by law.
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i. 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.
j. 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) that either may have to request a jury trial in any proceeding at
law or in equity in any court of competent jurisdiction.
k. 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
partners of Landlord (or any of the partners of such partners) or against any of
the assets of any of the partners of Landlord (or any of the partners of such
partners), except to the extent that such assets are also assets of Landlord.
l. 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 of this
Lease has been duly authorized by all necessary action by 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.
m. 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 shall 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 validity 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 or estimates, giving authorizations or otherwise, or shall be
-25-
<PAGE>
caused in whole or in part by delay or default on the part of Tenant.
n. 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 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 20 days and is diligently pursuing the
remedies or steps necessary to cure or correct such default), then any Lender
shall have an additional 30 days within which to cure or correct such default
(or if such default cannot be cured or corrected within that time, then such
additional time as may be necessary if such Lender has commenced within such 30
days and is diligently pursuing the remedies or steps necessary to cure or
correct such default, including the time necessary to obtain possession if
possession is necessary to cure or correct such default).
o. Entire Agreement. This Lease sets forth the entire
----------------
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes and replaces all prior written agreements,
negotiations and oral understandings, if any, with respect thereto.
p. Landlord's Liability. Tenant hereby agrees that neither
--------------------
Landlord nor its agents, employees or invitees shall be liable for injury to
Tenant's business or any loss of income therefrom or for damage to the goods,
wares, merchandise or other property of Tenant, Tenant's employees, invitees,
customers or any other person in or about the Premises, nor shall Landlord, its
agents, employees or invitees be liable for injury to the person of Tenant,
Tenant's employees, agents or contractors whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause of whatsoever nature, unless the damage or injury is proximately caused by
or due to the negligence of Landlord, its agents, employees or invitees, whether
the said damage or injury results from conditions arising upon the Premises or
upon other portions of the
-26-
<PAGE>
Project Property of which the Premises are a part, or from other sources or
places and regardless of whether the cause of such damage or injury or the means
of repairing the same is inaccessible to Tenant. Landlord shall not be liable
for any damages arising from any act or neglect of any other tenant, if any, of
the building in which the Premises are located.
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:
BRUSH COGENERATION PARTNERS
By: [SIGNATURE ILLEGIBLE]
----------------------------------
Management Committee Member
TENANT:
BRUSH GREENHOUSE PARTNERS II
LIMITED LIABILITY COMPANY
By: /s/ Edward J. Wetherbee
----------------------------------
Manager
-27-
<PAGE>
EXHIBIT A
---------
(Description of the BCP Parcel)
That part of the Northeast Quarter (NE1/4) of Section 10, Township 3 North,
Range 56 West of the Sixth Principal Meridian, Morgan County, Colorado,
described as commencing at a point on the East side of said NE1/4, said point
being 1327.3 feet south of said NE corner of the NE1/4 and considering the east
side of said NE1/4 as bearing N 00 degrees 00 minutes 00 seconds E with all
other bearings relative thereto; thence N 89 degrees 36 minutes W and parallel
with the south side of the Platte and Beaver Improvement Company's Addition to
the Town of Brush, Colorado 750.0 feet; thence N 00 degrees 00 minutes 00
seconds E 238.3 feet to the south line of said Platte and Beaver Addition;
thence N 89 degrees 36 minutes W along the south line of said Platte and Beaver
Addition 1916.9 feet to the West line of said NE1/4 of Section 10; thence S 00
degrees 20 minutes W along the West line of said NE1/4 1126.S feet; thence N 90
degrees 00 minutes 00 seconds E 675.3 feet; thence N 00 degrees 00 minutes 00
seconds E 370.41 feet; thence N 90 degrees 00 minutes 00 seconds E 1998.1 feet
to a point on the east side of said NE1/4; thence N 00 degrees 00 minutes 00
seconds E along said east side 499.24 feet to the point of beginning.
<PAGE>
EXHIBIT A-1
[GRAPHS APPEARS HERE]
EDGAR DESCRIPTION -TO COME-
<PAGE>
EXHIBIT 10.8
AMENDMENT TO AMENDED AND RESTATED COGENERATION
AND GREENHOUSE LEASE AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED COGENERATION AND GREENHOUSE LEASE
AGREEMENT (this "Amendment"), dated as of December 29, 1994, is between BRUSH
COGENERATION PARTNERS, a Colorado general partnership ("BCP") and BRUSH
GREENHOUSE PARTNERS II LIMITED LIABILITY COMPANY, a Colorado limited liability
company ("BGP II").
RECITALS
--------
A. BCP and BGP II have previously entered into that certain Amended and
Restated Cogeneration and Greenhouse Lease Agreement dated as of June 1, 1992
(the "Greenhouse Lease"), which amended and restated that certain Cogeneration
and Greenhouse Lease Agreement dated as of March 19, 1992.
B. Contemporaneously with this Amendment, BGP II is entering into a
Greenhouse Operation and Management Agreement (the "O&M Agreement") with
Colorado Greenhouse Limited Liability Company ("Colorado Greenhouse"), a copy of
which agreement is attached hereto as Exhibit A. Pursuant to the O&M Agreement,
Colorado Greenhouse will manage the Premises and will make payments (including
Primary Fees and Contingent Fees) to BGP II out of proceeds from the greenhouse
facility.
C. BCP and BGP II desire to further amend the Greenhouse Lease in the
manner hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
---------
1. All capitalized terms used herein but not otherwise defined shall have
the meanings given to such terms in the Greenhouse Lease or the O&M Agreement as
appropriate. The definitions of terms incorporated from the O&M Agreement by the
preceding sentence may not be amended in the O&M Agreement without the prior
written consent of BCP.
2. Recital C is hereby deleted and Recital D is amended to be Recital C.
3. All references in the Greenhouse Lease to the phrase "an approximately
18-acre greenhouse facility" are hereby
<PAGE>
deleted and replaced with the phrase "an approximately 15-acre greenhouse
facility."
4. The first and second sentences of Section 2 are hereby deleted in
their entirety and replaced with the following sentence:
"The term (the "Term") of this Lease shall commence on March 1, 1994
(the "Commencement Date").
5. Paragraph 6 a. is hereby deleted and replaced in its entirety with the
following:
a: Rental Amount. All rents otherwise due prior to January 1, 1995
-------------
have been restructured and satisfied. Beginning on or before April 30,
1995 and thereafter by the 30th day after the end of each calendar
quarter Tenant shall pay to Landlord as rent an amount equal to the
Primary Fee. As additional contingent rent, Tenant shall pay to
Landlord within ten business days of receipt thereof by Tenant any
other amount owed to Tenant pursuant to the O&M Agreement including,
without limitation, amounts paid with respect to a Primary Fee
Deficiency or the Primary Fee Deficiency Balance.
6. Paragraph 6 b. is hereby deleted in its entirety.
7. Paragraph 6 c. is hereby amended to read in its entirety as follows:
b. Payment of Rental. Tenant shall pay all rental when due and
-----------------
payable, without any setoff, counterclaim, abatement, deduction or
prior demand therefor whatsoever. In addition, any rental which is not
paid within ten days after the same is due shall bear interest at a
default rate equal to the rate of interest (the "Prime Rate") publicly
announced or published from time to time by Bank of America NT and SA
as its "reference rate" plus six percent 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 Landlord in
immediately available funds at its account maintained at Colorado
National Bank. The payment of rent and all other sums due hereunder is
independent of each and every other covenant and agreement contained
in this Lease.
-2-
<PAGE>
8. Paragraph 6 d. is hereby deleted and replaced in its entirety
with the following:
c. Limitation on Distributions. Tenant agrees that prior to making
---------------------------
any distributions of profits or other sums to the members of Tenant
pursuant to Tenant's operating 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 the Reserve Amount. Such
account shall be maintained in the name of Brush Cogeneration
Partners/Brush Greenhouse Partners II LLC at Colorado National Bank or
such other financial institution as may be designated by Landlord and
reasonably acceptable to Lender; and Tenant, Landlord and Colorado
National Bank or such other financial institution designated by
Landlord and reasonably acceptable to Lender, shall enter into an
escrow agreement acceptable to Landlord and Lender providing that in
the event the Primary Fee payable with respect to any calendar quarter
is less than one-quarter of the Allocated Percentage of $2,740,000
(such difference, if any, being known herein as the "Deficiency"),
Landlord shall be entitled to withdraw from such escrow account by
transferring from such account to the Revenue Account (as such term
may be defined in a Deposit and Disbursement Agreement or similar
agreement among Landlord, Lender and Colorado National Bank, or other
bank acting as escrow agent) an amount equal to the Deficiency.
9. Paragraph 6 e. is hereby amended by changing "6 e." to "6 d."
10. Paragraph 22 is hereby amended by replacing the addresses for Noah I
Power Partners, L.P. and BGP II with the following:
Noah I Power Partners, L.P.
1616 Woodall Rodgers Freeway
Dallas, Texas 75202
Attention: Joe Emberger
Brush Greenhouse Partners II Limited
Liability Company
4845 Pearl East Circle, Suite 300
Boulder, Colorado 80301-2474
Attention: Edward J. Wetherbee
-3-
<PAGE>
11. Except as amended or modified by this Amendment, the Greenhouse
Lease remains in full force and effect and is hereby ratified and confirmed in
all respects.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
BRUSH COGENERATION PARTNERS
By: /s/ Edward J. Wetherbee
-----------------------------
Management Committee Member
BRUSH GREENHOUSE PARTNERS II LIMITED
LIABILITY COMPANY
By: /s/ Edward J. Wetherbee
-----------------------------
Edward J. Wetherbee, Manager
and
By:_____________________________
___________________, Manager
-4-
<PAGE>
ACKNOWLEDGEMENTS
----------------
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this 28th day of
December, 1994, by Edward J. Wetherbee, as a Member of the Management Committee
of BRUSH COGENERATION PARTNERS, a Colorado General Partnership, on behalf of
said partnership.
Witness my hand and official seal.
/s/ Karen Linda Glaser
------------------------------
[SEAL] Notary Public
My commission expires: March 25, 1998
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this 28th of
December, 1994, by Edward J. Wetherbee __________ ____________, as a Manager of
BRUSH GREENHOUSE PARTNERS II LIMITED LIABILITY COMPANY, a Colorado limited
liability company, on behalf of said company.
Witness my hand and official seal.
/s/ Karen Linda Glaser
-------------------------------
[SEAL] Notary Public
My commission expires: March 25, 1998.
-5-
<PAGE>
EXHIBIT 10.9
FIRST AMENDMENT
TO
AMENDED AND RESTATED
COGENERATION AND GREENHOUSE LEASE AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED COGENERATION AND GREENHOUSE
LEASE AGREEMENT (this "Amendment") is made as of this ___ day of May, 1996,
between BRUSH COGENERATION PARTNERS, a Colorado general partnership
("Landlord"), and BRUSH GREENHOUSE PARTNERS II, LLC, a Colorado limited
liability company ("Tenant").
RECITALS
A. Landlord and Tenant have entered into that certain Amended and
Restated Cogeneration and Greenhouse Lease Agreement dated June 1, 1992, (the
"Original Lease"), whereby Landlord has leased to Tenant an 18-acre greenhouse
facility (the "Greenhouse") located on Landlord's real property in Brush,
Colorado.
B. Landlord and Tenant amended the Original Lease by that certain
Amendment to Amended and Restated Cogeneration and Greenhouse Lease Agreement
dated December 29, 1994 (the "Lease Amendment; together with the Original Lease,
the "Lease")
C. Landlord and Tenant desire hereby to amend certain provisions of the
Lease in connection with an expansion of the Greenhouse.
NOW, THEREFORE, in consideration of the mutual covenants and agreement
herein contained, the parties hereby covenant and agree as follows:
1. The first sentence of Recital B of the Lease Amendment is hereby
deleted in its entirety and the following is inserted in lieu thereof:
B. BGP II and Colorado Greenhouse LLC ("Colorado Greenhouse") have
entered into a Greenhouse Operation and Management Agreement dated December
29, 1994, as amended by a First Amendment to Operation and Management
Agreement dated May __, 1996 (as so amended, the "O&M Agreement"), a copy
of which is attached hereto as Exhibit A.
2. The first sentence of Section 1(c) of the Lease is hereby deleted in
its entirety and the following is inserted in lieu thereof:
"The Premises shall consist of an approximately 18.6-acre greenhouse
facility."
<PAGE>
3. Except as expressly amended pursuant to Sections 1 and 2 above, the
terms and conditions of the Lease are unmodified and remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
BRUSH COGENERATION PARTNERS, a
Colorado general partnership
By: Noah I Power Partners, L.P.,
a general partner
By: Noah I Power GP, Inc.,
its general partner
By: [SIGNATURE ILLEGIBLE]
-----------------------------
Name: [SIGNATURE ILLEGIBLE]
---------------------------
Title: _________________________
and
By: CTI Partners II, LLC,
a general partner
By: /s/ Ed Wetherbee
----------------------------------
Management Committee Member
BRUSH GREENHOUSE PARTNERS II, LLC, a
Colorado limited liability company
By: /s/ Ed Wetherbee
---------------------------------------
Name: Ed Wetherbee
-------------------------------------
Title: Management Committee Member
------------------------------------
<PAGE>
BRUSH GREENHOUSE PARTNERS II, LLC
and
BRUSH COGENERATION PARTNERS
May ___, 1996
Colorado Greenhouse LLC
P.O. Box 309
Fort Lupton, Colorado 80621
Re: Greenhouse Operation and Management Agreement dated as of
December 29, 1994; Rifle Greenhouse
Ladies and Gentlemen:
Reference is made to the following documents:
1. Greenhouse Operation and Management Agreement (the "O&M Agreement")
dated as of December 29, 1994, between Brush Greenhouse Partners II,
LLC ("BGP II") and Colorado Greenhouse LLC ("Colorado Greenhouse");
and
2. Amended and Restated Cogeneration and Greenhouse Lease Agreement dated
June 1, 1992, as amended (the "Greenhouse Lease"), between Brush
Cogeneration Partners ("BCP"), as Lessor, and BGP II, as Lessee.
Capitalized terms used but not otherwise defined herein shall have the
meaning set forth in the O&M Agreement.
You have informed us that you desire to consolidate the operations of the
Greenhouse, the BGP Greenhouse and the Ft. Lupton Greenhouse with that certain
greenhouse (the "Rifle Greenhouse") located in or near Rifle, Colorado and
operated in connection with the American Atlas cogeneration project, and in that
connection that you be allowed to treat the Rifle Greenhouse as an Other
Greenhouse for all purposes of the O&M Agreement. We acknowledge that the Rifle
Greenhouse is that greenhouse referenced in the last three lines of paragraph
3.3(d) of the O&M Agreement.
BGP II and BCP hereby consent to the treatment of the Rifle Greenhouse as
an Other Greenhouse.
You acknowledge that as of January 1, 1996, the Greenhouse Lease and the
O&M Agreement will be amended to reflect an increase in the size of the
Greenhouse and an increase in the amount of rent payable under the Greenhouse
Lease.
In connection with such matters, Colorado Greenhouse, BGP II and BCP
each agree that the Allocation Percentage set forth on Exhibit B to the O&M
Agreement will be modified, as follows: (i) as of January 1, 1996, to reflect
the consolidation of the Rifle Greenhouse with the operations of the Greenhouse
and the Other Greenhouses, from 31.135% to 26.330%, and (ii)
<PAGE>
Colorado Greenhouse LLC
May _____, 1996
Page 2
after the second complete calendar quarter following the completion of the
expansion described above, from 26.330% to 30.392%.
In addition, Colorado Greenhouse, BGP II and BCP each agree that the
definitions of both the Primary Fee and the Primary Fee Deficiency in the O&M
Agreement shall be amended as follows: (i) as of January 1, 1996, in connection
with the consolidation of the Rifle Greenhouse with the operations of the Green
house and the other Greenhouses, substitute $3,240,000 for $2,740,000, and (ii)
after the second complete calendar quarter following the completion date of the
BGP II Greenhouse expansion described above, substitute $3,429,092 for
$3,240,000.
Very truly yours,
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:[SIGNATURE ILLEGIBLE]
-----------------------
Title:______________________
and
By: CTI PARTNERS II, LLC.
a general partner
By: /s/ Ed Wetherbee
----------------------------
Management Committee Member
BRUSH GREENHOUSE PARTNERS II, LLC
By: /s/ Ed Wetherbee
-----------------------------------
Management Committee Member
By: /s/ William E. Coleman
-----------------------------------
Management Committee Member
Accepted and agreed to this ______ day of May, 1996.
COLORADO GREENHOUSE LLC
By: /s/ R. C. Clarke By: /s/ William E. Coleman
---------------------------- ----------------------------
Management Committee Member Management Committee Member
<PAGE>
BRUSH COGENERATION PARTNERS
4845 PEARL EAST CIRCLE, SUITE 300
BOULDER, COLORADO 80301-2474
July 31, 1996
The Prudential Insurance Company
of America, as Lead Agent
c/o Prudential Power Funding Associates
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Project Management Team
Credit Suisse, as Bank Agent
12 East 49th Street
Tower 49
New York, New York 10017
Attn: Project Finance
Re: Brush Cogeneration Partners; Construction and Term Loan Agreement
dated as of June 30, 1992
Ladies and Gentlemen:
Reference is made to that certain Construction and Term Loan Agreement (the
"Loan Agreement"), dated as of June 30, 1992, among Brush Cogeneration Partners
("Borrower"), The Prudential Insurance Company of America, Credit Suisse, and
the other parties named therein. Capitalized terms used herein but not otherwise
defined shall have the meaning given to such terms in the Loan Agreement.
Borrower and Brush Greenhouse Partners II, LLC ("BGP II") desire to enter
into the consent letter, in the form of Exhibit A attached hereto, in favor of
Colorado Greenhouse LLC ("Colorado Greenhouse") relating to certain amendments
to the Greenhouse Operation and Management Agreement (the "O&M Agreement") dated
as of December 29, 1994 between BGP II and Colorado Greenhouse. This consent
letter will allow Colorado Greenhouse to add as an Other Greenhouse that certain
greenhouse located in Rifle, Colorado and used in connection with the American
Atlas cogeneration project.
<PAGE>
The Prudential Insurance Company of America Page 2
Credit Suisse
July 31, 1996
In connection with the current expansion of the Greenhouse, Borrower and
BGP II also desire to (A) consent to (i) a change in the Allocation Percentage
under the O&M Agreement, (ii) a change in the definition of Reserve Amount under
the O&M Agreement, and (iii) an increase in the primary fee to be paid to BGP
II, as lessee of the Greenhouse, and (B) amend the Amended and Restated
Cogeneration and Greenhouse Lease (the "Greenhouse Lease") dated June 1, 1992
between Borrower and BGP II, by a First Amendment in the form Exhibit B attached
hereto (the "Greenhouse Lease Amendment").
Section 9.5 of the Loan Agreement provides in part that Borrower will not,
without the prior written consent of the Agents, agree to any amendment,
supplement or modification of any Basic Document. Because the contemplated
amendments to the O&M Agreement will result in an amendment to the Greenhouse
Lease, a Basic Document, your consent to such amendments is required. In
addition, your consent to such amendments is required because, pursuant to
Section 15.5 of the O&M Agreement, the parties thereto have agreed that no
change in the terms or provisions of the O&M Agreement shall be made without
your consent. We also note that the O&M Agreement has been assigned to the
Agents pursuant to that certain Collateral Assignment dated as of December 29,
1994.
Borrower hereby requests that you consent to the execution of the attached
letter and the Greenhouse Lease Amendment by Borrower and BGP II.
<PAGE>
The Prudential Insurance Company of America Page 3
Credit Suisse
July 31, 1996
Please confirm your agreement to the terms and provisions of this letter
agreement by signing where indicate below.
Sincerely,
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:[SIGNATURE ILLEGIBLE]
----------------------
Title: V.P.
---------------------
and
By: CTI Partners II, LLC a general partner
By: /s/ Edward J. Wetherbee
------------------------
Edward J. Wetherbee
Management Committee Member
Accepted and Agreed to this 31 day
of July, 1996.
THE PRUDENTIAL INSURANCE COMPANY CREDIT SUISSE
OF AMERICAN, as Lead Agent as Bank Agent
By: [SIGNATURE ILLEGIBLE] By: /s/ Kevin V. Soucy
--------------------------- ---------------------
Title: V.P. Title: KEVIN V. SOUCY
------------------------ ------------------
Associates
<PAGE>
EXHIBIT 10.10
GREENHOUSE OPERATION AND
MANAGEMENT AGREEMENT
(BGPII)
This GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT (this "Agreement") is
made and entered into as of December 29, 1994 to be effective January 1, 1994,
between BRUSH GREENHOUSE PARTNERS II LIMITED LIABILITY COMPANY, a Colorado
limited liability company ("BGPII") and COLORADO GREENHOUSE LIMITED LIABILITY
COMPANY, a Colorado limited liability company ("Colorado Greenhouse").
A. Brush Cogeneration Partners, a Colorado general partnership ("BCP")
is the owner and developer of a 68 megawatt gas-fired cogeneration facility
consisting of an electrical generating facility (the "Power Plant") and an
approximately 15-acre greenhouse facility and related packing facility
(collectively, the "Greenhouse") located in Brush, Colorado.
B. BCP and BGPII have previously entered into an Amended and Restated
Cogeneration and Greenhouse Lease Agreement, dated as of June 1, 1992 (the
"Greenhouse Lease"), a copy of which is attached hereto as Exhibit A, pursuant
to the terms of which BCP leased the Greenhouse to BGPII.
C. BGPII has previously entered into a Greenhouse Management Agreement,
dated as of January 22, 1992 (the "Management Agreement") with Spring Gardens,
Inc. ("Spring Gardens") pursuant to the terms of which BGPII retained Spring
Gardens to manage the Greenhouse.
D. The Management Agreement was subsequently terminated pursuant to a
Termination Agreement, dated as of August 1, 1992, between BGPII and Spring
Gardens.
E. BGPII and Colorado Greenhouse desire to enter into this Agreement in
order for BGPII to engage Colorado Greenhouse to operate and manage the
Greenhouse on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
AGREEMENT
Article 1. Engagement of Colorado Greenhouse.
- ---------------------------------------------
BGPII hereby engages Colorado Greenhouse, and Colorado Greenhouse
hereby agrees, to operate and manage the Greenhouse in accordance with the terms
and conditions of this Agreement.
Article 2. Definitions.
- -----------------------
Unless otherwise specifically set forth in this Agreement, the
Definitions that shall apply are as set forth in this Article 2.
"Allocated Percentage" means the percentage set forth in Exhibit B
--------------------
attached hereto, as the same may be amended from time to time as provided in
Section 15.15.
"Annual Operating Budget" means an operating budget submitted by
-----------------------
Colorado Greenhouse to BGPII and approved by BGPII for two year operating
periods beginning with the Commencement Date, showing for each month of the
following two years (or, as the case may be, for the balance of the current
calendar year and then for the following calendar year) Greenhouse Revenues and
Greenhouse Operating Expenses.
"Applicable Laws" means all laws, treaties, ordinances, judgments,
---------------
decrees, injunctions, writs and orders of any court, arbitrator or governmental
agency or authority and rules, regulations, orders, interpretations and permits
of any federal, state, county, municipal, regional, environmental or other
governmental body, instrumentality, agency, authority, court or other body
having jurisdiction over performance of the Services to be performed hereunder,
or operation of the Greenhouse, as may be in effect and as amended from time to
time.
"Applicable Permits" means all permits, licenses and similar items
------------------
required to be obtained or maintained in connection with performance of the
Services to be performed hereunder, or operation of the Greenhouse, as may be in
effect from time to time and as amended from time to time.
"BGP" means Brush Greenhouse Partners, a Colorado general partnership.
---
"BGP Greenhouse" means the greenhouse leased to BGP and to be operated
--------------
by Colorado Greenhouse, located adjacent to the Facility.
"Colorado Greenhouse Gross Margin" means, with respect to any calendar
--------------------------------
year, Net Revenues for such year minus (a) the
-2-
<PAGE>
aggregate Primary Fee for such year and (b) the aggregate primary fees for such
year paid by Colorado Greenhouse with respect to the other Greenhouses.
"Colorado Greenhouse Operating Expenses" mean, with respect to any
--------------------------------------
period, the following amounts incurred (or accrued in accordance with prudent
accounting practices and the Annual operating Budget) by Colorado Greenhouse
during such period in connection with the operation and management of the
Greenhouse and the Other Greenhouses (to the extent not reimbursed by BGPII, BCP
or a third party): (i) all greenhouse labor and general and administrative labor
expenses, including all salaries, employee benefits (including related taxes and
contributions) and other compensation paid to Colorado Greenhouse's employees
and independent contractors, (ii) all packaging and delivery expenses, (iii) all
direct costs including propagation materials, seed, fertilizer, fungicides,
insect, biological, bee and CO costs, (iv) all operating expenses including
utilities (including costs of water), repairs and maintenance and equipment
leases, (v) insurance premiums, (vi) fees for accounting, legal and other
professional services, (vii) general and administrative expenses, (viii)
permitting fees and expenses, (ix) payments made with respect to loans made to
Colorado Greenhouse in connection with its formation and operations, (x) sales
and marketing expenses, and (xi) all other cash expenditures relating to the
operation, management, repair and maintenance costs of the Greenhouse and the
Other Greenhouses.
"Colorado Greenhouse Revenues" mean, with respect to any period, all
----------------------------
revenues and payments made to Colorado Greenhouse during such period in
connection with the operation of the Greenhouse and the Other Greenhouses,
including, without limitation, all amounts payable or owed to Colorado
Greenhouse under contracts relating to the Greenhouse and the Other Greenhouses,
all other payments received by Colorado Greenhouse from the sale of vegetables
or other produce or crops produced by the Greenhouse and the Other Greenhouses,
and proceeds received from business interruption insurance.
"Commencement Date" means the earlier of (i) the date specified by
-----------------
BGPII in a written notice to Colorado Greenhouse or (ii) the date on which BGPII
notifies Colorado Greenhouse that the Greenhouse is completed and available for
use.
"Contingent Fee" means an amount, payable within 30 days after the end
--------------
of each calendar year during the term of this Agreement, equal to either (a) the
Allocated Percentage of Colorado Greenhouse Gross Margin or (b) such lesser
amount as is necessary to cause the balance on deposit in the Reserve Account to
equal the Reserve Amount.
-3-
<PAGE>
"Facility" means the Power Plant and the Greenhouse.
--------
"FERC Order" means the Order Granting Application for Certification as a
----------
Qualifying Cogeneration Facility issued February 21, 1992, by the Federal Energy
Regulatory Commission, as the same may be amended, supplemented or replaced.
"Ft. Lupton Greenhouse" means the greenhouse leased to Rocky Mountain
---------------------
and to be operated by Colorado Greenhouse Practices, located in Ft. Lupton,
Colorado.
"Good Greenhouse Practices" mean the practices, methods and acts that
-------------------------
are applied by prudent operators of cogeneration facility related greenhouses in
a manner consistent with applicable industry codes, standards and regulations,
and Applicable Laws, and designed to optimize productivity, reliability, safety,
environmental protection, economy and expediency.
"Greenhouse Operation Expenses" mean, with respect to any period, the
-----------------------------
following amounts incurred (or accrued in accordance with prudent accounting
practices and the Annual Operating Budget) by Colorado Greenhouse during such
period in connection with the operation and management of the Greenhouse ( to
the extent not reimbursed by BGPII, BCP or a third party): (i) all greenhouse
labor and general and administrative labor expenses, including all salaries,
employee benefits (including related taxes and contributions) and other
compensation paid to Colorado Greenhouse's employees and independent
contractors, (ii) all packaging and delivery expenses, (iii) all direct costs
including propagation materials, seed, fertilizer, fungicides, insect,
biological, bee and CO costs, (iv) all operating expenses including utilities
(including water), repairs and maintenance and equipment leases, (v) insurance
premiums, (vi) fees for accounting, legal and other professional services, (vii)
general and administrative expenses, (viii) permitting fees and expenses, (ix)
sales and marketing expenses, and (x) all other cash expenditures relating to
the operation, management, repair and maintenance costs of the Greenhouse.
"Greenhouse Revenues" mean, with respect to any period, all revenues and
-------------------
payments made to Colorado Greenhouse during such period in connection with the
operation of the Greenhouse, including, without limitation, all amounts owed to
Colorado Greenhouse under contracts relating to the Greenhouse, all other
payments received by Colorado Greenhouse from the sale of vegetables or other
produce or crops produced by the Greenhouse and proceeds received from business
interruption insurance with respect to the Greenhouse.
"Lender" means, collectively, the lender(s) providing the construction
------
and long-term financing for the Facility pursuant to
-4-
<PAGE>
the Loan Agreement (including any other refinancing thereof), and any trustee or
agent acting on their behalf.
"Loan Agreement" means the agreement between BCP and the Lender
--------------
providing financing for construction and operation of the Facility, as such
agreement may be amended or supplemented from time to time.
"Other Greenhouses" mean, collectively, the BGP Greenhouse and the Ft.
----------------- ---
Lupton Greenhouse (to the extent that the above are being operated and managed
by Colorado Greenhouse), or such other greenhouses as Colorado Greenhouse may
operate or manage during the term of this Agreement with the consent of BGPII
and BCP.
"Net Revenues" mean, with respect to any period, Colorado Greenhouse
------------
Revenues minus Colorado Greenhouse Operating Expenses for such period.
"Party or Parties" means BGPII or Colorado Greenhouse or both, as the
----------------
context may require.
"Primary Fee" means an amount, payable within 30 days after the end of
-----------
each calendar quarter during the term of this Agreement, equal to the Allocated
Percentage of Net Revenues, which amount shall not exceed (i) $500,000 for 1994
or (ii) the Allocated Percentage of $2,740,000 for any calendar year thereafter.
"Primary Fee Deficiency" means an amount, to be calculated by BGPII
----------------------
within 30 days of the end of each calendar year during the term of this
Agreement, equal to the amount, if any, by which the Allocated Percentage of
$2,740,000 exceeds the aggregate payments made on account of the Primary Fee for
such calendar year.
"Primary Fee Deficiency Balance" means an amount determined at any time
------------------------------
equal to the difference between (a) the sum of each prior year's Primary Fee
Deficiency minus (b) the sum of all amounts withdrawn during the term of this
Agreement from the Reserve Account and applied against a Primary Fee Deficiency
or the Primary Fee Deficiency Balance.
"Program" means the program for marketing, production and maintenance
-------
of the Greenhouse as prepared by Colorado Greenhouse and reviewed and approved
at least annually by BGPII, which program, shall cover the marketing, production
and maintenance necessary for the Greenhouse (including capital improvements
which shall be specified as such), a detailed staffing plan providing for the
necessary personnel and all other matters relevant to the operation of the
Greenhouse and Colorado Greenhouse's duties under this Agreement.
-5-
<PAGE>
"Project Documents" mean any and all agreements, contracts and permits,
-----------------
now or hereafter existing, relating to or affecting the operation of the
Greenhouse, as the same may be amended, supplemented or replaced from time to
time.
"Qualifying Facility" means a facility meeting all of the requirements
-------------------
for a "qualifying cogeneration facility" set forth in the regulations
implementing the Public Utility Regulatory Policies Act of 1978, as amended from
time to time, and in Part 292 of Title 18 of the Code of Federal Regulations, as
amended from time to time.
"Reserve Account" means the account entitled "Greenhouse Reserve
---------------
Account" to be maintained by BGPII.
"Reserve Amount" means an amount equal to the product of the Allocated
--------------
Percentage of $2,740,000.
"Rocky Mountain" means Rocky Mountain Produce Limited Liability
--------------
Company, a Colorado limited liability company.
"Services" mean the services and work performed by Colorado Greenhouse
--------
according to the terms and conditions of this Agreement, including, without
limitation, the work described in Article 3 as the duties of Colorado
Greenhouse and specified in the Program.
"Subcontractor" means, in relation to Colorado Greenhouse, any
-------------
individual, firm, organization, or supplier under contract to Colorado
Greenhouse for the performance of any part of Colorado Greenhouse's Services,
provided that any such contract under which Colorado Greenhouse has payment
obligations in excess of $250,000 in the aggregate in any one year period or
material liabilities or risks to the Greenhouse shall be subject to prior
approval by BGPII.
"Uncontrollable Forces" mean any cause beyond the control of the Party
---------------------
affected, including but not limited to acts of God, flood, earthquake, storm,
fire, lightning, explosion, epidemic, war, riot, civil disturbance, sabotage,
and restraint by court order or public authority, strike or labor disturbance,
which by exercise of due foresight such Party could not reasonably have been
expected to avoid, and which by exercise of due diligence, it is unable to
overcome. Neither Party shall, however, be relieved of liability for failure of
performance if such failure is due to causes arising out of its own negligence
or to removable or remediable causes which it fails to remove or remedy with
reasonable dispatch.
Article 3. Duties of Colorado Greenhouse.
- ----------------------------------------
3.1. Enumeration of Duties. Colorado Greenhouse hereby agrees to
---------------------
perform the activities as generally described in this
-6-
<PAGE>
Article, and as contained elsewhere in this Agreement related to the operation
and management of the Greenhouse consistent with the Annual Operating Budget and
the Program. From and after the Commencement Date, Colorado Greenhouse shall,
subject to BGPII's discretion:
(a) Safely and efficiently operate and maintain the Greenhouse in
accordance with (i) the Annual Operating Budget, (ii) the Program and (iii)
operations and maintenance manuals and warranties and procedures provided by the
contractor for the Greenhouse.
(b) Continuously operate the Greenhouse exclusively for the growing,
processing, packaging and marketing of tomatoes and other greenhouse vegetables
as provided in the Greenhouse Lease, a copy of which is attached hereto as
Exhibit A.
(c) Assume and comply with the obligations of BGPII under the
Greenhouse Lease (excluding the obligation to pay rent and establish rent
reserves) including, without limitation, utilizing the thermal heat from the
Power Plant in such quantities and for such purposes as necessary to maintain
the Qualifying Facility status of the Facility, provided, however, that such
quantities must be practicable without enlargement or other material alteration
of the Greenhouse or if enlargement or material alteration is required then the
cost thereof must be borne by BGPII or other third parties. Upon request by
BGPII, Colorado Greenhouse will provide satisfactory evidence of its compliance
with such lease terms.
(d) Pay, as the same become due, the Greenhouse Operating Expenses.
(e) Use its best efforts to market the produce from the Greenhouse.
(f) Employ, pay, train and supervise that number of personnel in
accordance with the staffing requirements set forth in the Annual Operating
Budget, and plan and administer all matters pertaining to such employed
personnel in the areas of labor relations, salaries, wages, working conditions,
hours of work, termination of employment, employee benefits, safety and related
matters. Colorado Greenhouse shall use reasonable care in the hiring of all its
employees. All employees shall be employees of Colorado Greenhouse and their
wages or other compensation shall be controlled and disbursed by Colorado
Greenhouse.
(g) Repair or replace, as may be necessary in accordance with a
manufacturer's directions, Good Greenhouse Practices and in a good and
workmanlike manner any Greenhouse equipment that fails or malfunctions (except
as otherwise provided
-7-
<PAGE>
in Section 4.1(d) of this Agreement). If any such failure or malfunction is
-
covered by a warranty, Colorado Greenhouse shall submit a timely warranty claim
on behalf of BGPII.
(h) Subject to BGPII's approval as required for a Subcontractor,
engage any independent contractors necessary for making repairs to, or
performing maintenance on, or installing improvements to the Greenhouse in the
event that Colorado Greenhouse is not available or is otherwise unable to make
or perform such repairs, maintenance or installations.
(i) Maintain accurate records of all changes to the Greenhouse and up
to date as built drawings of the Greenhouse reflecting such changes.
(j) Maintain regular communication with BGPII, regarding the operation
and management of the Greenhouse, including monthly production and sales
reports, safety reports and other reports reasonably requested by BGPII,
specifying all operations at the Greenhouse during such period and noting any
other material occurrences or operational results, and communicate in each
instance, either by telephone or in writing, material changes in the anticipated
operation of the Greenhouse or the marketing of produce therefrom, maintenance
problems related to the Greenhouse and any notice or knowledge of violation or
variance of any Applicable Law or Applicable Permit.
(k) Make, in the name of BGPII, contracts for janitorial, water,
electricity, telephone and other applicable services, or such of them as
Colorado Greenhouse shall deem advisable, and place orders for such equipment,
tools, appliances, materials and supplies as are necessary to properly maintain
and operate the Greenhouse.
(l) Maintain a system of office records, books, and accounts with
respect to the Greenhouse as required by the Loan Agreement, which records shall
be subject to examination by BGPII, BCP and the Lender or authorized agents or
designees of each during all regular business hours. Records, books, and
accounts shall be kept for a minimum of five years. So long as Colorado
Greenhouse operates all or any of the Other Greenhouses, Colorado Greenhouse
shall allocate costs and revenues for the Greenhouse in accordance with the
Allocation Percentage set forth on Exhibit B attached hereto.
(m) Be cognizant of and adhere to the requirements set forth in the
Project Documents insofar as they relate to the operation of the Greenhouse and
the duties of Colorado Greenhouse under this Agreement.
-8-
<PAGE>
(n) Prior to the Commencement Date, submit to BGPII a proposed Annual
Operating Budget for the year in which this Agreement commences and the
following year and cooperate with BGPII to review and modify the same as
necessary to obtain the approval of BGPII's Management Committee prior to the
Commencement Date; and thereafter submit to BGPII a proposed Annual Operating
Budget by November 1 of each year for the following two-year period and
cooperate with BGPII to review and modify the same as necessary to obtain the
approval of BGPII's Management Committee by December 1 of each year. If for any
reason the approval of BGPII's Management Committee is not so obtained, the
Annual Operating Budget previously approved shall, until the approval of an
Annual Operating Budget for the following two-year period, be deemed to be in
force and be effective as the Annual Operating Budget for such year.
(o) Review all federal, state and local laws and regulations
establishing compliance requirements in connection with the operation and
management of the Greenhouse. Advise BGPII on the need to secure or renew, as
necessary, appropriate permits, licenses and approvals, and assist BGPII in
securing as appropriate, such permits, licenses and renewals as required.
(p) Keep the Greenhouse free of all materialmen's, mechanics' and
other liens for materials or services furnished to the Greenhouse at Colorado
Greenhouse's direction.
(q) Pay all real estate taxes attributable to the Greenhouse (as
equitably apportioned by BGPII provided that in no event shall Colorado
Greenhouse be obligated for any portion of real estate or property taxes
attributable to the heat storage units or the heat generating portions of the
Facility) within five days of receipt of an invoice submitted by BGPII. In
addition, Colorado Greenhouse shall be responsible for all taxes payable to the
appropriate taxing authorities for any sales, excise or other tax levied,
imposed or assessed in the State of Colorado or by any other taxing authority in
connection with the operation of the Greenhouse and the sale of produce
therefrom.
(r) By November 1 of each year, submit to BGPII a proposed Program and
cooperate with BGPII to review and modify the same as necessary to obtain the
approval of BGPII's Management Committee.
(s) Perform other normal business functions and otherwise operate and
manage the Greenhouse in accordance with and as limited by the Greenhouse Lease
and this Agreement.
3.2 Limitations on Authority. Notwithstanding any provision of this
------------------------
Agreement to the contrary, unless previously expressly approved in the Annual
Operating Budget or otherwise
-9-
<PAGE>
approved in writing by BGPII, Colorado Greenhouse or any Subcontractor, or any
of their respective agents or representatives, shall not:
(a) sell, lease, pledge or mortgage, convey, or make any license,
exchange or other transfer of property or assets of BGPII;
(b) make, enter into, execute, amend, modify or supplement any contract
or agreement on behalf of or in the name of BGPII;
(c) make any recoverable expenditure or acquire on a recoverable cost
basis any equipment, materials, assets or other items, except for emergency
expenditures and except in substantial conformity with the Annual Operating
Budget and the Program; it being understood and agreed that Colorado Greenhouse
shall not be entitled to reimbursement for any expenditures not made in
accordance with this paragraph (c) .
(d) take or agree to take any other action that materially varies from
the applicable Annual Operating Budget, the Program or any Applicable Law;
(e) take, agree to take or fail to take any action that would cause
a default under the Project Documents;
(f) settle, compromise, assign, pledge, transfer, release or consent to
the settlement, compromise, assignment, pledge, transfer or release of any
claim, suit, debt, demand or judgment against or due by BGPII or Colorado
Greenhouse, or submit any such claim, dispute or controversy to arbitration or
judicial process, or stipulate in respect thereof to a judgment, or consent to
do the same;
(q) modify or alter the type of crop grown in the Greenhouse.
3.3 Limitation on Other Activities. During the term of this Agreement,
------------------------------
Colorado Greenhouse shall not:
(a) engage in any business or activity or make any investments
(either directly or indirectly) other than operating and managing the Greenhouse
and the Other Greenhouses, growing crops therein and marketing such crops and
products thereof;
(b) make any alterations, renovations, improvements or other
installations in or about any part of the Greenhouse in excess of $25,000 unless
and until Colorado Greenhouse shall cause plans and specifications therefor to
have been reviewed by BGPII and
-10-
<PAGE>
shall have obtained BGPII's written approval thereof. If approval is granted,
Colorado Greenhouse shall cause the work described in plans and specifications
to be performed, at its expense, promptly, efficiently, completely and in a good
and workmanlike manner by duly qualified or licensed persons or entities. All
such work shall comply with all applicable codes, rules, regulations and
ordinances. Ordinary and customary repairs and replacements in and on the
Greenhouse shall be promptly undertaken and promptly completed and need not have
BGPII's prior approval, unless such repairs or replacements materially decrease
the value of usefulness of the Greenhouse or the Facility;
(c) without the prior written consent of BGPII, agree to any
increase of the fees to be paid by Colorado Greenhouse under the greenhouse
management and operating agreements for the Other Greenhouses; or
(d) without the prior written consent of BGP II and BCP, cause any
greenhouse or other business to be treated under this Agreement as an Other
Greenhouse except the BGP Greenhouse, the Ft. Lupton Greenhouse and that
certain greenhouse near Rifle, Colorado built in connection with the American
Atlas cogeneration Project.
3.4 Payments by Colorado Greenhouse. (a) During the term of this
--------------------------------
Agreement, Colorado Greenhouse shall pay BGPII, on a timely basis (i) the
Primary Fee and (ii) the Contingent Fee, provided, however, that no Primary Fee
shall be due hereunder for any calendar quarter until the calendar quarter in
which rent is first due under the Greenhouse Lease. Any amount which is not paid
within ten days after the same is due shall bear interest at a default rate
equal to the rate of interest publicly announced or as published from time to
time by Bank of America NT and SA as its "reference rate" plus six percent per
annum from the first day due until paid.
(b) BGPII and Colorado Greenhouse understand and agree, that
except as provided in this Section 3.4, all amounts paid on account of the
Contingent Fee shall be used by BGPII as requested by BCP under the Greenhouse
Lease. Without limiting the foregoing, BGPII shall withdraw from the Reserve
Account, annually, the lesser of (x) all of the funds in such account or (y) an
amount equal to the sum of (i) the Primary Fee Deficiency for such year and (ii)
an amount equal to the Primary Fee Deficiency Balance.
(c) In addition to the foregoing payments Colorado Greenhouse shall
reimburse BGPII for prior advances made to Colorado Greenhouse in connection
with its formation and start-up in the amount of $630,000. Such amount together
with interest on any unpaid portion of such amount accruing from January 1, 1995
at an annual rate of eight percent shall be payable as follows: $375,000
-11-
<PAGE>
plus accrued interest shall be paid on or before December 31, 1996 and S255,000,
or such other amount of remaining principal as shall be then outstanding plus
accrued interest shall be paid on or before December 31, 1997. Colorado
Greenhouse shall also pay to BGPII on or before December 31, 1995, the amount of
$700,000, without interest, which amount was advanced to Colorado Greenhouse by
BGPII for working capital purposes.
Article 4. Duties of BGPII.
- ---------------------------
4.1. Enumeration of Duties. The following shall be BGPII's
---------------------
responsibility to provide in support of the uninterrupted operation and
maintenance of the Greenhouse:
(a) Use reasonable efforts to maintain the Greenhouse Lease or any
replacement contracts for the supply of thermal heat in sufficient quantities to
maintain the Facility's FERC Order.
(b) Providing a liaison person(s) available to Colorado Greenhouse
twenty-four hours per day, authorized to make decisions on the part of BGPII.
(c) Enforcing diligently any claim BGPII may have under insurance
policies, equipment guarantees and warranties pertaining to the Greenhouse.
(d) Paying for capital improvements as set forth in the Program.
Except as otherwise agreed by Colorado Greenhouse, BGPII shall pay for all
capital improvements which (i) the Parties agree are required for continued
usefulness of the Greenhouse and (ii) are required in connection with the
expansion of the Greenhouse to maintain compliance with the FERC Order. Any
other improvements that are made at the request of Colorado Greenhouse or that,
in BGPII's reasonable judgment, are to be made solely for the purpose of
enhancing Colorado Greenhouse's growing programs, shall be made at Colorado
Greenhouse's cost and expense, and may be made only with the prior written
consent of BGPII.
Article S. Term.
- ----------------
5.1. Term. This Agreement shall continue for a term equal to the term
----
of the Greenhouse Lease, unless sooner terminated as hereinafter provided.
5.2. Termination Upon Default. If any of the following events occur,
------------------------
BGPII shall have the right upon written notice to Colorado Greenhouse, to
terminate this Agreement:
(a) If Colorado Greenhouse defaults in the performance of any
obligation under this Agreement (other than the
-12-
<PAGE>
obligations under Section 3.4 of this Agreement) and such default is not cured
by Colorado Greenhouse within 5 days after receipt of a notice specifying the
default.
(b) If (i) the Primary Fee Deficiency Balance exceeds $1,000,000
at any time before December 31, 1996, (ii) the Primary Fee Deficiency for
calendar year 1997 or any year thereafter exceeds $500,000 or (iii) the Primary
Fee Deficiency Balance exceeds $750,000 at any time after January 1, 1998.
(c) If Colorado Greenhouse is adjudicated a bankrupt or insolvent
and such adjudication is not vacated within ten (10) days.
(d) The filing of a voluntary or involuntary bankruptcy or
insolvency petition of Colorado Greenhouse or the reorganization of Colorado
Greenhouse whether pursuant to the federal Bankruptcy Act or any similar federal
or state proceedings, unless such petition is filed by a party other than
Colorado Greenhouse and is withdrawn or dismissed within 30 days after the date
of filing.
(e) The appointment of a receiver or trustee for the business or
property of Colorado Greenhouse, unless such appointment shall be vacated within
ten days of its entry.
(f) The making by Colorado Greenhouse of an assignment for the
benefit of its creditors, or in any other manner Colorado Greenhouse's interests
in this Agreement shall pass to another by operation of law.
5.3. Payment of Expenses and Allocation of Crops After Termination.
-------------------------------------------------------------
Except as set forth in this Section 5.3 and except for Colorado Greenhouse's
obligations under Article 7 and Article 11, on the effective date of a
termination, BGPII and Colorado Greenhouse shall he relieved of all obligations
thereafter accruing under this Agreement. Notwithstanding such termination,
neither Party shall be relieved from any obligations or liabilities accruing
prior to the effective date of termination, including in the case of Colorado
Greenhouse, its obligation to make payment to BGPII of all sums due BGPII under
this Agreement. After the effective date of a termination BGPII shall either
grant Colorado Greenhouse such use of the Greenhouse as is necessary to care for
and harvest any crop planted before such date or compensate Colorado Greenhouse
for the value of such crop as of the effective date of termination, subject to
any right of offset that BGPII may have for amounts owed to it hereunder.
5.4. Termination Upon Loan Agreement Default. If there has been an
---------------------------------------
event of default under the Loan Agreement, then Lender or
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<PAGE>
any successor owner of the Facility may terminate this Agreement upon ten days
advance written notice. The provisions of this Section 5.4 were made for the
express benefit of the Lender as a third party beneficiary, and subject to the
terms and conditions of this Section 5.4, the Lender shall have the right to
exercise and enforce the rights granted to it herein.
5.5. Termination of Greenhouse Lease. In the event that the Greenhouse
-------------------------------
Lease is terminated for any reason whatsoever, this Agreement shall
automatically terminate without any further act or instrument.
5.6. Surrender of Greenhouse. Upon the termination of this Agreement
-----------------------
but subject to the terms of Section 5.3, Colorado Greenhouse will surrender the
Greenhouse in as good condition as when received, excepting depreciation caused
by ordinary wear and tear.
5.7. Training of New Personnel. Upon termination of this Agreement,
-------------------------
Colorado Greenhouse will make available to BGPII one qualified employee for a
period of two months after the termination of this Agreement for the purpose of
training new personnel in the operation and management of the Greenhouse.
Article 6. BGPII's Right to Audit.
- ----------------------------------
BGPII shall have the right, at any time and from time to time to audit
or cause an independent audit to be made of Colorado Greenhouse's books and
records for the purposes of verifying compliance with the provisions of this
Agreement. In the event that comp. any such audit indicates that Colorado
Greenhouse underpaid any amount due to BGPII under this Agreement, Colorado
Greenhouse shall pay such additional sum and such audit shall be deemed to be
binding and conclusive, unless a request is made, within fifteen days after
receipt of a copy of such audit by Colorado Greenhouse, for a consultation with
such auditors. Such audit, after consultation and modification, if any, shall be
binding and conclusive unless the consultation results in irreconcilable
differences with respect to any material item in the report. In such event, the
disputed item will be submitted to a firm of independent certified public
accountants, acceptable to BGPII, for resolution, and the fees of such firm
shall be paid equally by Colorado Greenhouse and BGPII, unless Colorado
Greenhouse is obligated for full payment pursuant to this Article 6. If the
submission to the independent certified public accountants results in changes in
the audit report, the report as so changed shall be binding and conclusive. In
the event that the audit indicates that there were deficiencies 'in the
aggregate amount of $10,000 or more in the amounts which should have been paid
by Colorado Greenhouse to BGPII pursuant to this agreement, Colorado Greenhouse
shall pay all costs of audits
-14-
<PAGE>
incurred by BGPII under this Article 6 together with interest an the amount of
the deficiency payable at the interest rate set forth in Section 3.4(a) of this
Agreement.
Article 7. Exclusive warranties; Remedies.
- ------------------------------------------
7.1. Warranty. Colorado Greenhouse warrants to BGPII that the Services
--------
performed under this Agreement shall be performed in a competent, prudent and
efficient manner, in accordance with this Agreement, Good Greenhouse Practices,
all warranties and procedures for the Greenhouse and all safety, fire protection
and other requirements of applicable insurance policies.
7.2. No Consequential Damages. In no event shall Colorado Greenhouse,
------------------------
BGPII or any of their respective affiliates, owners, members, managers,
employees or agents, be liable for any consequential, incidental or special
damages or any other liabilities not expressly set forth herein, regardless of
whether based on contract, warranty, indemnity, tort, strict liability or
otherwise.
7.3. No limitation on Claims Against Third Parties. Nothing
---------------------------------------------
contained in this Article 7 or any other provision of this Agreement shall be
deemed to waive, limit or impair in any way any claims that BGPII may have
against Subcontractors, manufacturers of equipment or any other person.
Article 8. Insurance.
- ---------------------
8.1. Colorado Greenhouse's Coverage. At all times after the Commencement
------------------------------
Date, Colorado Greenhouse will carry and maintain, at its expense:
(a) public liability insurance including insurance against assumed
or contractual liability under this Agreement, in such amount as BGPII may
request.
(b) all-risk casualty insurance covering all of the personal
property in, on or about the Greenhouse including all improvements installed in,
on or about the Greenhouse by or on behalf of Colorado Greenhouse, in such
amounts as BGPII may request;
(c) if and to the extent required by law, workers compensation or
similar insurance in form and amounts required by law; and
(d) such other insurance as BGPII may require, including, but not
limited to, insurance that BGPII or BC is required to provide pursuant to the
terms of any applicable credit agreement affecting the Facility.
-15-
<PAGE>
8.2. Subcontractor's Coverage. Colorado Greenhouse shall require all of
------------------------
its Subcontractors engaged in work at the Greenhouse to maintain insurance
coverage of the types and in the amounts at least equal to the insurance
coverage that Colorado Greenhouse is required to maintain in accordance with
Section 8.1 above.
8.3. Umbrella Coverage. Umbrella coverage may cover any portion of the
-----------------
limits of liability required in Sections 8.1 and 8.2 above, provided it has all
the coverages and requirements for the type of coverage.
8.4. Insurance Provisions. The company or companies writing such
--------------------
insurance policies, as well as the form of such insurance shall at all times be
subject to BGPII's approval. Public liability and all-risk casualty insurance
policies evidencing such insurance shall name BGPII or its designee as
additional insureds, and shall contain such other provisions and endorsements as
BGPII may request.
8.5. Evidence of Insurance. Before the date on which such insurance
---------------------
first is required to be carried by Colorado Greenhouse, and thereafter, at least
30 days before the effective date of any renewal of any such policy, Colorado
Greenhouse will deliver to BGPII either a duplicate original of the aforesaid
policy or a certificate evidencing such insurance.
Article 9. Applicable Permits.
- ------------------------------
All Applicable Permits shall be obtained and maintained by Colorado
Greenhouse on behalf of BGPII. BGPII shall cooperate with Colorado Greenhouse in
the securing of such Applicable Permits.
Article 10. Applicable Laws.
- ----------------------------
10.1. Applicable Laws. Colorado Greenhouse shall operate and maintain
---------------
the Greenhouse in conformance with all Applicable Laws and Applicable Permits,
including without limitation the disposing of any hazardous waste generated by
the Greenhouse in accordance with all Applicable Laws.
10.2. Changes in Laws. Colorado Greenhouse shall comply with
-----------------
applicable changes in the Applicable Laws and shall inform BGPII of such
changes. To the extent that such changes require alterations in the Greenhouse
configuration, operation, maintenance procedures or other aspects of Greenhouse
operation and maintenance, the cost thereof shall be borne by BGPII. The parties
acknowledge that any material alteration in the Greenhouse may necessitate a
change in the Allocated Percentage for the Greenhouse and each of the other
Greenhouses.
-16-
<PAGE>
Article 11. Indemnification.
- ----------------------------
11.1. Indemnification by Colorado Greenhouse. (a) Colorado Greenhouse
----------------------------------------
shall indemnify and hold harmless BGPII and Lender and their respective
affiliates, officers, directors, managers, shareholders, members, employees and
agents, from any loss, liability or damage incurred or suffered by any such
person by reason of Colorado Greenhouse's failure to perform its obligations
hereunder or its negligence or willful misconduct, including, without
limitation, any judgment, award or settlement, other costs and expenses, and
reasonable attorneys, fees incurred in connection with the defense of any actual
or threatened claim or action based on any such act or omission, unless such
loss, liability or damage results from such indemnified person's fraud,
negligence or willful misconduct. Such attorneys' fees shall be paid as
incurred.
(b) Colorado Greenhouse shall indemnify and hold harmless BGPII
and Lender and their respective affiliates, officers, directors, managers,
shareholders, members, employees and agents from any and all liability, claims,
demands, actions and causes of action whatsoever (including without limitation
reasonable attorneys' fees and expenses, and costs and expenses reasonably
incurred in investigating, preparing or defending against any -litigation or
claim, action, suit, proceeding or demand of any kind or character) arising out
of or related to alleged contamination of the property underlying the Facility
(the "Premises") by any hazardous or toxic substance, pollutant or
contaminant, or alleged injury or threat of injury, to health, safety or the
environment, or alleged noncompliance with any federal, state and local
environmental statutes, regulations, ordinances, and any permits, approvals or
judicial or administrative orders issued thereunder, giving rise to liability
under any federal, state or local environmental statutes or ordinances,
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act, 42 (S)(S) SS 9601 et seq., as amended from time
-- ---
to time, or under any common law claim, including claims for personal injury or
property damage or for any claim by any governmental or private party for
remedial or removal costs, natural resource damages, property damages, damages
for personal injuries, or other costs, expenses or damages or any claim for
injunctive relief arising from any alleged injury or threat of injury to health,
safety or the environment relating to the Premises.
11.2. Indemnification by BGPII. BGPII shall indemnify and hold
--------------------------
harmless Colorado Greenhouse and its affiliates, managers, members, employees
and agents, from any loss, liability or damage incurred or suffered by any such
person by reason of BGPII's failure to perform its obligations hereunder or its
negligence or willful misconduct, including, without limitation, any judgment,
award or settlement, other costs and expenses, and reasonable attorneys' fees
-17-
<PAGE>
incurred in connection with the defense of any actual or threatened claim or
action based on any such act or omission, unless such loss, liability or damage
results from such indemnified person's fraud, negligence or willful misconduct.
Such attorneys' fees shall be paid as incurred. Any such indemnification shall
be paid only from the assets of BGPII and neither Colorado Greenhouse nor any
third party shall have recourse against the personal assets of any member of
BGPII or their respective affiliates for such indemnification.
Any indemnification required herein to be made by BGPII or Colorado Greenhouse
shall be made promptly following the determination of the loss, liability or
damage incurred or suffered by final judgment of any court, settlement, contract
or otherwise.
Article 12. Representations.
- ----------------------------
12.1. Representations of Colorado Greenhouse. Colorado Greenhouse
--------------------------------------
represents and warrants to BGPII as follows:
(a) that it is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Colorado;
(b) that it has personnel available to it with the expertise in
connection with the management of greenhouses sufficient for it to perform its
obligations under this Agreement in a manner consistent with Good Greenhouse
Practices;
(c) that the execution, delivery and performance of this
Agreement by Colorado Greenhouse has been duly authorized by all necessary
limited liability company action and this Agreement has been duly executed and
delivered by Colorado Greenhouse and, subject to due execution and delivery by
BGPII, this Agreement will be enforceable against Colorado Greenhouse in
accordance with its terms, and does not constitute a default under its operating
agreement, or any instrument to which it is a party, nor does it violate any
provision of any law, rule, regulation, order, judgment, decree, determination,
or award presently in effect having applicability to it;
(d) that it has all necessary permits, licenses, and other
governmental approvals required to perform its obligations hereunder, except for
permits BGPII is required to obtain; and
(e) that there are no actions, suits, or proceedings pending or,
to its knowledge, threatened against it in any court or before any governmental
department, agency, instrumentality, or any arbitrator, in which there is a
reasonable possibility of an adverse decision which could materially and
adversely affect its ability to perform its obligations under this Agreement.
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<PAGE>
12.2. Representations by BGPII. BGPII represents and warrants to
------------------------
Colorado Greenhouse as follows:
(a) that it is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Colorado;
(b) that the execution, delivery and performance of this
Agreement by BGPII has been duly authorized by all necessary limited liability
company action and this Agreement has been duly executed and delivered by BGPII
and, subject to due execution and delivery by Colorado Greenhouse, this
Agreement will be enforceable against BGPII in accordance with its terms, and
does not constitute a default under its operating agreement, or any instrument
to which it is a party, nor does it violate any provision of any law, rule,
regulation, order, judgment, decree, determination, or award presently in effect
having applicability to it; and
(c) that there are no actions, suits, or proceedings pending
or, to its knowledge, threatened against it in any court or before any
governmental department, agency, instrumentality, or any arbitrator, in which
there is a reasonable possibility of an adverse decision which could materially
and adversely affect its ability to perform its obligations under this
Agreement.
Article 13. Colorado Greenhouse as Independent Contractor.
- ----------------------------------------------------------
13.1. Independent Contractor. Colorado Greenhouse shall be an
----------------------
independent contractor in the performance of this Agreement and shall have
complete charge of the Services and personnel engaged in the performance of the
Services. Nothing contained herein shall be deemed to create a relationship of
employer-employee, master-servant, partnership, or joint venture.
13.2. Subcontractors. Colorado Greenhouse's Services may be
--------------
performed by Colorado Greenhouse acting in its own name, or by Colorado
Greenhouse's subcontracting portions to other Subcontractors or suppliers.
(a) Colorado Greenhouse will assume the responsibility for,
and liability arising in connection with, negotiating with, and performance by,
its Subcontractors.
(b) Colorado Greenhouse will have authority and control over
the Subcontractors, work, including overtime and any special methods required,
in the judgment of Colorado Greenhouse, to complete the Subcontractors work in a
correct and timely manner.
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<PAGE>
Article 14. Survival.
- ----------------------
The provisions of Articles 7 and 11 shall survive termination,
cancellation or expiration of this Agreement.
Article 15. Miscellaneous.
- --------------------------
15.1 Notices. Notices and other communications with respect to this
-------
Agreement shall be in writing and shall be delivered by hand or overnight
courier service, mailed or sent by telecopy. Unless other addresses or telecopy
numbers are specified in writing pursuant to this Section 15.1 to each other
Party, such notices or other communications shall be sent to the following
addresses or telecopy numbers as the case may be.
BGPII: Brush Greenhouse Partners II
Limited Liability Company
4845 Pearl East Circle, Suite 300
Boulder, Colorado 80301-2474
Attention: Edward J. Wetherbee
Telephone: (303) 442-5112 FAX: (303) 442-5113
Colorado Greenhouse:
Colorado Greenhouse Limited Liability Company
P.O. Box 309
Fort Lupton, Colorado 80621
Attention: Matthew cook
Telephone: (303) 857-1100 FAX: (303) 857-1200
15.2 Arbitration. All claims, disputes and other matters in
-----------
question arising out of, or relating to this Agreement or the interpretation or
breach thereof, shall be decided by arbitration in accordance with the
Arbitration Rules of the American Arbitration Association then in effect unless
the Parties mutually agree otherwise. Said arbitration shall be before a panel
of three arbitrators and shall be held in Denver, Colorado. This agreement to
arbitrate shall be specifically enforceable under applicable law in any court of
competent jurisdiction. Notice of the demand for arbitration shall be filed in
writing with the other Party to this Agreement and with the American Arbitration
Association. The demand for arbitration shall be made within a reasonable time
after the claim, dispute or other matter in question has arisen, and in no event
shall it be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable contractual or other statute of limitations. The award
rendered by the arbitrators shall be final and judgment may be entered in
accordance with applicable law and in any court having jurisdiction thereof.
Attorneys' fees and expenses may be payable to the prevailing party in such
arbitration in the discretion of the arbitrators.
-20-
<PAGE>
15.3 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.
15.4 Headings. Titles and headings of the sections and
--------
subsections of this Agreement are for the convenience of reference only and do
not form a part of this Agreement, and shall not in any way affect the
interpretation of this Agreement.
15.5 Assignments. This Agreement shall not be assignable by either
-----------
Party hereto without the prior written consent of the other Party; provided,
however, that BGPII's rights under this Agreement may be assigned to the Lender
to secure obligations under the Loan Agreement and, so long as is required by
the Loan Agreement, no change in the terms or provisions hereof shall be made
without prior written consent of the Lender.
15.6 Inspections and Access by BGPII and Lenders. Colorado
--------------------------------------------
Greenhouse will permit BGPII, its agents, employees and contractors and Lender
and its representative to enter all parts of the Greenhouse during Colorado
Greenhouse's business hours to inspect the same and to enable BGPII to enforce
or carry out any provision of this Agreement.
15.7 Lender Protection. Colorado Greenhouse agrees to give any
-----------------
Lender by registered or certified mail, a copy of any notice or claim of
default served upon BGPII by Colorado Greenhouse, provided that prior to such
notice Colorado Greenhouse has been notified in writing of the address of such
Lender. Colorado Greenhouse further agrees that if BGPII shall have failed to
cure such default within 20 days after such notice to BGPII (or if such default
cannot be cured or corrected within that time, "then such additional time as may
be necessary if BGPII has commenced within such 20 days and is diligently
pursuing the remedies or steps necessary to cure or correct such default) , then
any Lender shall have an additional 30 days within which to cure or correct such
default (or if such default cannot be cured or corrected within that time and
such default is not having a material adverse effect on Colorado Greenhouse,
then such additional time as may be necessary if such Lender has commenced
within such 30 days and is diligently pursuing the remedies or steps necessary
to cure or correct such default, including the time necessary to obtain
possession if possession is necessary to cure or correct such default) .
15.8 Force Major. Neither Party hereto shall be deemed to be in
-----------
breach or in violation of this Agreement if such Party is prevented from
performing any of its obligations hereunder by reason of Uncontrollable Forces
that in fact prevent or delay performance hereunder. To the extent that any
performance of any obligation is so prevented pursuant to this Section 15.6,
such performance shall
-21-
<PAGE>
be suspended during the continuance of the Uncontrollable Forces and during the
period following the cessation of such Uncontrollable Forces required to repair
and rebuild the Facility to the extent necessary to place it back into
commercial operation in accordance with Good Greenhouse Practices and Applicable
Laws. Notwithstanding this foregoing, in the event of the inability of Colorado
Greenhouse to substantially perform the Services for a period of 45 days or more
by virtue of Uncontrollable Forces (which Uncontrollable Forces are not of a
type affecting other persons generally) , BGPII may elect to terminate this
Agreement upon five days, prior written notice to Colorado Greenhouse; it being
understood and agreed that if such Uncontrollable Forces apply to, relate to or
affect all persons as a general matter, then BGPII will not terminate this
Agreement pursuant to the provisions of this Section 15.8, unless such
Uncontrollable Forces continue for a period of 180 days.
15.9 Waiver. The waiver of any breach of any term or condition hereof
------
shall not be deemed a waiver of any other or subsequent breach, whether of like
or different nature. No failure to exercise and no delay in exercising, on the
part of either Party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies at law.
15.10 Severability. If any term or provision of this Agreement or the
------------
performance thereof shall to any extent be invalid or unenforceable, such
invalidity or unenforceability shall not affect or render invalid or
unenforceable any other provision of this Agreement, and this Agreement shall be
valid and enforced to the fullest extent permitted by law.
15.11 Amendment. No modification or amendment of this Agreement shall
-----------
be valid unless in writing and executed by both Parties hereto.
15.12 Governing Law. This Agreement shall be governed by and construed
---------------
under the laws of the State of Colorado. The parties hereby consent to the
jurisdiction of the courts of the State of Colorado for the purposes of
enforcing the arbitration provisions of Section 15.2.
15.13 Entire Agreement. This Agreement sets forth the entire
----------------
agreement and understanding between the Parties hereto with respect to the
subject matter hereof and supersedes and replaces all prior written agreements
and negotiations and oral understandings, if any, with respect thereto.
-22-
<PAGE>
15.14 No Third Party Beneficiaries. Except as specifically provided
----------------------------
herein or by the Loan Agreement, no person or party except Lender shall have any
rights or interest, direct or indirect, in this Agreement or the Services to be
provided hereunder, or both, except Colorado Greenhouse and BGPII. The Parties
specifically disclaim any intent to create any rights in any person or party as
a third-party beneficiary to this Agreement or the Services to be provided
hereunder except for the Lender and BCP.
15.15 Amendment of Allocated Percentage. The Allocated Percentage may
-----------------------------------
be amended at any time by mutual agreement of the Parties hereto and shall be
amended to reflect any change in size of any Other Greenhouse. If any of the
Other Greenhouses decreases in size or is increased in size by the addition of
space of like quality to its existing space then the Allocated Percentage shall
be adjusted in proportion to the ratio that the change in size bears to the
total size of the Greenhouse and the Other Greenhouses.
This Agreement has been executed and delivered as of the date first
above written.
BGPII:
------
BRUSH GREENHOUSE PARTNERS II LIMITED
LIABILITY COMPANY
By: /s/ Edward J. Wetherbee
---------------------------------
---------------------------------
Manager
COLORADO GREENHOUSE:
-------------------
COLORADO GREENHOUSE LIMITED LIABILITY
COMPANY
By: /s/ Edward J. Wetherbee
---------------------------------
---------------------------------
Manager
and
By: /s/ William E. Coleman
---------------------------------
---------------------------------
Manager
-23-
<PAGE>
EXHIBIT A
---------
Greenhouse Lease
-24-
<PAGE>
EXHIBIT B
---------
Allocation Percentage
A percentage, as the same may be modified from time-to-time, and as in
effect on the dates set forth below:
Commencement Date 50.000%
Commencement of Operation
of the Fort Lupton Greenhouse 31.135%
-25-
<PAGE>
EXHIBIT 10.11
FIRST AMENDMENT
TO
GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT
THIS FIRST AMENDMENT TO GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT (this
"Amendment") is made as of this ___ day of September, 1996, between BRUSH
GREENHOUSE PARTNERS II, LLC, a Colorado limited liability company ("BGP II") and
COLORADO GREENHOUSE LLC, a Colorado limited liability company ("CG").
Recitals
--------
A. BGP II and CG have entered into that certain Greenhouse Operation and
Management Agreement dated December 29, 1994 to be effective January 1, 1994
(the "O&M Agreement"), whereby CG was engaged by BGP II to operate and manage
the greenhouse facility and related packing facility (collectively, the
"Greenhouse") located in Brush, Colorado.
B. BGP II and CG desire hereby to amend certain provisions of the O&M in
connection with an expansion of the Greenhouse and the consolidation of the
greenhouse facility located in Rifle, Colorado (the "Rifle Greenhouse") with the
Greenhouse and Other Greenhouses, as defined in, and pursuant to the terms of,
the O&M Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreement
herein contained, the parties hereby covenant and agree as follows:
1. The fourth and fifth lines of Recital A shall be amended by replacing
the phrase "an approximately 15-acre greenhouse facility and related packing
facility" with the phrase "an approximately 15-acre greenhouse facility, to be
expanded subsequently to an approximately 18.6-acre greenhouse facility".
2. The definition of "Other Greenhouses" in Section 2 is hereby deleted
-----------------
in its entirety and the following is inserted in lieu thereof:
"Other Greenhouses" mean, collectively, the BGP Greenhouse , the
-----------------
Ft. Lupton Greenhouse and the Rifle Greenhouse (to the extent
that the above are being operated and managed by Colorado
Greenhouse), or such other greenhouses as Colorado Greenhouse may
operate or manage during the term of this Agreement with the
consent of BGP II and BCP.
3. The definition of "Primary Fee" in Section 2 is hereby deleted in its
-----------
entirety and the following is inserted in lieu thereof:
<PAGE>
"Primary Fee" means an amount, payable within 30 days after the
-----------
end of each calendar quarter during the term of this Agreement,
equal to the Allocated Percentage of Net Revenue, which amount
shall not exceed (i) $500,000 for 1994, (ii) the Allocated
Percentage of $2,740,000 for 1995, (iii) the Allocated Percentage
of $3,240,000, for the period commencing as of January 1, 1996
through and including the second complete calendar quarter
following the completion date of the expansion of the Greenhouse,
and (iv) thereafter, the Allocated Percentage of $3,429,092.
4. The definition of "Primary Fee Deficiency" in Section 2 is hereby
----------------------
deleted in its entirety and the following is inserted in lieu thereof:
"Primary Fee Deficiency" means an amount, to be calculated by BGP
----------------------
II within 30 days after the end of each calendar quarter during
the term of this Agreement, equal to the amount, if any, by which
the Allocated Amount (as defined below) exceeds the aggregate
payments made on account of the Primary Fee for such calendar
year. "Allocated Amount" means, (i) for 1995, the Allocated
Percentage of $2,740,000, (ii) for the period commencing as of
January 1, 1996 through and including the second complete
calendar quarter following the completion date of the expansion
of the Greenhouse, the Allocated Percentage of $3,240,000, and
(iii) thereafter, the Allocated Percentage of $3,429,092.
5. The following definition shall be inserted after the definition of
"Reserve Amount" and before the definition of "Rocky Mountain" in Section 2:
-------------- --------------
"Rifle Greenhouse" means the greenhouse leased to Wolf Creek Rifle LLC and
----------------
to be operated by Colorado Greenhouse, located in Rifle, Colorado.
6. Exhibit B is hereby deleted in its entirety and the following is
inserted in lieu thereof:
A percentage, as the same may be modified from time-to-time, as in effect
on the dates set forth below:
Commencement Date 50.000%
Commencement of Operation
of the Ft. Lupton Greenhouse 31.135%
Consolidation of the Rifle Greenhouse 26.330%
The Second Complete Calendar Quarter
Following the Completion Date of the
Greenhouse Expansion 30.392%
<PAGE>
7. Except as expressly amended pursuant to Sections 1 through 6 above,
the terms and conditions of the O&M Agreement are unmodified and remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
BRUSH GREENHOUSE PARTNERS II, LLC, a
Colorado limited liability company
By: __________________________
Name: ________________________
Title: _______________________
COLORADO GREENHOUSE LLC, a Colorado
limited liability company
By: __________________________
Name: ________________________
Title: _______________________
<PAGE>
BRUSH COGENERATION PARTNERS
4845 PEARL EAST CIRCLE, SUITE 300
BOULDER, COLORADO 80301-2474
July 31, 1996
The Prudential Insurance Company
of America, as Lead Agent
c/o Prudential Power Funding Associates
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Project Management Team
Credit Suisse, as Bank Agent
12 East 49th Street
Tower 49
New York, New York 10017
Attn: Project Finance
Re: Brush Cogeneration Partners; Construction and Term Loan Agreement
dated as of June 30, 1992
Ladies and Gentlemen:
Reference is made to that certain Construction and Term Loan Agreement (the
"Loan Agreement"), dated as of June 30, 1992, among Brush Cogeneration Partners
("Borrower"). The Prudential Insurance Company of America, Credit Suisse, and
the other parties named therein. Capitalized terms used herein but not otherwise
defined shall have the meaning given to such terms in the Loan Agreement.
Borrower and Brush Greenhouse Partners II, LLC ("BGP II") desire to enter
into the consent letter, in the form of Exhibit A attached hereto, in favor of
Colorado Greenhouse LLC ("Colorado Greenhouse") relating to certain amendments
to the Greenhouse Operation and Management Agreement (the "O&M Agreement") dated
as of December 29, 1994 between BGP II and Colorado Greenhouse. This consent
letter will allow Colorado Greenhouse to add as an Other Greenhouse that certain
greenhouse located in Rifle, Colorado, and used in connection with the American
Atlas cogeneration project.
<PAGE>
The Prudential Insurance Company of America Page 2
Credit Suisse
July 31, 1996
In connection with the current expansion of the Greenhouse, Borrower and
BGP II also desire to (A) consent to (i) a change in the Allocation Percentage
under the O&M Agreement, (ii) a change in the definition of Reserve Amount under
the O&M Agreement, and (iii) an increase in the primary fee to be paid to BGP
II, as lessee of the Greenhouse, and (B) amend the Amended and Restated
Cogeneration and Greenhouse Lease (the "Greenhouse Lease") dated June 1, 1992
between Borrower and BGP II, by a First Amendment in the form of Exhibit B
attached hereto (the "Greenhouse Lease Amendment").
Section 9.5 of the Loan Agreement provides in part that Borrower will not,
without the prior written consent of the Agents, agree to any amendment,
supplement or modification of any Basic Document. Because the contemplated
amendments to the O&M Agreement will result in an amendment to the Greenhouse
Lease, a Basic Document, your consent to such amendments is required. In
addition, your consent to such amendments is required because, pursuant to
Section 15.5 of the O&M Agreement, the parties thereto have agreed that no
change in the terms or provisions of the O&M Agreement shall be made without
your consent. We also note that the O&M Agreement has been assigned to the
Agents pursuant to that certain Collateral Assignment dated as of December 29,
1994.
Borrower hereby requests that you consent to the execution of the attached
letter and the Greenhouse Lease Amendment by Borrower and BGP II.
<PAGE>
The Prudential Insurance Company of America Page 3
Credit Suisse
July 31, 1996
Please confirm your agreement to the terms and provisions of this letter
agreement by signing where indicated below.
Sincerely,
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: [SIGNATURE ILLEGIBLE]
-----------------------
Title: VP
----------------------
and
By: CTI Partners II, LLC, a general partner
By: /s/ Edward J. Wetherbee
---------------------------
Edward J. Wetherbee
Management Committee Member
Accepted and Agreed to this 31 day
of July, 1996.
THE PRUDENTIAL INSURANCE COMPANY CREDIT SUISSE,
OF AMERICA, as Lead Agent as Bank Agent
By: [SIGNATURE ILLEGIBLE] By: /s/ Kevin V. Soucy
------------------------ ------------------------
Title: V.P. Kevin V. Soucy
--------------------- Title: Associate
-----------------
<PAGE>
EXHIBIT 10.14
AMENDMENT No. 1 TO THERMAL SUPPLY
LEASE AGREEMENT
THIS AMENDMENT No. 1 TO THERMAL SUPPLY LEASE AGREEMENT (this "Amendment
No. 1"), dated as of December 29, 1994, is by and between THERMO COGENERATION
PARTNERSHIP, L.P., a Colorado limited partnership ("herein sometimes Thermo")
and ROCKY MOUNTAIN PRODUCE LIMITED LIABILITY COMPANY, a Colorado limited
liability company ("Rocky Mountain").
RECITALS
--------
A. Thermo Cogeneration Partnership, a Colorado general partnership, and
Rocky Mountain have previously entered into that certain Thermal Supply Lease
Agreement effective as of March 22, 1993 (the "Agreement"), pursuant to the
terms of which Thermo leased to Rocky Mountain, and Rocky Mountain leased from
Thermo a commercial greenhouse located in Ft. Lupton, Colorado (the "Facility").
B. By Special Warranty Deed dated March 24, 1993, Thermo Cogeneration
Partnership conveyed to Thermo the "Project Site," including the "Land," both as
defined in the Agreement.
C. By Assignment and Assumption Agreement dated as of April 7, 1993,
Thermo Cogeneration Partnership assigned the Agreement (among other assets) to
Thermo and Thermo assumed the obligations of the assignor thereunder.
D. Rocky Mountain desires to enter into a Greenhouse Operation and
Management Agreement (the "O&M Agreement") with Colorado Greenhouse Limited
Liability Company, a Colorado limited liability company (the "Operator"), an
Affiliate of Rocky Mountain, pursuant to the terms of which Rocky Mountain would
engage the Operator to operate and manage the Greenhouse.
E. Rocky Mountain has requested Thermo to consent to the O&M Agreement,
and Thermo has indicated its willingness to consent, subject to the modification
of certain provisions of the Agreement.
NOW THEREFORE,for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
---------
1. All capitalized terms used herein but not otherwise defined shall
have the meaning given to such terms in the Agreement.
<PAGE>
2. Paragraph 4.5(d) of the Agreement is hereby amended in the following
manner:
(a) The first two sentences of paragraph 4.5(d) are hereby deleted
in their entirety and replaced with the following sentences:
"Less Rocky Mountain's same fractional share of all other cash
expenditures during the same Calculation Period (i.e. excluding depreciation and
amortization) by Rocky Mountain for all ordinary and necessary expenses (except
Base Rent hereunder and rent under the leases for all other commercial
greenhouse facilities operated by Rocky Mountain's Greenhouse Affiliates) of
operating the Facility and all other commercial greenhouse facilities operated
by Rocky Mountain's Greenhouse Affiliates. Repayment of interest and principal
on debt which is (i) reasonably necessary to incur in order to provide for
operation of the Facility and all such other commercial greenhouse facilities,
(ii) used solely to pay ordinary and necessary expenses of operating the
Facility and all such other commercial greenhouse facilities, and (iii) borrowed
by Rocky Mountain or Rocky Mountain's Greenhouse Affiliates at rates and on
terms not less favorable than would be available to Rocky Mountain or Rocky
Mountain's Greenhouse Affiliates from major 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 and all such other
commercial greenhouse facilities."
(b) The fourth sentence of paragraph 4.5(d) beginning with the word
"Expenses" (at the end of the first line on page 12 of the Agreement) and ending
with the word "Affiliates" (near the end of the fourteenth line on page 12 of
the Agreement) is hereby deleted in its entirety.
(c) The last sentence of paragraph 4.5(d) is hereby amended to read
in its entirety as follows: "Rocky Mountain shall not, without Thermo's prior
written consent, (x) 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 are obtained from an Operating Line of Credit or (y)
become jointly obligated with any operator of the greenhouses owned or leased by
Rocky Mountain's Greenhouse Affiliates under any Operating Line of Credit unless
the lessee of each such greenhouse is also jointly obligated under such
Operating Line of Credit."
3. Paragraph 4.6 of the Agreement is hereby amended in the following
manner:
(a) The phrase "Two Million Five Hundred Thousand Dollars
($2,500,000)" appearing throughout paragraph 4.6 of the
-2-
<PAGE>
Agreement is hereby deleted and replaced in each instance with the phrase "One
Million Five Hundred Thousand Dollars ($1,500,000)."
(b) The eighth sentence of paragraph 4.6 beginning with the word
"Should" (near the beginning of the sixth line on page l3 of the Agreement) and
ending with the word "outstanding" (near the middle of the eleventh line on page
l3 of the Agreement) is hereby deleted in its entirety and replaced with the
following sentence:
"Rocky Mountain shall not declare or 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."
(c) The amount "$2,600,000" (in the eighteenth line on page 13 of
the Agreement) is hereby deleted and replaced with the amount "$1,600,000."
4. Paragraph 4.7 of the Agreement is hereby amended in the following
manner:
(a) The first sentence of paragraph 4.7 is hereby amended by adding
the following proviso at the end of such sentence (in the third line on page 14
of the Agreement): "; and provided, further, that in the event the sum of all
Postponements plus accrued interest is equal to or greater than the maximum
amount allowed under paragraph 4.6 ($1,500,000), then amounts that are required
under this sentence to be paid to the Greenhouse Rent Reserve Account shall be
applied to reduce the balance of Postponements plus accrued interest."
(b) The fifth sentence of paragraph 4.7 beginning with "Amounts so
returned" (in the thirteenth line of page 14 of the Agreement) is hereby
amended to read in its entirety as follows: "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, and Thermo shall also be entitled
to apply funds obtained from the Greenhouse Rent Reserve Account to reduce
Postponements which accrued on prior Quarterly Payment Dates to the extent that
the total of all prior Postponements plus accrued interest exceeds the maximum
amount allowed under paragraph 4.6."
(c) The seventh sentence of paragraph 4.7 beginning with the word
"Promptly" (near the end of the twentieth line on page 14 of the Agreement) and
ending with the word "certificate" (at the beginning of the twenty-fifth line on
page 14 of the Agreement) is hereby deleted in its entirety.
-3-
<PAGE>
5. Paragraph 14.1 of the Agreement is hereby amended by adding the
following provision to the end of said paragraph:
"Notwithstanding anything herein to the contrary, the prohibitions
against assignment and subletting of the rights hereunder shall not apply to
Rocky Mountain's execution of that certain Greenhouse Operation and Management
Agreement of even date by and between Rocky Mountain and Colorado Greenhouse
Limited Liability Company, and Thermo hereby consents to the execution of such
Greenhouse Operation and Management Agreement."
6. Rocky Mountain shall inform Thermo of all proposed modifications to
or supplements of the O&M Agreement not less than thirty (30) days before the
same become effective, and shall make no changes therein which would affect
Rocky Mountain's obligations under the Agreement without Thermo's prior written
consent. In the event that the O&M Agreement is terminated and not reinstated or
replaced within 120 days by a similar agreement satisfactory to Thermo providing
for the operation and management of the Greenhouse by a party that also operates
greenhouses owned or leased by Rocky Mountain's Greenhouse Affiliates, then this
Amendment shall also terminate and be of no further force and effect, at which
time the Agreement shall be in full force and effect enforceable according to
its terms as they then exist but for the terms and conditions of this Amendment
No. 1.
7. Except as amended or modified by this Amendment No. 1, the Agreement
remains in full force and effect and is hereby ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above
THERMO COGENERATION PARTNERSHIP, L.P., a
Colorado limited partnership
By: Thermo Ft. Lupton, L.P.
General Partner
By: Thermo Ft. Lupton I, Inc.
General Partner
By: /s/ James Monroe III
---------------------------
Name: James Monroe III
-------------------------
Title: PRESIDENT
------------------------
-4-
<PAGE>
By: CSW Ft. Lupton, Inc., General Partner
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
ROCKY MOUNTAIN PRODUCE LIMITED LIABILITY
COMPANY, a Colorado limited liability
company
By: /s/ Edward J. Wetherbee, Manager
---------------------------------------
Name: Edward J. Wetherbee, Manager
By: /s/ William E. Coleman
---------------------------------------
Name: WILLIAM E. COLEMAN, Manager
ACKNOWLEDGEMENTS
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this 28th day of
December, 1994, by James Monroe III as Pres. of Thermo Ft. Lupton I, Inc.,
General Partner of Thermo Ft. Lupton, L.P., General Partner of Thermo
Cogeneration Partnership, L.P., a Colorado limited partnership, on behalf of
said partnership.
Witness my hand and official seal.
My commission expires: March 25, 1998 .
----------------------------
Karen Linda Glaser
-----------------------------------------
[SEAL] Notary Public
-5-
<PAGE>
STATE OF ____________________)
) ss.
COUNTY OF ___________________)
The foregoing instrument was acknowledged before me this ________ day
of ___________, 1994, by _______________ as _______ of CSW Ft. Lupton I, Inc.,
General Partner of Thermo Cogeneration Partnership, L.P., a Colorado limited
partnership, on behalf of said partnership.
Witness my hand and official seal.
My commission expires: .
----------------------------
-----------------------------------------
[SEAL] Notary Public
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this 28th day of
December, 1994, by Edward J. Wetherbee, Manager of Rocky Mountain Produce
Limited Liability Company, a Colorado limited liability company, on behalf of
said company.
Witness my hand and official seal.
My commission expires: March 25, 1998 .
----------------------------
/S/ Karen Linda Glaser
-----------------------------------------
[SEAL] Notary Public
-6-
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this 28th day of
December, 1994, by William E. Coleman, Manager of Rocky Mountain Produce
Limited Liability Company, a Colorado limited liability company, on behalf of
said company.
Witness my hand and official seal.
My commission expires: March 25, 1998 .
----------------------------
/S/ Karen Linda Glaser
-----------------------------------------
[SEAL] Notary Public
-7-
<PAGE>
EXHIBIT 10.15
AMENDMENT NO. 2 TO
THERMAL SUPPLY LEASE AGREEMENT
THIS AMENDMENT NO. 2 TO THERMAL SUPPLY LEASE AGREEMENT (this
"Amendment No. 2"), dated as of February 28, 1995, IS BY AND BETWEEN THERMO
COGENERATION PARTNERSHIP, L.P., a Colorado limited partnership ("Thermo"), and
ROCKY MOUNTAIN PRODUCE LIMITED LIABILITY COMPANY, a Colorado limited liability
company ("Rocky Mountain").
RECITALS:
--------
A. Thermo and Rocky Mountain have previously entered into that
certain Thermal Supply Lease Agreement effective as of March 22, 1993, as
amended by Amendment No. 1, dated December 29, 1994 (the "Agreement"), pursuant
to the terms of which Thermo leased to Rocky Mountain, and Rocky Mountain leased
from Thermo a commercial greenhouse located in Ft. Lupton, Colorado (the
"Facility").
B. By Commencement Date Notice and Agreement also dated December 29,
1994, Thermo and Rocky Mountain have fixed the Term of the Agreement and the
Quarterly Payment Dates for payment of Base Rent under the Lease.
C. Pursuant to a certain Memorandum Regarding Adjustment of Rent and
Option Price dated March 25, 1993 (the "Adjustment Memorandum"), Thermo and
Rocky Mountain agreed that promptly after conversion of the construction loan
financing for the Plant and the Facility to term loan financing, Thermo would
make certain determinations with respect to the actual average annual rate of
interest for financing of the Plant and the Facility, and that thereafter,
utilizing such redetermined actual average annual rate and the final Contract
Sum for construction of the Facility, the Quarterly Base Rent payment and the
Purchase Option Price Schedule would be revised in accordance with the formula
provided in said Memorandum.
D. Thermo is in the process of converting its construction loan
financing for the Plant and the Facility to term loan financing, and has
sufficient information to permit it to make the interest rate determination
required by the said Memorandum.
E. Thermo and Rocky Mountain have agreed upon a rate of interest and
on a final Contract Sum to be utilized in such calculations and desire to
finalize such adjustments in anticipation of Thermo's completion of the
conversion of its construction
<PAGE>
loan financing for the Plant and the Facility to term loan financing.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
---------
1. All capitalized terms used herein but not otherwise defined shall
have the meaning given to such terms in the Agreement.
2. Paragraph 4.1 of the Agreement is hereby amended by deleting the
first two sentences in their entirety, and replacing them with the following two
sentences:
Subject to deferral in the manner provided in paragraph
4.6, below, and as adjusted in accordance with a certain
"Memorandum Regarding Adjustment of Rent and Option Price"
dated March 25, 1993 (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 Nineteen Million Seven Hundred
Twenty-Eight Thousand Nine Hundred Fifty-Nine and 15/100
dollars ($19,728,959.15). 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 Fifty-Six Thousand Two Hundred Twenty and 25/100
dollars ($256,220.25).
3. In accordance with the Adjustment Memorandum, the prior Exhibit
"C" to the Agreement, which shows the Base Rent Purchase Price of the Facility
prior to the first Quarterly Payment Date as being $7,800,000, is hereby
deleted, and there is substituted therefor the Exhibit "C" attached hereto,
wherein the Base Purchase Price of the Facility prior to the first Quarterly
Payment Date is Eight Million Seven Hundred Ninety-Four Thousand Four Hundred
Thirty-Five and 18/100 Dollars ($8,794,435.18).
4. Nothing herein shall be construed to be in derogation of the
provisions of a certain Supplemental Agreement and Consent to Assignment
effective as of April 7, 1993 (the "Supplemental Agreement") between and among
Thermo, Rocky Mountain, and The Prudential Insurance Company of America
("Prudential") on its own behalf and in the capacities therein stated, wherein,
among other things, Thermo and Rocky Mountain agreed that Rocky Mountain would
not be entitled to exercise the rights conferred under
-2-
<PAGE>
section 5 or be deemed to have exercised such rights under section 12 of the
Agreement under certain circumstances. Thermo and Rocky Mountain hereby
reiterate and reaffirm all terms, conditions, and covenants of the Supplemental
Agreement as if the same were being made simultaneously with this Amendment No.
2, and agree that upon being requested by the Lead Agent or the Bank Agent to do
so they will extend the benefit of the Supplemental Agreement directly to
additional Lenders (i.e. Lenders under the Loan Agreement in addition to
Prudential) and to the Bank Agent, their respective successors and assigns.
Capitalized terms used in this paragraph but not defined in this paragraph or
elsewhere pursuant to this Amendment No. 2 have the meanings given to such terms
in the said Supplemental Agreement.
5. Except as amended or modified by this Amendment No. 2 and the
said Amendment No. 1, the Agreement remains in full force and effect and is
hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
THERMO COGENERATION PARTNERSHIP,
L.P.
By: Thermo Ft. Lupton, L.P.
General Partner
By: Thermo Ft. Lupton I, Inc.
General Partner
By: [SIGNATURE ILLEGIBLE]
--------------------------
Name: __________________________
Title: __________________________
By: CSW Ft. Lupton, Inc.
General Partner
By: [SIGNATURE ILLEGIBLE
-------------------------------
Name: _______________________________
Title: _______________________________
-3-
<PAGE>
ROCKY MOUNTAIN PRODUCE LIMITED
LIABILITY COMPANY, a Colorado
limited liability company
By: /s/ William E. Coleman
--------------------------------------
William E. Coleman
Manager
By: ______________________________________
Nicholas G. Muller
Manager
COUNTY OF Adams )
) SS:
STATE OF Colorado )
The foregoing instrument was acknowledged before me this 24th day of
February, 1995, by [NAME ILLEGIBLE], the President of Thermo Ft. Lupton I, Inc.,
General Partner of Thermo Ft. Lupton, L.P., General Partner of Thermo
Cogeneration Partnership, L.P., a Colorado limited partnership, on behalf of
said partnership.
[SEAL] [SIGNATURE ILLEGIBLE]
--------------------------------------
Notary Public
My commission expires: 02/28/97
COUNTY OF ______________ )
) SS:
STATE OF ________________ )
The foregoing instrument was acknowledged before me this _____ day of
________________, 1995, by _______________________, the ________________________
of CSW Ft. Lupton I, Inc., General Partner of Thermo Cogeneration Partnership,
L.P., a Colorado limited partnership, on behalf of said partnership.
[SEAL] ______________________________________
Notary Public
My commission expires: _______________
-4-
<PAGE>
COUNTY OF Boulder)
------- ) SS:
STATE OF Colorado )
The foregoing instrument was acknowledged before me this 24th day of
February, 1995, by Edward J. Wetherbee, Manager of Rocky Mountain
Produce Limited Liability Company, a Colorado limited liability company, on
behalf of said company.
[SEAL] Karen Linda Glaser
----------------------------------
Notary Public
My commission expires: 3-25-98
COUNTY OF ______________ )
) SS:
STATE OF ________________ )
The foregoing instrument was acknowledged before me this _____ day of
________________, 1995, by Nicholas G. Muller, Manager of Rocky Mountain Produce
Limited Liability Company, a Colorado limited liability company, on behalf of
said company.
[SEAL] ______________________________________
Notary Public
My commission expires: _______________
-5-
<PAGE>
EXHIBIT C
---------
(Revised ________________ ___, 199__)
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 $8,794,435.00
1 8,755,217.43
2 8,715,032.17
3 8,673,855.34
4 8,631,662.47
5 8,588,428.49
6 8,544,127.71
7 8,498,733.81
8 8,452,219.82
9 8,404,558.09
10 8,355,720.31
11 8,305,677.46
12 8,254,399.80
13 8,201,856.87
14 8,148,017.44
15 8,092,849.52
16 8,036,320.33
17 7,978,396.28
18 7,919,042.96
19 7,858,225.10
20 7,795,906.55
21 7,732,050.29
22 7,666,618.38
23 7,599,571.94
24 7,530,871.13
25 7,460,475.13
26 7,388,342.10
27 7,314,429.19
28 7,238,692.48
29 7,161,086.97
30 7,081,566.54
31 7,000,083.94
32 6,916,590.76
33 6,831,037.39
34 6,743,372.99
35 6,653,545.47
36 6,561,501.45
</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>
37 $6,467,186.25
38 6,370,543.82
39 6,271,516.74
40 6,170,046.17
41 6,066,071.81
42 5,959,531.88
43 5,850,363.08
44 5,738,500.54
45 5,623,877.79
</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, the quarterly
rent payment applicable to the designated quarterly payment date (if
closing occurs on or prior to a quarterly payment date), plus such
additional sums, if any, as may also be due pursuant to paragraph
5.2
C-2
<PAGE>
EXHIBIT 10.16
AMENDMENT NO. 3 TO THERMAL SUPPLY
LEASE AGREEMENT
THIS AMENDMENT No. 3 TO THERMAL SUPPLY LEASE AGREEMENT (this
"Amendment No. 3"), dated as of February 28, 1995, is by and between THERMO
COGENERATION PARTNERSHIP, L.P., a Colorado limited partnership ("herein
sometimes Thermo") and ROCKY MOUNTAIN PRODUCE LIMITED LIABILITY COMPANY, a
Colorado limited liability company ("Rocky Mountain").
RECITALS
--------
A. Thermo and Rocky Mountain are parties to that certain Thermal
Supply Lease Agreement effective as of March 22, 1993, as amended by Amendment
No. 1 to Thermal Supply Lease Agreement dated as of December 29, 1994,
Commencement Date Notice and Agreement dated as of December 29, 1994, and
Amendment No. 2 to Thermal Supply Lease Agreement dated as of February 28, 1995
(the "Agreement"), pursuant to the terms of which Thermo leases to Rocky
Mountain, and Rocky Mountain leases from Thermo a commercial greenhouse located
in Ft. Lupton, Colorado (the "Facility").
B. Rocky Mountain has entered into that certain Greenhouse Operation
and Management Agreement (the "O&M Agreement") dated as of December 29, 1994
with Colorado Greenhouse Limited Liability Company, a Colorado limited liability
company (the "Operator"), pursuant to the terms of which Rocky Mountain has
engaged the Operator to operate and manage the Greenhouse.
C. Rocky Mountain and Thermo desire to enter into this Amendment No.
3 to conform the requirements of the Agreement and the O&M Agreement regarding
the timing of calculations and payments of Base Rent, and other matters.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
---------
1. All capitalized terms used herein but not otherwise defined shall
have the meaning given to such terms in the Agreement.
2. Paragraph 4.1 of the Agreement is hereby amended by deleting the
third sentence thereof and replacing it with the following:
<PAGE>
Installments of Base Rent shall be payable on the last day
of April, July, October, and January, beginning April 30,
1995 and continuing on each such day thereafter through and
including April 30, 2014. It is acknowledged that the
preceding sentence modifies the Commencement Date Notice and
Agreement dated as of December 29, 1994.
3. Paragraph 4.5 of the Agreement is hereby amended by deleting the
second sentence thereof and replacing it with the following:
Such calculations shall be made within twenty (20) days
after the end of each calendar quarter 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 calendar quarter.
4. Paragraphs 3 and 4 of this Agreement No. 3 shall remain in effect
only so long as the O&M Agreement is in effect. Thereafter the amended
provisions of paragraphs 4.1 and 4.5 shall revert to read as they existed prior
to this Amendment No. 3.
5. With respect to the calculation of Additional Rent attributable
to real property and other property taxes for the calendar year 1994 payable in
1995, such taxes shall be apportioned 71% to Rocky Mountain and 29% to Thermo
based upon Rocky Mountain's date of possession of the Facility being April 15,
1994.
6. Except as amended or modified by this Amendment No. 3, the
Agreement remains in full force and effect and is hereby ratified and confirmed
in all respects.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
THERMO COGENERATION PARTNERSHIP,
L.P., a Colorado limited partnership
By: Thermo Ft. Lupton, L.P.,
General Partner
By: Thermo Ft. Lupton I, Inc.,
General Partner
By: [SIGNATURE ILLEGIBLE]
---------------------------
Name: ___________________________
Title: ___________________________
-2-
<PAGE>
By: CSW Ft. Lupton, Inc.
General Partner
By: [SIGNATURE ILLEGIBLE]
---------------------------------
Name: _________________________________
Title: _________________________________
ROCKY MOUNTAIN PRODUCE LIMITED
LIABILITY COMPANY, a Colorado limited
liability company
By: _______________________________________
Name: Edward J. Wetherbee
Manager
By: /s/ William E. Coleman
--------------------------------------
Name: William E. Coleman
--------------------------------------
Manager
ACKNOWLEDGEMENTS
----------------
STATE OF COLORADO )
) SS:
COUNTY OF ADAMS )
The foregoing instrument was acknowledged before me this 24th day of
February, 1995, by [NAME ILLEGIBLE], as President of Thermo Ft. Lupton I, Inc.,
General Partner of Thermo Ft. Lupton, L.P., General Partner of Thermo
Cogeneration Partnership, L.P., a Colorado limited partnership, on behalf of
said partnership.
Witness my hand and official seal.
My commission expires: 02/28/97
/s/ Jennifer K Delgado
---------------------------------
[SEAL] Notary Public
-3-
<PAGE>
STATE OF ____________________ )
) SS:
COUNTY OF ___________________ )
The foregoing instrument was acknowledged before me this ______ day of
__________________, 1995, by _____________________, as
__________________________ of CSW Ft. Lupton I, Inc., General Partner of Thermo
Cogeneration Partnership, L.P., a Colorado limited partnership, on behalf of
said partnership.
Witness my hand and official seal.
My commission expires: ____________________.
___________________________________
[SEAL] Notary Public
STATE OF COLORADO )
) SS:
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this ______ day of
__________________, 1995, by Edward J. Wetherbee, Manager of Rocky Mountain
Produce Limited Liability Company, a Colorado limited liability company, on
behalf of said company.
Witness my hand and official seal.
My commission expires: ____________________.
___________________________________
[SEAL] Notary Public
-4-
<PAGE>
STATE OF COLORADO )
) SS:
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this 24th day of
February, 1995, by William E. Coleman, Manager of Rocky Mountain Produce Limited
Liability Company, a Colorado limited liability company, on behalf of said
company.
Witness my hand and official seal.
My commission expires: March 25, 1998.
Karen Linda Glaser
-----------------------------------
[SEAL] Notary Public
-5-
<PAGE>
EXHIBIT 10.17
GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT
(Ft. Lupton)
This GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT (this "Agreement")
is made and entered into as of December 29, 1994 to be effective January 1,
1994, between ROCKY MOUNTAIN PRODUCE LIMITED LIABILITY COMPANY, a Colorado
limited liability company ("Rocky Mountain") and COLORADO GREENHOUSE LIMITED
LIABILITY COMPANY, a Colorado limited liability company ("Colorado Greenhouse").
RECITALS
A. Thermo Cogeneration Partnership, L.P., a Delaware limited
partnership ("Thermo") is the owner and developer of a 272 megawatt gas-fired
cogeneration facility consisting of an electrical generating facility (the
"Power Plant") and an approximately 20-acre greenhouse facility and related
packing facility (collectively, the "Greenhouse") located in Ft. Lupton,
Colorado.
B. Thermo Cogeneration Partnership, a Colorado general partnership
("Thermo Colorado") and Rocky Mountain have previously entered into a Thermal
Supply Lease Agreement, dated as of March 22, 1993 (the "Greenhouse Lease"), a
copy of which is attached hereto as Exhibit A, pursuant to the terms of which
Thermo Colorado leased the Greenhouse to Rocky Mountain.
C. Thermo Colorado subsequently assigned all of its right, title and
interest in and to the Greenhouse Lease to Thermo pursuant to an instrument
dated March 24, 1993.
D. The Greenhouse Lease was further supplemented pursuant to the
Supplemental Agreement and Consent to Assignment, dated as of April 7, 1993, by
and between Thermo, Rocky Mountain and The Prudential Insurance Company of
America (the "Supplemental Agreement"), a copy of which is attached hereto as
Exhibit B. The Greenhouse Lease, as supplemented by the Supplemental Agreement,
is hereinafter referred to as the Greenhouse Lease.
E. Rocky Mountain and Colorado Greenhouse desire to enter into this
Agreement in order for Rocky Mountain to engage Colorado Greenhouse to operate
the Greenhouse on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
AGREEMENT
Article 1. Engagement of Colorado Greenhouse.
- ---------------------------------------------
Rocky Mountain hereby engages Colorado Greenhouse, and Colorado
Greenhouse hereby agrees to be engaged by Rocky Mountain, to operate the
Greenhouse in accordance with the terms and conditions of this Agreement.
Article 2. Definitions.
- -----------------------
Unless otherwise specifically set forth in this Agreement, the
Definitions that shall apply are as set forth in this Article 2.
"Allocated Percentage" means the percentage set forth in Exhibit C
--------------------
attached hereto, as the same may be amended from time to time as provided in
Section 15.15.
"Annual Operating Budget" means an operating budget submitted by
-----------------------
Colorado Greenhouse to Rocky Mountain and approved by Rocky Mountain for two
year operating periods beginning with the Commencement Date, showing for each
month of the following two years (or, as the case may be, for the balance of the
current calendar year and then for the following calendar year) Greenhouse
Revenues and Greenhouse Operating Expenses.
"Applicable Laws" means all laws, treaties, ordinances, judgments,
---------------
decrees, injunctions, writs and orders of any court, arbitrator or governmental
agency or authority and rules, regulations, orders, interpretations and permits
of any federal, state, county, municipal, regional, environmental or other
governmental body, instrumentality, agency, authority, court or other body
having jurisdiction over performance of the Services to be performed hereunder,
or operation of the Greenhouse, as may be in effect and as amended from time to
time.
"Applicable Permits" means all permits, licenses and similar items
------------------
required to be obtained or maintained in connection with performance of the
Services to be performed hereunder, or operation of the Greenhouse, as may be in
effect from time to time and as amended from time to time.
"BGP" means Brush Greenhouse Partners, a Colorado general partnership.
---
"BGP Greenhouse" means the greenhouse leased to BGP and to be operated
--------------
by Colorado Greenhouse, located in Brush, Colorado.
"BGPII" means Brush Greenhouse Partners II Limited Liability Company, a
-----
Colorado limited liability company.
-2-
<PAGE>
"BGPII Greenhouse" means the greenhouse leased to BGPII and to be
----------------
operated by Colorado Greenhouse, located in Brush, Colorado.
"Colorado Greenhouse Gross Margin" means, with respect to any calendar
--------------------------------
year, Net Revenues for such year minus (a) the aggregate Primary Fee for such
year and (b) the aggregate primary fees for such year paid by Colorado
Greenhouse with respect to the Other Greenhouses.
"Colorado Greenhouse Operating Expenses" mean, with respect to any
--------------------------------------
period, the following amounts incurred (or accrued in accordance with prudent
accounting practices and the Annual Operating Budget) by Colorado Greenhouse
during such period in connection with the operation and management of the
Greenhouse and the Other Greenhouses (to the extent not reimbursed by Rocky
Mountain, Thermo or a third party): (i) all greenhouse labor and general
administrative labor expenses, including all salaries, employee benefits
(including related taxes and contributions) and other compensation paid to
Colorado Greenhouse's employees and independent contractors, (ii) all packaging
and delivery expenses, (iii) all direct costs including propagation materials,
seed, fertilizer, fungicides, insect, biological, bee and CO costs, (iv) all
operating expenses including utilities (including costs of water), repairs and
maintenance and equipment leases, (v) insurance premiums, (vi) fees for
accounting, legal and other professional services, (vii) general and
administrative expenses, (viii) permitting fees and expenses, (ix) payments made
with respect to loans made to Colorado Greenhouse in connection with its
formation and operations, (x) sales and marketing expenses, and (xi) all other
cash expenditures relating to the operation, repair and maintenance costs of the
Greenhouse and the Other Greenhouses.
"Colorado Greenhouse Revenues" mean, with respect to any period, all
----------------------------
revenues and payments made to Colorado Greenhouse during such period in
connection with the operation of the Greenhouse and the Other Greenhouses,
including, without limitation, all amounts payable or owed to Colorado
Greenhouse under contracts relating to the Greenhouse and the Other Greenhouses,
all other payments received by Colorado Greenhouse from the sale of vegetables
or other produce or crops produced by the Greenhouse and the Other Greenhouses,
and proceeds received from business interruption insurance.
"Commencement Date" means the earlier of (i) the date specified by
-----------------
Rocky Mountain in a written notice to Colorado Greenhouse or (ii) the date on
which Rocky Mountain notifies Colorado Greenhouse that the Greenhouse is
completed and available for use.
-3-
<PAGE>
"Contingent Fee" means an amount, payable within 30 days after the end
--------------
of each calendar quarter during the term of this Agreement, equal to either (a)
the Allocated Percentage of Colorado Greenhouse Gross Margin or (b) such lesser
amount as is necessary to cause the balance on deposit in the Reserve Account to
equal the Reserve Amount.
"Facility" means the Power Plant and the Greenhouse.
--------
"Good Greenhouse Practices" mean the practices, methods and acts that
-------------------------
are applied by prudent operators of cogeneration facility related greenhouses in
a manner consistent with applicable industry codes, standards and regulations,
and Applicable Laws, and designed to optimize productivity, reliability, safety,
environmental protection, economy and expediency.
"Greenhouse Operating Expenses" mean, with respect to any period, the
-----------------------------
following amounts incurred (or accrued in accordance with prudent accounting
practices and the Annual Operating Budget) by Colorado Greenhouse during such
period in connection with the operation of the Greenhouse (to the extent not
reimbursed by Rocky Mountain, Thermo or a third party): (i) all greenhouse
labor and general administrative labor expenses, including all salaries,
employee benefits (including related taxes and contributions) and other
compensation paid to Colorado Greenhouse's employees and independent
contractors, (ii) all packaging and delivery expenses, (iii) all direct costs
including propagation materials, seed, fertilizer, fungicides, insect,
biological, bee and CO costs, (iv) all operating expenses including utilities
(including water), repairs and maintenance and equipment leases, (v) insurance
premiums, (vi) fees for accounting, legal and other professional services, (vii)
general and administrative expenses, (viii) permitting fees and expenses, (ix)
sales and marketing expenses, and (x) all other cash expenditures relating to
the operation, repair and maintenance costs of the Greenhouse.
"Greenhouse Revenues" mean, with respect to any period, all revenues
-------------------
and payments made to Colorado Greenhouse during such period in connection with
the operation of the Greenhouse, including, without limitation, all amounts owed
to Colorado Greenhouse under contracts relating to the Greenhouse, all other
payments received by Colorado Greenhouse from the sale of vegetables or other
produce or crops produced by the Greenhouse and proceeds received from business
interruption insurance with respect to the Greenhouse.
"Lender" means, collectively, the lender(s) providing the construction
------
and long-term financing for the Facility pursuant to the Loan Agreement
(including any other refinancing thereof), and any trustee or agent acting on
their behalf.
-4-
<PAGE>
"Loan Agreement" means the agreement between Thermo and the Lender
--------------
providing financing for construction and operation of the Facility, as such
agreement may be amended or supplemented from time to time.
"Other Greenhouses" mean, collectively, the BGP Greenhouse and the
-----------------
BGPII Greenhouse (to the extent that the above are being operated and managed by
Colorado Greenhouse), or such other greenhouses as Colorado Greenhouse may
operate or manage during the term of this Agreement with the consent of Rocky
Mountain and Thermo.
"Net Revenues" mean, with respect to any period, Colorado Greenhouse
------------
Revenues minus Colorado Greenhouse Operating Expenses for such period.
"Party or Parties" means Rocky Mountain or Colorado Greenhouse or both,
----------------
as the context may require.
"Primary Fee" means an amount, payable within 30 days after the end of
-----------
each calendar quarter during the term of this Agreement, equal to the Allocated
Percentage of Net Revenues, which amount shall not exceed (i) $500,000 for 1994
or (ii) the Allocated Percentage of $2,740,000 for any calendar year thereafter.
"Primary Fee Deficiency" means an amount, to be calculated by Rocky
----------------------
Mountain within 30 days of the end of each calendar year during the term of this
Agreement, equal to the amount, if any, by which the Allocated Percentage of
$2,740,000 exceeds the aggregate payments made on account of the Primary Fee for
such calendar year.
"Primary Fee Deficiency Balance" means an amount determined at any time
------------------------------
equal to the difference between (a) the sum of each prior year's Primary Fee
Deficiency minus (b) the sum of all amounts withdrawn during the term of this
Agreement from the Reserve Account and applied against a Primary Fee Deficiency
or the Primary Fee Deficiency Balance.
"Program" means the program for marketing, production and maintenance
-------
of the Greenhouse as prepared by Colorado Greenhouse and reviewed and approved
at least annually by Rocky Mountain, which program shall cover the marketing,
production and maintenance necessary for the Greenhouse (including capital
improvements which shall be specified as such), a detailed staffing plan
providing for the necessary personnel and all other matters relevant to the
operation of the Greenhouse and Colorado Greenhouse's duties under this
Agreement.
"Project Documents" mean any and all agreements, contracts and permits,
-----------------
now or hereafter existing, relating to or affecting the
-5-
<PAGE>
operation of the Greenhouse, as the same may be amended, supplemented or
replaced from time to time.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as
-----
the same may be amended, supplemented or replaced from time to time.
"Qualifying Facility" 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, as the same may be amended, supplemented or replaced
from time to time.
"Reserve Account" means the account entitled "Greenhouse Rent Reserve
---------------
Account" to be maintained by Rocky Mountain.
"Reserve Amount" means an amount equal to the product of the Allocated
--------------
Percentage of $2,740,000.
"Services" mean the services and work performed by Colorado Greenhouse
--------
according to the terms and conditions of this Agreement, including, without
limitation, the work described in Article 3 as the duties of Colorado Greenhouse
and specified in the Program.
"Subcontractor" means, in relation to Colorado Greenhouse, any
-------------
individual, firm, organization, or supplier under contract to Colorado
Greenhouse for the performance of any part of Colorado Greenhouse's Services,
provided that any such contract under which Colorado Greenhouse has payment
obligations in excess of $250,000 in the aggregate in any one year period or
material liabilities or risks to the Greenhouse shall be subject to prior
approval by Rocky Mountain.
"Thermal Fee" means an amount, payable within 30 days after receipt of
-----------
Thermo's invoice to be rendered after the end of each calendar quarter, equal to
$0.50 per 1,000,000 British Thermal Units of thermal energy (or portion thereof)
requested by, and supplied to Colorado Greenhouse for the operation of the
Greenhouse for such calendar quarter, provided that such fee shall be increased
annually beginning January 1, 1996, by multiplying the rate in effect during the
preceding calendar year by 103%.
"Uncontrollable Forces" mean any cause beyond the control of the Party
---------------------
affected, including but not limited to acts of God, flood, earthquake, storm,
fire, lightning, explosion, epidemic, war, riot, civil disturbance, sabotage,
and restraint by court order or public authority, strike or labor disturbance,
which by exercise of due foresight such Party could not reasonably have been
expected to
-6-
<PAGE>
avoid, and which by exercise of due diligence it is unable to overcome. Neither
Party shall, however, be relieved of liability for failure of performance if
such failure is due to causes arising out of its own negligence or to removable
or remediable causes which it fails to remove or remedy with reasonable
dispatch.
Article 3. Duties of Colorado Greenhouse.
- -----------------------------------------
3.1. Enumeration of Duties. Colorado Greenhouse hereby agrees to
---------------------
perform the activities as generally described in this Article, and as contained
elsewhere in this Agreement related to the operation of the Greenhouse
consistent with the Annual Operating Budget and the Program. From and after the
Commencement Date, Colorado Greenhouse shall, subject to Rocky Mountain's
discretion:
(a) Safely and efficiently operate and maintain the Greenhouse in
accordance with (i) the Annual Operating Budget, (ii) the Program, and (iii)
operations and maintenance manuals and warranties and procedures provided by the
contractor for the Greenhouse.
(b) Continuously operate the Greenhouse exclusively for the growing,
processing, packaging and marketing of vegetables or other produce or crops as
provided in the Greenhouse Lease, a copy of which is attached hereto as Exhibit
A.
(c) Comply with the obligations of Rocky Mountain under the Greenhouse
Lease (excluding the obligation to pay rent and establish rent reserves)
including, without limitation, accepting 100% of the Minimum Annual Heat
Requirement (as defined in the Greenhouse Lease) and utilizing in the Greenhouse
such Minimum Annual Heat Requirement for useful thermal purposes in accordance
with rules and regulations from time to time promulgated and in effect under
PURPA. Upon request by Rocky Mountain, Colorado Greenhouse will provide
satisfactory evidence of its compliance with such lease terms. The foregoing
shall not be construed to require Colorado Greenhouse to pay for or construct
additional greenhouse space or other facilities.
(d) Pay, as the same become due, the Greenhouse Operating Expenses.
(e) Use its best efforts to market the produce from the Greenhouse.
(f) Employ, pay, train and supervise that number of personnel in
accordance with the staffing requirements set forth in the Annual Operating
Budget, and plan and administer all matters pertaining to such employed
personnel in the areas of labor relations, salaries, wages, working conditions,
hours of work,
-7-
<PAGE>
termination of employment, employee benefits, safety and related matters.
Colorado Greenhouse shall use reasonable care in the hiring of all its
employees. All employees shall be employees of Colorado Greenhouse and their
wages or other compensation shall be controlled and disbursed by Colorado
Greenhouse.
(g) Repair or replace, as may be necessary in accordance with a
manufacturer's directions, Good Greenhouse Practices and in a good and
workmanlike manner any Greenhouse equipment that fails or malfunctions (except
as otherwise provided in Section 4.1(d) of this Agreement). If any such failure
or malfunction is covered by a warranty, Colorado Greenhouse shall submit a
timely warranty claim on behalf of Rocky Mountain.
(h) Subject to Rocky Mountain's approval as required for a
Subcontractor, engage any independent contractors necessary for making repairs
to, or performing maintenance on, or installing improvements to the Greenhouse
in the event that Colorado Greenhouse is not available or is otherwise unable to
make or perform such repairs, maintenance or installations.
(i) Maintain accurate records of all changes to the Greenhouse and up
to date as-built drawings of the Greenhouse reflecting such changes.
(j) Maintain regular communication with Rocky Mountain, regarding the
operation of the Greenhouse, including monthly production and sales reports,
safety reports and other reports reasonably requested by Rocky Mountain,
specifying all operations at the Greenhouse during such period and noting any
other material occurrences or operational results, and communicate in each
instance, either by telephone or in writing, material changes in the anticipated
operation of the Greenhouse or the marketing of produce therefrom, maintenance
problems related to the Greenhouse and any notice or knowledge of violation or
variance of any Applicable Law or Applicable Permit.
(k) Assist Rocky Mountain in obtaining contracts for janitorial, water,
electricity, telephone and other applicable services, or such of them as
Colorado Greenhouse or Rocky Mountain shall deem advisable, and place orders for
such equipment, tools, appliances, materials and supplies as are necessary to
properly maintain and operate the Greenhouse.
(l) Maintain a system of office records, books, and accounts with
respect to the Greenhouse as required by the Loan Agreement, which records shall
be subject to examination by Rocky Mountain, Thermo and the Lender or authorized
agents or designees of each during all regular business hours and which records
may not be in lieu of such additional or similar records as may be kept by
-8-
<PAGE>
Rocky Mountain for purposes of complying with its obligations under the
Greenhouse Lease. Records, books, and accounts shall be kept for a minimum of
five years. So long as Colorado Greenhouse operates all or any of the Other
Greenhouses, Colorado Greenhouse shall allocate costs and revenues for the
Greenhouse in accordance with the Allocation Percentage set forth on Exhibit C
attached hereto.
(m) Be cognizant of and adhere to the requirements set forth in the
Project Documents insofar as they relate to the operation of the Greenhouse and
the duties of Colorado Greenhouse under this Agreement.
(n) Prior to the Commencement Date, submit to Rocky Mountain a proposed
Annual Operating Budget for the year in which this Agreement commences and the
following year and cooperate with Rocky Mountain to review and modify the same
as necessary to obtain the approval of Rocky Mountain's Management Committee
prior to the Commencement Date; and thereafter submit to Rocky Mountain a
proposed Annual Operating Budget by November 1 of each year for the following
two-year period and cooperate with Rocky Mountain to review and modify the same
as necessary to obtain the approval of Rocky Mountain's Management Committee by
December 1 of each year. If for any reason the approval of Rocky Mountain's
Management Committee is not so obtained, the Annual Operating Budget previously
approved shall, until the approval of an Annual Operating Budget for the
following two-year period, be deemed to be in force and be effective as the
Annual Operating Budget for such year.
(o) Review all federal, state and local laws and regulations
establishing compliance requirements in connection with the operation of the
Greenhouse. Advise Rocky Mountain on the need to secure or renew, as necessary,
appropriate permits, licenses and approvals, and assist Rocky Mountain in
securing as appropriate, such permits, licenses and renewals as required.
(p) Keep the Greenhouse free of all materialmen's, mechanics' and other
liens for materials or services furnished to the Greenhouse at Colorado
Greenhouse's direction.
(q) Pay to Rocky Mountain (unless Rocky Mountain notifies Colorado
Greenhouse to make such payment directly to the taxing authority) all real
estate taxes attributable to the Greenhouse (as equitably apportioned by Rocky
Mountain, provided that in no event shall Colorado Greenhouse be obligated for
any portion of real estate or property taxes attributable to the heat storage
units or the heat generating portions of the Facility, provided, further, that
those two certain 200,000 btu back-up boilers within the Facility shall be
deemed part of the Greenhouse for purposes of apportioning property taxes)
within five days of receipt of an
-9-
<PAGE>
invoice submitted by Rocky Mountain. In addition, Colorado Greenhouse shall be
responsible for all taxes payable to the appropriate taxing authorities for any
sales, excise or other tax levied, imposed or assessed in the State of Colorado
or by any other taxing authority in connection with the operation of the
Greenhouse and the sale of produce therefrom.
(r) By November 1 of each year, submit to Rocky Mountain a proposed
Program and cooperate with Rocky Mountain to review and modify the same as
necessary to obtain the approval of Rocky Mountain's Management Committee.
(s) Perform other normal business functions and otherwise operate the
Greenhouse in accordance with and as limited by this Agreement.
3.2 Limitations on Authority. Notwithstanding any provision of this
------------------------
Agreement to the contrary, unless previously expressly approved in the Annual
Operating Budget or otherwise approved in writing by Rocky Mountain, Colorado
Greenhouse or any Subcontractor, or any of their respective agents or
representatives, shall not:
(a) sell, lease, pledge or mortgage, convey, or make any license,
exchange or other transfer of property or assets of Rocky Mountain;
(b) make, enter into, execute, amend, modify or supplement any
contract or agreement on behalf of or in the name of Rocky Mountain;
(c) make any recoverable expenditure or acquire on a recoverable
cost basis any equipment, materials, assets or other items, except for emergency
expenditures and except in substantial conformity with the Annual Operating
Budget and the Program; it being understood and agreed that Colorado Greenhouse
shall not be entitled to reimbursement for any expenditures not made in
accordance with this paragraph (c).
(d) take or agree to take any other action that materially varies
from the applicable Annual Operating Budget, the Program or any Applicable Law;
(e) take, agree to take or fail to take any action that would
cause a default under the Project Documents;
(f) settle, compromise, assign, pledge, transfer, release or
consent to the settlement, compromise, assignment, pledge, transfer or release
of any claim, suit, debt, demand or judgment against or due by Rocky Mountain or
Colorado Greenhouse, or
-10-
<PAGE>
submit any such claim, dispute or controversy to arbitration or judicial
process, or stipulate in respect thereof to a judgment, or consent to do the
same;
(g) modify or alter the type of crop grown in the Greenhouse.
3.3 Limitation on Other Activities. During the term of this
------------------------------
Agreement, Colorado Greenhouse shall not:
(a) engage in any business or activity or make any investments
(either directly or indirectly) other than operating and managing the Greenhouse
and the Other Greenhouses, growing crops therein and marketing such crops and
products thereof;
(b) make any alterations, renovations, improvements or other
installations in or about any part of the Greenhouse in excess of $25,000 unless
and until Colorado Greenhouse shall cause plans and specifications therefor to
have been reviewed by Rocky Mountain and shall have obtained Rocky Mountain's
written approval thereof. If approval is granted, Colorado Greenhouse shall
cause the work described in such plans and specifications to be performed, at
its expense, promptly, efficiently, completely and in a good and workmanlike
manner by duly qualified or licensed persons or entities. All such work shall
comply with all applicable codes, rules, regulations and ordinances. Ordinary
and customary repairs and replacements in and on the Greenhouse shall be
promptly undertaken and promptly completed and need not have Rocky Mountain's
prior approval, unless such repairs or replacements materially decrease the
value of usefulness of the Greenhouse or the Facility;
(c) without the prior written consent of Rocky Mountain, agree to
any increase of the fees to be paid by Colorado Greenhouse under the greenhouse
management and operating agreements for the Other Greenhouses; or
(d) without the prior written consent of Rocky Mountain and
Thermo, cause any greenhouse or other business to be treated under this
Agreement as an Other Greenhouse except the BGP Greenhouse, the BGP II
Greenhouse and that certain greenhouse near Rifle, Colorado built in connection
with the American Atlas cogeneration project.
3.4 Payments by Colorado Greenhouse. (a) During the term of this
-------------------------------
Agreement, Colorado Greenhouse shall pay Rocky Mountain, on a timely basis (i)
the Primary Fee, (ii) the Contingent Fee, and (iii) the Thermal Fee, provided,
however, that no Primary Fee shall be due hereunder for any calendar quarter
until the calendar quarter in which rent is first due under the Greenhouse
Lease, for which quarter the Primary Fee shall be prorated based upon the number
of
-11-
<PAGE>
days for which rent under the Greenhouse Lease is paid. Any amount which is not
paid within ten days after the same is due shall bear interest at a default rate
equal to the rate of interest publicly announced or as published from time to
time by Bank of America NT and SA as its "reference rate" plus six percent per
annum from the first day due until paid.
(b) Rocky Mountain and Colorado Greenhouse understand and agree,
that except as provided in this Section 3.4, all amounts paid on account of the
Contingent Fee shall be used by Rocky Mountain as requested by Thermo under the
Greenhouse Lease. Without limiting the foregoing, Rocky Mountain shall withdraw
from the Reserve Account, annually, the lesser of (y) all of the funds in such
account or (x) an amount equal to the sum of (i) the Primary Fee Deficiency for
such year and (ii) an amount equal to the Primary Fee Deficiency Balance
Article 4. Duties of Rocky Mountain.
- ------------------------------------
4.1. Enumeration of Duties. The following shall be Rocky Mountain's
---------------------
responsibility to provide in support of the uninterrupted operation and
maintenance of the Greenhouse:
(a) Use reasonable efforts to maintain the Greenhouse Lease or any
replacement contracts for the supply of thermal energy in sufficient quantities
to maintain the Qualifying Facility status of the Facility.
(b) Manage the contractual relationship with the owner of the Facility
and the providers of water, electricity, janitorial and other applicable
services to the Greenhouse.
(c) Providing a liaison person(s) available to Colorado Greenhouse
twenty-four hours per day, authorized to make decisions on the part of Rocky
Mountain.
(d) Enforcing diligently any claim Rocky Mountain may have under
insurance policies, equipment guarantees and warranties pertaining to the
Greenhouse.
(d) Paying for capital improvements as set forth in the Program.
Except as otherwise agreed by Colorado Greenhouse, Rocky Mountain shall pay for
all capital improvements which (i) the Parties agree are required for continued
usefulness of the Greenhouse and (ii) are required in connection with the
expansion of the Greenhouse to retain (or regain) Qualifying Facility status.
Any other improvements that are made at the request of Colorado Greenhouse or
that, in Rocky Mountain's reasonable judgment, are to be made solely for the
purpose of enhancing Colorado Greenhouse's growing programs, shall be made at
Colorado Greenhouse's cost and
-12-
<PAGE>
expense, and may be made only with the prior written consent of Rocky Mountain.
Article 5. Term.
- ----------------
5.1. Term. This Agreement shall continue for a term equal to the term
----
of the Greenhouse Lease, unless sooner terminated as hereinafter provided.
5.2. Termination Upon Default. If any of the following events occur,
------------------------
Rocky Mountain shall have the right upon written notice to Colorado Greenhouse,
to terminate this Agreement:
(a) If Colorado Greenhouse defaults in the performance of any
obligation under this Agreement (other than the obligations under Section 3.4 of
this Agreement) and such default is not cured by Colorado Greenhouse within 5
days after receipt of a notice specifying the default.
(b) If (i) the Primary Fee Deficiency Balance exceeds $1,000,000
at any time before December 31, 1996, (ii) the Primary Fee Deficiency for
calendar year 1997 or any year thereafter exceeds $500,000 or (iii) the Primary
Fee Deficiency Balance exceeds $750,000 at any time after January 1, 1998.
(c) If Colorado Greenhouse is adjudicated a bankrupt or insolvent
and such adjudication is not vacated within ten (10) days.
(d) The filing of a voluntary or involuntary bankruptcy or
insolvency petition of Colorado Greenhouse or the reorganization of Colorado
Greenhouse whether pursuant to the federal Bankruptcy Act or any similar federal
or state proceedings, unless such petition is filed by a party other than
Colorado Greenhouse and is withdrawn or dismissed within 30 days after the date
of filing.
(e) The appointment of a receiver or trustee for the business or
property of Colorado Greenhouse, unless such appointment shall be vacated within
ten days of its entry.
(f) The making by Colorado Greenhouse of an assignment for the
benefit of its creditors, or in any other manner Colorado Greenhouse's interests
in this Agreement shall pass to another by operation of law.
5.3. Payment of Expenses and Allocation of Crops After Termination.
-------------------------------------------------------------
Except as set forth in this Section 5.3 and except for Colorado Greenhouse's
obligations under Article 7 and Article 11, on the effective date of a
termination, Rocky Mountain and Colorado
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<PAGE>
Greenhouse shall be relieved of all obligations thereafter accruing under this
Agreement. Notwithstanding such termination, neither Party shall be relieved
from any obligations or liabilities accruing prior to the effective date of
termination, including in the case of Colorado Greenhouse, its obligation to
make payment to Rocky Mountain of all sums due Rocky Mountain under this
Agreement. After the effective date of a termination Rocky Mountain shall either
grant Colorado Greenhouse such use of the Greenhouse as is necessary to care for
and harvest any crop planted before such date or compensate Colorado Greenhouse
for the value of such crop as of the effective date of termination, subject to
any right of offset that Rocky Mountain may have for amounts owed to it
hereunder.
5.4. Termination Upon Loan Agreement Default. If there has been an
---------------------------------------
event of default under the Loan Agreement, then Lender or any successor owner of
the Facility may terminate this Agreement upon ten days advance written notice.
The provisions of this Section 5.4 were made for the express benefit of the
Lender as a third party beneficiary, and subject to the terms and conditions of
this Section 5.4, the Lender shall have the right to exercise and enforce the
rights granted to it herein.
5.5 Termination of Greenhouse Lease. In the event that the Greenhouse
-------------------------------
Lease is terminated for any reason whatsoever, this Agreement shall
automatically terminate without any further act or instrument.
5.6. Surrender of Greenhouse. Upon the termination of this Agreement
-----------------------
but subject to the terms of Section 5.3, Colorado Greenhouse will surrender the
Greenhouse in as good condition as when received, excepting depreciation caused
by ordinary wear and tear.
5.7. Training of New Personnel. Upon termination of this Agreement,
-------------------------
Colorado Greenhouse will make available to Rocky Mountain one qualified employee
for a period of two months after the termination of this Agreement for the
purpose of training new personnel in the operation and management of the
Greenhouse.
Article 6. Rocky Mountain's Right to Audit.
- -------------------------------------------
Rocky Mountain shall have the right, at any time and from time to time
to audit or cause an independent audit to be made of Colorado Greenhouse's books
and records for the purposes of verifying compliance with the provisions of this
Agreement. In the event that any such audit indicates that Colorado Greenhouse
underpaid any amount due to Rocky Mountain under this Agreement, Colorado
Greenhouse shall pay such additional sum and such audit shall be deemed to be
binding and conclusive, unless a request is made, within fifteen days after
receipt of a copy of such audit by
-14-
<PAGE>
Colorado Greenhouse, for a consultation with such auditors. Such audit, after
consultation and modification, if any, shall be binding and conclusive unless
the consultation results in irreconcilable differences with respect to any
material item in the report. In such event, the disputed item will be submitted
to a firm of independent certified public accountants, acceptable to Rocky
Mountain, for resolution, and the fees of such firm shall be paid equally by
Colorado Greenhouse and Rocky Mountain, unless Colorado Greenhouse is obligated
for full payment pursuant to this Article 6. If the submission to the
independent certified public accountants results in changes in the audit report,
the report as so changed shall be binding and conclusive. In the event that the
audit indicates that there were deficiencies in the aggregate amount of $10,000
or more in the amounts which should have been paid by Colorado Greenhouse to
Rocky Mountain pursuant to this Agreement, Colorado Greenhouse shall pay all
costs of audits incurred by Rocky Mountain under this Article 6 together with
interest on the amount of the deficiency payable at the interest rate set forth
in Section 3.4(a) of this Agreement.
Article 7. Exclusive Warranties; Remedies.
- ------------------------------------------
7.1. Warranty. Colorado Greenhouse warrants to Rocky Mountain that the
--------
Services performed under this Agreement shall be performed in a competent,
prudent and efficient manner, in accordance with this Agreement, Good Greenhouse
Practices, all warranties and procedures for the Greenhouse and all safety, fire
protection and other requirements of applicable insurance policies.
7.2. No Consequential Damages. In no event shall Colorado Greenhouse,
------------------------
Rocky Mountain or any of their respective affiliates, owners, members, managers,
employees or agents, be liable for any consequential, incidental or special
damages or any other liabilities not expressly set forth herein, regardless of
whether based on contract, warranty, indemnity, tort, strict liability or
otherwise.
7.3. No limitation on Claims Against Third Parties. Nothing contained
---------------------------------------------
in this Article 7 or any other provision of this Agreement shall be deemed to
waive, limit or impair in any way any claims that Rocky Mountain may have
against Subcontractors, manufacturers of equipment or any other person.
Article 8. Insurance.
- ---------------------
8.1. Colorado Greenhouse's Coverage. At all times after the
------------------------------
Commencement Date, Colorado Greenhouse will carry and maintain, at its expense:
-15-
<PAGE>
(a) public liability insurance including insurance against assumed or
contractual liability under this Agreement, in such amount as Rocky Mountain may
request.
(b) all-risk casualty insurance covering all of the personal property
in, on or about the Greenhouse including all improvements installed in, on or
about the Greenhouse by or on behalf of Colorado Greenhouse, in such amounts as
Rocky Mountain may request;
(c) if and to the extent required by law, workers compensation or
similar insurance in form and amounts required by law; and
(d) such other insurance as Rocky Mountain may require, including, but
not limited to, insurance that Rocky Mountain or Thermo is required to provide
pursuant to the terms of any applicable credit agreement affecting the Facility
and extended crop insurance.
8.2. Subcontractor's Coverage. Colorado Greenhouse shall require all
------------------------
of its Subcontractors engaged in work at the Greenhouse to maintain insurance
coverage of the types and in the amounts at least equal to the insurance
coverage that Colorado Greenhouse is required to maintain in accordance with
Section 8.1 above.
8.3. Umbrella Coverage. Umbrella coverage may cover any portion of the
-----------------
limits of liability required in Sections 8.1 and 8.2 above, provided it has all
the coverages and requirements for the type of coverage.
8.4. Insurance Provisions. The company or companies writing such
--------------------
insurance policies, as well as the form of such insurance shall at all times be
subject to Rocky Mountain's approval. Public liability and all-risk casualty
insurance policies evidencing such insurance shall name Rocky Mountain or its
designee as additional insureds, and shall contain such other provisions and
endorsements as Rocky Mountain may request.
8.5. Evidence of Insurance. Before the date on which such insurance
---------------------
first is required to be carried by Colorado Greenhouse, and thereafter, at least
30 days before the effective date of any renewal of any such policy, Colorado
Greenhouse will deliver to Rocky Mountain either a duplicate original of the
aforesaid policy or a certificate evidencing such insurance.
Article 9. Applicable Permits.
- ------------------------------
All Applicable Permits shall be obtained and maintained by Colorado
Greenhouse on behalf of Rocky Mountain. Rocky Mountain
-16-
<PAGE>
shall cooperate with Colorado Greenhouse in the securing of such Applicable
Permits.
Article 10. Applicable Laws.
- ----------------------------
10.1. Applicable Laws. Colorado Greenhouse shall operate and
---------------
maintain the Greenhouse in conformance with all Applicable Laws and Applicable
Permits, including without limitation the disposing of any hazardous waste
generated by the Greenhouse in accordance with all Applicable Laws.
10.2. Changes in Laws. Colorado Greenhouse shall comply with
---------------
applicable changes in the Applicable Laws and shall inform Rocky Mountain of
such changes. To the extent that such changes require alterations in the
Greenhouse configuration, operation, maintenance procedures or other aspects of
Greenhouse operation and maintenance, the cost thereof shall be borne by Rocky
Mountain. The parties acknowledge that any material alteration in the
Greenhouse may necessitate a change in the Allocated Percentage for the
Greenhouse and each of the Other Greenhouses.
Article 11. Indemnification.
- ----------------------------
11.1. Indemnification by Colorado Greenhouse. (a) Colorado
--------------------------------------
Greenhouse shall indemnify and hold harmless Rocky Mountain and its members and
their respective affiliates, officers, directors, managers, shareholders,
members, employees and agents, from any loss, liability or damage incurred or
suffered by any such person by reason of Colorado Greenhouse's failure to
perform its obligations hereunder or its negligence or willful misconduct,
including, without limitation, any judgment, award or settlement, other costs
and expenses, and reasonable attorneys' fees incurred in connection with the
defense of any actual or threatened claim or action based on any such act or
omission, unless such loss, liability or damage results from such indemnified
person's fraud, negligence or willful misconduct. Such attorneys' fees shall be
paid as incurred.
(b) Colorado Greenhouse shall indemnify and hold harmless Rocky
Mountain and Lender and their respective affiliates, officers, directors,
managers, shareholders, members, employees and agents from any and all
liability, claims, demands, actions and causes of action whatsoever (including
without limitation reasonable attorneys' fees and expenses, and costs and
expenses reasonably incurred in investigating, preparing or defending against
any litigation or claim, action, suit, proceeding or demand of any kind or
character) arising out of or related to alleged contamination of the property
underlying the Facility (the "Premises") by any hazardous or toxic substance,
pollutant or contaminant, or alleged injury or threat of injury, to health,
safety or the environment, or
-17-
<PAGE>
alleged noncompliance with any federal, state and local environmental statutes,
regulations, ordinances, and any permits, approvals or judicial or
administrative orders issued thereunder, giving rise to liability under any
federal, state or local environmental statutes or ordinances, including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S)(S) 9601 et seq., as amended from time to time, or under any
-- ---
common law claim, including claims for personal injury or property damage or for
any claim by any governmental or private party for remedial or removal costs,
natural resource damages, property damages, damages for personal injuries, or
other costs, expenses or damages or any claim for injunctive relief arising from
any alleged injury or threat of injury to health, safety or the environment
relating to the Premises.
11.2. Indemnification by Rocky Mountain. Rocky Mountain shall
---------------------------------
indemnify and hold harmless Colorado Greenhouse and its affiliates, managers,
members, employees and agents, from any loss, liability or damage incurred or
suffered by any such person by reason of Rocky Mountain's failure to perform its
obligations hereunder or its negligence or willful misconduct, including,
without limitation, any judgment, award or settlement, other costs and expenses,
and reasonable attorneys' fees incurred in connection with the defense of any
actual or threatened claim or action based on any such act or omission, unless
such loss, liability or damage results from such indemnified person's fraud,
negligence or willful misconduct. Such attorneys' fees shall be paid as
incurred. Any such indemnification shall be paid only from the assets of Rocky
Mountain and neither Colorado Greenhouse nor any third party shall have recourse
against the personal assets of any member of Rocky Mountain or their respective
affiliates for such indemnification.
Any indemnification required herein to be made by Rocky Mountain or Colorado
Greenhouse shall be made promptly following the determination of the loss,
liability or damage incurred or suffered by final judgment of any court,
settlement, contract or otherwise.
Article 12. Representations.
- ----------------------------
12.1 Representations of Colorado Greenhouse. Colorado Greenhouse
--------------------------------------
represents and warrants to Rocky Mountain as follows:
(a) that it is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Colorado;
(b) that it has personnel available to it with the expertise in
connection with the operation of greenhouses sufficient for it to perform its
obligations under this Agreement in a manner consistent with Good Greenhouse
Practices;
-18-
<PAGE>
(c) that the execution, delivery and performance of this Agreement by
Colorado Greenhouse has been duly authorized by all necessary limited liability
company action and this Agreement has been duly executed and delivered by
Colorado Greenhouse and, subject to due execution and delivery by Rocky
Mountain, this Agreement will be enforceable against Colorado Greenhouse in
accordance with its terms, and does not constitute a default under its operating
agreement, or any instrument to which it is a party, nor does it violate any
provision of any law, rule, regulation, order, judgment, decree, determination,
or award presently in effect having applicability to it;
(d) that it has all necessary permits, licenses, and other
governmental approvals required to perform its obligations hereunder, except for
permits Rocky Mountain is required to obtain; and
(e) that there are no actions, suits, or proceedings pending or, to
its knowledge, threatened against it in any court or before any governmental
department, agency, instrumentality, or any arbitrator, in which there is a
reasonable possibility of an adverse decision which could materially and
adversely affect its ability to perform its obligations under this Agreement.
12.2 Representations by Rocky Mountain. Rocky Mountain represents and
---------------------------------
warrants to Colorado Greenhouse as follows:
(a) that it is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Colorado;
(b) that the execution, delivery and performance of this Agreement by
Rocky Mountain has been duly authorized by all necessary limited liability
company action and this Agreement has been duly executed and delivered by Rocky
Mountain and, subject to due execution and delivery by Colorado Greenhouse, this
Agreement will be enforceable against Rocky Mountain in accordance with its
terms, and does not constitute a default under its operating agreement, or any
instrument to which it is a party, nor does it violate any provision of any law,
rule, regulation, order, judgment, decree, determination, or award presently in
effect having applicability to it; and
(c) that there are no actions, suits, or proceedings pending or, to
its knowledge, threatened against it in any court or before any governmental
department, agency, instrumentality, or any arbitrator, in which there is a
reasonable possibility of an adverse decision which could materially and
adversely affect its ability to perform its obligations under this Agreement.
-19-
<PAGE>
Article 13. Colorado Greenhouse as Independent Contractor; Not a Sublease.
-------------------------------------------------------------
13.1. Independent Contractor. Colorado Greenhouse shall be an
----------------------
independent contractor in the performance of this Agreement and shall have
complete charge of the Services and personnel engaged in the performance of the
Services. Nothing contained herein shall be deemed to create a relationship of
employer-employee, master-servant, partnership, or joint venture.
13.2. Subcontractors. Colorado Greenhouse's Services may be performed
--------------
by Colorado Greenhouse acting in its own name, or by Colorado Greenhouse's
subcontracting portions to Subcontractors or other suppliers.
(a) Colorado Greenhouse will assume the responsibility for, and
liability arising in connection with, negotiating with, and performance by, its
Subcontractors.
(b) Colorado Greenhouse will have authority and control over the
Subcontractors' work, including overtime and any special methods required, in
the judgment of Colorado Greenhouse, to complete the Subcontractors' work in a
correct and timely manner.
13.3 Not a Sublease. This document is not intended to be a sublease
--------------
or an assignment of the Greenhouse Lease, and Colorado Greenhouse shall be
responsible for complying with the terms of the Greenhouse Lease only to the
extent set forth herein.
Article 14. Survival.
- --------------------
The provisions of Articles 7 and 11 shall survive termination,
cancellation or expiration of this Agreement.
Article 15. Miscellaneous.
- -------------------------
15.1 Notices. Notices and other communications with respect to this
-------
Agreement shall be in writing and shall be delivered by hand or overnight
courier service, mailed or sent by telecopy. Unless other addresses or telecopy
numbers are specified in writing pursuant to this Section 15.1 to each other
Party, such notices or other communications shall be sent to the following
addresses or telecopy numbers as the case may be.
Rocky Rocky Mountain Produce
Mountain: Limited Liability Company
1675 Broadway, Suite 2350
Denver, Colorado 80202
Attention: Nicholas G. Muller
Telephone: (303) 629-6200 FAX: (303) 629-1811
-20-
<PAGE>
Colorado Greenhouse:
Colorado Greenhouse Limited Liability Company
P.O. Box 309
Fort Lupton, Colorado 80621
Attention: Matthew Cook
Telephone: (303) 857-1100 FAX: (303) 857-1200
15.2 Arbitration. All claims, disputes and other matters in question
-----------
arising out of, or relating to this Agreement or the interpretation or breach
thereof, shall be decided by arbitration in accordance with the Arbitration
Rules of the American Arbitration Association then in effect unless the Parties
mutually agree otherwise. Said arbitration shall be before a panel of three
arbitrators and shall be held in Denver, Colorado. This agreement to arbitrate
shall be specifically enforceable under applicable law in any court of competent
jurisdiction. Notice of the demand for arbitration shall be filed in writing
with the other Party to this Agreement and with the American Arbitration
Association. The demand for arbitration shall be made within a reasonable time
after the claim, dispute or other matter in question has arisen, and in no event
shall it be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable contractual or other statute of limitations. The award
rendered by the arbitrators shall be final and judgment may be entered in
accordance with applicable law and in any court having jurisdiction thereof.
Attorneys' fees and expenses may be payable to the prevailing party in such
arbitration in the discretion of the arbitrators.
15.3 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.
15.4 Headings. Titles and headings of the sections and subsections of
--------
this Agreement are for the convenience of reference only and do not form a part
of this Agreement, and shall not in any way affect the interpretation of this
Agreement.
15.5 Assignments. This Agreement shall not be assignable by either
-----------
Party hereto without the prior written consent of the other Party; provided,
however, that Rocky Mountain's rights under this Agreement may be assigned to
the Lender to secure obligations under the Loan Agreement and, so long as is
required by the Loan Agreement, no change in the terms or provisions hereof
shall be made without prior written consent of the Lender.
15.6 Inspections and Access by Rocky Mountain and Lenders. Colorado
----------------------------------------------------
Greenhouse will permit Rocky Mountain, its agents, employees and contractors and
Lender and its representative to enter all parts of the Greenhouse during
Colorado Greenhouse's business
-21-
<PAGE>
hours to inspect the same and to enable Rocky Mountain to enforce or carry out
any provision of this Agreement.
15.7 Lender Protection. Colorado Greenhouse agrees to give any Lender
-----------------
by registered or certified mail, a copy of any notice or claim of default served
upon Rocky Mountain by Colorado Greenhouse, provided that prior to such notice
Colorado Greenhouse has been notified in writing of the address of such Lender.
Colorado Greenhouse further agrees that if Rocky Mountain shall have failed to
cure such default within 20 days after such notice to Rocky Mountain (or if such
default cannot be cured or corrected within that time, then such additional time
as may be necessary if Rocky Mountain has commenced within such 20 days and is
diligently pursuing the remedies or steps necessary to cure or correct such
default), then any Lender shall have an additional 30 days within which to cure
or correct such default (or if such default cannot be cured or corrected within
that time and such default is not having a material adverse effect on Colorado
Greenhouse, then such additional time as may be necessary if such Lender has
commenced within such 30 days and is diligently pursuing the remedies or steps
necessary to cure or correct such default, including the time necessary to
obtain possession if possession is necessary to cure or correct such default).
15.8 Force Majeure. Neither Party hereto shall be deemed to be in
-------------
breach or in violation of this Agreement if such Party is prevented from
performing any of its obligations hereunder by reason of Uncontrollable Forces
that in fact prevent or delay performance hereunder. To the extent that any
performance of any obligation is so prevented pursuant to this Section 15.6,
such performance shall be suspended during the continuance of the Uncontrollable
Forces and during the period following the cessation of such Uncontrollable
Forces required to repair and rebuild the Facility to the extent necessary to
place it back into commercial operation in accordance with Good Greenhouse
Practices and Applicable Laws. Notwithstanding the foregoing, in the event of
the inability of Colorado Greenhouse to substantially perform the Services for a
period of 45 days or more by virtue of Uncontrollable Forces (which
Uncontrollable Forces are not of a type affecting other persons generally),
Rocky Mountain may elect to terminate this Agreement upon five days' prior
written notice to Colorado Greenhouse; it being understood and agreed that if
such Uncontrollable Forces apply to, relate to or affect all persons as a
general matter, then Rocky Mountain will not terminate this Agreement pursuant
to the provisions of this Section 15.8, unless such Uncontrollable Forces
continue for a period of 180 days.
15.9 Waiver. The waiver of any breach of any term or condition hereof
------
shall not be deemed a waiver of any other or subsequent breach, whether of like
or different nature. No failure to exercise and no delay in exercising, on the
part of either Party
-22-
<PAGE>
hereto, any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies at law.
15.10 Severability. If any term or provision of this Agreement or the
------------
performance thereof shall to any extent be invalid or unenforceable, such
invalidity or unenforceability shall not affect or render invalid or
unenforceable any other provision of this Agreement, and this Agreement shall be
valid and enforced to the fullest extent permitted by law.
15.11 Amendment. No modification or amendment of this Agreement shall
---------
be valid unless in writing and executed by both Parties hereto.
15.12 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of Colorado. The parties hereby consent to the
jurisdiction of the courts of the State of Colorado for the purposes of
enforcing the arbitration provisions of Section 15.2.
15.13 Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding between the Parties hereto with respect to the subject matter
hereof and supersedes and replaces all prior written agreements and negotiations
and oral understandings, if any, with respect thereto.
15.14 No Third Party Beneficiaries. Except as specifically provided
----------------------------
herein or by the Loan Agreement, no person or party except Lender shall have any
rights or interest, direct or indirect, in this Agreement or the Services to be
provided hereunder, or both, except Colorado Greenhouse and Rocky Mountain. The
Parties specifically disclaim any intent to create any rights in any person or
party as a third-party beneficiary to this Agreement or the Services to be
provided hereunder except for the Lender and Thermo.
15.15 Amendment of Allocated Percentage. The Allocated Percentage may
---------------------------------
be amended at any time by mutual agreement of the Parties hereto and shall be
amended to reflect any change in size of any Other Greenhouse. If any of the
Other Greenhouses decreases in size or is increased in size by the addition of
space of like quality to its existing space then the Allocated Percentage shall
be adjusted in proportion to the ratio that the change in size bears to the
total size of the Greenhouse and the Other Greenhouses.
-23-
<PAGE>
This Agreement has been executed and delivered as of the date first
above written.
ROCKY MOUNTAIN:
--------------
ROCKY MOUNTAIN PRODUCE LIMITED
LIABILITY COMPANY
By: /s/ William E. Coleman
--------------------------------
________________________________
Manager
and
By: /s/ Ed Wetherbee
--------------------------------
________________________________
Manager
COLORADO GREENHOUSE:
-------------------
COLORADO GREENHOUSE LIMITED LIABILITY
COMPANY
By: /s/ William E. Coleman
--------------------------------
________________________________
Manager
and
By: /s/ Ed Wetherbee
--------------------------------
________________________________
Manager
-24-
<PAGE>
EXHIBIT A
---------
Greenhouse Lease
<PAGE>
EXHIBIT B
---------
Supplemental Agreement and Consent to Assignment
<PAGE>
EXHIBIT C
---------
Allocation Percentage
A percentage, based on the total acreage of the Greenhouse to the total
acreage of the Greenhouse and the Other Greenhouses, as the same may be modified
from time-to-time, and as in effect on the dates set forth below:
Commencement Date 37.730%
<PAGE>
EXHIBIT 10.18
FIRST AMENDMENT
TO
GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT
THIS FIRST AMENDMENT TO GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT (this
"Amendment") is made as of this ___ day of September, 1996, between ROCKY
MOUNTAIN PRODUCE LLC, a Colorado limited liability company ("RMP") and COLORADO
GREENHOUSE LLC, a Colorado limited liability company ("CG").
Recitals
--------
A. RMP and CG have entered into that certain Greenhouse Operation and
Management Agreement dated December 29, 1994 to be effective January 1, 1994
(the "O&M Agreement"), whereby CG was engaged by RMP to operate and manage the
greenhouse facility (the "Greenhouse") located in Ft. Lupton, Colorado.
B. RMP and CG desire hereby to further amend certain provisions of the
O&M in connection with an expansion of the Greenhouse and the consolidation of
the greenhouse facility located in Rifle, Colorado (the "Rifle Greenhouse") with
the Greenhouse and Other Greenhouses, as defined in, and pursuant to the terms
of, the O&M Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreement
herein contained, the parties hereby covenant and agree as follows:
1. The definition of "Other Greenhouses" in Section 2 is hereby deleted
-----------------
in its entirety and the following is inserted in lieu thereof:
"Other Greenhouses" mean, collectively, the BGP Greenhouse, the BGP II
-----------------
Greenhouse and the Rifle Greenhouse (to the extent that the above are being
operated and managed by Colorado Greenhouse), or such other greenhouses as
Colorado Greenhouse may operate or manage during the term of this Agreement
with the consent of RMP and Thermo.
2. The definition of "Primary Fee" in Section 2 is hereby deleted in its
-----------
entirety and the following is inserted in lieu thereof:
"Primary Fee" means an amount, payable within 30 days after the end of each
-----------
calendar quarter during the term of this Agreement, equal to the Allocated
Percentage of Net Revenue, which amount shall not exceed (i) $500,000 for
1994, (ii) the Allocated Percentage of $2,740,000 for 1995, (iii) the
Allocated Percentage of $3,240,000, for the period commencing as of January
1, 1996 through and including the second complete calendar quarter
following the completion date of the expansion of the Greenhouse, and (iv)
thereafter, the Allocated Percentage of $3,429,092.
<PAGE>
3. The definition of "Primary Fee Deficiency" in Section 2 is hereby
----------------------
deleted in its entirety and the following is inserted in lieu thereof:
"Primary Fee Deficiency" means an amount, to be calculated by BGP II within
----------------------
30 days after the end of each calendar quarter during the term of this
Agreement, equal to the amount, if any, by which the Allocated Amount (as
defined below) exceeds the aggregate payments made on account of the
Primary Fee for such calendar year. "Allocated Amount" means, (i) for
1995, the Allocated Percentage of $2,740,000, (ii) for the period
commencing as of January 1, 1996 through and including the second complete
calendar quarter following the completion date of the expansion of the
Greenhouse, the Allocated Percentage of $3,240,000, and (iii) thereafter,
the Allocated Percentage of $3,429,092.
4. The following definition shall be inserted after the definition of
"Reserve Amount" and before the definition of "Services" in Section 2:
-------------- --------
"Rifle Greenhouse" means the greenhouse leased to Wolf Creek Rifle LLC and
----------------
to be operated by Colorado Greenhouse, located in Rifle, Colorado.
5. Exhibit C is hereby deleted in its entirety and the following is
inserted in lieu thereof:
A percentage, as the same may be modified from time-to-time, as in effect
on the dates set forth below:
Commencement Date 37.730%
Consolidation of the Rifle Greenhouse 31.907%
The Second Complete Calendar Quarter
Following the Completion Date of the
Greenhouse Expansion 30.147%
6. Except as expressly amended pursuant to Sections 1 through 5 above,
the terms and conditions of the O&M Agreement are unmodified and remain in full
force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
ROCKY MOUNTAIN PRODUCE LLC, a Colorado limited
liability company
By: __________________________
Name: ________________________
Title: _________________________
COLORADO GREENHOUSE LLC, a Colorado limited
liability company
By: __________________________
Name: ________________________
Title: _________________________
<PAGE>
THERMO COGENERATION PARTNERSHIP, L.P.
1735 19th Street
DENVER, CO 80202
JULY __, 1996
The Prudential Insurance Company Credit Local de France
of America, as Lead Agent and as Lender 450 Park Avenue, 3rd Floor
c/o Prudential Power Funding Associates New York, New York 10022
Four Gateway Center Attn.: Mary Power
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn.: Project Management Team Credit Lyonnais
Credit Lyonnais Building
The Fuji Bank, Limited, 1301 Avenue of the Americas
as Bank Agent and as a Lender New York, New York 10018
1221 McKinney, Suite 4100 Attn.: Richard Randall
Houston, Texas 77010
Attn.: Brian Kerrigan
Mellon Bank, N.A. The Sanwa Bank, Limited
One Mellon Bank Center 55 East 52nd Street
500 Grant Street, Room 4436 New York, New York 10055
Pittsburgh, Pennsylvania 15258-000 Attn.: David Leech
Attn.: William Jurik
Campagnie Financiere de CIC et
de L'Union Europeene
4, Rue Gaillon
75107 Paris Cedex 02 France
Attn.: Adam Brough
RE: THERMO COGENERATION PARTNERSHIP, L.P.; AMENDED AND RESTATED
CONSTRUCTION AND TERM LOAN AGREEMENT DATED AS OF FEBRUARY 28, 1995
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Construction and
Term Loan Agreement (the "Loan Agreement") dated as of February 28, 1995, as
amended, among Thermo Cogeneration Partnership, L.P. ("Borrower"). The
Prudential Insurance Company of America, The Fuji Bank, Limited and the other
parties named therein. Capitalized terms used herein but not otherwise defined
shall have the meaning given to such terms in the Loan Agreement.
Section 9.5 of the Loan Agreement provides in part that Borrower will not,
without the prior written consent of the Agents and Required Lenders, agree to
any amendment, supplement or modification of any Basic Document. Borrower and
Rocky Mountain Produce LLC ("RMP") desire to enter into the consent letter, in
the form of Exhibit A attached hereto, in favor of Colorado Greenhouse LLC
("CG"). This consent letter will allow CG to add as an Other Greenhouse that
certain greenhouse located in Rifle, Colorado and used in connection with the
American Atlas cogeneration project. In connection with the current expansion of
the BGP II
<PAGE>
July ___, 1996
Page 2
Greenhouse, Borrower and RMP also desire to consent to (i) a change in the
Allocated Percentage under the Greenhouse Operation and Management Agreement
(the "O&M Agreement") dated as of December 29, 1994 between RMP and CG, (ii) a
change in the definition of Reserve Amount under the O&M Agreement, and (iii) an
increase in the primary fee to be paid to Brush Greenhouse Partners II, LLC, the
lessee of the BGP II Greenhouse (as defined in the O&M Agreement). Because the
contemplated amendments to the O&M Agreement will result in an amendment to the
Greenhouse Lease, a Basic Document, your consent to such amendments is required.
In addition, your consent to such amendments in also required because, pursuant
to Section 15.5 of the O&M Agreement, the parties thereto have agreed that no
change in the terms of provisions of the O&M Agreement shall be made without
your consent. We also note that the O&M Agreement has been assigned to the Agent
pursuant to that certain Collateral Assignment dated as of December 29, 1994,
and that your consent to any amendment to the O&M Agreement is required under
the Collateral Assignment.
Borrower hereby requests that you consent to the execution of the attached
letter by Borrower and RMP.
Please confirm your agreement to the terms and provisions of this letter
agreement by signing where indicated below.
Very truly yours,
THERMO COGENERATION PARTNERSHIP, L.P.
By: Thermo Ft. Lupton, L.P.,
a general partner
By: Thermo Ft. Lupton I, Inc.,
its general partner
By:__________________________
James Monroe, III
President
and
By: CSW Ft. Lupton, Inc., a general partner
By: ___________________________
Terry Dennis
President
<PAGE>
July ______, 1996
Page 3
Accepted and Agreed to this
______ day of July, 1996:
THE PRUDENTIAL INSURANCE THE FUJI BANK, LIMITED,
COMPANY OF AMERICA, as Bank Agent and as a Lender
as Lead Agent and as a Lender
By:__________________________ By:___________________________
Title:_______________________ Title:________________________
CREDIT LOCAL DE FRANCE CREDIT LYONNAIS
By:___________________________ By:___________________________
Title:________________________ Title:________________________
MELLON BANK, N.A. THE SANWA BANK, LIMITED
By:___________________________ By:___________________________
Title:________________________ Title:________________________
CAMPAGNIE FINANCIERE DE CIC ET
DE L'UNION EUROPEENE
By:___________________________
Title:________________________
<PAGE>
EXHIBIT 10.19
Exhibit A - Legal Description
Exhibit B - Easement Deed and Agreement
Schedule 2.02 - Wastewater Discharge Quantities
Schedule 5.06 - TCP Monthly Gas Cost Averaging Methodology
SERVICES SUPPLY AGREEMENT
This Service Supply Agreement (this "AGREEMENT") is made and entered into
as of June 10, 1997, by and between COLORADO GREENHOUSE, INC., a Delaware
corporation ("CGI"), and THERMO COGENERATION PARTNERSHIP, L.P., a Colorado
limited partnership ("TCP").
Recitals
--------
A. TCP is the owner of certain land (the "THERMO PROPERTY") located in
the City of Ft. Lupton, County of Weld and State of Colorado, and of certain
buildings and improvements located thereon, including a twenty (20) acre
greenhouse (the "EXISTING GREENHOUSE") and a gas-fired cogeneration power plant
(the "POWER PLANT"). TCP leases approximately 35 acres of the Thermo Property
(the "LEASED LAND"), including the Existing Greenhouse to ROCKY MOUNTAIN PRODUCE
LIMITED LIABILITY COMPANY, a Colorado limited liability company ("ROCKY
MOUNTAIN") pursuant to a certain Thermal Supply Lease Agreement bearing an
effective date of March 22, 1993 (as heretofore and hereafter amended and
supplemented from time to time, the "ROCKY MOUNTAIN TSA"), a complete copy of
which has heretofore been furnished by Rocky Mountain to CGI.
B. COLORADO GREENHOUSE LLC, a Colorado limited liability company ("CG"),
an affiliate of CGI, operates the Existing Greenhouse pursuant to a certain
Greenhouse Operation and Management Agreement dated as of December 29, 1994
between Rocky Mountain and CG.
C. CGI has acquired from Thermo Greeley I, Inc., a Colorado corporation
("THERMO GREELEY"), certain real property (the "CGI PROPERTY") consisting of
approximately 26.752 acres of land adjacent to the Leased Land, as more
particularly described on EXHIBIT A attached hereto. The CGI Property has been
duly subdivided pursuant to that certain Subdivision Plat of the Colorado
Greenhouse Addition which was recorded on May 12, 1997 in the real property
records of the Office of the Clerk and Recorder of Weld County, Colorado, at
Reception No. 02547711. CGI intends to construct a twenty (20) acre greenhouse
(the "NEW GREENHOUSE") on the CGI Property in close proximity to the Existing
Greenhouse. CGI and CG intend to jointly market, sell and distribute the
produce from the Existing Greenhouse and the New Greenhouse.
<PAGE>
D. In connection with the operation of the Power Plant and the Existing
Greenhouse, TCP (as one of multiple successors and assigns of Thermo Carbonic,
Inc.) obtains water and has access to wastewater discharge services from the
City of Ft. Lupton (the "CITY") pursuant to a certain Annexation Agreement dated
as of December 6, 1991 (the "ANNEXATION AGREEMENT") which is recorded in Book
1352 as Reception No. 02305317 in the land records of Weld County, Colorado. In
addition, TCP generates thermal energy at the Power Plant and obtains natural
gas from third parties. TCP furnishes thermal energy and natural gas to Rocky
Mountain for use in the Existing Greenhouse pursuant to the Rocky Mountain TSA.
E. CGI desires to obtain from TCP and TCP desires to furnish to CGI
thermal energy and certain other services, and the use of certain easements (the
"EASEMENTS") through which such services may be provided, as described below,
useful for CGI's operation of the New Greenhouse.
NOW, THEREFORE, in consideration of the above Recitals and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
GENERAL PROVISIONS
1.01 Construction of New Greenhouse. CGI has commenced construction of the
------------------------------
New Greenhouse and shall use due diligence to complete and commence operations
within the shortest practical time. CGI shall substantially complete
construction of the New Greenhouse on or before December 1, 1997. The term "New
Greenhouse" shall include all new or modified facilities necessary or desirable
for TCP to furnish and CGI to receive the Services. Except as provided in
Section 4.02, below, TCP shall not be required to bear or contribute to the cost
of any such new or modified facilities.
1.02 Agreement to Provide Services. TCP shall, during the Term of this
-----------------------------
Agreement, provide to CGI the services described in Articles II, III, IV, and V,
below (the "SERVICES") upon the terms and conditions and for the consideration
specified herein. TCP's obligation to provide Services shall commence on the
substantial completion of construction of the New Greenhouse or on such earlier
date as all such facilities required to deliver the Services have been installed
by CGI and CGI has need of the Services.
1.03 Services Separable. Each of the Services to be provided by TCP to CGI
------------------
is described separately in Articles II through V of this Agreement. If for any
reason any one or more of the Services is terminated, then, unless otherwise
agreed in writing by the parties, the provisions of this Agreement shall remain
in full force and effect as to the other Services; provided, however, that TCP
shall have no obligation to furnish any of the other Services to CGI at any time
when CGI has not accepted, and it appears to TCP that CGI will not accept, for
the
-2-
<PAGE>
calendar year in question CGI's maximum annual purchase obligation (as set forth
in section 4.3) for thermal energy for use in the New Greenhouse; provided,
however, that prior to suspending such other Services, TCP shall notify CGI of
TCP's intention to suspend such other Services at a future date not less than
thirty (30) days from the date of such notice; and provided, further that if,
within such period, CGI furnishes adequate assurances to TCP that the annual
purchase obligation will be met, TCP shall not suspend any other Services.
1.04 Term. The term ("TERM") of this Agreement shall commence on the date
----
first above written and shall expire upon the earlier of the following: (a)
June 4, 2019, (b) the mutual written consent of both parties hereto, or (c) the
date upon which the Annexation Agreement expires or is terminated; provided,
however, that in the event this Agreement is terminated under clause (c) above,
the parties hereto shall amend and restate this Agreement to continue the same
in effect until (a) or (b) occurs in the event that the Annexation Agreement is
renewed or otherwise extended without material change.
ARTICLE II
WASTEWATER SERVICES
2.01 Agreement to Accept Wastewater from New Greenhouse. Subject to
--------------------------------------------------
compliance by CGI with the terms and conditions of this Agreement, the
Annexation Agreement, and a certain "Subdivision Agreement" dated May 13, 1997
between the City and CGI which agreement includes, among other things, a written
acknowledgment that the City will consider the New Greenhouse a part of the
"PROJECT" (as such term is defined in the Annexation Agreement) and the City's
written consent to the furnishing of wastewater services to the New Greenhouse
under this Agreement, TCP shall permit CGI to discharge wastewater from the New
Greenhouse through TCP's existing wastewater discharge system which connects the
Power Plant and Existing Greenhouse to the City's sewer service lines ("JOINTLY
USED LINE"). If any sewerage lines or other facilities are required to be
constructed on TCP's property, TCP's obligation to furnish wastewater services
to the New Greenhouse shall not commence until such time as (i) such facilities
have been constructed at the sole expense of CGI, and (ii) a separate written
easement agreement, in form substantially similar to EXHIBIT B attached hereto,
confirming the location of and CGI's duty to maintain such new facilities shall
have been executed between CGI and TCP.
2.02 Characteristics and Volumes of Wastewater Discharge.
---------------------------------------------------
(a) The wastewater generated by the Existing Greenhouse and the New
Greenhouse combined shall not contain substances or chemical components in
volumes or concentrations or exhibit characteristics that exceed allowable
tolerances for characteristics as set forth in Section C.4 of the Annexation
Agreement. Should the quality or nature of the wastewater from the New
Greenhouse (i) at the point of discharge (the "WASTEWATER DISCHARGE POINT") to
TCP's wastewater discharge lines fail to meet the standards set forth in the
Annexation
-3-
<PAGE>
Agreement for discharge by TCP into the City's sewer system, or (ii) contribute
to the failure of TCP's wastewater discharge to meet the Annexation Agreement
standards at the point it is discharged by TCP into the City's sewer system
(except to the extent such failure would not have occurred but for a material
alteration by TCP of its existing wastewater discharge practices), then CGI, at
its sole cost and expense, shall pretreat such wastewater, or a portion of it,
to the extent necessary to make CGI's wastewater comply with such standards. The
provisions in this Section are in addition to the rights and remedies available
to TCP under Section 9.04.
(b) Subject to Section 2.02(c), below, the maximum rate of flow (in
gallons per minute) and volume of wastewater discharged by CGI into TCP's system
by CGI and Rocky Mountain combined shall not exceed the lesser of (i) the
capacity available from time to time of the existing facilities, or (ii) the
limits on SCHEDULE 2.02. The parties acknowledge that the historic peak
discharge of wastewater from the Existing Greenhouse has been approximately
75,000 gallons per day, however, the requirements of this Agreement shall govern
future combined discharge volumes. With respect to capacity available from time
to time, CGI's right to discharge wastewater into the TCP system shall be
subject to pre-emption of such capacity by usage of the wastewater system
downstream by the City, and by usage of the Jointly Used Lines by TCP for
wastewater discharge from the Power Plant.
(c) In addition, CGI, in combination with Rocky Mountain, shall be
permitted to discharge into TCP's wastewater discharge facilities such
quantities of wastewater in excess of the amounts specified in Schedule 2.02 to
the extent that such additional discharge does not exceed the maximum total
wastewater discharge rights of "ANNEXORS" under the Annexation Agreement
(including without limitation the rights of TCP and Thermo Greeley I, Inc.,
their successors and assigns) less the aggregate portion of such maximum
discharge capacity which is then being used by the City, TCP, and Rocky
Mountain. Under no circumstances shall CGI be construed to be an assignee of
any rights or privileges of Annexors under the Annexation Agreement.
(d) TCP and CGI acknowledge that the capacity of the existing
wastewater disposal facilities is such that when the City is utilizing such
facilities downstream from the Plant, and the Plant is discharging into the
system at its peak capacity, the capacity of the wastewater disposal facilities
may be inadequate to permit discharge by Rocky Mountain and CGI of the volumes
shown on Schedule 2.02. The parties also acknowledge that the Existing
Greenhouse includes wastewater holding facilities to accommodate these temporary
system overloads. Should it be determined at any time that such holding
facilities are insufficient to accommodate wastewater generated from the New
Greenhouse and the Existing Greenhouse combined, CGI shall curtail or
discontinue (as required) its use of the existing wastewater discharge
facilities until such time as CGI, at its cost, has increased the capacity of
the discharge or holding facilities. In the alternative, CGI may make other
lawful arrangements suitable to CGI for the disposal of wastewater from the New
Greenhouse. TCP's prior written consent (which shall not be withheld or delayed
unreasonably) shall be required for any modification by CGI of TCP's or the
City's wastewater facilities which affect the operation of the Existing
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Greenhouse or Power Plant. It shall be reasonable for TCP to withhold such
consent if TCP's operations would be disrupted or impaired in any material way
by CGI's activities.
2.03 Sampling and Metering. If not already existing upstream from where
---------------------
the combined Rocky Mountain/CGI wastewater flow enters TCP's system, CGI, at its
sole cost and expense, shall construct and operate wastewater sampling, flow
equalization, and flow recording facilities at the Wastewater Discharge Point to
measure compliance with the wastewater characteristics, discharge flow rates and
discharge volumes from the Existing Greenhouse and the New Greenhouse. CGI
shall furnish to TCP quarterly reports of such records within thirty (30) days
after the close of each calendar quarter concerning wastewater characteristics,
flow rates, and volumes. TCP shall have the right to request and receive more
frequent reports at reasonable intervals. If CGI discovers samples,
measurements, or conditions that violate the terms of the Annexation Agreement,
that exceed the volume limits set forth on Schedule 2.02, or that CGI reasonably
believes may interfere with or otherwise have an adverse effect on TCP's
wastewater discharge under the Annexation Agreement, CGI shall immediately
notify TCP. Further, TCP may, at its sole discretion, and at reasonable times,
elect to audit or review such sampling and measurement practices and may take
such additional samples as TCP deems necessary or advisable to insure compliance
with all wastewater discharge criteria under this Agreement. Subject to
reasonable notice delivered to CGI, TCP shall have access to the Wastewater
Discharge Point for the purpose of taking any such samples and monitoring any
meter required by this Agreement.
2.04 Payment. CGI shall reimburse TCP monthly for TCP's actual cost
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charged by the City for the volume of wastewater discharged from the New
Greenhouse during that month, and for any and all other costs charged by the
City pertaining to wastewater services provided hereunder to the extent such
costs can reasonably be allocated to the New Greenhouse. Should the combined
volume of discharge of wastewater by Rocky Mountain and CGI into the TCP
facilities, when aggregated with the volume of wastewater discharged by TCP
(including peak volume discharges from the Plant) cause the City to impose
charges on the Project's discharge at rates in excess of the rates available to
the Annexors for stipulated discharges under the Annexation Agreement, CGI shall
reimburse TCP at such higher rates for such incremental volumes. If practical
to do so and if permitted by the City in a manner which will assure that TCP
will receive credit for such payments, CGI shall pay directly to the City all
charges allocable to the New Greenhouse. In the event that TCP receives notice
from the City of a rate adjustment for wastewater discharge service, TCP shall
promptly deliver a copy of said notice to CGI. Nothing herein shall preclude
TCP from passing on to Rocky Mountain, in such manner as may be determined from
time to time between TCP and Rocky Mountain, any charges reasonably allocable to
the Existing Greenhouse for wastewater discharge, including without limitation
costs for excess usage at higher rates than those provided in the Annexation
Agreement.
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ARTICLE III
WATER
3.01 Agreement to Provide Water. Subject to the terms and conditions of
--------------------------
this Agreement and the Annexation Agreement, and compliance by CGI with the
applicable terms of the Subdivision Agreement, TCP shall provide water from the
City, and treat a portion of such water in TCP's existing treatment facilities,
to CGI for use in the New Greenhouse. Such water shall be provided through
TCP's existing waterlines to TCP's water treatment facility on the Thermo
Property and through new waterlines to be constructed by CGI at CGI's expense
from TCP's existing waterlines both upstream and downstream from the water
treatment facility. All costs in connection with the installation of such new
lines and any necessary upgrading of TCP's existing lines shall be borne by CGI.
TCP's obligation to furnish and treat water to CGI shall not commence until such
time as (i) all new and upgraded (if necessary) waterlines have been
constructed, and (ii) a separate written easement agreement, in form
substantially similar to EXHIBIT B attached hereto, confirming the location of
and CGI's duty to maintain such waterlines shall have been executed between CGI
and TCP. TCP's obligation to furnish such water shall at all times be limited
to the quantities and flow rates provided in paragraph 3.02. Under no
circumstances shall TCP be required to incur any cost or expense for upgrade or
expansion of TCP's water treatment facilities in order to provide water service
under this Agreement.
3.02 Water Quality and Quantity.
--------------------------
(a) The quality of the treated water furnished by TCP to CGI
hereunder shall be comparable to that currently furnished by TCP to Rocky
Mountain for use in the Existing Greenhouse. To the extent TCP provides treated
water to CGI in a manner comparable to the existing standards under which it
provides treated water to Rocky Mountain, TCP shall not be responsible to CGI if
such water quality is or should become unsatisfactory for use in the New
Greenhouse.
(b) The maximum respective rates of flow per minute and daily volumes
of water which TCP shall be obligated to furnish to the Existing Greenhouse and
the New Greenhouse shall not exceed 200 gallons per minute (gpm) and 288,000
gallons per day (gpd) of treated water, and 200 gpm and 250,000 gpd of untreated
water. Notwithstanding the foregoing, TCP shall not at any time have any
obligation to furnish to CGI water at flow rates and volumes in excess of the
flow rates and volumes of water made available to TCP by the City less the
combined amount required by TCP for operation of the Power Plant and the amount
furnished by TCP to Rocky Mountain to service the Existing Greenhouse. The
parties acknowledge that the historic usage of water in the Existing Greenhouse
has been approximately 65,000,000 gallons per year, and that the limits set
forth in this Agreement shall govern future combined usage by CGI and Rocky
Mountain.
(c) Notwithstanding the limits in Section 3.02(b), above, so long as
water in excess of that provided in the preceding sentence (i) is available to
TCP under the Annexation
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Agreement, (ii) is deliverable by TCP to CGI without expansion or modification
of TCP's or the City's existing water service and treatment facilities, and
(iii) is not required for use by TCP or Rocky Mountain, TCP shall also furnish
to CGI such quantities and flow rates of treated and untreated water in excess
of those maximums in the preceding paragraph for use in the New Greenhouse as
CGI shall from time to time request. It is the intent of this paragraph 3.02(c)
to allow CGI to obtain additional treated and untreated water from TCP for use
in the New Greenhouse to the full extent such water is available to TCP from the
City, within the capacity of TCP's current water service and treatment
facilities, and not required for use by TCP and Rocky Mountain.
(d) TCP makes no representations or warranties concerning the
availability, quality, or quantity of water furnished by the City from time to
time pursuant to the Annexation Agreement, nor does TCP make any representation
or warranty that such water as may be furnished by the City will be sufficient
for CGI's operation of the New Greenhouse.
3.03 Storage and Metering. CGI acknowledges that TCP does not have
--------------------
reservoir facilities to store water for the Existing Greenhouse and the New
Greenhouse. CGI shall, at its expense, construct whatever reservoir or other
water storage facilities on the CGI Property may be needed to store clean water
furnished to the New Greenhouse pursuant this Agreement. If requested by TCP,
CGI shall, at CGI's expense, install, operate, and maintain metering as may be
required to differentiate water usage between the Existing Greenhouse and the
New Greenhouse. CGI shall read such meter(s) monthly and report the readings to
TCP. Until such time as meters may be installed pursuant to this paragraph, TCP
shall not be deemed to be in breach of its obligations hereunder for failure to
accurately differentiate water usage between the Existing Greenhouse and the New
Greenhouse, provided TCP uses reasonable efforts to do so.
3.04 Payment. CGI shall reimburse TCP monthly for (i) TCP's actual cost
-------
charged by the City for the volume of untreated water which TCP delivers to CGI
hereunder, and (ii) TCP's allocated cost for treated water delivered during that
month to the "WATER DELIVERY POINT." Allocated costs for treated water shall be
calculated in the same manner as TCP calculates costs for treated water
furnished to Rocky Mountain for use in the Existing Greenhouse, adjusted from
time to time for cost of water which TCP pays to the City. Should the combined
volume of treated and untreated water delivered to Rocky Mountain and CGI, when
aggregated with the volume of water used by TCP (including peak volume usage at
the Plant), cause the City to impose charges on the Project's water usage at
rates in excess of the rates available to the Annexors for stipulated quantities
of water under the Annexation Agreement, CGI shall reimburse TCP at such higher
rates for such incremental volumes. If practical to do so and if permitted by
the City in a manner which will assure that TCP will receive credit for such
payments, CGI shall pay all charges allocable (in TCP's reasonable discretion)
to the New Greenhouse for untreated water directly to the City and shall
reimburse TCP only for the cost of treated water as described above. CGI shall
also reimburse TCP for any and all other costs charged by the City pertaining to
water service to the extent such costs can reasonably be allocated to the New
Greenhouse. In the event that TCP receives notice from the City of a rate
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adjustment for water service, TCP shall promptly deliver a copy of said notice
to CGI. Nothing herein shall preclude TCP from passing on to Rocky Mountain, in
such manner as may be determined from time to time between TCP and Rocky
Mountain, any charges reasonably allocable (in TCP's reasonable discretion) to
the Existing Greenhouse for water furnished to the Existing Greenhouse,
including without limitation costs for excess usage at higher rates than those
provided in the Annexation Agreement.
ARTICLE IV
THERMAL ENERGY
4.01 Agreements with Respect to Thermal Energy. TCP shall provide to CGI,
-----------------------------------------
and CGI shall purchase, thermal energy for the operation of the New Greenhouse.
Such thermal energy shall be delivered by TCP to an interconnection point on the
low pressure header at the Power Plant, through a hot water or steam supply and
condensate collection system which shall be constructed by CGI as part of the
New Greenhouse. The parties acknowledge that TCP intends to retain and use one
hundred percent (100%) of the condensate. As an essential term of this
Agreement, CGI agrees to use and operate the New Greenhouse only as a greenhouse
for commercial production of agricultural products, or for such alternative uses
(which may not be implemented prior to TCP obtaining certification by the
Federal Energy Regulatory Commission ("FERC") that such alternative use
constitutes a "useful thermal output" pursuant to the requirements set forth in
the Regulations implementing the Public Utility Regulatory Policies Act of
1978, as amended from time to time, as currently established by FERC 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, and must in any event require consumption of sufficient
useful thermal energy for the Power Plant to remain a "qualifying cogeneration
facility" pursuant to the aforesaid requirements) as may be approved by TCP
prior to any change of use, provided such TCP approval shall not be unreasonably
withheld or delayed.
4.02 Payments. CGI shall pay TCP for thermal energy in monthly payments
--------
at the rate equal to 1.2 times TCP's actual delivered cost for natural gas equal
in BTU value to the number of BTUs of thermal energy delivered to CGI. Should
CGI so request at least thirty (30) days prior to anticipated substantial
completion of the New Greenhouse, simultaneously with TCP's first delivery of
thermal energy to CGI pursuant to this Agreement, TCP shall pay to CGI the sum
of One Hundred Thousand Dollars ($100,000.00) as full compensation for any and
all costs which CGI may incur in connection with entering into this Agreement,
including without limitation installation and upgrade of all facilities required
under this Agreement and/or the Contract of Sale dated May 12, 1997 between
Thermo Greeley I, Inc. and CGI. Should no such request be made, CGI shall
receive, as full compensation aforesaid, a credit of $100,000 against CGI's
first obligations to pay for Thermal energy first arising under this Section
4.02.
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<PAGE>
4.03 Quantity. Currently, TCP anticipates that it will be able to make
--------
available for use within the New Greenhouse up to two hundred billion
(200,000,000,000) BTUs of thermal energy each calendar year. TCP shall use all
commercially reasonable efforts (but not to include modifications of turbine
load or operation not otherwise consistent with prudent power plant operations)
to make available to CGI a combination of thermal energy and/or natural gas
totaling not less than 80,000,000 BTUs per hour for the operation of the New
Greenhouse. TCP shall be obligated to deliver, and CGI shall be obligated to
purchase, CGI's actual requirements for thermal energy used in the New
Greenhouse, but not in excess of one hundred billion (100,000,000,000) BTUs per
calendar year; provided, however, that if TCP is unable to deliver such amount
of BTUs in thermal energy, TCP shall deliver such lesser quantity of BTUs of
thermal energy as TCP shall produce and be able to make available to the New
Greenhouse, together with natural gas of sufficient BTU value to equal one
hundred billion BTUs when combined with the thermal energy delivered, as
requested by CGI. In the event that CGI's needs for thermal energy exceed the
foregoing maximum obligations of TCP, CGI shall notify TCP of its additional
needs and TCP shall use reasonable efforts to supply such additional amounts
consistent with TCP's normal operation of the Power Plant. The foregoing
notwithstanding, with respect to calendar year 1997, the one hundred billion
(100,000,000,000) BTU maximum purchase obligation shall be prorated based on the
number of days in the calendar after thermal energy is required by CGI divided
by 360, but CGI shall nevertheless use its best efforts to utilize, and TCP
shall use its best efforts to produce and furnish, additional thermal energy
consistent with TCP's normal operations of the Power Plant and its obligations
to supply thermal energy to the Existing Greenhouse. If not already constructed
in connection with the Existing Greenhouse, CGI, at its sole cost and expense,
shall construct a metering and instrumentation system, reasonably satisfactory
to TCP, to record the actual amount of thermal energy delivered to by CGI for
the New Greenhouse. Procedures for measurement of the amount of thermal energy
delivered shall be in accordance with the Rocky Mountain TSA.
ARTICLE V
NATURAL GAS
5.01 Existing Supply and Transportation Contracts. As of the date of this
--------------------------------------------
Agreement, TCP (either directly or through a related company, Thermo Gas
Marketing, Inc.) is purchasing and transporting natural gas to the Existing
Greenhouse and the Power Plant pursuant to various contractual arrangements with
gas producers and transporters. TCP receives the gas from its third-party
transporters at a meter located on the Thermo Property and transports the gas to
the Existing Greenhouse and the Power Plant through its own pipeline and
facilities. TCP represents that its existing gas purchase and transportation
arrangements (subject to certain provisions contained therein regarding the
resale of gas) enable it to obtain sufficient quantities of gas in excess of
TCP's requirements for use in the Power Plant to supply to CGI the gas described
in paragraph 5.02, below. CGI acknowledges that such arrangements include
purchasing natural gas as required in the spot market.
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5.02 Agreement to Provide Natural Gas. If TCP is unable to deliver the
--------------------------------
maximum amount of thermal energy which CGI is required to purchase on an annual
basis under paragraph 4.03, (i.e. one hundred billion (100,000,000,000) BTUs per
year), TCP, upon CGI's request, shall sell and deliver annually to CGI at the
Delivery Point (as hereinafter defined) natural gas with BTU value equal to the
difference between the BTU value of the thermal energy delivered by TCP pursuant
to paragraph 4.03 and CGI's maximum required thermal energy purchase obligation.
TCP shall use all commercially reasonable efforts to make available to CGI a
combination of natural gas and/or thermal energy in a combined amount of not
less than 80,000,000 BTUs per hour for the operation of the New Greenhouse, it
being the intent that CGI's needs for heat for the New Greenhouse should be
satisfied by TCP delivering amounts of thermal energy and natural gas that
together total not less than 80,000,000 BTUs per hour. Although no monthly
nomination or forecast of gas requirements shall be required from CGI with
respect to such obligatory gas sales, CGI shall use commercially reasonable
efforts to inform TCP of its anticipated gas requirements 24 hours in advance of
its needs. In addition, provided that CGI furnishes to TCP, not later than ten
(10) days before the month in which such gas is expected to be needed, a non-
binding best efforts estimate of CGI's desired purchases of natural gas from TCP
for the ensuing month, TCP shall use its best efforts to sell and deliver to CGI
at the Delivery Point such additional quantities of gas as CGI shall request
from time to time for use in the New Greenhouse; provided, however, that with
respect to such monthly nominations TCP has first met its requirements for gas
which is required for use in the Power Plant and to furnish thermal energy and
gas to the Existing Greenhouse. CGI shall indemnify TCP for all storage and
imbalance charges, costs and other expenses incurred by TCP resulting from CGI's
failure to use all of the additional gas requested by CGI as contemplated in the
preceding sentence. CGI shall have no minimum gas purchase obligation. TCP's
obligation to use "best efforts" to sell and deliver to CGI such additional
quantities of gas shall not require TCP to construct facilities or contract for
firm, long-term incremental gas supplies requiring payment of demand charges or
transportation service to fulfill such obligations.
5.03 Delivery Point, Additional Pipeline, and Facilities. The "DELIVERY
---------------------------------------------------
POINT" shall be one or more locations on TCP's gas distribution system mutually
acceptable to the parties and located on the Thermo Property. CGI will at its
expense construct and/or maintain such pipeline(s) and install meters and such
other facilities as the parties shall mutually determine are reasonably
necessary to accept and meter the gas at the Delivery Point and transport it to
the New Greenhouse. CGI acknowledges that because TCP may commingle gas streams
of varying BTU rating (due to ethane content), the BTU content of gas available
on the low pressure side of TCP's gas header may vary from a low of
approximately 950 BTU per MCF to a high of approximately 1300 BTU per MCF. If
CGI desires either to limit this variation or to maintain a direct high pressure
connection to a TCP supplier with which CGI intends to arrange direct purchases
under the following Section 5.04, CGI may construct and/or maintain at CGI's
expense a dedicated gas pipeline to the New Greenhouse from the TCP Gas
Facilities (hereinafter defined) upstream from the TCP gas header. Other than
the range of BTU content of the gas described above, CGI acknowledges that TCP
makes no representation as to the quality of the gas provided hereunder and CGI
accepts such gas "as is." TCP's obligation to furnish natural gas
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to CGI shall not commence until such time as a separate written easement
agreement, in form substantially similar to EXHIBIT B attached hereto, setting
forth the location of such metering and pipeline facilities and CGI's
obligations to maintain the same shall be executed between TCP and CGI. In no
event shall TCP have any obligation to construct the meters and facilities
described in this paragraph.
5.04 Additional Gas. CGI shall also have the right to arrange for the
--------------
purchase of natural gas from third parties and the transportation of the gas to
the point at which TCP receives its gas from third parties (the "RECEIPT
POINT"). The TCP facilities that connect the Receipt Point to the Delivery Point
are herein called the "TCP GAS FACILITIES." To the extent that TCP Gas
Facilities have capacity in excess of that required for transporting gas
required from time to time for use in the Power Plant and for furnishing thermal
energy and gas to the Existing Greenhouse, TCP shall, at no charge to CGI except
for any applicable costs of compression, transport gas delivered at the Receipt
Point for CGI's account through the TCP Gas Facilities to the Delivery Point.
CGI contemplates that any gas purchased by it for delivery under this paragraph
shall meet or exceed general "pipeline quality" standards of Public Service
Company and Colorado Interstate Gas and shall be consistent with the quality of
the gas distributed in TCP's main gas lines. Under no circumstances shall TCP be
required to incur any cost or expense to expand or enhance the TCP Gas
Facilities to accommodate gas purchased by CGI for delivery to TCP and
redelivery to CGI.
5.05 Pressure. TCP shall provide gas at the low pressure side of TCP's gas
--------
headers in excess of 100 psig but in no event greater than 150 psig.
5.06 Payment. CGI shall pay TCP monthly for all natural gas supplied by
-------
TCP to CGI under this Agreement at the rate equal to TCP's full incremental
monthly costs (as may be adjusted pursuant to Section 5.07 below) of producing,
obtaining, and delivering such gas averaged in accordance with the methodology
illustrated in the SCHEDULE 5.06 attached hereto. Such price is inclusive of all
commodity gathering, transportation, treatment, compression, reservation,
standby and backup charges and taxes, and CGI shall not reimburse TCP for any
additional charges. There shall be no additional charge for the transportation
of gas through the TCP Gas Facilities.
5.07 Metering
--------
(a) CGI shall install, own, operate, and maintain a meter (or
meters) at the Delivery Point to meter deliveries of gas to CGI. The changing of
charts and calibrating and adjusting of this meter shall be done by CGI, at
CGI's expense. TCP may install, maintain and operate such check measurement
equipment as it may desire but such equipment shall not interfere in any way
with the operation of CGI's measurement equipment.
(b) The accuracy of the measuring equipment at the Delivery Point
shall be tested at regular intervals of not less than once each six (6) months.
Notice of the time and
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nature of each test shall be given by CGI to TCP sufficiently in advance to
permit convenient arrangement for TCP's representative to be present. If, upon
testing of any metering device owned and operated by CGI, such metering device
is found to be inaccurate by two percent (2%) or less, previous readings of such
equipment will be considered correct in computing the deliveries of gas
hereunder but such equipment will immediately be adjusted to record accurately.
If, upon testing, any such measuring equipment is found to be inaccurate by more
than two percent (2%), the meter shall be immediately calibrated to measure
correctly and any previous readings of such equipment will be corrected to zero
error for any period which is known definitely or agreed upon, but in case the
period is not known definitely or agreed upon, such correction will be for a
period covering one-half of the time elapsed since the last test. Further, the
costs of providing natural gas for such period shall be recalculated pursuant to
Section 5.06 above based on volumes adjusted to account for such inaccuracies.
Either party may require a special test of the Delivery Point meter. If any such
test is requested by TCP and, upon such test the measuring equipment is found to
be registering within two percent (2%) of accuracy, the cost of such test will
be charged to TCP; otherwise the cost of all such tests will be borne by CGI. If
for any reason the meter was out of service or out of repair so that the period
of inaccuracy cannot be estimated or computed from the reading thereof, the
amount of gas delivered through the period such meter is out of service or out
of repair will be estimated and agreed upon by the parties hereto upon the basis
of the best data available by using the first of the following methods which is
feasible:
(i) by using the registration of any check meter, if installed and
accurately registering;
(ii) by correcting the error, if the percentage of error is ascertainable
by calibration, test, or mathematical calculation; or
(iii) by estimating the quantity of gas delivered during the preceding
periods under similar conditions when the meter was registering
accurately.
ARTICLE VI
INSURANCE
6.01 Casualty Insurance. Subsequent to substantial completion of the New
------------------
Greenhouse and at all times thereafter throughout the Term of this Agreement,
CGI shall continuously maintain in force and effect the following insurance
coverage:
(i) 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 New Greenhouse in a minimum aggregate
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amount equal to the full insurable value of the New Greenhouse,
(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. "Full insurable value" means the full
replacement value of the New Greenhouse, including any
improvements and equipment without deduction for physical
depreciation and/or obsolescence; all such policies may have
deductibles of not greater than $50,000; and
(ii) boiler and machinery insurance coverage at the New Greenhouse,
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, machinery,
pressure piping, or any other similar objects located on or
adjacent to the New Greenhouse in a minimum aggregate amount
equal to the "full insurable value" (as defined above), of the
New Greenhouse, 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.
Prior to the time that CGI is required to maintain the foregoing insurance
coverage, CGI shall maintain or cause its contractors to 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.
6.02 Liability Insurance. Throughout the Term of this Agreement, CGI and
-------------------
TCP shall each continuously maintain in force the following insurance coverage:
(i) 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;
(ii) 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
(iii) automobile liability with limits of Two Million Dollars
($2,000,000) per occurrence with no aggregate limitation.
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6.03 Certain Policy Requirements. All insurance policies required under
---------------------------
paragraph 6.03 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 TCP), 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 New
Greenhouse. 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. CGI's policies shall be endorsed to name TCP,
any mortgagee of the New Greenhouse, their respective officers, agents,
partners, and such other parties as may reasonably be requested by TCP as
additional insured parties, as their interests may appear. TCP's policies shall
be endorsed to name CGI, its managers, agents, and such other parties as may
reasonably be requested by CGI 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 of any work on the New Greenhouse,
and a copy of any renewal policy (or certificate of insurance if then acceptable
to TCP) shall be delivered to TCP and to any mortgagee of the New Greenhouse at
least fifteen (15) days prior to the termination date of any expiring policy.
TCP's liability insurance policy shall provide that in the event of injury as a
result of the sole negligence of TCP, to persons or property on the CGI
Property, TCP'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 CGI and
TCP, the liability coverage of TCP and CGI shall contribute in proportion to the
negligence of the insured parties. CGI's liability insurance policy shall
provide that in the event of injury, as a result of the sole negligence of CGI
to persons or property on the Thermo Property, CGI'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 TCP and CGI the liability insurance coverage of TCP and
CGI shall contribute in proportion to the negligence of the insured parties.
6.04 Waiver of Subrogation. CGI hereby waives, on behalf of itself and on
---------------------
behalf of all carriers of the insurance required to be maintained pursuant to
paragraph 6.01, above, all claims, by subrogation or otherwise, which such
waiving party might otherwise have against TCP for loss or damage to the New
Greenhouse, 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.
6.05 Exculpation for Property Damage. 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 New Greenhouse, shall be kept
in, at or on the CGI Property at CGI's sole risk, or at the risk of those
claiming under CGI. Without limitation of the foregoing waivers of claims and
subrogation, TCP shall not be liable for any damage to said personal property or
any loss of business by CGI however arising, including without limitation from
the bursting, overflowing, or leaking of water or pipes, from the malfunction of
the heat transfer subsystem, or
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<PAGE>
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 Thermo
Property or from any other cause in any other manner whatsoever, except for the
grossly negligent or willfully tortious acts of TCP.
ARTICLE VII
INDEMNIFICATION
7.01 By CGI.
------
(a) Subject to such waivers and limitations of liability as are
specifically provided hereunder, CGI shall at all times defend, indemnify and
save TCP, TCP's partners, and their respective shareholders, directors,
officers, agents and employees and any lender providing secured financing to TCP
and such lender's shareholders directors, officers, agents and employees
(collectively "INDEMNITEES") harmless from any and all damages relating to the
New Greenhouse, the CGI Property and the Easements, 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 New Greenhouse, or on the CGI
Property or the Easements, resulting in whole or in part from any negligent or
willfully tortious act done or omission by or through CGI, any affiliate of CGI,
or any third party in the New Greenhouse or on the CGI Property or the
Easements, or resulting from CGI's, any such affiliate's or any such third
party's use, non-use, or occupancy of the New Greenhouse in any manner contrary
to the requirements of this Agreement.
(b) Without limiting the generality of the foregoing, CGI shall,
except to the extent of such waivers and limitations, defend, indemnify and hold
the Indemnitees free and harmless from and against all liability, loss, cost,
damage 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"
(as defined in the Rocky Mountain TSA and the Supplemental Agreement thereto
dated April 7, 1993 (the "SUPPLEMENTAL AGREEMENT")) or in connection with third-
party claims relating to or in connection with any violation by CGI or its
affiliates, agents, employees, contractors, sublessees, successors or assigns of
any Environmental Law or in connection with any "MATERIALS OF ENVIRONMENTAL
CONCERN" (as defined in the Rocky Mountain TSA and the Supplemental Agreement)
used, generated, treated, stored or otherwise located on the New Greenhouse, CGI
Property or the Easements, or released by CGI or threatened to be released by
CGI in, on, under, from or affecting the Power Plant or the Thermo Property or
the Easements, except to the extent resulting from Indemnitee's negligence or
intentionally tortious acts or omissions. CGI shall notify the Indemnitees
promptly of any notice, advice or communication from any federal, state,
regional or local governmental entity and instrumentalities thereof or any other
source having jurisdiction (collectively, "GOVERNMENTAL AUTHORITY") with
respect to Materials of Environmental Concern released by or threatened to be
released by CGI which may be in, on, under, or released from or affecting the
Power Plant or the Thermo Property. CGI shall also maintain at the New
Greenhouse and the CGI Property, and
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keep available for inspection during ordinary business hours and following
reasonable notice by the Indemnitees, accurate and complete records of all
investigations, studies, sampling and testing conducted, and any and all
response actions taken, by CGI or, to its knowledge, by any Governmental
Authority or other person in respect of Materials of Environmental Concern
released by or threatened to be released by CGI which may be in, on, under,
released from or affecting the Power Plant or the Thermo Property or the
Easements.
(c) The foregoing covenants 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.
7.02 By TCP.
------
(a) Subject to such waivers and limitations of liability as are
specifically provided hereunder, TCP shall at all times defend, indemnify and
save CGI and CGI's shareholders, directors, officers, agents and employees
(collectively "INDEMNIFIED PERSONS") harmless from any and all damages relating
to the Power Plant, 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 Power Plant or the Thermo Property exclusive of the Leased Land and
the Easements, resulting in whole or in part from any negligent or willfully
tortious act done or omission by or through TCP, any affiliate of TCP, or any
third party in the Power Plant or on the Thermo Property exclusive of the Leased
Land and the Easements, or resulting from TCP's, any such affiliate's or any
such third party's use, non-use or occupancy of the Power Plant in any manner
contrary to the requirements of this Agreement.
(b) Without limiting the generality of the foregoing, TCP shall,
except to the extent of such waivers and limitations, defend, indemnify and hold
the Indemnified Persons free and harmless from and against all liability, loss,
cost, damage 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 TCP or its affiliates, agents, employees,
contractors, sublessees, successors or assigns of any Environmental Law or in
connection with any Materials of Environmental Concern (as defined in the Rocky
Mountain TSA and the Supplemental Agreement) used, generated, treated, stored or
otherwise located in or on the Power Plant or Thermo Property (exclusive of the
Leased Land), or released by TCP or threatened to be released by TCP in, on,
under, from or affecting the CGI Property, except to the extent resulting from
the negligence or intentionally tortious acts or omissions of the Indemnified
Persons. TCP shall notify the Indemnified Persons promptly of any notice,
advice or communication from any Governmental Authority with respect to
Materials of Environmental Concern released by or threatened to be released by
TCP which may be in, on, under, or released from or affecting the CGI Property.
TCP shall also maintain at the Power Plant and Thermo Property, and keep
available for inspection during ordinary business hours and following reasonable
notice by the Indemnified
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<PAGE>
Persons, accurate and complete records of all investigations, studies, sampling
and testing conducted, and any and all response actions taken, by TCP or, to its
knowledge, by any Governmental Authority or other person in respect of Materials
of Environmental Concern released by or threatened to be released by TCP which
may be in, on, under, released from or affecting the CGI Property.
(c) The foregoing covenants 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.
ARTICLE VIII
DEFAULT; REMEDIES
8.01 Default. Should TCP or CGI fail to make any payment required to be
-------
made to the other under this Agreement within five (5) days after such payment
is due and payable, or should CGI fail to purchase and receive from TCP the
quantities of thermal energy required under Article IV, above, or to
continuously maintain in force and effect the insurance required of it under
Article VI, above, or should either party fail to perform any other covenant or
comply with any other condition required to be performed or complied with by
such party within thirty (30) days after written demand by the other party to
perform or comply, said non-performing party shall be deemed to be in default of
its obligations under this Agreement.
8.02 Remedies. In the event such default is not cured within the
--------
applicable cure period (if any), the non-defaulting party shall be entitled to
terminate this Agreement upon ten (10) additional days' written notice if the
default has not been cured within such additional period, and in addition (or in
the alternative) pursue any and all remedies available to it at law or in
equity, including without limitation the remedy of specific performance. 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 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.
8.03 Disputes Resolution.
-------------------
A. Unless any third party or parties providing financing to TCP 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
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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.
(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.
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<PAGE>
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 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 apportioned 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
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<PAGE>
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 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.
ARTICLE IX
MISCELLANEOUS
9.01 Maintenance and Repair; Casualty. Throughout the Term of this
--------------------------------
Agreement, and except as may otherwise be provided under other sections of this
Agreement or in any of the easement agreements referred to herein, TCP and CGI
shall each use their best efforts to keep and maintain in a state of good and
safe condition and repair and in compliance with all applicable laws the lines,
pipes, fixtures, and other facilities located on the Thermo Property (excluding
the Easements and Leased Land) and CGI Property (including the Easements),
respectively, used from time to time in connection with the furnishing of
Services under this Agreement. In the event of damage by fire or other
casualty, TCP shall repair, as expeditiously as practical, damage to such lines,
pipes, fixtures, and other facilities located on the Thermo Property, and CGI
shall repair, as expeditiously as practical, damage to such lines, pipes,
fixtures, and other facilities located on the CGI Property. Under no
circumstances shall either
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<PAGE>
party be in default of its obligations to maintain and repair if such party is
prevented from, or delayed in, making such repairs under the terms of any deed
of trust covering its respective property or other related loan documents.
Nothing in this paragraph 9.01 shall be construed to limit any waivers or
exculpation extended to TCP under paragraph 6.02, above. Further, nothing herein
shall be construed to impose upon TCP or any lender of TCP any obligation to
maintain or repair any lines, pipes, fixtures or other facilities in the event
such lender forecloses or is in the process of foreclosing upon the Thermo
Property or any part thereof, or has exercised any of its other remedies so as
to directly or indirectly control the affairs of TCP, provided that if such
--------
lenders subsequently dispose of TCP as a going concern to any successor person
or entity which continues the operation of the Power Plant then such successor
person or entity shall, if this Agreement shall otherwise be in full force and
effect, be bound by the maintenance and repair obligations of this Section 9.01.
9.02 Regulatory Compliance. In the event that any governmental agency or
---------------------
authority should assert and continue to maintain that performance by TCP of any
of its obligations hereunder is subject to modification or control by such
agency or authority in the exercise of its regulatory jurisdiction, TCP shall
inform CGI promptly and both parties shall cooperate in efforts to obtain a
release from such asserted jurisdiction. If they are unable to do so within
ninety (90) days after such jurisdiction is first asserted, TCP shall have the
continuing right to terminate immediately such portion of this Agreement as is
asserted to be subject to regulatory jurisdiction. If TCP terminates for this
reason, it shall cooperate with CGI's efforts to obtain such services from
public utilities or other third parties reasonably acceptable to CGI, and shall
provide reasonable assistance to CGI in such efforts; provided, however, that
while such cooperation and assistance shall not be construed to require the
granting of any easement, right-of-way, or license with respect to the Thermo
Property, or the Power Plant, TCP shall use all reasonable efforts to support
CGI's efforts to obtain any such easement, right-of-way or license.; provided
that TCP shall have no obligation to perform any actions which would subject it
to additional regulatory control or jurisdiction.
9.03 Force Majeure. Subject to the provisions of Section 9.01 above, the
-------------
obligations of TCP to supply Services hereunder shall be suspended for so long
as TCP is prevented from performing such obligations by an act of God, strike,
fire, flood, explosion, failure to obtain necessary materials or supplies
(including without limitation failure by the City to supply services or
utilities under the Annexation Agreement), equipment failure (provided TCP has
maintained in good faith, consistent and adequate maintenance practices
thereon), or any other similar cause (a "FORCE MAJEURE"). The obligations of
CGI to make payments hereunder with respect to any specific Services shall be
suspended during any period in which such Services are so suspended. The
foregoing notwithstanding, no occurrence or circumstance shall give rise to a
condition of Force Majeure unless such occurrence or circumstance is not
reasonably within the control of and could not, in the exercise of reasonable
diligence, have been avoided by the affected party. Each party shall use its
best efforts to cause all conditions of Force Majeure to be alleviated as soon
as is reasonably possible, 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 the manner and
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at the time which is within the discretion of the party affected thereby.
Further notwithstanding the foregoing, CGI shall at all times use its best
efforts to continue to purchase and receive thermal energy in accordance with
Article IV.
9.04 Annexation Agreement; Compliance with Laws. In addition to its other
------------------------------------------
obligations under this Agreement, CGI shall at all times utilize the water and
wastewater discharge Services in such a manner which will not cause TCP to
violate any terms or conditions of the Annexation Agreement or any applicable
law, permit or rule or regulation of any governmental agency having jurisdiction
over TCP or CGI (each an 'Applicable Law"). In the event CGI's utilization of
the water and wastewater discharge Services causes (or would cause) TCP to
violate any of the terms or conditions of the Annexation Agreement or an
Applicable Law, TCP shall notify CGI, TCP may suspend providing such Services
until such time as the reason for the violation has been alleviated, and CGI
shall indemnify and save TCP harmless from any liabilities and obligations to
the City resulting from such violations. Under such circumstances, CGI assumes
full responsibility to obtain, at its cost, water and wastewater services
directly from the City or other third parties.
9.05 Savings Clause. 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.
9.06 Entire Agreement. This Agreement, together with all Exhibits attached
----------------
hereto, the easement agreements referred to herein, and the contract of sale
pursuant to which Thermo Greeley I, Inc. has sold the CGI Property to CGI,
constitute the entire agreement between the parties hereto and supersede all
prior and contemporaneous agreements, representations and understandings of the
parties, both written and oral, regarding the subject matter of this Agreement.
This Agreement may not be amended nor any rights hereunder waived except by an
instrument in writing signed by the party to be charged with such amendment or
waiver and delivered by such party to the party claiming the benefit of such
amendment or waiver.
9.07 Parties in Interest. This Agreement shall be binding upon, and shall
-------------------
inure to the benefit of, the parties hereto and their respective successors and
assigns, and nothing contained in this Agreement, express or implied, is
intended to confer upon any other person or entity any
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<PAGE>
benefits, rights or remedies. Notwithstanding any provision of this Agreement,
TCP, in connection with a sale of the assets of the Power Plant, or CGI, in
connection with a sale of the assets of the New Greenhouse, or otherwise, may
propose to the other party that this Agreement be terminated, but no such
termination should take place except on mutual agreement of the parties. In
addition TCP may elect to discontinue providing for CGI one or more of the
Services described herein, provided that TCP arranges for the substitute
performance thereof, under substantially the same terms and conditions as set
forth herein, by a third party which is satisfactory to CGI in its discretion,
reasonably exercised. In such event, TCP shall be released from further
liability to CGI for any failure to supply such Services in accordance with this
Agreement. The foregoing provisions respecting the sale of the assets of the
Power Plant shall have no application to any foreclosure upon or subsequent sale
of the Thermo Property or any part thereof by any lender of TCP. In the event
that any lender of TCP exercises any of its other remedies so as to directly or
indirectly control the affairs of TCP and elects to discontinue the operations
of the Power Plant, such lender shall have the right to terminate the Services
being provided under this Agreement upon 90 days' prior written notice to CGI.
No lender of TCP shall have the right to terminate the Easements under this
Agreement other than upon the occurrence of a default by CGI hereunder or under
such Easements and the expiration of any applicable notice and cure period set
forth in Article 8 hereof or therein, or as otherwise provided in the
Nondisturbance Agreement of even date herewith between CGI and the lenders of
TCP.
9.08 References. References made in this Agreement, including the use of
----------
a pronoun, shall be deemed to include where applicable, masculine, feminine,
singular or plural, individuals, partnerships or corporations.
9.09 Language. The language in all parts of this Agreement shall be
--------
construed according to its fair meaning and not strictly for or against TCP or
CGI. The caption of each section is added as a matter of convenience only and
shall be considered of no effect in the construction of any provision of this
Agreement.
9.10 Future Liability. Termination of this Agreement shall not release any
----------------
party hereto from any liability or obligation hereunder resulting from any acts,
omissions or events happening prior to such termination or expiration, or
thereafter in case by the terms of this Agreement it is provided that anything
shall or may have to be done after termination or expiration hereof.
9.11 Relationship. Nothing contained in this Agreement shall be deemed or
------------
construed by the parties or by any third person or court to create the
relationship of principal and agent or of partnership or of joint venture or of
any association between TCP and CGI, and neither the method of computation of
payments nor any other provisions contained in this Agreement nor any acts of
the parties shall be deemed to create any relationship between TCP and CGI other
than the relationship of a provider and user of the Services for the purposes
set forth herein.
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9.12 Counterparts. This Agreement may be executed by the parties in any
------------
number of counterparts, each of which shall be deemed an original instrument but
all of which together shall constitute but one and the same instrument.
9.13 Notices. All notices and communications required or permitted under
-------
this Agreement shall be in writing, and any communication or delivery hereunder
shall be deemed to have been duly made when personally delivered, or if sent by
facsimile or U.S. mail, when received in legible form during normal business
hours, by the party charged with such notice and addressed as set forth below:
If to CGI:
---------
Colorado Greenhouse, Inc.
6811 Weld County Road 31
Ft. Lupton, Colorado 80621
Facsimile No. (303) 857-4049
Attention: Matthew Cook
If to TCP:
---------
Thermo Cogeneration Partnership, L.P.
1735 19th Street, 2nd Floor
Denver, Colorado 80202-1005
Facsimile No.: (303) 294-0691
Attention: James Monroe, III
Either party may, by written notice so delivered to the other party, change the
address or individual to which delivery shall thereafter be made.
9.14 Governing Law. This Agreement and the transactions contemplated
-------------
hereby shall be construed in accordance with, and governed by, the laws of the
State of Colorado.
9.15 Condition Precedent. Anything herein to the contrary notwithstanding,
-------------------
TCP shall have no obligations under this Agreement until this Agreement shall
have been consented to by the holder(s) of any deeds of trust currently
encumbering the TCP Property and the lenders under any loan documents related
thereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement.
THERMO COGENERATION PARTNERSHIP, L.P.,
a Colorado limited partnership
By: Thermo Ft. Lupton, L.P.,
a General Partner
By: Thermo Ft. Lupton I, Inc.,
the General Partner
By: /s/ James Monroe, III
-------------------------
James Monroe, III
President
COLORADO GREENHOUSE, INC.,
a Delaware corporation
By: Edward J. Wetherbee
-----------------------------------
Edward J. Wetherbee
Chief Executive Officer
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<PAGE>
JOINDER
-------
Rocky Mountain and CG acknowledge that certain of this Agreement
provisions relating to the Easements may affect the Existing Greenhouse, the
Rocky Mountain TSA, and the Greenhouse Operation and Management Agreement, and
hereby join in the execution of this Agreement for the purpose of consenting to
such provisions and for the purpose of consenting to (and if necessary,
agreeing to join in) the execution of the easement agreements referred to herein
and in the Contract of Sale between Thermo Greeley I, Inc. and CGI, to the
extent such easements affect the Existing Greenhouse.
ROCKY MOUNTAIN PRODUCE LIMITED
LIABILITY COMPANY
By:/s/ Edward J. Wetherbee
-----------------------------------
Printed name: Edward J. Wetherbee
-------------------------
Title: Management Committee Member
--------------------------------
COLORADO GREENHOUSE LIMITED
LIABILITY COMPANY
By:/s/ Edward J. Wetherbee
-----------------------------------
Printed name: Edward J. Wetherbee
-------------------------
Title: Chief Executive Officer
--------------------------------
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EXHIBIT A
ORDER NUMBER: 96049198 C-7
LEGAL DESCRIPTION
CONSIDERING THE WEST LINE ON THE NW 1/4 OF SECTION 34, TOWNSHIP 2 NORTH,
RANGE 66 WEST, AS BEARING N 00 DEGREES 37 FEET 37 INCHES W ON A BEARING
BASED ON A COLORADO STATE PLANE, NORTH ZONE, MODIFIED COORDINATE GRID AS
SHOWN ON GPS SURVEY CONTROL MAP, FORT LUPTON, COLORADO, DATED MARCH 3,
1993, WITH ALL OTHER BEARINGS BEING RELATIVE THERETO;
THAT PART OF THE NW 1/4 OF SECTION 34, TOWNSHIP 2 NORTH, RANGE 66 WEST OF
THE 6TH P.M., COUNTY OF WELD, STATE OF COLORADO, BEING MORE PARTICULARLY
DESCRIBED AS:
BEGINNING AT THE WEST 1/4 CORNER OF SAID SECTION 34, THENCE N 00 DEGREES 37
FEET 57 INCHES W ON A BEARING BASED ON A COLORADO STATE PLANE, NORTH ZONE,
MODIFIED COORDINATE GRID AND ALONG THE WEST LINE OF SAID NW 1/4 OF SECTION
34 A DISTANCE OF 40.00 FEET; THENCE N 89 DEGREES 25 FEET 58 INCHES E
PARALLEL WITH AND 40.00 FEET NORTHERLY OF THE SOUTH LINE OF SAID NW 1/4 OF
SECTION 34 A DISTANCE OF 1070.65 FEET TO THE TRUE POINT OF BEGINNING;
THENCE N 00 DEGREES 28 FEET 23 INCHES W PARALLEL WITH THE EAST LINE OF SAID
NW 1/4 OF SECTION 34 A DISTANCE OF 1453.44 FEET; THENCE N 89 DEGREES 22
FEET 03 INCHES E PERPENDICULAR TO SAID WEST LINE OF THE NW 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 NW 1/4 OF SECTION 34; THENCE S 00 DEGREES 28 FEET 23
INCHES E PARALLEL WITH AND 777.91 FEET WESTERLY OF SAID EAST LINE OF THE NW
1/4 OF SECTION 34 A DISTANCE OF 1454.35 FEET TO A POINT 40.00 FEET
NORTHERLY OF SAID SOUTH LINE OF THE NW 1/4 OF SECTION 34; THENCE S 89
DEGREES 25 FEET 58 INCHES W PARALLEL WITH SAID SOUTH LINE OF THE NW 1/4 OF
SECTION 34 A DISTANCE OF 801.51 FEET TO THE TRUE POINT OF BEGINNING.
TO BE KNOWN AS:
LOT 1, COLORADO GREENHOUSE ADDITION, CITY OF FORT LUPTON, WELD COUNTY,
COLORADO.
<PAGE>
EXHIBIT B
---------
EASEMENT DEED AND AGREEMENT
---------------------------
THIS EASEMENT DEED AND AGREEMENT (this "Agreement") is made this ___ day of
__________, 1997, by and between THERMO COGENERATION PARTNERSHIP, L.P., a
Colorado limited partnership ("Thermo") and COLORADO GREENHOUSE, INC., a
Delaware corporation ("CGI").
RECITALS
--------
A. Thermo is the owner of certain land (the "Thermo Property") located in
the City of Ft. Lupton, County of Weld and State of Colorado, as more
particularly described on Exhibit A attached hereto and made part hereof, and
---------
of certain buildings and improvements located thereon, including a gas-fired
cogeneration power plant (the "Power Plant").
B. CGI is the owner of certain land (the "CGI Property") consisting of
approximately 26.752 acres of land adjacent to the Thermo Property, as more
particularly described on Exhibit B attached hereto and made part hereof.
---------
CGI intends to construct a 20 acre greenhouse (the "Greenhouse") on the CGI
Property.
C. Pursuant to a Services Supply Agreement (the "Services Supply
Agreement") dated June 10, 1997 between Thermo and CGI, Thermo has agreed to
provide certain utility services to CGI for use in connection with the operation
of the Greenhouse and the parties have agreed in the Services Supply Agreement
to execute and deliver this Agreement.
D. CGI desires to obtain from Thermo and Thermo desires to grant to CGI
certain easements over, on and through the Thermo Property in order for CGI to
construct, operate and maintain [DESCRIBE IMPROVEMENTS] in connection with such
services, on the terms and conditions set forth herein. Capitalized terms not
otherwise defined herein shall have the meanings set forth in the Services
Supply Agreement.
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. Thermo hereby grants, sells, transfers and conveys
-----------------
to CGI a nonexclusive easement (the "General Easement") in and to, over and
across, under and through that strip of real property labeled as Easement
Property (the "Easement Property"), as approximately depicted on Exhibit C
---------
attached hereto and made part hereof, located on the Thermo Property, for the
uses set forth in Section 3.
B-1
<PAGE>
2. Grant of Access Easement. Thermo hereby grants, sells, transfers and
------------------------
conveys to CGI a nonexclusive easement ("Access Easement") across, over and
through the Thermo Property necessary for pedestrian and vehicular access to the
Easement Property and for all purposes necessary in connection with the
construction of [DESCRIBE IMPROVEMENTS] pipelines (the "Improvements") located
within the Easement Property. The location of such Access Easement shall be
proposed by CGI in writing and depicted on a survey delivered to Thermo, and
subject to approval by Thermo, which approval shall not be unreasonably
withheld. After Thermo has approved the location of the Access Easement, Thermo
may request that any such Access Easement be relocated by CGI to a location
specified by Thermo in its reasonable determination. CGI shall not be permitted
to use any Access Easement prior to the determination of the location of such
Access Easement in accordance with the foregoing provisions. Upon request by
Thermo after construction is complete, CGI shall, at CGI's expense, execute and
record a certificate to such effect in the real property records of Weld County,
Colorado.
Terms. a. The term of the General Easement shall commence as of the date
-----
hereof and shall continue until the earlier of (i) termination pursuant to
Section 10 below, or (ii) mutual agreement by the parties.
b. The term of the Access Easement shall commence as of the date
hereof and shall expire upon completion of the construction of the Improvements.
3. Use. The General Easement and Access Easement (together, the
---
"Easements") shall be used for the following uses and purposes:
a. Improvements. The General Easement shall be for the
------------
construction, reconstruction, replacement, repair, maintenance, operation, and
removal of the Improvements, as CGI from time to time may elect.
b. Access. During construction of the Improvements, CGI shall have
------
the right to access the Easement Property across any Access Easement established
pursuant to Section 2 above. The Access Easement shall also be for access for
CGI, and its agents, tenants, subtenants, employees, consultants, contractors
and other licensees and invitees along the full length of the Easement Property.
CGI shall indemnify Thermo for any loss, cost, damage or expense suffered or
incurred by Thermo (including any damage or injury to the Power Plant or the
Thermo Property) or any injury to any person or property resulting from CGI's
use of the Easements other than as contemplated hereunder or in violation of
this Agreement. In the event Thermo reasonably believes that CGI has allowed
any material amounts of Materials of Environmental Concern to be discharged and
transported through the waste water pipeline jointly used by Thermo and CGI (the
"Jointly Used Line") and CGI fails to cease such discharge and transportation
within 48 hours of receiving notice thereof from Thermo, then Thermo shall have
the right to terminate this Agreement insofar as it relates to CGI's rights in
the Jointly Used Line. For purposes of this
B-2
<PAGE>
Section 4 an amount of Materials of Environmental Concern shall be "material" if
as a consequence of such discharge and transportation either CGI or Thermo could
be (i) obligated for any clean-up, (ii) liable for penalties or fines, (iii) in
danger of losing any permit or license, (iv) in breach of any agreement with the
City of Fort Lupton, or (v) otherwise in violation of any applicable
environmental law.
4. Restrictions. 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 notice
to Thermo (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 Thermo Property and the improvements thereon.
Once such construction, maintenance, repair, replacement or reconstruction is
completed, CGI shall restore the affected portion of the Easement Property to as
near its original condition as practicable.
5. Noninterference. Subject to the rights of others under any of the
---------------
Permitted Exceptions (as defined below) and the provisions of Section 8 below,
Thermo shall not have, nor grant any other party, the right to use the Thermo
Property in any manner which would interfere with or obstruct the use of the
General Easement or Access Easement 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 Services
Supply Agreement.
7. Warranties of Thermo. Thermo warrants that, subject only to the
--------------------
exceptions listed on Exhibit D (the "Permitted Exceptions"), Thermo is the fee
---------
simple owner of the Thermo Property free and clear of all liens and
encumbrances, subject only to the Permitted Exceptions. Thermo covenants to
defend the rights granted hereby, subject only to the Permitted Exceptions.
8. 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 and the portion of the Thermo Property covered by the Access Easement
of hazardous or toxic substances, (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 and the portion of the Thermo
Property covered by the Access Easement in any manner or quantity which may
result in any clean-up obligation or liability under any Environmental Law, and
(iii) shall keep the Easement Property and the portion of the Thermo Property
covered by the Access Easement free of any lien imposed pursuant to
Environmental Laws, and shall pay or cause to be paid when due any and all costs
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
B-3
<PAGE>
limitation all damages, liabilities, expenses and costs of all third party
claims). If CGI fails to do any of the foregoing, then to the extent that Thermo
or any lender under the Amended and Restated Construction and Term Loan
Agreement dated February 28, 1995, and their respective partners, shareholders,
directors, officers, agents, employees, successors or assigns sustains any
lability, 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, Thermo and its lenders shall be
held harmless from and against all such liability, loss, cost, damage and
expense. Thermo or its lenders 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.
9. Reservation of Rights. Thermo reserves the right to use and enjoy the
---------------------
Easement Property and the portion of the Thermo Property covered by the Access
Easement; provided that Thermo shall not construct or maintain any structure on
--------
the Easement Property and the portion of the Thermo Property covered by the
Access Easement, or in any manner impair or materially interfere with the
exercise of any of the rights herein granted.
10. Default; Remedies.
-----------------
(a) Should Thermo or CGI fail to perform any covenant or comply with
any condition required to be performed under this Agreement or the Services
Supply Agreement 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.
(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 (10) 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
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.
(c) Upon the expiration or earlier termination of the Services Supply
Agreement, this Agreement shall terminate and the parties hereto shall have no
further rights or
B-4
<PAGE>
obligations hereunder except that (i) CGI shall promptly sever and close off, in
a good and workmanlike manner and in accordance with any applicable laws and
codes, at the property line between the Thermo Property and the CGI Property,
any pipelines that have been installed in the General Easement to provide water,
sewer or gas service to the CGI Property over, across or through the Thermo
Property, and (ii) both parties shall join in executing and recording at CGI's
expense a termination of this Agreement in the real property records of Weld
County, Colorado.
11. 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.
12. 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 Services
Supply Agreement.
13. Amendment. The provisions of this Agreement may be abrogated,
---------
modified, rescinded, or amended in whole or in part only by Thermo and CGI and
their respective successors and assigns by written instrument duly executed and
recorded in the real property records of Weld County, Colorado, upon the prior
written consent of those lenders which are the beneficiaries under that certain
Construction and Term Loan Deed of Trust, Security Agreement and Assignment of
Rents, dated as of April 7, 1993 and recorded in the real property records of
the office of the Clerk and Recorder of Weld County, Colorado, at Reception No.
02328322, as amended to date, executed by Thermo and encumbering the Thermo
Property.
14. 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.
15. Governing Law. The validity and effect of this Agreement shall be
-------------
determined in accordance with the laws of the State of Colorado.
B-5
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement under seal as of the day and year first above written.
Date: ____________ THERMO:
THERMO COGENERATION PARTNERSHIP, L.P.
By: Thermo Ft. Lupton, L.P., a General Partner
By: Thermo Ft. Lupton I, Inc., the General
Partner
By:____________________________________________
James Monroe, III, President
Date: ____________ CGI:
COLORADO GREENHOUSE, INC.
By:___________________________________________________
Name:_________________________________________________
Title:________________________________________________
B-6
<PAGE>
STATE OF COLORADO )
)ss.
CITY AND COUNTY OF DENVER)
The foregoing instrument was acknowledged before me this ____ day of June,
1997 by James Monroe, III, President of Thermo Ft. Lupton I, Inc., the general
partner of Thermo Ft. Lupton, L.P., a General Partner of THERMO COGENERATION
PARTNERSHIP, L.P., on behalf of said partnership.
Witness my hand and official seal.
My commission expires:__________________________.
___________________________________
[SEAL] Notary Public
STATE OF COLORADO )
)ss.
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this ____ day of June,
1997 by Edward J. Wetherbee, Chief Executive of COLORADO GREENHOUSE, INC., on
behalf of said corporation.
Witness my hand and official seal.
My commission expires:__________________________.
___________________________________
[SEAL] Notary Public
B-7
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION: (THERMO PLANT SITE)
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 5TH 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 ROAD 31;
THENCE NORTHERLY ALONG SAID EAST LINE OF WELD COUNTY ROAD 31, THE FOLLOWING 5
COURSES:
NORTH 11 DEGREES 06 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 -659.67 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 OF THE RIGHT.
THENCE ALONG SAID CURVE TO THE RIGHT, HAVING A RADIUS OF 2251.83 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 NE3/4 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 4 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 W1/2 NW1/4 NW1/4 OF SECTION 34;
THENCE NORTH 00 DEGREES 07 MINUTES 47 SECONDS WEST ALONG THE EAST LINE OF SAID
N3/4 W1/2 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 902.38 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.
<PAGE>
EXHIBIT B
Order Number:96049198 C-7
LEGAL DESCRIPTION
CONSIDERING THE WEST LINE OF THE NW 1/4 OF SECTION 34, TOWNSHIP 2 NORTH,
RANGE 66 WEST, AS BEARING N 00 DEGREES 37 FEET 37 INCHES W ON A BEARING
BASED ON A COLORADO STATE PLANE, NORTH ZONE, MODIFIED COORDINATE GRID AS
SHOWN ON GPS SURVEY CONTROL MAP, FORT LUPTON, COLORADO, DATED MARCH 3,
1993, WITH ALL OTHER BEARINGS BEING RELATIVE THERETO;
THAT PART OF THE NW 2/4 OF SECTION 34, TOWNSHIP 2 NORTH, RANGE 66 WEST OF
THE 6TH P.M., COUNTY OF WELD, STATE OF COLORADO, BEING MORE PARTICULARLY
DESCRIBED AS.
BEGINNING AT THE WEST 1/4 CORNER OF SAID SECTION 34, THENCE N 00 DEGREES 37
FEET 57 INCHES W ON A BEARING BASED ON A COLORADO STATE PLANE, NORTH ZONE,
MODIFIED COORDINATE GRID AND ALONG THE WEST LINE OF SAID NW 1/4 OF SECTION
34 A DISTANCE OF 40.00 FEET THENCE N 89 DEGREES 25 FEET 58 INCHES E
PARALLEL WITH AND 40 FEET NORTHERLY OF THE SOUTH LINE OF SAID NW 1/4 OF
SECTION 34 A DISTANCE OF 1070.65 FEET TO THE TRUE POINT OF BEGINNING;
THENCE N 00 DEGREES 28 FEET 23 INCHES N PARALLEL WITH THE EAST LINE OF SAID
NW 1/4 OF SECTION 34 A DISTANCE OF 1453.44 FEET; THENCE N 89 DEGREES 22
FEET 03 INCHES E PERPENDICULAR TO SAID WEST LINE OF THE NW 1/4 OF SAID
SECTION 34 A DISTANCE OF 801.32 FEET TO A POINT 777.91 FEET WESTERLY OF
SAID EAST LINE OF THE NW 1/4 OF SECTION 34; THENCE S 00 DEGREES 28 FEET 23
INCHES E PARALLEL WITH AND 777.91 FEET WESTERLY OF SAID EAST LINE OF THE NW
1/4 OF SECTION 34 A DISTANCE OF 1454.35 FEET TO A POINT 40.00 FEET
NORTHERLY OF SAID SOUTH LINE OF THE NW 1/4 OF SECTION 34, THENCE S 89
DEGREES 24 FEET 58 INCHES W PARALLEL WITH SAID SOUTH LINE OF THE NW 1/4 OF
SAID SECTION 34 A DISTANCE OF 801.51 FEET TO THE TRUE POINT OF BEGINNING.
so be known as:
LOT 1, COLORADO GREENHOUSE ADDITION, CITY OF FORT LUPTON,
WELD COUNTY; COLORADO.
<PAGE>
EXHIBIT C
Easement Property Legal Description
To be determined after completion of the utilities.
<PAGE>
EXHIBIT D
This Policy does not insure against loss or damage by reason of the following:
1. Rights or claims of parties in possession not shown by the public
records.
(Affects Parcels 2 and 3 only)
2. Easements, or claims of easements, not shown by the public records.
(Affects Parcels 2 and 3 only)
3. Discrepancies, conflicts in boundary lines, shortage in area,
encroachments, and any facts which a correct survey and inspection of the
premises would disclose and which are not shown by the public records.
(Affects Parcels 2 and 3 only)
4. Any lien, or right to a lien, for services, later or material theretofore
or hereafter furnished, imposed by law and not shown by the public
records.
5. Taxes due and payable; and any tax, special assessments, charge or lien
imposed for water or sewer service, or for any other special taxing
district. The 1992 General taxes paid, according to tax certificate dated
March 16, 1993.
6. All coal and other minerals within or underlying said lands, the
exclusive right to prospect in and upon said land for coal and other
minerals therein, or which may be supposed to be therein, and to mine for
and remove from said land, all coal and other minerals which may be found
thereon by anyone, the right of ingress, egress and regress upon said
land to prospect for, mine and remove any and all such coal or other
minerals, and the right to use so much of said land as may be convenient
or necessary for the right of way to and from such prospect places or
mines, and for the convenient and proper operation of such prospect
places, mine and for roads and approaches thereto or for removal
therefrom of coal, mineral, machinery or other material, and the right of
said Union Pacific Company to maintain and operate its railroad in its
present form of construction, and to make any changes in the form of
construction or method of operation of said railroad, as reserved by
Union Pacific Railroad Company in Deed recorded June 7, 1901 in Book 183
at Page 231, and any interests therein or rights thereunder.
(Affects NE1/4 Section 33)
7. The Fulton High Line Ditch and any and all rights of way therefore, as
evidenced by instrument filed February 2, 1907 under Reception No.
116647, in which the specific location is not defined.
(Affects NW1/4 and W1/2SW1/4 Section 34)
Page 6
<PAGE>
8. 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)
9. Easement and right of way to construct, operate, maintain, change or remove
electric transmission and/or distribution line, as granted to Public
Service Company of Colorado by Andrew T. Monson, et al, recorded February
17, 1942 in Book 1090 at Page 288, affecting the following described
property:
A strip of land 45 feet in width parallel to and contiguous with the County
Road on the North side of the NE1/4 of Section 33, Township 2 North, Range
66 West
(Affects NE1/4 Section 33)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
10. An easement for the construction, reconstruction, operation and maintenance
of conductors and conduits for the transmission of electricity together
with the rights of ingress and egress as granted to Public Service Company
of Colorado by Anna Monson Wallis, et al, by instrument recorded February
27, 1964 in Book 508 under Reception No. 1430152, described as follows:
Parcel A - The East 17 feet of the E1/2 of Section 33, Township 2 North,
Range 66 West of the 6th P.M. Except parcel conveyed to Public Service
Company of Colorado, recorded in Book 1513 at Page 39.
Parcel B - The West 13 feet of the W1/2 of Section 34, Township 2 North,
Range 66 West of the 6th P.M. Except parcel conveyed to Public Service
Company of Colorado, recorded in Book 1513 at Page 39.
(Affects Parcels 1 and 3)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
11. 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.
Page 7
<PAGE>
Note: Extension of the above lease as claimed by Affidavit of
Production, pursuant to CRS 33-42-106, 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,
1975 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. 1706371, and by W. B.
Macy, 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 23, 1984
in Book 1041 as Reception No. 1979337, and January 29, 1985 in
Book 1056 as Reception No. 1996787.
(Affects Parcels 1 and 3)
12. Easement and right of way for the purpose of laying, constructing,
maintaining, operating, altering, replacing, and removing a pipeline with
necessary fittings, tie-overs, and appliances, for the transmission of
natural gas and all by-products thereof which can be transported through a
pipe line, together with the right of ingress and egress, as granted to
Colorado Interstate Corporation by Mel Anderson, Agent and Attorney in Fact
for Ruth B. Anderson, Martha J. Richardson and George A. Monson, recorded
February 7, 1973 in Book 685 as Reception No. 1606762, affecting the
following described property:
Said right of way and easement herein and hereby granted being 20 feet in
width throughout extending on, over and across the above described lands,
the center line of such right of way and easement being described as
follows:
Beginning at a point on the East property line of the NW1/4 of Section 34-
2N-66W, which point of beginning is a 527.7 feet in a Southerly direction
with and along said East property line from the Northeast corner of said
NW1/4 of Sec. 34; thence with and along the center line of said right of
way and easement 20 feet in width, South 78 degrees 22 minutes West, 2381
feet to a point in said NW1/4 of Sec. 34; thence across said NW1/4 Sec. 34
and NE1/4 of Sec. 33-2N-66W, North 89 degrees 32 minutes West, 992 feet to
a point; thence North 80 degrees 10 minutes West, 2006 feet to the point of
exit on the West property line of the NE1/4 of Sec. 33, which point is
711.8 feet in a Southerly direction with and along said West property line,
from the Northwest corner of said NE1/4 of Sec. 33-2N-66W.
(Affects Plant Site and Parcel 3)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
Page 3
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13. Easement and right of way to lay, construct, maintain, alter, inspect,
repair, replace, change the size of, operate, and remove a pipeline for the
transportation of oil, gas, or other substances therein, together with the
right of ingress and egress, granted to Panhandle Western Gas Company by
Mel Anderson, Agent and Attorney in Fact for Ruth B. Anderson, Martha J.
Richardson and George A. Monson by instrument recorded March 20, 1973 in
Book 687 as Reception No. 1609465.
(Affects NE1/4 Section 33 and SW1/4 Section 34)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
14. Easement and right of way for the purpose of laying, constructing,
maintaining, operating, altering, replacing and removing a pipe line, with
necessary fittings, tie-overs, and appliances for the transmission of
natural gas and all by-products thereof, as granted to Colorado Interstate
Gas Company, a Delaware corporation by Ranchero Development Corporation,
recorded August 23, 1976 in Book 775 as Reception No. 1696810, affecting
the following described property:
Tract 1: Beginning at a point on the East property line of the W1/2 of
Section 34, Township 2 North, Range 66 West, which point of beginning is
558 feet in a Southerly direction with and along said East property line
from the NE corner of said W1/2 of Section 34; thence with and along the
centerline of said right of way and easement, 66 feet in width, South 78
degrees 34 minutes West 2,379 feet to a point; thence North 89 degrees 15
minutes West 327 feet to the point of termination on the West property line
of the W1/2 of Section 34, which point is 1,051 feet in a Southerly
direction with and along said West property line from the NW corner of said
W1/2 Sec. 34-2N-66W.
Tract 2: Beginning at a point on the East property line of the NE1/4 of
Section 33, Township 2 North, Range 66 West, which point of beginning is
1,051 feet in a Southerly direction with and along said East property line
from the NE corner of said NE1/4 of Section 33; thence North 89 degrees 15
minutes West 664 feet to a point; thence North 89 degrees 15 minutes West
664 feet to a point; thence North 79 degrees 51 minutes West 2,007 feet to
the point of exit on the West property line of the E1/2 of Sec. 33-2N-66W,
which point if 730 feet in a Southerly direction with and along said West
property line from the NW corner of said NE1/4 Sec. 33-2N-66W.
(Affects Plant Site and Parcel 3)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
15. 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.
(Affects Parcels 1 and 3)
Page 9
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16. Easement and right of way to construct, maintain, lower, inspect, repair,
replace, operate and remove an underground pipe line and all appurtenances
necessary for the maintenance and operation of said line and for the
transportation of oil, natural gas and related substances, as granted to
Panhandle Eastern Pipe Line Company, a Delaware Corporation by Ranchero
Development Corporation, a Colorado Corporation, recorded May 25, 1977 in
Book 798 as Reception No. 1720098, affecting the following described
property:
That part of the E1/2 of the NE1/4 of Section 33, and that part of the
NW1/4 of Section 34, Township 2 North, Range 66 West, Weld County,
Colorado, more particularly described as a strip of land 50.00 feet in
width, the centerline of which is described as follows:
Beginning at a point on the East line of said NW1/4 of said Section 34,
said point being South 00 degrees 08 minutes 46 seconds West on an assumed
bearing a distance of 575.53 feet from the Northeast corner of said NW1/4;
thence South 77 degrees 38 minutes 58 seconds West for a distance or
2371.22 feet to a point; thence South 89 degrees 43 minutes 31 seconds West
for a distance of 339.50 feet to a point on the West line of said NW1/4 of
said Section 34, which is also the East line of said E1/2 of said NE1/4 of
said Section 33, said point being South 00 degrees 00 minutes 00 seconds
West a distance of 1071.55 feet from the Northeast corner of said E1/2,
thence continuing South 89 degrees 43 minutes 31 seconds West for a
distance of 674.70 feet to the end of line.
(Affects Plant Site and Parcel 3)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
17. Easement and right of way for the purpose of laying, constructing,
maintaining, operating, altering, replacing and removing two pipelines with
necessary fittings, tie-overs and appliances for the transmission of
natural gas and all by-products thereof, as granted to Colorado Interstate
Gas Company, a Delaware corporation by Ranchero Development Corporation,
recorded July 22, 1977 in Book 803 as Reception No. 1725230, affecting the
following described property:
Tract 1: Beginning at a point on the East property line of the W1/2 of
Section 34, Township 2 North, Range 66 West, which point of beginning is
551.9 feet in a Southerly direction with and along said East property line
from the NE corner of said W1/2 of Section 34; thence with and along the
centerline of said right of way and easement, 66 feet in width, South 78
degrees, 34 minutes West 2,377 feet to a point; thence North 89 degrees, 15
minutes West 326 feet to the point of termination on the West property line
of the W1/2 of Section 34, which point is 1,044.9 feet in a Southerly
direction with and along said West property line from the NW corner of said
W1/2 of Section 34-2N-66W.
Page 10
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Tract 2: Beginning at a point on the East property line of the NE1/4 of
Section 33, Township 2 North, Range 66 West, which point of beginning is
1,044.9 feet in a Southerly direction with and along said East property
line from the NE corner of said NE1/4 of Section 33; thence with and along
the centerline of said right of way and easement, 66 feet in width, North
89 degrees 15 minutes West 666 feet to a point; thence North 79 degrees 51
minutes West 2,006 feet to the point of exit on the West property line of
said NE1/4 of Section 33, which point is 715.2 feet in a Southerly
direction with and along said West property line from the NW corner of said
NE1/4 of Section 33-2N-66W.
(Affects Plant Site and Parcel 3)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
18. Terms, agreements, provisions, conditions, obligations and easements as
contained in Surface Owner's Agreement by and between Ranchero Development
Corp., a Colorado Corporation, Ruth B. Anderson, Martha J. Richardson,
Evelyn B. Monson and George A. Monson, Jr., as Co-Trustees under that
certain Revocable Trust Agreement of George A. Monson and Evelyn B. Monson,
and Champlin Petroleum Company recorded January 8, 1979 in Book 856 as
Reception No. 1777972
(Affects NE1/4 Section 33)
19. Terms, agreements, provisions and conditions 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.
(Affects Parcels 1 and 3)
Page 11
<PAGE>
20. Easement and right of way to install, construct, maintain, alter, repair,
replace, reconstruct, operate and remove pipelines and related
appurtenances, fixtures or devises for the transportation of gas or oil, as
granted to Western Slope Gas Company, a Colorado corporation by Rennoc
Corporation, recorded June 13, 1983 in Book 999 as Reception No. 1930090,
affecting the following described property:
An easement 50 feet in width lying in a portion of the N1/2NE1/4 of Section
33 and the NW1/4NW1/4 of Section 34, Township 2 North, Range 66 West of the
6th P.M., being more particularly described as follows: Commencing at the
Northwest corner of said Section 34, thence South 62 degrees 30 minutes 21
seconds East, 402.94 feet; thence South 00 degrees 13 minutes 39 seconds
East, 71.05 feet to the True Point of Beginning; thence continuing South 00
degrees 13 minutes 39 seconds East, 747.04 feet; thence South 89 degrees 41
minutes 18 seconds West, 1017.30 feet; thence North 80 degrees 57 minutes
55 seconds West 1707.28 feet; thence South 09 degrees 02 minutes 05 seconds
West 381.78 feet; thence South 51 degrees 23 minutes 02 seconds West,
300.00 feet to a point of terminus on the Westerly property line.
(Affects Plant Site)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
21. Easement and right of way to install, construct, maintain, alter, repair,
replace, reconstruct, operate and remove pipelines and related
appurtenances, fixtures or devices for the transportation of gas or oil, as
granted to Western Slope Gas Company by Rennoc Corporation, recorded March
16, 1984 in Book 1023 as Reception No. 1959498, affecting the following
described property:
An easement 25 feet in width, the center line (pipeline) of the easement is
described as follows, to-wit:
An easement lying in a portion of the N1/2NE1/4 of Section 33 and the
NW1/4NW1/4 of Section 34, Township 2 North, Range 66 West of the 6th P.M.,
being more particularly described as follows: Assuming the bearing of the
North line of said Section 34 to be North 89 degrees 31 minutes 50 seconds
East and all other bearings to be relative thereto; Commencing at the
Northwest corner of said Section 34; thence South 62 degrees 02 minutes 10
seconds East, 398.06 feet; thence South 01 degrees 05 minutes 33 seconds
East, 70.04 feet, to the True Point of Beginning on the Northerly Property
line, thence continuing South 01 degrees 05 minutes 33 seconds East, 35.21
feet; thence South 00 degrees 13 minutes 39 seconds East, 710.58 feet to a
point approximately 20 feet North of the Colorado Interstate Gas Company
Spindle Lateral 6 inch pipeline; thence South 89 degrees 41 minutes 18
minutes West, 1043.18 feet, parallel with and adjacent to the C.I.G.
easement; thence continuing, parallel with and adjacent to the C.I.G.
easement, North 80 degrees 55 minutes 56 seconds West, 1672.49
Page 12
<PAGE>
feet; thence South 08 degrees 45 minutes 09 seconds West, 295.87 feet,
across C.I.G's existing 6" and 8" pipelines; thence South 11 degrees 59
minutes 19 seconds West, 65.24 feet; thence South 49 degrees 58 minutes 43
seconds West, 293.67 feet, across the Fulton Canal; thence South 88 degrees
36 minutes 11 seconds West, 16.16 feet, to a point of Terminus on the
Westerly property line.
(Affects Plant Site)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
22. Easement and right of way to construct, reconstruct, operate, maintain and
remove such telecommunications facilities from time to time, as granted to
U S West Communications Inc., a Colorado Corporation by Thermo Carbonic
Inc., recorded July 28, 1992 in Book 1345 as Reception No. 02297470,
affecting the following described property:
A tract of land 8 feet wide in the NE1/4 Section 33, Township 2 North,
Range 66 West of the 6th P.M., Weld County, Colorado, the center line of
said 8 foot wide tract of land is described as follows: From the Northeast
corner of said Section 33; thence South 87 degrees 38 minutes 16 seconds
West 870.15 feet to the Point of Beginning, said point being 4 feet, more
or less, East of the East right of way line of Weld County Road 31; thence
South 00 degrees 04 minutes 09 seconds East 406.69 feet; thence
Southeasterly on a curve to the left, said curve having a radius of 2257.83
feet, a central angle of 17 degrees 26 minutes 00 seconds and an arc length
of 686.99 feet to the Point of Terminus.
(Affects Plant Site)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
23. Easement and right of way to construct, reconstruct, operate, maintain and
remove such telecommunications facilities from time to time, as granted to
U S West Communications Inc., a Colorado Corporation by Thermo Carbonic
Inc., recorded October 1, 1992 in Book 1352 as Reception No. 02305316,
affecting the following described property:
A tract of land 8 feet wide in the NE1/4 Section 33, Township 2 North,
Range 66 West of the 6th P.M., Weld County, Colorado, the centerline of
said 8 foot wide tract of land is described as follows: From the Northeast
corner of said Section 33; thence South 87 degrees 38 minutes 16 seconds
West 870.15 feet to the Point of Beginning; said point being 4 feet, more
or less, East of the East right of way line of Weld County Road 31; thence
South 00 degrees 04 minutes 09 seconds East 406.69 feet; thence
Southeasterly on a curve to the left, said curve having a radius of 2257.83
feet, a central angle of 17 degrees 26 minutes 00 seconds and an arc length
of 686.99 feet to the Point of Terminus
(Affects Plant Site)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
Page 13
<PAGE>
24. 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.
NOTE: Assignment of Annexation Agreement from Rennoc Corporation, a
Colorado Corporation and Thermo Carbonic, Inc., a Colorado
Corporation to Thermo Cogeneration Partnership, a Colorado
general partnership, recorded April 9, 1993 in Book 1377 as
Reception No. 02328317.
NOTE: Release recorded April 9, 1993 in Book 1377 as Reception No.
02328318.
NOTE: Assignment of Annexation Agreement from Thermo Cogeneration
Partnership, a Colorado general partnership to Thermo
Cogeneration Partnership, L. P., a Delaware limited partnership,
recorded April 9, 1993 in Book 1377 as Reception No. 02328319.
(Affects Parcels 1 and 3)
25. Terms, agreements, provisions, conditions and obligations as contained in
Easement by and between Public Service Company of Colorado, a Colorado
corporation and Thermo Cogeneration Partnership, a Colorado general
partnership recorded March 2, 1993 in Book 1372 as Reception No. 02323677.
NOTE: Notice of Assignment recorded April 13, 1993 in Book 1378 as
Reception No. 02323780.
(Affects Parcel 2)
26. Easement and right of way for a perpetual easement for the transmission and
distribution of electricity, as granted to Public Service Company of
Colorado, a Colorado Corporation by Thermo Cogeneration Partnership, a
Colorado General Partnership, recorded February 19, 1993 in Book 1371 as
Reception No. 02322325, affecting the following described property:
A parcel of land located in the N3/4 of the E1/2 of the W1/2 of the NW1/4
of the NW1/4 of Section 34, Township 2 North, Range 66 West of the 6th
P.M., being more particularly described as follows: Commencing at the
Northwest corner of said Section 34, whence the North quarter corner of
said Section 34 bears North 89 degrees 07 minutes 11 seconds East a
distance of 2657.40 feet; thence North 89 degrees 07 minutes 11 seconds
East along the Northerly line of said NW1/4 of Section 34 a distance of
332.18 feet; thence South 00 degrees 36 minutes 54 seconds East along the
Westerly line of said
Page 14
<PAGE>
E1/2 of the W1/2 of the NW1/4 of the NW1/4 of Section 34 a distance of
260.00 feet to the Point of Beginning; thence North 89 degrees 07 minutes
11 seconds East along a line 260.00 feet Southerly of and parallel with the
Northerly line of said NW1/4 of Section 34 a distance of 125.00 feet;
thence South 00 degrees 36 minutes 54 seconds East along a line parallel
with and 125.00 feet Easterly of said Westerly line of the E1/2 of the W1/2
of the NW1/4 of the NW1/4 of Section 34 a distance of 734.90 feet; thence
South 89 degrees 14 minutes 09 seconds West along the Southerly line of
said N3/4 of the E1/2 of the W1/2 of the NW1/4 of the NW1/4 of Section 34 a
distance of 125.00 feet; thence North 00 degrees 36 minutes 54 seconds West
along the Westerly line of said E1/2 of the W1/2 of the NW1/4 of the NW1/4
of Section 34, a distance of 734.65 feet to the Point of Beginning;
(Affects Plant Site)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
27. Easement and right of way for the transmission and distribution of
electricity, as granted to Public Service Company of Colorado, a Colorado
corporation by Thermo Cogeneration Partnership, a Colorado general
partnership, recorded February 19, 1993 in Book 1371 as Reception No.
02322324, affecting the following described property:
A parcel of land located in the NE1/4 of Section 33 and the NW1/4 of
Section 34, in Township 2 North, Range 66 West of the 6th P.M., County of
Weld, State of Colorado, more particularly described as follows: Commencing
at the NE corner of said Section 33; thence South 0 degrees 38 minutes 05
seconds East, along the East line of said NE1/4 Section 33, a distance of
1377.87 feet to a point; thence South 89 degrees 09 minutes 37 seconds
West, and parallel to the North line of said NE1/4 section 33, a distance
of 80.41 feet to the True Point of Beginning; thence North 0 degrees 37
minutes 13 seconds West a distance of 57.80 feet to a point; thence North
59 degrees 15 minutes 51 seconds East a distance of 92.93 feet to a point
on the East line of said NE1/4 Section 33; thence continuing North 59
degrees 15 minutes 51 seconds East a distance of 106.49 feet to a point;
thence North 0 degrees 37 minutes 12 seconds West, a distance of 226.57
feet to a point on the South property line of the existing Ft. Lupton
Substation, as recorded with the Weld County Clerk and Recorder in Book
1513, Page 39, Reception No. 1286668; thence North 89 degrees 14 minutes 09
seconds East, along the South line of said Fort Lupton Sub property, a
distance of 100.00 feet to a point; thence South 0 degrees 37 minutes 13
seconds East a distance of 284.43 feet to a point; thence South 59 degrees
15 minutes 51 seconds West a distance of 222.06 feet to a point on the East
line of said Section 33; thence continuing South 59 degrees 15 minutes 51
seconds West a distance of 92.96 feet to a point; thence North 0 degrees 37
minutes 13 seconds West a distance of 57.80 feet to the Point of Beginning.
Page 15
<PAGE>
(Affects Plant Site)
As shown on Survey by Alpha Engineering Co. dated April 7, 1993.
28. Matters of survey as shown on ALTA/ACSM Land Title Survey Plat by Alpha
Engineering date of certification April 7, 1993, File No. 34-2N6-10,
including the following:
A. Weather Observation Tower, guy wire, anchors, underground electric
service line and access road.
B. Union Pacific Resources Oil Well #2 Ranchero 41-33 Lease Spindle Field
Well, oil well anchors, underground electric service line and access road.
C. 3" Fiberglass Flow Line.
D. Underground electric service lines, and overhead electric lines.
E. United Power Electric Transformer Pedestal, temporary breaker box
panels, underground electric service line to building, transformer and
breaker box panels, and underground telephone line and service line to
building.
F. 4" Gas Panhandle Eastern Pipe Line which is not described in
easements of record, which is shown on the survey described above as
running from a point Southerly of the Southwest corner of the Public
Service Company substation, as shown on said survey, in a slightly
Southwesterly direction to the Westerly boundary of the subject
property.
G. Narco Erica No. 1 Gas Well, and dirt lease road thereto.
H. Electric Transmission easement as contained in instrument recorded
February 19, 1993 in Book 1371 as Reception No. 02322324, which lies
within the area contained in the 8 foot high chain link fence.
I. 6" Gas, Westgas Pipeline, over Parcel 2 only.
J. Weld County Road 16 over the Northerly 30 feet of Parcel 2 only.
(Affects Parcel 1 and 2)
29. All oil and gas and other minerals in, on, or under the above described
land, provided, however, that no portions of the above described land shall
be used by the grantors, their heirs, assigns or legal representatives for
the purpose of prospecting for, drilling for mining or recovery of any such
oil, gas and other mineral, oil, gas or other mineral will not be removed
to such an extent to undermine or disturb any structures which may be
erected on the above described property as reserved by George A. Monson,
Martha M. Richardson, Ruth D. Anderson also known as Ruth D. Anderson and
Anna Monson Wallis in the deed recorded September 16, 1958 in Book 1513 at
Page 39, and any interests therein or rights thereunder.
(Affects Parcel 2
Page 16
<PAGE>
30. Oil and gas lease between Public Service Company of Colorado and Machii-
Ross Petroleum Company dated June 14, 1971, recorded July 19, 1971 in Book
650 as Reception No. 1571805, and any interests therein or rights
thereunder.
NOTE: Correction of Oil and Gas Lease recorded February 24, 1978 in
Book 760 as Reception No. 1681927.
Note: Extension of the above lease as claimed by Affidavit of
Production, pursuant to CRS 38-42-106, by Paul H. Mershon, Jr.
recorded November 15, 1976 in Book 782 as Reception No. 1703543
and recorded December 23, 1976 in Book 785 as Reception No.
1706871 and by W. B. Macey and Mershon, Inc., recorded January
29, 1985 in Book 1056 as Reception No. 1996787.
(Affects Parcel 2)
31. Covenants, Conditions, Restrictions, which do not contain a forfeiture or
reverter clause, but omitting restrictions, if any based on race, color,
religion, or national origin as contained in instrument recorded March 30,
1993 in Book 1375 as Reception No. 02326942, and any and all amendments and
supplements thereto.
(Affects Parcel 1)
32. Reservation of right of way for any ditches or canals constructed by
authority of the United States, in U.S. Patent recorded July 12, 1917 in
Book 333 at Page 109.
(Affects Parcel 3)
Page 17
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33. Easement and right of way to construct, maintain, lower, inspect, repair,
replace, operate and remove an underground pipe line and all appurtenances
necessary for the maintenance and operation of said line and for the
transportation of oil, natural gas, and related substances, as granted to
Panhandle Eastern Pipe Line Company, a Delaware Corporation by Ranchero
Development Corporation and Mel Anderson, Attorney in Fact for Ruth B.
Anderson and Martha J. Richardson and Evelyn B. Monson and George A.
Monson, Jr. as Trustees under that certain Revocable Trust Agreement of
George A. Monson and Evelyn B. Monson dated September 21, 1967, recorded
December 5, 1974 in Book 728 as Reception No. 1649761, affecting the
following described property:
That part of the SW1/4 of Section 34, S1/2 of Section 33, and S1/2 of SE1/4
of Section 32, Township 2 North, Range 66 West, Weld County, Colorado, more
particularly described as a strip of land 50.00 feet in width, the
centerline of which is described as follows: Beginning at a point on the
East line of said SW1/4 of said Section 34; said point being North along
said East line a distance of 65.00 feet from the Southeast corner of said
SW1/4; thence turning a Southwesterly angle of 75 degrees 25 minutes 42
seconds to said East line and running for a distance of 38.64 feet to a
point; thence turning an angle to the right of 15 degrees 00 minutes 00
seconds and running 55.00 feet parallel to the South line of said SW1/4 for
a distance of 2607.73 feet to a point on the West line of said SW1/4 of
Section 34 which is also the East line of said S1/2 of Section 33, said
point being North along said West line a distance of 55.00 feet from the
Southwest corner of said SW1/4; thence turning an angle to the right of 00
degrees 06 minutes 26 seconds and running 55.00 feet parallel to the South
line of said S1/2 for a distance of 2642.95 feet to a point; thence turning
an angle to the left of 00 degrees 26 minutes 30 seconds and running 55.00
feet parallel to said South line for distance of 2644.64 feet to a point on
the West line of said S1/2 of said Section 33, which is also the East line
of said S1/2 of SE1/4 of Section 32, said point being North along said East
line a distance of 55.00 feet; thence turning an angle to the right of 00
degrees 07 minutes 55 seconds and continuing 55.00 feet parallel to the
South line of said S1/2 of the SE1/4 for a distance of 100.00 feet to the
end of the line.
(Affects Parcel 3)
Page 18
<PAGE>
34. Easement and right of way to construct, maintain, lower, inspect, repair,
replace, operate, and remove an underground pipe line and all appurtenances
necessary for the maintenance and operation of said line and for the
transportation of oil, natural gas, and related substances, as granted to
Panhandle Eastern Pipe Line Company, a Delaware Corporation by Rennoc
Corporation, a Colorado Corporation, in the instrument recorded May 14,
1982 in Book 967 as Reception No. 1891623, the location of which is shown
in the map attached to said instrument.
(Affects Parcel 3)
35. Easement and right of way to construct, maintain, inspect, operate,
replace, change one or more underground electric line (3), padmounted
transformer bank and electrical meters, as granted to Macey & Mershon Oil
Inc. by Rennoc Corporation, recorded December 10, 1984 in Book 1052 as
Reception No. 01991536, affecting the following described property:
The right-of-way will be that portion of the E1/2 of the W1/2 of Section
34, Township 2 North, Range 66 West, 6th P.M: 15 feet in width on the West
side of the existing lease road. Said lease road beginning on the Southerly
boundary of Section 34 approximately 1980 feet East of the Southwest corner
of said section and then proceeding North a distance of 4320 feet and then
turning West a distance of 330 feet
(Affects Parcel 3)
36. Easement and right of way to construct, maintain, inspect, operate,
replace, change or remove one steel pipeline, as granted to Amoco
Production Company, a Delaware Corporation by Rennoc Corporation, recorded
June 17, 1985 in Book 1073 as Reception No. 02013588, affecting the
following described property:
A 50 foot construction R-O-W and a 18 foot permanent R-O-W whose center
line is for a pipeline located in Section 34, T.2N., R.66W., of the 6th
P.M., County of Weld, State of Colorado, more particularly described as:
Beginning at the S1/4 corner Section 34, thence North 87 degrees 25 minutes
10 seconds West 755.16 feet of the True Point of Beginning, thence East
70.7 feet, thence North 02 degrees 44 minutes East 490.0 feet, thence North
10 degrees 35 minutes West 290.5 feet, thence North 00 degrees 11 minutes
West 1009.0 feet, thence North 12 degrees 44 minutes East 233.6 feet,
thence North 17 degrees 29 minutes West 188.3 feet, thence North 00 degrees
35 minutes East 601.5 feet, thence North 07 degrees 20 minutes East 341.6
feet, thence North 08 degrees 42 minutes West 360.6 feet, thence North 00
degrees 11 minutes East 867.5 feet, thence North 89 degrees 32 minutes West
205.4 feet to end of line.
(Affects Parcel 3)
Page 19
<PAGE>
37. Easement and right of way for the purpose of laying, constructing,
maintaining, operating, repairing, replacing and removing pipeline (with
fittings, tie-overs, cathodic protection equipment, all appliances
appurtenant thereto) for the transportation of oil, gas, or any other
liquids or substances, as granted to Macey & Mershon Oil Inc., a New Mexico
Corporation by Rennoc Corporation, a Colorado Corporation, in the
instrument recorded March 9, 1988 in Book 1187 as Reception No. 02133432,
the location of which is shown in the map attached to said instrument.
(Affects NE1/4SW1/4 Section 34 of Parcel 3)
38. Mortgage and Deed of Trust from Public Service Company of Colorado, a
Colorado Corporation to Morgan Guaranty Trust Company of New York formerly
Guaranty Trust Company of New York, to secure First Mortgage Bonds from
time to time issued, dated December 1, 1939, recorded December 1, 1939 in
Book 1053 at Page 272, and any and all supplements thereto.
(Affects Parcel 2)
39. Terms and Conditions which contain leases and options to purchase as
contained in Thermo Supply Lease Agreement between Thermo Cogeneration
Partnership, a Colorado General Partnership and Rocky Mountain Produce
Limited Liability Company, as disclosed to Transamerica Title Insurance
Company.
NOTE: Subordination Non-disturbance and Attornment Agreement recorded
April 9, 1993 in Book 1377 as Reception No. 02328326.
40. Construction and Term Loan Deed of Trust, Security Agreement and Assignment
of Rents from Thermo Cogeneration Partnership, L.P., a Delaware limited
partnership to the Public Trustee of the County of Weld for the use of The
Prudential Insurance Company of America, as lead agent for the Security
Parties to secure $202,000,000.00 dated April 7, 1993, recorded April 9,
1993 in Book 1377 as Reception No. 02328322.
41. Security interest under the Uniform Commercial Code affecting the subject
property, notice of which is given by Financing Statement from Thermo
Cogeneration Partnership, L.P., debtor(s), to The Prudential Insurance
Company of America, as Lead Agent, secured party, recorded April 9, 1993 in
Book 1377 as Reception No. 02328323 and filed April 9, 1993 as Filing No.
U0250958.
42. Terms, provisions, and easements as contained in Surface Use Agreement
between Thermo Cogeneration Partnership, L.P., a Delaware limited
partnership and Amoco Production Company, a Delaware corporation recorded
April 9, 1993 in Book 1377 as Reception No. 02328329.
(Affects Plant Site)
Page 20
<PAGE>
43. Terms, provisions, and easements as contained in Surface Use Agreement
between Thermo Cogeneration Partnership, L.P., a Delaware limited
partnership and Basin Exploration, Inc., a Colorado corporation, recorded
April 9, 1993, in Book 1377 as Reception No. 02328330.
(Affects Plant Site)
44. Terms, provisions, easements and costs as contained in Agreement (Coalbed
Methane Gas) between Union Pacific Land Resources Corporation and Thermo
Cogeneration Partnership, L.P., a Delaware limited partnership recorded
April 9, 1993 in Book 1377 as Reception No. 02328335.
(Affects Plant Site)
45. Terms, provisions, easements and costs as contained in Agreement (Oil, Gas
and Associated Liquid Hydrocarbons) between Union Pacific Resources
Company and Thermo Cogeneration Partnership, L.P., a Delaware limited
partnership recorded April 9, 1993 in Book 1377 as Reception No. 02328336.
(Affects Plant Site)
46. Terms, provisions and charges as provided in lease agreement as evidenced
by Memorandum of Lease Agreement between Rock Springs Royalty Company, a
Utah corporation and Thermo Cogeneration Partnership, L.P., a Delaware
limited partnership recorded April 9, 1993 in Book 1377 as Reception No.
02328337.
(Affects Plant Site)
47. Terms and provisions as contained in Nondisturbance Agreement between
Thermo Cogeneration Partnership, L.P., a Delaware limited partnership,
David C. Conner, Kurt W. Conner and Nancy S. Keeth recorded April 9, 1993
in Book 1377 as Reception No. 02328338.
(Affects Greenhouse Site)
Page 21
<PAGE>
SCHEDULE 2.02
-------------
GREENHOUSE WASTEWATER DISCHARGE QUANTITIES
------------------------------------------
(Existing Greenhouse and New Greenhouse Combined)
Maximum Wastewater Discharge/1//
-------------------------------
<TABLE>
<CAPTION>
Gal./Month Gal./Day Avg. gpm
---------- -------- --------
<S> <C> <C> <C>
January 688,890 22,222 15
February 800,001 25,806 18
March 1,180,953 38,095 26
April 1,333,332 43,011 30
May 1,586,604 51,181 36
June 1,714,287 55,300 38
July 1,714,428 57,143 40
August 1,771,428 57,143 40
September 1,333,332 43,011 30
October 984,126 31,746 22
November 761,904 24,578 17
December 688,890 22,222 15
---------
14,615,175
</TABLE>
/1// Maximums stated at 150% of expected discharge.
-
S-1
<PAGE>
<TABLE>
<CAPTION>
FILE ????? -10?? THERMO COGENERATION PARTNERSHIP GAS USE AND TRANSPORTATION SUMMARY
OCTOBER 199?
05-JUN-97
PAGE 1 OF 2
- -------------------------------------------------------------------------------------------------------------------
NOMINATED RECEIPT ESTIMATED
SUPPLY VOLUME PRICE # OF DAYS VOLUME POINT TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RANGE FIXED 3,000 $2.097 31 93.000 ANGI $189,441.00
INDEX 10,084 $1.300 31 311.985 ANGI $405,581.00
ADDITIONAL #1 2,000 $1.400 31 62,000 CIG $ 86,835.00
ADDITIONAL #2 3,000 $2.160 2 6,000 CIG(EDE) $ 13,080.00
ADDITIONAL #3 6,000 $2.120 1 6,000 CIG $ 12,720.00
VESSELS FINED 3,619 $2.149 31 116,392 VOG-CIG $254,341.00
FIXED [ADDITIONAL] 1,503 $2.149 0 12,000 VOG-CIG $ 25,779.50
WGR ADDITIONAL #1 5,000 $2.100 1 5,000 CIG(WAT) $ 10,500.00
ADDITIONAL #2 5,000 $2.100 5 25,000 PSCo(EDE) $ 52,508.00
ADDITIONAL #1 2,000 $1.330 31 62,000 CIG(BER) $ 62,450.00
PATINA ADDITIONAL #2 2,000 $1.330 8 16,000 CIG(ROG) $ 21,260.00
ADDITIONAL #2a 2,000 $1.500 2 4,000 CIG(ROG) $ 8,000.00
ADDITIONAL #2b 2,000 $1.700 6 12,000 CIG(ROG) $ 20,400.00
ADDITIONAL #2c 2,000 $1.770 1 2,000 CIG(ROG) $ 3,540.00
ADDITIONAL #2d 2,000 $1.660 4 6,000 CIG(ROG) $ 14,800.00
H.S RESOURCES ADDITIONAL #1 3,000 $1.430 31 93.000 CIG(MEW) $132,990.00
ADDITIONAL #2 3,744 $1.420 5 18,720 PSCo(WAT) $ 28,769.60
COASTAL GAS ADDITIONAL #1 2,722 $1.820 21 57,160 CIG(???) $104,031.20
KN ENERGY ADDITIONAL #1 5,000 $1.488 7 6,000 PSCo(WAT) $ 51,600.00
ADDITIONAL #2 5,000 $1.550 1 5,000 CIG(WAT) $ 4,650.00
ADDITIONAL #3 5,000 $1.550 5 15,000 PSCo(WAT) $ 23,250.00
ADDITIONAL #4 5,000 $1.700 4 20,000 PSCo(WAT) $ 34,000.00
AMOCO ADDITIONAL #1 5,000 $1.350 31 165,000 PSCo(WAT) $289,250.00
ADDITIONAL #2 1,500 $1.810 5 7,500 PSCo(WAT) $ 13,575.00
ADDITIONAL #3 1,500 $1.090 7 10,500 PSCo(WAT) $ 17,745.00
4,000 $2.000 6 24,000 CIG ($ 52,600.00) INVOICED
(24,000)
EMRON (SALES) 4,000 $2.450 2 8,000 CIG ($ 10,600.00) INVOICED
(8,000)
ENERGY STAMP PAYMENT 217,000 $0.0700 0 0 SWAP ($ 15,190.00)
(OCTOBER)
TOTAL 1,15?,250
ESTIMATED 25% FUEL-??? (26,956)
TOTAL 1,129,892 $1,729,684.73
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------
OCTOBER 1996
SALES
EXCESS SUPPLY $0
AMOCO $130,514
PROJ RESERVES $ 13,123
- ------------------------------------------
TOTAL SALES $143,636
==========================================
PURCHASES:
PLANT $1,729,695
AMOCO $ 177,285
PROJ REVENUES $ 17,301
- ------------------------------------------
TOTAL PURCHASES: $1,924,280
- ------------------------------------------
MAKEUP (TAKE OR PAY)
==========================================
TRANSPORATION &
STORAGE $ 96,807
==========================================
TOTAL FUEL COST
PURCH & MAKEUP $1,877,452
I & S {SALES}
==========================================
BUST OF FUEL
($ PER MMBTU) $ 1.562
==========================================
<PAGE>
EXHIBIT 10.20
GREENHOUSE LEASE AGREEMENT
THIS GREENHOUSE LEASE AGREEMENT is made and entered into as of the 15th day of
April, 1993, by and between AMERICAN ATLAS #1, LTD., a Colorado limited
partnership ("AA #1") hereinafter referred to as "Landlord" and WOLF CREEK RIFLE
LIMITED LIABILITY COMPANY, a Colorado limited liability company, hereinafter
referred to as "Tenant."
Recitals
--------
A. Landlord operates the American Atlas No. 1 Cogeneration Project in
Garfield County, Colorado (the "Project"). Approximately twelve (12) acres of
greenhouse and warehouse space (the "Greenhouse") is part of the Project.
B. Tenant is in the business of operating greenhouses associated with
cogeneration projects. The parties now desire set forth their agreement pursuant
to which Tenant will lease and operate the Greenhouse.
C. Both A.A.#1 and Tenant acknowledge the obligations owed to, and the
rights of Westinghouse Credit Corporation ("WIC") as described in, without
limitation, that certain Restructured Participation Agreement ("Participation
Agreement) , dated as of January 1, 1993, by and between AA#1 and WCC, that
certain Facility and Site Lease ("Facility and Site Lease") , dated as of
January 1, 1993, by and between AA #1 and WCC, and all Financing and Related
Documents therein referenced, incorporated and/or described (collectively the
"WCC" Lease Documents").
Agreement
---------
1. Premises. Landlord hereby leases to Tenant and Tenant leases from
----------
Landlord for the term, at the rental and upon all the conditions set forth
herein, all that certain real property located in the County of Garfield, State
of Colorado, more particularly described on Exhibit "All (the "Premises" and/or
"Leased Premises") attached hereto and made a part hereof. Said real property,
including the land, structures buildings and all appurtenances, hereditaments,
and easements thereon together with all equipment located thereon and more
particularly described, on Exhibit "B" attached hereto and in the WCC Lease
Documents are herein called the: "Leased Property."
Subject to and limited by the WCC Lease Documents, Landlord warrants
that it and no other person or corporation has the right to lease the Leased
Property herein demised, and that so long as Tenant is not in default hereunder,
Tenant shall have peaceful and quiet use and possession of the Leased Property,
subject to all matters of record or other agreements to which this Lease is or
hereafter may be subordinated.
<PAGE>
The Leased Property shall consist of the Greenhouse consisting of
approximately 512,716 square feet, and the Greenhouse warehouse consisting of
approximately 10,004 square feet situated on the real property described on
Exhibit "All attached hereto and the equipment described on Exhibit "B" attached
hereto.
2. Term. The term of this Lease (the "Term") and Tenant's possession
----
of the Premises shall commence on the date of this Agreement (the "Commencement
Date") and continue so long as AA #1 is Lessee under the Facility and Site
Lease. This Lease shall be subject to the WCC Lease Documents and shall be
subject to termination by either Tenant or WCC upon 30 days notice following
termination of the Facility and Site Lease and/or up % on the exercise by WCC of
its other rights contained in or described by the WCC Lease Documents. Landlord
and, upon the failure of Landlord to exercise its rights hereunder after thirty
(30) days written notice to Landlord, WCC may terminate this Lease or exercise
other remedies provided or allowed herein in the event of default as defined
hereinafter. Tenant may terminate the Lease upon twelve (12) months prior
written notice to Landlord and WCC, if, to the satisfaction of Landlord, Tenant
demonstrates that it is no longer economically feasible to operate the
Greenhouse.
3. Termination. Except as otherwise terminated in ACCORDANCE WITH
-----------
paragraphs 2 and 17, this Lease shall expire and/or terminate at the end of the
Term without the necessity of any notice from either Landlord or Tenant of the
same, and Tenant hereby waives notice to vacate or quit the Premises and return
the equipment, and agrees that Landlord shall be entitled to the benefit of all
provisions of the law respecting summary recovery or possession of any of the
Leased Property 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 Leased
------------
Property at the end of the Term with the consent or permission of Landlord, 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.
5. Use. Use of the Leased Property shall be exclusively for the use of
---
growing and marketing greenhouse products.
6. Rental.
------
a. Tenant shall pay directly to Norwest Bank Denver, N.A., as
escrow agent ("Escrow Agent") during the Term of this. Lease as rent for the
Leased Property, without any prior demand, set-off or abatement, the sum of
Three Hundred Thousand Dollars ($300,000.00) per year, payable quarterly in
arrears in equal installments of Seventy-Five Thousand Dollars ($75,000.00)
which installments shall commence on January 1, 1994 for the quarter
-2-
<PAGE>
ended December 31, 1993, and shall be due and payable on the quarterly
anniversary date of each and every calendar quarterly thereafter for the balance
of the Term. The rent for the final short period of the Term shall be pro rated
for the actual number of days remaining in the Term and shall be payable within
sixty (60) days after the end of the Term.
b. TENANT SHALL pay all rental when due and payable, without any set-
off, deduction, or prior demand therefor whatsoever. In addition, any rental
which is not paid within tan (10) days after the same is due shall bear interest
at the default rate of eighteen percent (18%) from the first day due until paid.
Rental, including any interest due thereon, required of Tenant shall be paid to
the Escrow Agent at 1740 Broadway, Denver, CO 80274, or at such other place as
Landlord and WCC may jointly direct in writing. Statements required of Tenant
shall be delivered to Landlord at the offices of Landlord at 4845 Pearl East
Circle, Suite 300, Boulder, CO 80301, or at such other place as Landlord may,
from time to time, designate in a notice to Tenant. Any, payment by Tenant or
acceptance by Escrow Agent of a lesser amount than shall be due from Tenant to
Landlord shall be treated as a payment on account. The acceptance by Escrow
Agent of a check for a lesser amount with an endorsement or statement thereon,
or upon any letter accompanying such check, that such lesser amount is payment
in full, shall be given no effect, and Escrow Agent may accept such check
without prejudice to any other rights or remedies to which Landlord may have
against Tenant.
7. Met Lease. It is the intention of the parties to this Lease that
---------
all rents reserved herein shall be a net return to Landlord and all expenses or
charges with respect to the Leased Property including, by way of example,
maintenance, landscaping, repairs, remodeling or alteration of the building,
structures or improvements , utilities, repair and/or replacement of the
equipment, and the like shall be borne by Tenant and not Landlord, except as
follows:
a. Landlord shall provide capital improvements to the Greenhouse as
approved by both Landlord and Tenant not to exceed the following amounts:
Year Maximum Amount
---- --------------
1993 $150,000
1994 100,000
1995 50,000
Tenant shall provide, at its own expense, all other capital improvements
necessary to the prudent operation of the Greenhouse.
b. Landlord shall assign to Tenant all outstanding accounts
receivable arising from and after June 9, 1992, from the
-3-
<PAGE>
prior operation of the Greenhouse. Landlord shall pay and hold Tenant harmless
from all outstanding accounts payable from prior operation of the Greenhouse
arising prior to the effective date of this Lease.
c. Landlord shall provide, at no cost to Tenant, fresh water for the
operation of the Greenhouse, domestic water for employees of Tenant situated at
the Greenhouse location, and all equipment necessary to operate the Greenhouse.
d. Landlord shall provide, at no cost to Tenant, emergency power
capability. However, Landlord shall not be liable for any power failure to the
Greenhouse and ancillary structures, through the failure to provide emergency
service. Any increase in cost. to Landlord of actually providing emergency
service shall be borne by Tenant as additional rent.
e. Landlord shall pay all real property taxes on the real, property on
which the Greenhouse and storage facility are located, and the Greenhouse
structure, fixtures, storage tanks, pumps, piping and standby boilers, and
Tenant will pay all taxes on the equipment and personal property used on the
Premises by Tenant in the operation of a Greenhouse and warehouse facility as
hereinafter further defined.
f. Landlord. shall be responsible for the payment and maintenance of
"All-Risk" casualty insurance with respect to the Greenhouse and Greenhouse
warehouse, which insurance may be carried at the discretion of Landlord in such
amounts and with such companies as Landlord shall determine. Tenant shall be
solely responsible for insurance on the content and operations of the
Greenhouse.
g. Landlord shall be responsible for any costs of expanding the
Greenhouse to maintain FERC compliance.
Except as provided above, Tenant shall be responsible for all costs of
operating and maintaining the Greenhouse and warehouse facilities and shall
agree to operate and maintain the Greenhouse in accordance with accepted
industry standards throughout the Term of this Lease.
8. TAXES.
-----
a. Landlord 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, structures, fixtures, storage tanks, pumps, piping
and/or standby boilers assessed by the taxing authority.
b. Tenant shall be responsible for all taxes payable to the
appropriate taxing authority for any sales, excise, personal
-4-
<PAGE>
property 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 inventory, furniture, appurtenant apparatus,
equipment, leasehold improvements owned or installed by Tenant or by Landlord
and utilized in the greenhouse operation, and any other property of Tenant.
Tenant shall 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. Repairs and Alterations. All repairs to the Premises or any
-----------------------
installations, equipment or facilities therein are to be made by Tenant at its
expense. Without limiting the generality of the foregoing, Tenant shall keep the
structure of the building 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 at its expense including, by way of example, the
roofs on the Greenhouse and Greenhouse warehouse. Tenant will surrender the
Premises 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, including damage by casualty not caused or not
avoided due to the negligent acts or omissions of Tenant.
Tenant will repair promptly, at its expense, any damage to the
Premises regardless of fault or by whom such damage shall be caused, unless
caused by Landlord or its agent, employees or contractors. If Tenant shall fail
to commence such repairs within five (5) days after notice to do so, Landlord
may take or cause the same to be made, and Tenant agrees to pay Landlord
promptly upon Landlord's demand the cost thereof with interest thereon at the
default rate of eighteen percent (18%) until paid.
10. Alterations by Tenant. Tenant shall not make any alterations,
---------------------
renovations, improvements or other installations in or about any part of the
Premises 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. 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 work shall comply with all applicable
codes, rules, regulations and ordinances. Ordinary and customary repairs and
replacements in and an the Greenhouse and Greenhouse warehouse shall be promptly
undertaken and promptly completed and need not have Landlord's prior approval.
11. Mechanics' Liens. No work performed by Tenant pursuant to this
----------------
Lease, whether in the nature of erection, construction,
-5-
<PAGE>
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 estate of Landlord by reason of any consent given by Landlord to
Tenant to improve 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. If Tenant shall fail to cause such lien forthwith
to be so discharged or bonded after being notified of the filing thereof, then
in addition to any other right or remedy of Landlord, Landlord may bond or
discharge the same by paying the amount claimed to be due. In such event, Tenant
shall be liable to Landlord in an amount so paid by Landlord including any
reasonable attorneys' fees incurred by Landlord either in defending against such
lien or procuring the bonding or discharge of such lien, together with interest
thereon at the default rate of eighteen percent (18%) , due and payable by
Tenant to Landlord within ten (10) days of receiving notice thereof.
12. Operations. The Greenhouse and storage structure shall be used by
----------
tenant exclusively for the growing and marketing of greenhouse produce, using
the thermal heat available from the power plant as required. it is agreed and
understood that it is Landlord's paramount concern that continuous production or
greenhouse produce be undertaken so as to continuously qualify the Landlord's
cogeneration facility for the cogeneration benefits pursuant to Landlord's
permit granted by the Federal Energy Regulation Commission, as the same may be
amended from time to time. Tenant shall continuously operate the Greenhouse
facilities for the production of produce and any failure to have crops in place
which failure jeopardizes the "QF" status of the Project shall be considered a
default under this Lease. Tenant warrants that it will promptly pay all of its
bills, including labor costs, operating expenses, repair and maintenance
expenses, other expenses due hereunder, and any judgments, liens, or the like
which may threaten the shutdown of the Greenhouse facility on the repossession
of equipment and/or inventory necessary to the greenhouse operation. 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 with a default interest rate of eighteen percent
(18%).
Tenant shall, at all times, keep the Premises in a neat and orderly
condition. Specifically by way of example only, Tenant
-6-
<PAGE>
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; Thermal Commitment.
------------------------------
a. Landlord shall provide at no additional cost to Tenant (except as
provided herein) , all thermal heat available from the power plant in the form
of hot water to be used to satisfy the heating requirements of the Greenhouse,
fresh water for the operations of the Greenhouse, and domestic water for the
employees of Tenant situated at the Greenhouse, and shall provide emergency
power capability for the Greenhouse. Tenant shall be responsible for paying for
all electrical service and telephone service charges used on the Premises.
b. In the event Landlord shall fail to supply hot water sufficient to
satisfy the reasonable heating requirements of the Greenhouse, Tenant may make
use of any supplemental heating source supplied by or available to it, and
Landlord shall reimburse Tenant for the incremental cost (i.e., fuel costs or
equivalent) of providing such supplemental heat.
14. Indemnity and Insurance.
-----------------------
a. To the extent permitted by law, Tenant shall and does hereby
indemnify Landlord and save it harmless and, at Landlord's option, defend it
from and against any and all claims, actions, damages, liabilities and expenses
including attorneys' fees or professional fees, in connection with the loss of
life, personal injury and/or damage to the Leased Property and adjacent
cogeneration facility arising from and out of the occupancy or use by TENANT OF
the Premises occasioned wholly or in part by any act or omission of Tenant, its
officers, agents, directors, employees or invitees.
b. At all times during the Term, Tenant will carry and
maintain, at its expense:
(i) public liability insurance including insurance AGAINST assumed
or contractual liability under this Lease, with respect to the Premises to
afford protection with limits, for each occurrence, of not less than One
Million Dollars ($1,000,000-00) with respect to personal injury or death
and Five Hundred Thousand Dollars ($500,000.00) with respect to property
damage;
(ii) all-risk casualty insurance including theft, written at
replacement cost value and replacement cost endorsement covering all of
Tenant's and Landlord's personal
-7-
<PAGE>
property on the Premises including, without limitation, equipment,
furniture and other property removable by Tenant under the provisions of
this Lease installed in the Premises by or on behalf of Tenant;
(iii) if and to the extent required by law, worker's compensation
or similar insurance in form and amounts required by law; and
(iv) crop damage insurance in an amount of not less than Five
Hundred Thousand Dollars ($500,000).
At the request of Tenant, Landlord shall carry any insurance listed above, and
Tenant shall be obligated promptly to reimburse Landlord for any cost incurred
by Landlord related to such insurance.
c. The company or companies writing any insurance which Tenant is
required to carry and maintain or cause to be carried or maintained pursuant to
this Lease, as well as the form of such insurance shall at all times be subject
to Landlord's approval and any such company or companies shall be licensed to do
business in the State of Colorado. Public liability, all-risk casualty, and crop
insurance policies evidencing such insurance shall name Landlord or its designee
and WCC as additional insureds, shall be primary and non-contributory, and shall
also contain a provision by which the insurer agrees that such policy shall not
be canceled except after thirty (30) days' written notice. to Landlord, its
designee and WCC. None of the insurance which Tenant is required to carry and
maintain or cause to be carried or maintained pursuant to this Lease shall
contain any deductible provisions except to the extent approved by Landlord.
Each such policy, or a certificate thereof, shall be deposited with Landlord by
Tenant promptly upon commencement of Tenant's obligation to procure the same. If
Tenant shall fail to perform any of its obligations under the insurance
provisions of 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%) until paid.
15. Condemnation. If the whole or any part of the Leased 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 shall make such repairs and alterations as
may be necessary in order to restore the part not taken to useful condition and
all rental shall be reduced in the same proportion as the portion of the square
footage of the Premises so taken bears to Tenant's total square footage of the
Greenhouse. If the aforementioned taking renders the remainder of the Premises
unsuitable for the Permitted Use, either party may terminate this Lease as of
the date when Tenant is required to yield possession by
-8-
<PAGE>
giving notice to that affect within ninety (go) days after such date.
All compensation awarded for any taking of the Premises or any interest
therein shall belong to and be the property of Landlord, Tenant hereby assigning
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, loss of crops,
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.
16. Assignments and Subletting. Tenant shall not assign, transfer or
--------------------------
encumber this Lease in whole or in part or sublet all or any part of the
Premises nor license concessions or leases without first obtaining the consent
of Landlord and WCC, which consent shall not be unreasonably withheld. This
prohibition includes any sublease or assignment which would otherwise occur by
operation of law, merger, consolidation, reorganization, transfer or other
change of Tenant's corporate or proprietary structure or an assignment or
subletting to or by a receiver or trustee in federal or state bankruptcy,
insolvency, or similar proceeding. Consent by Landlord or WCC to any assignment
or subletting shall not constitute a waiver of the requirement for such consent
to any subsequent assignment or subletting.
17. Default.
-------
a. 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
(10) days;
(ii) the filing of a voluntary or involuntary petition proposing
the adjudication of Tenant or any guarantor of Tenant's obligations
hereunder as a bankrupt or insolvent, 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 not withdrawn or
dismissed within thirty (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;
-9-
<PAGE>
(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 (10) 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 operation of law;
(vi) failure of Tenant, without further notice, demand, or
opportunity to cure, to pay any rental or any other sum of money due
hereunder including, without limitation, taxes, insurance and operation and
maintenance expenses, within thirty (30) days after the same is due
hereunder;
(vii) default by Tenant in the performance or observance of any
covenant or agreement of this Lease (other than a default involving the
payment of money), which default is not cured within thirty (30) days after
the giving of notice thereof by Landlord or by WCC, unless such default is
of such a nature that it cannot be cured within such period, in which case
no event of default shall occur so long as Tenant shall commence; the
curing of the default within such period and shall thereafter diligently
prosecute the curing of same and the existence of such default does not
adversely affect the greenhouse operation and/or the status of the adjacent
cogeneration facility; and
(viii) 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
which failure jeopardizes the "QF" status of the Project.
b. Upon the occurrence and continuance of an event of default,
Landlord, without notice, demand or opportunity to cure to Tenant in any
instance, which notice, demand or opportunity is expressly waived by Tenant to
the greatest extent allowed by law in any instance (except where expressly
provided for below or by applicable law), may do any one of the following:
(i) Sell at public or private sale all or any part of the goods,
chattels, fixtures and other personal property belonging to Tenant which
are or may be put into the Premises during the Term, whether exempt or not
from sale under execution or attachment (it being agreed that said property
shall at all times be bound with a lien in favor of Landlord and shall be
chargeable for all rental and other monetary obligations and for the
fulfillment of the other covenants and agreement herein contained) and
apply the proceeds of such sale, first, to the payment of all costs and
expenses of
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<PAGE>
conducting the sale or caring for or storing said property (including
attorneys' fees), second, toward the payment of any indebtedness,
including (without limitation) indebtedness for rental, which is or would
become due from Tenant to Landlord during the Term hereof absent
termination and which is not otherwise mitigated by a subsequent tenant,
and third, to pay Tenant, on demand in writing, any surplus remaining after
all indebtedness of Tenant to Landlord has been fully paid;
(ii) 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 as required herein, the cost of
which performance by Landlord, together with interest thereon at the
default rate from the date of such expenditures, shall be deemed additional
rental and shall be payable by Tenant to Landlord upon demand;
(iii) 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 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 and ancillary facilities and structures
as if owned by Landlord in its own right, and continue the operation of the
Greenhouse in its 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 accounting records relating to the
operation of the Greenhouse and all customer lists relating to the
Greenhouse; or
(v) exercise any other legal or equitable right or remedy which
it may have.
Notwithstanding the provisions of clause (b) (ii) above and regardless of
whether an event of default shall have occurred, Landlord may exercise the
remedies described in clauses (b) (ii) or (b) (iv) above without any notice to
Tenant if Landlord, in its good faith judgment, believes it would be materially
injured by failure to take rapid action or if the unperformed obligation of
Tenant constitutes an emergency.
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<PAGE>
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.
18. Damages. If this Lease is terminated by Landlord or by WCC pursuant to
-------
the default provisions of this Lease, Tenant nevertheless shall remain liable
for any rental and damages which may be due or sustained 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
or by WCC in pursuit of its remedies hereunder, or in renting the Premises to
others from time to time, and all rental due after termination but otherwise
within the Term hereof not mitigated by the receipt of sales proceeds from the
sale of Greenhouse products or Tenant's property or by the receipt of rent from
a subsequent tenant.
19. Force Majeure. A party shall be excused from performance hereunder for
-------------
a period of time during which the ability of such party to perform its
obligations is materially and adversely affected by the occurrence of any event
beyond the reasonable control of the party affected, and occurring without any
negligence on the part of such party, including, but not limited to, flood,
earthquake, tornado, epidemic, war, riot, volcanic eruption, storm, fire,
lightning, civil disturbance or disobedience, strike, labor dispute, labor or
material shortage, sabotage, withholding of approval by applicable authority
of restraint by court order or public authority, which by exercise of prudent
engineering practice by Colorado standards, due diligence and foresight, such
party could not reasonably have been expected to avoid and which by due
diligence it has been unable to overcome.
20. Subordination and Assignment. Tenant agrees that its rights under this
----------------------------
Lease are and shall remain subject and subordinate to the WCC Lease Documents.
Further, if Landlord falls to enforce its rights hereunder after thirty (30)
days written notice to Landlord, WCC may enforce such rights. This Lease,
together with all of Landlord's right, title and interest therein has been
assigned to WCC as security for all of Landlord's obligations to WCC under the
WCC Lease Documents.
21. 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 (3rd) day following the day on which the same shall have
been mailed by United States registered or certified mail, return receipt
requested, with all postage charged prepaid and addressed, if intended for
Landlord, to AMERICAN ATLAS #I, LTD., 4845 Pearl East
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<PAGE>
Circle, Suite 300, Boulder, CO 80301, and to WESTINGHOUSE CREDIT CORPORATION,
One Oxford Centre, Pittsburgh, PA 15219, or if intended for Tenant, to Tenant at
WOLF CREEK RIFLE LLC, 303 East 17th Avenue, Suite 770, Denver, CO 80203.
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.
b. If any mortgagee or lessor shall notify Tenant that it is the
holder of a mortgage or lease affecting the Premises, no notice, request or
demand thereafter sent by Tenant to Landlord shall be effective unless and until
a copy of the same shall also be sent to such mortgagee or lessor in the manner
prescribed above and to such address as such mortgagee or lessor shall
designate.
22. FERC Requirement Compliance. Tenant, by the execution hereof, hereby
-----------------------------
covenants and agrees that the annual thermal useful 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 Certificate as a Qualifying Cogeneration Facility
("FERC Order") issued June 7, 1985, by the Federal Energy Regulatory Commission
of the United States of America, Docket No. QF85-284-000, and in compliance with
the description of greenhouse operations contained in that certain Application
of Cogeneration and Technology Development Company Ear Amendment of Certificate
of Qualifying Status of a Cogeneration Facility (the "FERC Application") . In
the event the FERC Order is amended, Tenant agrees to use its bet efforts to
comply with all reasonable requests of Landlord, at Landlord's cost, to assure
compliance with the FERC requirements relating to greenhouse operations set
forth in such amended FERC Order and the Application made by AA#1 in connection
therewith. Landlord shall have the right to monitor Tenant's compliance with the
FERC requirements described herein.
23. Merger and Modification. Subject to the provisions in the WCC
-------------------------
Lease Documents, which are hereby incorporated herein and which describe the
rights of WCC and its assigns, the parties hereto understand and agree that this
Agreement, with amendments, if any, constitutes the entire agreement of the
parties hereto, respecting the subject matter hereof and that the parties have
not Entering into this relied upon any representations or warranties in entering
into this Agreement, except as provided herein. This Lease may, not be modified
or amended without the express written consent of WCC, which consent shall not
be unreasonably withheld.
24. Greenhouse Personnel. Tenant agrees to engage or employ personnel
----------------------
in the operation of the Greenhouse consistent with Section 6.1(i) of that
certain Restructured Participation Agreement
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<PAGE>
between WCC and Landlord and further agrees to engage or employ a Greenhouse
manager acceptable to and approved by WCC, which acceptance and approval shall
not be unreasonably withheld. WCC hereby approves the appointment of Russell
Stokes as the initial Greenhouse manager.
25. Audits. Tenant agrees to a semi-annual audit by an Independent
Engineer in accordance with Section 17(e) of the Facility and Site Lease and to
comply with all reasonable recommendations submitted by the Independent Engineer
or by the Landlord.
26. Miscellaneous.
-------------
a. At any time and from time to time, within ten (10) days after
Landlord shall request the same, Tenant will execute, acknowledge and deliver to
Landlord and to such mortgagee or other party as may be designated by Landlord
an estoppel certificate in the form furnished by Landlord, 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. If Tenant
fails to provide such certificate within ten (10) days after request by Landlord
therefor, Tenant shall be deemed to have approved the contents of any such
certificate submitted to Tenant by Landlord and Landlord is hereby authorized to
so certify.
b. Tenant will permit Landlord, WCC and the Independent Engineer,
together with their agents, employees and contractors to enter all parts of the
Premises during Tenant's business hours to inspect the same and 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. The parties hereby agree that, upon the request of either party,
each will execute, acknowledge and deliver a short form of memorandum of this
Lease in recordable form. Recording, filing and like charges and any stamp,
charge for recording, transfer or other tax shall be paid by the party
requesting execution of same. In the event of termination of this Lease, within
thirty (30) days after written request from Landlord, Tenant agrees to execute,
acknowledge and deliver to Landlord an agreement removing such short form of
lease from record. If Tenant fails to execute such agreement within said 30-
day period or fails to notify Landlord within said 30-day period of its reasons
for refusing to execute such agreement, Landlord is hereby authorized to execute
and record such agreement. removing the short form of lease from record. The
provisions of this Section shall survive any termination of this Lease.
d. No reference to any specific right or remedy shall
preclude landlord or wcc from exercising any other right or from
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<PAGE>
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 of 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 or of any breach
by any other tenant under any other lease of any portion of the Premises shall
affect or alter this Lease in any way whatsoever.
e. This Lease and the covenants and conditions herein contained shall
inure to the benefit of and be binding upon Landlord, 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 WCC. 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 obligations under this Lease occurring
thereafter.
f. Tenant, at its sole costs and expense, shall comply, and shall
cause the Premises to comply with (i) all federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations and ordinances
affecting any part of the Premises, 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 statutes, laws, rules, orders,
regulations or ordinances which may be hereafter enacted involve a change of
policy on the part of the governmental body enacting the same, 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 prevention of fire or the correction of hazardous conditions which apply to
the Premises.
g. The Table of Contents and the paragraph captions are for
convenience of reference only and in no way shall be used to construe or modify
the provision set forth in this Lease.
h. Any intention to create a joint venture or partnership relation
between the parties hereto is hereby expressly disclaimed.
i. Subject to the WCC Lease Documents which are incorporated herein by
reference, 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,
all negotiations, considerations and representations between the parties having
been
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<PAGE>
incorporated herein. No course of prior dealings between the PARTIES OR THEIR
officers, employees, agents or affiliates shall be relevant or admissible to
supplement, explain, or vary any of the terms of this Lease unless determined
to be ambiguous without reference to the same. Acceptance of, or acquiescence
in, a course of performance rendered under this or any prior agreement between
the parties or their affiliates shall not be relevant or admissible to determine
the meaning of any of the terms of this Lease. 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 and consented to by WCC, which consent shall not be unreasonably
withheld.
j. 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.
k. The persons executing this Lease on behalf of Tenant hereby
covenant and warrant that: Tenant is a duly constituted limited liability
company qualified to do business in Colorado; and the persons signing this
Lease are duly authorized to execute and deliver this Lease on behalf of the
Tenant.
l. Subject to the WCC Lease Documents, nothing contained in this Lease
shall be construed so as to confer upon any other party the rights of a third-
party beneficiary except rights contained herein for the benefit of a mortgagee
or a lessor.
m. This Lease and the rights and obligations of the parties hereunder
shall be construed in accordance with the laws of the State of Colorado.
n. Tenant shall accept performance of any of Landlord's obligations
hereunder by any mortgagee or lessor.
o. 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.
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<PAGE>
AGREED TO as of the day and year first above written.
LANDLORD:
AMERICAN ATLAS 11, LTD.
By:
Title:
TENANT:
WOLF CREEK RIFLE LIMITED
LIABILITY COMPANY
By:
Title: ________________________________
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<PAGE>
EXHIBIT A
---------
GREENHOUSE DESCRIPTION
----------------------
The greenhouse building and warehouse located on a portion of the following
described real property:
A parcel of land situated in the Northwest one-quarter (NW1/4) of
Section 24, Township 6 South, Range 93 West of the Sixth Principal Meridian
(T6S, R93W of the 6th P.M.), Garfield County, Colorado, more particularly
described as follows:
Beginning at the Northwest corner of said Section 24; thence N. 89
degrees 51' 14" E. along the North line of said Section 24 a distance of
917.18 feet to the True Point of Beginning; thence N. 14 degrees 21' 14"
E. a distance of 273.71 feet to a point on the South Right of Way line of
County Road 352; thence along said lin S. 74 degrees 56' 06" E. a distance
of 93.36 feet to a point of curve to the left; thence along said curve
having a radius of 7,417.42 feet and a central angle of 03 degrees 06' 36"
an arc length of 402.62 feet to a point of tangent; thence S. 78 degrees
02' 42" E. a distance of 546.16 feet thence S. 60 degrees 10' 30" R. a
distance of 1,187.61 feet; thence S. 82 degrees 25' 17" W. a distance of
2,214.24 feet; thence N. 14 degrees 21" 14" E. a distance of 1,394.20 feet
to the True Point of Beginning; containing 41.333 acres, more or less.
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<PAGE>
EXHIBIT B
---------
EQUIPMENT
---------
Bobcat
Three Wheel Electric Cart
Pallet Jacks
Wagner Forklift
Case Tractor
Sorter and Miscellaneous
B.E. Delier Irrigation Machine
Wrapping Machines
60 Ft. Roller Skate Conveyor Stands
Tractor Forks
Scraper
Plow
Mower
200 Gallon Sprayer
Arc Welder
Portable Gas Welder
Hand Trucks
10 Ft. Aluminum Step Ladder
6 Ft. Wooden Step Ladder
16 Ft. Extension Ladder
Priva Computer
Q-Com, Computer System with Sensors
Bench Grinder
Cleaver Brooks Hot Water Boiler
2-Ray Hot Water Boilders
Floor Pallet Scale
Electric Cart
3-Trailers 4x8
Soil Bin
ESS Sprayer
Electric Generator
Electric Air Compressor
High Pressure Wash Down Gun
Phone Equipment
XTC 8088 Computer with Samsung Screen
Okidata 292 Printer
Copier
Typewriter
Calculators
Files
Samsung CRT
Okidata 193 Plus Printer
Compaq Computer
Citizen 120D Printer
Desks and Chairs
Lathon Sonachron Time Clock System
Sensaphone Alarm System
Desks and Chairs
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Credenzas
Conference Room Table and Chairs
Refrigerator
Miscellaneous Table and Chairs
8x600 Ft. Propagation
500 Gal. Plastic Tank
Drum Stands
Drum Hand Truck
Surplus Motors
Remote Radios with Chargers
Bag Sealer
Picking Trays and Carts
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<PAGE>
EXHIBIT 10.21
GREENHOUSE OPERATION AND
MANAGEMENT AGREEMENT
This GREENHOUSE OPERATION AND MANAGEMENT AGREEMENT (this "Agreement")
is made and entered into as of July 31, 1996, to be effective January 1, 1996,
between WOLF CREEK RIFLE LLC, a Colorado limited liability company ("WCR") and
COLORADO GREENHOUSE LLC, a Colorado limited liability company ("Colorado
Greenhouse").
RECITALS
A. American Atlas # 1, Ltd., a Colorado limited partnership ("AA#1")
and Westinghouse Credit Corporation have previously entered into a Facility Site
Lease dated January 1, 1993, under which AA#1 is the developer of a 75 megawatt
gas-fired cogeneration facility consisting of an electrical generating facility
(the "Power Plant") and an approximately 13.5-acre greenhouse facility and
related packing facility (collectively, the "Greenhouse") located in Garfield
County, Colorado.
B. AA#1 and WCR have previously entered into a Greenhouse Lease
Agreement, dated as of April 15, 1993 (the "Greenhouse Lease"), a copy of which
is attached hereto as Exhibit A, pursuant to the terms of which AA#1 leased the
Greenhouse to WCR.
C. Colorado Greenhouse is in the business of managing and operating
greenhouses.
D. WCR and Colorado Greenhouse desire to enter into this Agreement in
order for WCR to engage Colorado Greenhouse to operate and manage the Greenhouse
on the terms and conditions set forth herein.
1
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
Article 1. Engagement of Colorado Greenhouse.
---------------------------------------------
WCR hereby engages Colorado Greenhouse, and Colorado Greenhouse hereby
agrees, to operate and manage the Greenhouse in accordance with the terms and
conditions of this Agreement.
Article 2. Definitions.
-----------------------
Unless otherwise specifically set forth in this Agreement, the
Definitions that shall apply are as set forth in this Article 2.
"AA#1" shall have the meaning set forth in the recitals hereto.
----
"Allocated Percentage" means the percentage set forth in Exhibit B
--------------------
attached hereto, as the same may be amended from time to time as provided in
Section 15.14.
"Annual Operating Budget" means an operating budget submitted by
-----------------------
Colorado Greenhouse to WCR and approved by WCR for two year operating periods
beginning with the Commencement Date, showing for each month of the following
two years (or, as the case may be, for the balance of the current calendar year
and then for the following calendar year) Greenhouse Revenues and Greenhouse
Operating Expenses.
"Applicable Laws" means all laws, treaties, ordinances, judgments,
---------------
decrees, injunctions, writs and orders of any court, arbitrator or governmental
agency or authority and rules, regulations, orders, interpretations and permits
of any federal, state, county, municipal, regional, environmental or other
governmental body, instrumentality, agency, authority, court or other body
having jurisdiction over performance of the Services to be performed hereunder,
or operation of the Greenhouse, as may be in effect and as amended from time to
time.
"Applicable Permits" means all permits, licenses and similar items
------------------
required to be obtained or maintained in connection with performance of the
Services to be performed hereunder, or operation of the Greenhouse, as may be in
effect from time to time and as amended from time to time.
"BGP" means Brush Greenhouse Partners, a Colorado general partnership.
---
2
<PAGE>
"BGP Greenhouse" means the greenhouse leased to BGP and operated by
--------------
Colorado Greenhouse.
"BGPII" means Brush Greenhouse Partners II LLC, a Colorado limited
-----
liability company.
"BGPII Greenhouse" means the greenhouse leased to BGPII and operated by
----------------
Colorado greenhouse.
"Colorado Greenhouse Gross Margin" means, with respect to any calendar
--------------------------------
year, Net Revenues for such year minus (a) the aggregate Primary Fee for such
year and (b) the aggregate primary fees for such year paid by Colorado
Greenhouse with respect to the Other Greenhouses.
"Colorado Greenhouse Operating Expenses" mean, with respect to any
--------------------------------------
period, the following amounts incurred (or accrued in accordance with prudent
accounting practices and the Annual Operating Budget) by Colorado Greenhouse
during such period in connection with the operation and management of the
Greenhouse and the Other Greenhouses (to the extent not reimbursed by WCR, AA#1
or a third party): (i) all greenhouse labor and general and administrative
labor expenses, including all salaries, employee benefits (including related
taxes and contributions) and other compensation paid to Colorado Greenhouse's
employees and independent contractors, (ii) all packaging and delivery expenses,
(iii) all direct costs including propagation materials, seed, fertilizer,
fungicides, insect, biological, bee and CO2 costs, (iv) all operating expenses
including utilities (including costs of water), repairs and maintenance and
equipment leases, (v) insurance premiums, (vi) fees for accounting, legal and
other professional services, (vii) general and administrative expenses, (viii)
permitting fees and expenses, (ix) payments made with respect to loans made to
Colorado Greenhouse in connection with its formation and operations, (x) sales
and marketing expenses, and (xi) all other cash expenditures relating to the
operation, management, repair and maintenance costs of the Greenhouse and the
Other Greenhouses.
"Colorado Greenhouse Revenues" mean, with respect to any period, all
----------------------------
revenues and payments made to Colorado Greenhouse during such period in
connection with the operation of the Greenhouse and the Other Greenhouses,
including, without limitation, all amounts payable or owed to Colorado
Greenhouse under contracts relating to the Greenhouse and the Other Greenhouses,
all other payments received by Colorado Greenhouse from the sale of vegetables
or other produce or crops produced by the Greenhouse and the Other Greenhouses,
and proceeds received from business interruption insurance.
"Commencement Date" means January 1, 1996.
-----------------
"Facility" means the Power Plant and the Greenhouse.
--------
3
<PAGE>
"FERC Order" means the Order Granting Application for Certification as
----------
a Qualifying Cogeneration Facility issued May 22, 1987, by the Federal Energy
Regulatory Commission, as the same may be amended, supplemented or replaced.
"Forced Outage" means any outage resulting from a design defect,
-------------
inadequate construction, operator error or a breakdown of the mechanical or
electrical equipment that results in a reduction of the hot water delivered to
the Greenhouse.
"Ft. Lupton Greenhouse" means the greenhouse leased to Rocky Mountain
---------------------
and operated by Colorado Greenhouse, located in Ft. Lupton, Colorado.
"Good Greenhouse Practices" mean the practices, methods and acts that
-------------------------
are applied by prudent operators of cogeneration facility related greenhouses in
a manner consistent with applicable industry codes, standards and regulations,
and Applicable Laws, and designed to optimize productivity, reliability, safety,
environmental protection, economy and expediency.
"Greenhouse Operating Expenses" mean, with respect to any period, the
-----------------------------
following amounts incurred (or accrued in accordance with prudent accounting
practices and the Annual Operating Budget) by Colorado Greenhouse during such
period in connection with the operation and management of the Greenhouse (to the
extent not reimbursed by WCR, AA#1 or a third party): (i) all greenhouse labor
and general and administrative labor expenses, including all salaries, employee
benefits (including related taxes and contributions) and other compensation paid
to Colorado Greenhouse's employees and independent contractors, (ii) all
packaging and delivery expenses, (iii) all direct costs including propagation
materials, seed, fertilizer, fungicides, insect, biological, bee and CO2 costs,
(iv) all operating expenses including utilities (including water), repairs and
maintenance and equipment leases, (v) insurance premiums, (vi) fees for
accounting, legal and other professional services, (vii) general and
administrative expenses, (viii) permitting fees and expenses, (ix) sales and
marketing expenses, and (x) all other cash expenditures relating to the
operation, management, repair and maintenance costs of the Greenhouse.
"Greenhouse Revenues" mean, with respect to any period, all revenues
-------------------
and payments made to Colorado Greenhouse during such period in connection with
the operation of the Greenhouse, including, without limitation, all amounts owed
to Colorado Greenhouse under contracts relating to the Greenhouse, all other
payments received by Colorado Greenhouse from the sale of vegetables or other
produce or crops produced by the Greenhouse and proceeds received from business
interruption insurance with respect to the Greenhouse.
"Other Greenhouses" mean, collectively, the BGP Greenhouse, the BGPII
-----------------
Greenhouse and the Ft. Lupton Greenhouse (to the extent that the above are being
operated and managed by
4
<PAGE>
Colorado Greenhouse), or such other greenhouses as Colorado Greenhouse may
operate or manage during the term of this Agreement with the consent of WCR and
AA#1.
"Net Revenues" mean, with respect to any period, Colorado Greenhouse
------------
Revenues minus Colorado Greenhouse Operating Expenses for such period.
"Party or Parties" means WCR or Colorado Greenhouse, or both, as the
----------------
context may require.
"Primary Fee" means an amount, payable within 30 days after the end of
-----------
each calendar quarter during the term of this Agreement, equal to the Allocated
Percentage of Net Revenues, which amount shall not exceed the Allocated
Percentage of $3,429,092 for any calendar year.
"Primary Fee Deficiency" means an amount, to be calculated by WCR
----------------------
within 30 days after the end of each calendar year during the term of this
Agreement, equal to the amount, if any, by which the Allocated Percentage
(14.581%) of $3,429,092 exceeds the aggregate payments made on account of the
Primary Fee for such calendar year.
"Program" means the program for marketing, production and maintenance
-------
of the Greenhouse as prepared by Colorado Greenhouse and reviewed and approved
at least annually by WCR, which program shall cover the marketing, production
and maintenance necessary for the Greenhouse (including capital improvements
which shall be specified as such), a detailed staffing plan providing for the
necessary personnel and all other matters relevant to the operation of the
Greenhouse and Colorado Greenhouse's duties under this Agreement.
"Project Documents" mean any and all agreements, contracts and permits,
-----------------
now or hereafter existing, relating to or affecting the operation of the
Greenhouse, as the same may be amended, supplemented or replaced from time to
time. A list of Project Documents as of the date of this Agreement is attached
hereto as Exhibit C.
"Qualifying Facility" means a facility meeting all of the requirements
-------------------
for a "qualifying cogeneration facility" set forth in the regulations
implementing the Public Utility Regulatory Policies Act of 1978, as amended from
time to time, and in Part 292 of Title 18 of the Code of Federal Regulations, as
amended from time to time.
"Rocky Mountain" means Rocky Mountain Produce Limited Liability
--------------
Company, a Colorado limited liability company.
5
<PAGE>
"Services" mean the services and work performed by Colorado Greenhouse
--------
according to the terms and conditions of this Agreement, including, without
limitation, the work described in Article 3 as the duties of Colorado Greenhouse
and specified in the Program.
"Subcontractor" means, in relation to Colorado Greenhouse, any
-------------
individual, firm, organization, or supplier under contract to Colorado
Greenhouse for the performance of any part of Colorado Greenhouse's Services,
provided that any such contract under which Colorado Greenhouse has payment
obligations in excess of $250,000 in the aggregate in any one year period or
material liabilities or risks to the Greenhouse shall be subject to prior
approval by WCR.
"Uncontrollable Forces" mean any cause beyond the control of the Party
---------------------
affected, including but not limited to acts of God, flood, earthquake, storm,
fire, lightning, explosion, epidemic, war, riot, civil disturbance, sabotage,
and restraint by court order or public authority, strike or labor disturbance,
which by exercise of due foresight such Party could not reasonably have been
expected to avoid, and which by exercise of due diligence it is unable to
overcome. Neither Party shall, however, be relieved of liability for failure of
performance if such failure is due to causes arising out of its own negligence
or to removable or remediable causes which it fails to remove or remedy with
reasonable dispatch.
Article 3. Duties of Colorado Greenhouse.
-----------------------------------------
3.1 Enumeration of Duties. Colorado Greenhouse hereby agrees to
---------------------
perform the activities as generally described in this Article, and as contained
elsewhere in this Agreement related to the operation and management of the
Greenhouse consistent with the Annual Operating Budget and the Program. From
and after the Commencement Date, Colorado Greenhouse shall, subject to WCR's
discretion:
(a) Safely and efficiently operate and maintain the Greenhouse
in accordance with (i) the Annual Operating Budget, (ii) the Program and (iii)
operations and maintenance manuals and warranties and procedures provided by the
contractor for the Greenhouse.
(b) Continuously operate the Greenhouse exclusively for the
growing, processing, packaging and marketing of tomatoes and other greenhouse
vegetables as provided in the Greenhouse Lease.
(c) Assume and comply with the obligations of WCR under the
Greenhouse Lease (excluding the obligation to pay rent) including, without
limitation, utilizing the thermal heat from the Power Plant in such quantities
as are from time to time specified by AA#1 as necessary to maintain the
Qualifying Facility status of the Facility, provided, however, that such
quantities must
6
<PAGE>
be practicable without enlargement or other material alteration of the
Greenhouse or if enlargement or material alteration is required then the cost
thereof must be borne by WCR or other third parties. The parties acknowledge
that no scheduled maintenance that impacts the quantity of steam delivered or
accepted on, or temporary securing of, the Greenhouse equipment utilizing the
thermal heat or the power plant equipment generating the thermal heat shall be
made without the prior consent of WCR (with respect to the Greenhouse equipment)
or Colorado Greenhouse (with respect to the power plant equipment), as the case
may be. In addition, the parties agree that in the event of a Forced Outage,
whichever of WCR or Colorado Greenhouse that first has knowledge of such event
shall immediately notify the other party. Within 30 days after the end of each
calendar quarter during the term of this Agreement, Colorado Greenhouse shall
provide to WCR an officer's certificate certifying that Colorado Greenhouse has
complied with such lease terms.
(d) Pay, as the same become due, the Greenhouse Operating
Expenses.
(e) Use its best efforts to market the produce from the
Greenhouse.
(f) Employ, pay, train and supervise that number of personnel in
accordance with the staffing requirements set forth in the Annual Operating
Budget, and plan and administer all matters pertaining to such employed
personnel in the areas of labor relations, salaries, wages, working conditions,
hours of work, termination of employment, employee benefits, safety and related
matters. Colorado Greenhouse shall use reasonable care in the hiring of all its
employees. All employees shall be employees of Colorado Greenhouse and their
wages or other compensation shall be controlled and disbursed by Colorado
Greenhouse.
(g) Except as provided in Section 4.1(d) of this Agreement,
repair or replace, at the expense of Colorado Greenhouse, as may be necessary in
accordance with any manufacturer's directions, Good Greenhouse Practices and in
a good and workmanlike manner any Greenhouse equipment that fails or
malfunctions. If any such failure or malfunction is covered by a warranty,
Colorado Greenhouse shall submit a timely warranty claim on behalf of WCR.
(h) Subject to WCR's approval as required for a Subcontractor,
engage any independent contractors necessary for making repairs to, or
performing maintenance on, or installing improvements to the Greenhouse in the
event that Colorado Greenhouse is not available or is otherwise unable to make
or perform such repairs, maintenance or installations.
(i) Maintain accurate records of all changes to the Greenhouse
and up to date as-built drawings of the Greenhouse reflecting such changes.
7
<PAGE>
(j) Maintain regular communication with WCR, regarding the
operation and management of the Greenhouse, including monthly production and
sales reports, monthly operating costs, safety reports and other reports
reasonably requested by WCR, specifying all operations at the Greenhouse during
such period and noting any other material occurrences or operational results,
and communicate in each instance, either by telephone or in writing, material
changes in the anticipated operation of the Greenhouse or the marketing of
produce therefrom, maintenance problems related to the Greenhouse and any notice
or knowledge of violation or variance of any Applicable Law or Applicable
Permit.
(k) Make, in the name of WCR, contracts for janitorial, water,
electricity, telephone and other applicable services, or such of them as
Colorado Greenhouse shall deem advisable, and place orders for such equipment,
tools, appliances, materials and supplies as are necessary to properly maintain
and operate the Greenhouse.
(l) Maintain a system of office records, books, and accounts
with respect to the Greenhouse, which records shall be subject to examination by
WCR or authorized agents or designees of WCR during all regular business hours.
Records, books, and accounts shall be kept for a minimum of five years unless
otherwise instructed by WCR. So long as Colorado Greenhouse operates all or any
of the Other Greenhouses, Colorado Greenhouse shall allocate costs and revenues
for the Greenhouse in accordance with the Allocation Percentage set forth on
Exhibit B attached hereto.
(m) Be cognizant of and adhere to the requirements set forth in
the Project Documents insofar as they relate to the operation of the Greenhouse
and the duties of Colorado Greenhouse under this Agreement.
(n) Prior to the Commencement Date, submit to WCR a proposed
Annual Operating Budget for the year in which this Agreement commences and the
following year and cooperate with WCR to review and modify the same as necessary
to obtain the approval of WCR's Management Committee prior to the Commencement
Date; and thereafter submit to WCR a proposed Annual Operating Budget by
November 1 of each year for the following two-year period and cooperate with WCR
to review and modify the same as necessary to obtain the approval of WCR's
Management Committee by December 1 of each year. If for any reason the approval
of WCR's Management Committee is not so obtained, the Annual Operating Budget
previously approved shall, until the approval of an Annual Operating Budget for
the following two-year period, be deemed to be in force and be effective as the
Annual Operating Budget for such year.
(o) Review all federal, state and local laws and regulations
establishing compliance requirements in connection with the operation and
management of the Greenhouse.
8
<PAGE>
Advise WCR on the need to secure or renew, as necessary, appropriate permits,
licenses and approvals, and assist WCR in securing as appropriate, such permits,
licenses and renewals as required.
(p) Keep the Greenhouse free of all materialmen's, mechanics'
and other liens for materials or services furnished to the Greenhouse at
Colorado Greenhouse's direction.
(q) Pay all real estate taxes attributable to the Greenhouse (as
equitably apportioned by WCR provided that in no event shall Colorado Greenhouse
be obligated for any portion of real estate or property taxes attributable to
the heat storage units or the heat generating portions of the Facility) within
five days of receipt of an invoice submitted by WCR. In addition, Colorado
Greenhouse shall be responsible for all taxes payable to the appropriate taxing
authorities for any sales, excise or other tax levied, imposed or assessed in
the State of Colorado or by any other taxing authority in connection with the
operation of the Greenhouse and the sale of produce therefrom.
(r) By November 1 of each year, submit to WCR a proposed Program
and cooperate with WCR to review and modify the same as necessary to obtain the
approval of WCR's Management Committee.
(s) Perform other normal business functions and otherwise
operate and manage the Greenhouse in accordance with and as limited by the
Greenhouse Lease and this Agreement.
3.2 Limitations on Authority. Unless previously expressly approved in
------------------------
the Annual Operating Budget or otherwise approved in writing by WCR, Colorado
Greenhouse or any Subcontractor, or any of their respective agents or
representatives, shall not:
(a) sell, lease, pledge or mortgage, convey, or make any
license, exchange or other transfer of property or assets of WCR;
(b) make, enter into, execute, amend, modify or supplement any
contract or agreement on behalf of or in the name of WCR;
(c) make any recoverable expenditure or acquire on a recoverable
cost basis any equipment, materials, assets or other items, except for emergency
expenditures and except in substantial conformity with the Annual Operating
Budget and the Program; it being understood and agreed that Colorado Greenhouse
shall not be entitled to reimbursement for any expenditures not made in
accordance with this paragraph (c).
9
<PAGE>
(d) take or agree to take any other action that materially
varies from the applicable Annual Operating Budget, the Program or any
Applicable Law;
(e) take, agree to take or fail to take any action that would
cause a default under the Project Documents;
(f) settle, compromise, assign, pledge, transfer, release or
consent to the settlement, compromise, assignment, pledge, transfer or release
of any claim, suit, debt, demand or judgment against or due by WCR or Colorado
Greenhouse, or submit any such claim, dispute or controversy to arbitration or
judicial process, or stipulate in respect thereof to a judgment, or consent to
do the same;
(g) modify or alter the type of crop grown in the Greenhouse; or
(h) schedule maintenance or temporarily secure the Greenhouse
equipment utilizing the thermal heat.
3.3 Limitation on Other Activities. During the term of this
------------------------------
Agreement, Colorado Greenhouse shall not:
(a) make any alterations, renovations, improvements or other
installations in or about any part of the Greenhouse in excess of $25,000 unless
and until Colorado Greenhouse shall cause plans and specifications therefor to
have been reviewed by WCR and shall have obtained WCR's written approval
thereof. If approval is granted, Colorado Greenhouse shall cause the work
described in such plans and specifications to be performed, at its expense,
promptly, efficiently, completely and in a good and workmanlike manner by duly
qualified or licensed persons or entities. All such work shall comply with all
applicable codes, rules, regulations and ordinances. Ordinary and customary
repairs and replacements in and on the Greenhouse shall be promptly undertaken
and promptly completed and need not have WCR's prior approval, unless such
repairs or replacements materially decrease the value of usefulness of the
Greenhouse or the Facility;
(b) without the prior written consent of WCR, agree to any
increase of the fees to be paid by Colorado Greenhouse under the greenhouse
management and operating agreements for the Other Greenhouses; or
(c) without the prior written consent of WCR and AA#1, cause any
greenhouse or other business to be treated under this Agreement as an Other
Greenhouse except the BGP Greenhouse, the BGPII Greenhouse and the Ft. Lupton
Greenhouse.
10
<PAGE>
3.4 Payments by Colorado Greenhouse. During the term of this
-------------------------------
Agreement, Colorado Greenhouse shall pay the Primary Fee to WCR, on a timely
basis. Any amount which is not paid within ten days after the same is due shall
bear interest at a default rate equal to the rate of interest publicly announced
or as published from time to time by Bank of America NT and SA as its "reference
rate" plus six percent per annum from the first day due until paid.
Article 4. Duties of WCR.
- -------------------------
4.1 Enumeration of Duties. The following shall be WCR's
---------------------
responsibility to provide in support of the uninterrupted operation and
maintenance of the Greenhouse:
(a) Use reasonable efforts to maintain the Greenhouse Lease or
any replacement contracts for the supply of thermal heat in sufficient
quantities to maintain the Facility's FERC Order.
(b) Providing a liaison person(s) available to Colorado
Greenhouse twenty-four hours per day, authorized to make decisions on the part
of WCR.
(c) Enforcing diligently any claim WCR may have under insurance
policies, equipment guarantees and warranties pertaining to the Greenhouse.
(d) Paying for capital improvements as set forth in the Program.
Except as otherwise agreed by Colorado Greenhouse, WCR shall pay for all capital
improvements which (i) the Parties agree are required for continued usefulness
of the Greenhouse and (ii) are required in connection with the expansion of the
Greenhouse to maintain compliance with the FERC Order. Any other improvements
that are made at the request of Colorado Greenhouse or that, in WCR's reasonable
judgment, are to be made solely for the purpose of enhancing Colorado
Greenhouse's growing programs, shall be made at Colorado Greenhouse's cost and
expense, and may be made only with the prior written consent of WCR.
Article 5. Term.
- ----------------
5.1 Term. This Agreement shall continue for a term equal to the term
----
of the Greenhouse Lease, unless sooner terminated as hereinafter provided.
5.2 Termination Upon Default. If any of the following events occur,
------------------------
WCR shall have the right upon written notice to Colorado Greenhouse, to
terminate this Agreement:
11
<PAGE>
(a) If Colorado Greenhouse defaults in the performance of any
obligation under this Agreement (other than the obligations under Section 3.4 of
this Agreement) and such default is not cured by Colorado Greenhouse within 90
days after receipt of a notice specifying the default.
(b) If (i) the cumulative Primary Fee Deficiency exceeds
$250,000 at any time before December 31, 1996, (ii) the cumulative Primary Fee
Deficiency exceeds $500,000 at any time before December 31, 1997 or (iii) the
cumulative Primary Fee Deficiency exceeds $750,000 at any time after January 1,
1998.
(c) If Colorado Greenhouse is adjudicated as bankrupt or
insolvent and such adjudication is not vacated within ten days.
(d) The filing of a voluntary or involuntary bankruptcy or
insolvency petition of Colorado Greenhouse or the reorganization of Colorado
Greenhouse whether pursuant to the federal Bankruptcy Act or any similar federal
or state proceedings, unless such petition is filed by a party other than
Colorado Greenhouse and is withdrawn or dismissed within 30 days after the date
of filing.
(e) The appointment of a receiver or trustee for the business or
property of Colorado Greenhouse, unless such appointment shall be vacated within
ten days of its entry.
(f) The making by Colorado Greenhouse of an assignment for the
benefit of its creditors.
5.3 Payment of Expenses and Allocation of Crops After Termination.
-------------------------------------------------------------
Except as set forth in this Section 5.3 and except for Colorado Greenhouse's
obligations under Article 7 and Article 11, on the effective date of a
termination, WCR and Colorado Greenhouse shall be relieved of all obligations
thereafter accruing under this Agreement. Notwithstanding such termination,
neither Party shall be relieved from any obligations or liabilities accruing
prior to the effective date of termination, including in the case of Colorado
Greenhouse, its obligation to make payment to WCR of all sums due WCR under this
Agreement. After the effective date of a termination WCR shall either grant
Colorado Greenhouse such use of the Greenhouse as is necessary to care for and
harvest any crop planted before such date or compensate Colorado Greenhouse for
the value of such crop as of the effective date of termination, subject to any
right of offset that WCR may have for amounts owed to it hereunder.
12
<PAGE>
5.4 Termination of Greenhouse Lease. In the event that the Greenhouse
-------------------------------
Lease is terminated for any reason whatsoever, this Agreement shall
automatically terminate without any further act or instrument.
5.5 Surrender of Greenhouse. Upon the termination of this Agreement
-----------------------
but subject to the terms of Section 5.3, Colorado Greenhouse will surrender the
Greenhouse in as good condition as when received, excepting depreciation caused
by ordinary wear and tear.
5.6 Training of New Personnel. Upon termination of this Agreement,
-------------------------
Colorado Greenhouse will make available to WCR one qualified employee for a
period of two months after the termination of this Agreement for the purpose of
training new personnel in the operation and management of the Greenhouse.
Article 6. WCR's Right to Audit/Inspection of Records.
- ------------------------------------------------------
(a) WCR shall have the right, at any time and from time to time to
audit or cause an independent audit to be made of Colorado Greenhouse's books
and records for the purposes of verifying compliance with the provisions of this
Agreement. In the event that any such audit indicates that Colorado Greenhouse
underpaid any amount due to WCR under this Agreement, Colorado Greenhouse shall
pay such additional sum and such audit shall be deemed to be binding and
conclusive, unless a request is made, within fifteen days after receipt of a
copy of such audit by Colorado Greenhouse, for a consultation with such
auditors. Such audit, after consultation and modification, if any, shall be
binding and conclusive unless the consultation results in irreconcilable
differences with respect to any material item in the report. In such event, the
disputed item will be submitted to a firm of independent certified public
accountants, acceptable to WCR, for resolution, and the fees of such firm shall
be paid equally by Colorado Greenhouse and WCR, unless Colorado Greenhouse is
obligated for full payment pursuant to this Article 6. If the submission to the
independent certified public accountants results in changes in the audit report,
the report as so changed shall be binding and conclusive. In the event that the
audit indicates that there were deficiencies in the aggregate amount of $10,000
or more in the amounts which should have been paid by Colorado Greenhouse to WCR
pursuant to this Agreement, Colorado Greenhouse shall pay all costs of audits
incurred by WCR under this Article 6 together with interest on the amount of the
deficiency payable at the interest rate set forth in Section 3.4(a) of this
Agreement.
(b) In addition, WCR shall have the right, from time to time, during
normal business hours, upon 48 hours' prior notice, to inspect any equipment,
documents or other information in the possession of Colorado Greenhouse to the
extent such materials or information directly impacts the ability of AA#1 to
maintain its Federal Energy Regulation Commission Qualifying Status.
13
<PAGE>
Article 7. Exclusive Warranties; Remedies.
- ------------------------------------------
7.1 Warranty. Colorado Greenhouse warrants to WCR that the Services
--------
performed under this Agreement shall be performed in a competent, prudent and
efficient manner, in accordance with this Agreement, Good Greenhouse Practices,
all warranties and procedures for the Greenhouse and all safety, fire protection
and other requirements of applicable insurance policies.
7.2 No Consequential Damages. In no event shall Colorado Greenhouse,
------------------------
WCR or any of their respective affiliates, owners, members, managers, employees
or agents, be liable for any consequential, incidental or special damages or any
other liabilities not expressly set forth herein, regardless of whether based on
contract, warranty, indemnity, tort, strict liability or otherwise.
7.3 No limitation on Claims Against Third Parties. Nothing contained
---------------------------------------------
in this Article 7 or any other provision of this Agreement shall be deemed to
waive, limit or impair in any way any claims that WCR may have against
Subcontractors, manufacturers of equipment or any other person.
Article 8. Insurance.
- ---------------------
8.1 Colorado Greenhouse's Coverage. At all times after the
------------------------------
Commencement Date, Colorado Greenhouse will carry and maintain, at its expense:
(a) public liability insurance including insurance against
assumed or contractual liability under this Agreement, in such amount as WCR may
reasonably request.
(b) all-risk casualty insurance covering all of the personal
property in, on or about the Greenhouse including all improvements installed in,
on or about the Greenhouse by or on behalf of Colorado Greenhouse, in such
amounts as WCR may reasonably request;
(c) if and to the extent required by law, workers compensation
or similar insurance in form and amounts required by law; and
(d) such other insurance as WCR may require, including, but not
limited to, insurance that WCR or AA#1 is required to provide pursuant to the
terms of any applicable agreement affecting the Facility.
8.2 Subcontractor's Coverage. Colorado Greenhouse shall require all
------------------------
of its Subcontractors engaged in work at the Greenhouse to maintain insurance
coverage of the types and in
14
<PAGE>
the amounts at least equal to the insurance coverage that Colorado Greenhouse is
required to maintain in accordance with Section 8.1 above.
8.3 Umbrella Coverage. Umbrella coverage may cover any portion of the
-----------------
limits of liability required in Sections 8.1 and 8.2 above, provided it has all
the coverages and requirements for the type of coverage.
8.4 Insurance Provisions. The company or companies writing such
--------------------
insurance policies, as well as the form of such insurance shall at all times be
subject to WCR's approval. Public liability and all-risk casualty insurance
policies evidencing such insurance shall name WCR or its designee as additional
insureds, and shall contain such other provisions and endorsements as WCR may
request.
8.5 Evidence of Insurance. Before the date on which such insurance
---------------------
first is required to be carried by Colorado Greenhouse, and thereafter, at least
30 days before the effective date of any renewal of any such policy, Colorado
Greenhouse will deliver to WCR either a duplicate original of the aforesaid
policy or a certificate evidencing such insurance.
Article 9. Applicable Permits.
- ------------------------------
All Applicable Permits shall be obtained and maintained by Colorado
Greenhouse on behalf of WCR. WCR shall cooperate with Colorado Greenhouse in
the securing of such Applicable Permits.
Article 10. Applicable Laws.
- ----------------------------
10.1 Applicable Laws. Colorado Greenhouse shall operate and maintain
---------------
the Greenhouse in conformance with all Applicable Laws and Applicable Permits,
including without limitation the disposing of any hazardous waste generated by
the Greenhouse in accordance with all Applicable Laws.
10.2 Changes in Laws. Colorado Greenhouse shall comply with
---------------
applicable changes in the Applicable Laws and shall inform WCR of such changes.
To the extent that such changes require alterations in the Greenhouse
configuration, operation, maintenance procedures or other aspects of Greenhouse
operation and maintenance, the cost thereof shall be borne by WCR. The parties
acknowledge that any material alteration in the Greenhouse may necessitate a
change in the Allocated Percentage for the Greenhouse and each of the other
Greenhouses.
Article 11. Indemnification.
- ----------------------------
15
<PAGE>
11.1 Indemnification by Colorado Greenhouse. (a) Colorado Greenhouse
--------------------------------------
shall indemnify and hold harmless WCR and its affiliates, officers, directors,
managers, shareholders, members, employees and agents, from any loss, liability
or damage incurred or suffered by any such person by reason of Colorado
Greenhouse's failure to perform its obligations hereunder or its negligence or
willful misconduct, including, without limitation, any judgment, award or
settlement, other costs and expenses, and reasonable attorneys' fees incurred in
connection with the defense of any actual or threatened claim or action based on
any such act or omission, unless such loss, liability or damage results from
such indemnified person's fraud, negligence or willful misconduct. Such
attorneys' fees shall be paid as incurred.
(b) Colorado Greenhouse shall indemnify and hold harmless WCR
and its affiliates, officers, directors, managers, shareholders, members,
employees and agents from any and all liability, claims, demands, actions and
causes of action whatsoever (including without limitation reasonable attorneys'
fees and expenses, and costs and expenses reasonably incurred in investigating,
preparing or defending against any litigation or claim, action, suit, proceeding
or demand of any kind or character) arising out of or related to alleged
contamination of the property underlying the Facility (the "Premises") by any
hazardous or toxic substance, pollutant or contaminant, or alleged injury or
threat of injury, to health, safety or the environment, or alleged noncompliance
with any federal, state and local environmental statutes, regulations,
ordinances, and any permits, approvals or judicial or administrative orders
issued thereunder, giving rise to liability under any federal, state or local
environmental statutes or ordinances, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
(S)(S) 9601 et seq., as amended from time to time, or under any common law
-- ---
claim, including claims for personal injury or property damage or for any claim
by any governmental or private party for remedial or removal costs, natural
resource damages, property damages, damages for personal injuries, or other
costs, expenses or damages or any claim for injunctive relief arising from any
alleged injury or threat of injury to health, safety or the environment relating
to the Premises.
11.2 Indemnification by WCR. WCR shall indemnify and hold harmless
----------------------
Colorado Greenhouse and its affiliates, managers, members, employees and agents,
from any loss, liability or damage incurred or suffered by any such person by
reason of WCR's failure to perform its obligations hereunder or its negligence
or willful misconduct, including, without limitation, any judgment, award or
settlement, other costs and expenses, and reasonable attorneys' fees incurred in
connection with the defense of any actual or threatened claim or action based on
any such act or omission, unless such loss, liability or damage results from
such indemnified person's fraud, negligence or willful misconduct. Such
attorneys' fees shall be paid as incurred. Any such indemnification shall be
paid only from the assets of WCR and neither Colorado Greenhouse nor any third
party shall have
16
<PAGE>
recourse against the personal assets of any member of WCR or their respective
affiliates for such indemnification.
Any indemnification required herein to be made by WCR or Colorado Greenhouse
shall be made promptly following the determination of the loss, liability or
damage incurred or suffered by final judgment of any court, settlement, contract
or otherwise.
Article 12. Representations.
- ----------------------------
12.1 Representations of Colorado Greenhouse. Colorado Greenhouse
--------------------------------------
represents and warrants to WCR as follows:
(a) that it is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Colorado;
(b) that it has personnel available to it with the expertise in
connection with the management of greenhouses sufficient for it to perform its
obligations under this Agreement in a manner consistent with Good Greenhouse
Practices;
(c) that the execution, delivery and performance of this
Agreement by Colorado Greenhouse has been duly authorized by all necessary
limited liability company action and this Agreement has been duly executed and
delivered by Colorado Greenhouse and, subject to due execution and delivery by
WCR, this Agreement will be enforceable against Colorado Greenhouse in
accordance with its terms, and does not constitute a default under its operating
agreement, or any instrument to which it is a party, nor does it violate any
provision of any law, rule, regulation, order, judgment, decree, determination,
or award presently in effect having applicability to it;
(d) that it has all necessary permits, licenses, and other
governmental approvals required to perform its obligations hereunder, except for
permits WCR is required to obtain; and
(e) that there are no actions, suits, or proceedings pending or,
to its knowledge, threatened against it in any court or before any governmental
department, agency, instrumentality, or any arbitrator, in which there is a
reasonable possibility of an adverse decision which could materially and
adversely affect its ability to perform its obligations under this Agreement.
12.2 Representations by WCR. WCR represents and warrants to Colorado
----------------------
Greenhouse as follows:
17
<PAGE>
(a) that it is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Colorado;
(b) that the execution, delivery and performance of this
Agreement by WCR has been duly authorized by all necessary limited liability
company action and this Agreement has been duly executed and delivered by WCR
and, subject to due execution and delivery by Colorado Greenhouse, this
Agreement will be enforceable against WCR in accordance with its terms, and does
not constitute a default under its operating agreement, or any instrument to
which it is a party, nor does it violate any provision of any law, rule,
regulation, order, judgment, decree, determination, or award presently in effect
having applicability to it; and
(c) that there are no actions, suits, or proceedings pending or,
to its knowledge, threatened against it in any court or before any governmental
department, agency, instrumentality, or any arbitrator, in which there is a
reasonable possibility of an adverse decision which could materially and
adversely affect its ability to perform its obligations under this Agreement.
Article 13. Colorado Greenhouse as Independent Contractor.
- ----------------------------------------------------------
13.1 Independent Contractor. Colorado Greenhouse shall be an
----------------------
independent contractor in the performance of this Agreement and shall have
complete charge of the Services and personnel engaged in the performance of the
Services. Nothing contained herein shall be deemed to create a relationship of
employer-employee, master-servant, partnership, or joint venture.
13.2 Subcontractors. Colorado Greenhouse's Services may be performed
--------------
by Colorado Greenhouse acting in its own name, or by Colorado Greenhouse's
subcontracting portions to other Subcontractors or suppliers.
(a) Colorado Greenhouse will assume the responsibility for, and
liability arising in connection with, negotiating with, and performance by, its
Subcontractors.
(b) Colorado Greenhouse will have authority and control over the
Subcontractors' work, including overtime and any special methods required, in
the judgment of Colorado Greenhouse, to complete the Subcontractors' work in a
correct and timely manner.
18
<PAGE>
Article 14. Survival.
- ---------------------
The provisions of Articles 7 and 11 shall survive termination,
cancellation or expiration of this Agreement.
Article 15. Miscellaneous.
- --------------------------
15.1 Notices. Notices and other communications with respect to this
-------
Agreement shall be in writing and shall be delivered by hand or overnight
courier service, mailed or sent by telecopy. Unless other addresses or telecopy
numbers are specified in writing pursuant to this Section 15.1 to each other
Party, such notices or other communications shall be sent to the following
addresses or telecopy numbers as the case may be.
WCR: Wolf Creek Rifle LLC
4845 Pearl East Circle, Suite 300
Boulder, Colorado 80301-2474
Attention: Edward J. Wetherbee
Telephone: (303) 442-5112 FAX: (303) 442-5113
Colorado Greenhouse: Colorado Greenhouse LLC
P.O. Box 309
Fort Lupton, Colorado 80621
Attention: Matthew Cook
Telephone: (790) 857-1100 FAX: (790) 857-1200
15.2 Arbitration. All claims, disputes and other matters in question
-----------
arising out of, or relating to this Agreement or the interpretation or breach
thereof, shall be decided by arbitration in accordance with the Arbitration
Rules of the American Arbitration Association then in effect unless the Parties
mutually agree otherwise. Said arbitration shall be before a panel of three
arbitrators and shall be held in Denver, Colorado. This agreement to arbitrate
shall be specifically enforceable under applicable law in any court of competent
jurisdiction. Notice of the demand for arbitration shall be filed in writing
with the other Party to this Agreement and with the American Arbitration
Association. The demand for arbitration shall be made within a reasonable time
after the claim, dispute or other matter in question has arisen, and in no event
shall it be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable contractual or other statute of limitations. The award
rendered by the arbitrators shall be final and judgment may be entered in
accordance with applicable law and in any court having jurisdiction thereof.
Attorneys' fees and expenses may be payable to the prevailing party in such
arbitration in the discretion of the arbitrators.
19
<PAGE>
15.3 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.
15.4 Headings. Titles and headings of the sections and subsections of
--------
this Agreement are for the convenience of reference only and do not form a part
of this Agreement, and shall not in any way affect the interpretation of this
Agreement.
15.5 Assignments. This Agreement shall not be assignable by either
-----------
Party hereto without the prior written consent of the other Party.
15.6 Inspections and Access by WCR. Colorado Greenhouse will permit
------------------------------
WCR, its agents, employees and contractors to enter all parts of the Greenhouse
during Colorado Greenhouse's business hours to inspect the same and to enable
WCR to enforce or carry out any provision of this Agreement.
15.7 Force Majeure. Neither Party hereto shall be deemed to be in
-------------
breach or in violation of this Agreement if such Party is prevented from
performing any of its obligations hereunder by reason of Uncontrollable Forces
that in fact prevent or delay performance hereunder. To the extent that any
performance of any obligation is so prevented pursuant to this Section 15.7,
such performance shall be suspended during the continuance of the Uncontrollable
Forces and during the period following the cessation of such Uncontrollable
Forces required to repair and rebuild the Facility to the extent necessary to
place it back into commercial operation in accordance with Good Greenhouse
Practices and Applicable Laws. Notwithstanding the foregoing, in the event of
the inability of Colorado Greenhouse to substantially perform the Services for a
period of 45 days or more by virtue of Uncontrollable Forces (which
Uncontrollable Forces are not of a type affecting other persons generally), WCR
may elect to terminate this Agreement upon five days' prior written notice to
Colorado Greenhouse; it being understood and agreed that if such Uncontrollable
Forces apply to, relate to or affect all persons as a general matter, then WCR
will not terminate this Agreement pursuant to the provisions of this Section
15.7, unless such Uncontrollable Forces continue for a period of 180 days.
15.8 Waiver. The waiver of any breach of any term or condition hereof
------
shall not be deemed a waiver of any other or subsequent breach, whether of like
or different nature. No failure to exercise and no delay in exercising, on the
part of either Party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies at law.
20
<PAGE>
15.9 Severability. If any term or provision of this Agreement or the
------------
performance thereof shall to any extent be invalid or unenforceable, such
invalidity or unenforceability shall not affect or render invalid or
unenforceable any other provision of this Agreement, and this Agreement shall be
valid and enforced to the fullest extent permitted by law.
15.10 Amendment. No modification or amendment of this Agreement shall
---------
be valid unless in writing and executed by both Parties hereto.
15.11 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of Colorado. The parties hereby consent
to the jurisdiction of the courts of the State of Colorado for the purposes of
enforcing the arbitration provisions of Section 15.2.
15.12 Entire Agreement. This Agreement sets forth the entire
----------------
agreement and understanding between the Parties hereto with respect to the
subject matter hereof and supersedes and replaces all prior written agreements
and negotiations and oral understandings, if any, with respect thereto.
15.13 No Third Party Beneficiaries. Except as specifically provided
----------------------------
herein, no person or party shall have any rights or interest, direct or
indirect, in this Agreement or the Services to be provided hereunder, or both,
except Colorado Greenhouse and WCR. The Parties specifically disclaim any intent
to create any rights in any person or party as a third-party beneficiary to this
Agreement or the Services to be provided hereunder except for AA#1.
15.14 Amendment of Allocated Percentage. The Allocated Percentage may
---------------------------------
be amended at any time by mutual agreement of the Parties hereto and shall be
amended to reflect any change in size of any Other Greenhouse. If any of the
Other Greenhouses decreases in size or is increased in size by the addition of
space of like quality to its existing space then the Allocated Percentage shall
be adjusted in proportion to the ratio that the change in size bears to the
total size of the Greenhouse and the Other Greenhouses.
21
<PAGE>
This Agreement has been executed and delivered as of the date first
above written.
WCR:
----
WOLF CREEK RIFLE LLC
By: /s/ William E. Coleman
-------------------------------
William E. Coleman
-------------------------------
Manager
COLORADO GREENHOUSE:
-------------------
COLORADO GREENHOUSE LIMITED LIABILITY
COMPANY
By: /s/ Edward J. Wetherbee
-------------------------------
Edward J. Wetherbee
-------------------------------
Manager
and
By: /s/ William E. Coleman
-------------------------------
William E. Coleman
-------------------------------
Manager
22
<PAGE>
EXHIBIT A
---------
Greenhouse Lease
A-1
<PAGE>
EXHIBIT B
---------
Allocation Percentage
A percentage, as the same may be modified from time-to-time, and as in
effect on the date set forth below:
Allocated
Time Period Percentage
- -------------------------------------------------------------------------------
From 1/1/96 through the end of the second calendar
quarter after the completion of the BGP II Greenhouse
expansion ("Expansion Completion Date") 15.432%
After the Expansion Completion Date 14.581%
B-1
<PAGE>
EXHIBIT C
---------
Project Documents
B-C-1
<PAGE>
EXHIBIT 10.22
SUBSCRIPTION
------------
AGREEMENT
---------
GREENVER, S.A. DE C.V.,
INVERNADEROS LA PEQUENA JOYA, S.A. DE C.V.,
CERTAIN INDIVIDUALS AS SHAREHOLDERS
COLORADO GREENHOUSE HOLDINGS, INC.
and
GRUPO BATIZ CGH, S.A. DE C.V.
dated May 12, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
</TABLE>
TABLE OF EXHIBITS
-----------------
<TABLE>
<S> <C>
Exhibit A -Bylaws of Grupo Batiz CGH, S.A. de C.V.
Exhibit B -Disclosure Schedule
Exhibit C -Marketing Agreement
Exhibit D -Form of Opinion of Company Counsel
Exhibit E -Form of Employment Agreement
Exhibit F -Audited Financial Statements for the fiscal year of ended December 31, 1997
Exhibit G -Shareholders Agreement
Attachment 1 -Description and list of Shareholders
Attachment 2 -Description of the Shares
</TABLE>
<PAGE>
SUBSCRIPTION AGREEMENT
----------------------
This Subscription Agreement (the "Agreement") is made and entered into as
of the 12th day of May 1998, by and between GREENVER S.A. DE C.V. ("Greenver"),
INVERNADEROS LA PEQUENA JOYA, S.A. DE C.V. ("Invernaderos"), each a corporation
("sociedad anonima de capital variable") organized and existing under the laws
of the United Mexican States ("Mexico") (Greenver and Invernaderos are sometimes
referred to together as the "Company"), with their principal office at Ignacio
Allende y Aquiles Serdan streets s/n 2 (degrees) Piso, Col. Centro, La Paz, Baja
California Sur C.P. 23000, Mexico, the persons who are currently the
shareholders of each Company identified on Attachment "1" hereto (the
"Shareholders"), COLORADO GREENHOUSE HOLDINGS, INC., a Delaware corporation
("CGH"), with its principal office at 6811 Weld County Road 31, Ft. Lupton,
Colorado 80621, and GRUPO BATIZ CGH, S.A. DE C.V., a recently incorporated
corporation organized and existing under the laws of Mexico ("Investor").
RECITALS
A. Subject to the terms and conditions of the Shareholders Agreement (as
such term is defined below), the parties thereto agreed, among other things, to
the incorporation the Investor whereby CGH will directly own at least 25% of the
capital stock of Investor ("Investor's Shares"), at least 1.80% of the capital
stock of Invernaderos and at least 2.62% of the capital stock of Greenver.
Pursuant to the Shareholders Agreement and in accordance to the terms and
conditions of this Subscription Agreement, Investor will own approximately 90%
of the capital stock of Greenver and approximately 93% of Invernaderos.
B. Subject to the terms and conditions of this Agreement, the
Shareholders and the Company will authorized the issuance and sale of a total of
shares which are more fully described in Attachment "2" hereto (the "Shares") of
each Company and Investor.
C. Pursuant to certain Letter Agreement dated April 14, 1998, entered
into by CGH and Greenver, CGH granted a bridge loan to Greenver in an amount of
US$1,000,000 as guaranteed by that certain Guaranty Agreement (the "Bridge
Loan"). The parties hereto recognize and agree for the benefit of CGH that such
amount will be credited to the subscription price to be paid by CGH for the
Investor's Shares and the Shares as provided herein.
D. CGH directly and indirectly and the Investor directly desire to
subscribe and pay in full for the Shares, pursuant to the terms and conditions
contained herein.
AGREEMENT
1
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants, agreements,
conditions, representations, and warranties contained in this Agreement, the
Company, the Shareholders, CGH and Investor hereby agree as follows:
1. DEFINITIONS
-----------
1.1 Defined Terms. As used in this Agreement, and unless the context
-------------
requires a different meaning, the following terms shall have the meanings
indicated:
"Affiliate" means, with respect to any specified Person, any Person that,
directly or indirectly, Controls, is controlled by, or is under common Control
with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise.
"Audit Date" means December 31, 1997.
"Balance Sheet Date" means March 31, 1998.
"Board of Directors" means the Board of Directors of the Company and
Investor, as applicable.
"Bylaws" means the bylaws of the Company and Investor to be approved and
authorized by each Company's and Investor's Extraordinary Shareholders Meeting,
substantially in the forms attached hereto as EXHIBIT A, as the same may be
amended from time to time.
"Business Days" means all days other than Saturday or Sunday or any day on
which banking institutions in Denver, Colorado or Mexico City, Mexico are
authorized or obligated by law to close.
"Common Stock" means (i) the common stock of the Company; (ii) any other
capital stock of the Company into which such common stock is converted,
exchanged, reclassified or reconstituted; (iii) any warrants or options
exercisable for any of the foregoing; and (iv) any right to receive any of the
foregoing other than upon conversion of any security convertible into any of the
foregoing.
"Company's Line of Business" means the current line of business of the
Company and its Affiliates, any line of business that is related thereto and any
line of business that involves the production and distribution of greenhouse-
grown tomatoes, other greenhouse produce or related food products and ancillary
services.
"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 ownership of voting securities, by contract or otherwise.
2
<PAGE>
"Disclosure Schedule" means the Disclosure Schedule attached hereto as
EXHIBIT B.
"Environmental Laws" means any and all present and future laws (whether
common or statutory), compacts, treaties, conventions or rules, regulations,
codes, plans, requirements, criteria, standards, orders, decrees, judgments,
injunctions, notices or demand letters issued, promulgated or entered thereunder
by any applicable federal, tribal, state or local governmental entity in Mexico
relating to public or employee health and safety, pollution or protection of the
environment, and any and all other foreign, federal, state, tribal and local
laws, rules, regulations and orders relating to reclamation of land, wetlands
and waterways or relating to use, storage, emissions, discharges, clean-up,
release or threatened releases of pollutants, contaminants, chemicals or
industrial, toxic or Hazardous Substances on or into the workplace or the
environment (including without limitation, ambient air, oceans, waterways,
wetlands, surface water, ground water (tributary and non-tributary), land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transportation or
handling of pollutants, contaminants, chemicals or industrial, toxic, hazardous
or similar substances, as all of the foregoing may be amended, supplemented or
reauthorized from time to time.
"Financial Statements" means (i) the audited balance sheet of the Company
as of the Audit Date, together with the statement of operations, statement of
shareholders' equity and statement of cash flows for the fiscal year then ended,
accompanied by the report of an independent accountant; and (ii) the unaudited
balance sheet of the Company as of the Balance Sheet Date, together with the
statement of operations, unaudited statement of shareholders' equity, and
unaudited statement of cash flows of the Company for the three months then-
ended, both monthly and annual.
"GAAP" means generally accepted accounting principles in effect from time
to time, consistently applied in Mexico."
"Hazardous Substances" means (i) any pollutant, contaminate or hazardous,
dangerous or toxic chemicals, materials or substances within the meaning of any
Environmental Law; (ii) any radioactive material; and (iii) asbestos in any form
or condition.
"Indebtedness" means, as to any Person: (a) all obligations, whether or not
contingent, of such Person for borrowed money (including, without limitation,
reimbursement and all other obligations with respect to surety bonds, letters of
credit and bankers' acceptances, whether or not matured), (b) all obligations of
such Person evidenced by notes, bonds, debentures or similar instruments, (c)
all obligations of such Person representing the balance of deferred purchase
price of property or services, except trade accounts payable and accrued
commercial or trade liabilities arising in the ordinary course of business, (d)
all interest rate and currency swaps, caps, collars and similar agreements or
hedging devices under which payments are obligated to be made by such
3
<PAGE>
Person, whether periodically or upon the happening of a contingency, (e) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) all
Indebtedness of any other Person referred to in clauses (a) through (f) above,
guaranteed, directly or indirectly, by that Person.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"Material Adverse Effect" means any adverse change in the assets, business,
property, operations or financial condition of the Company or Investor, as
applicable.
"Marketing Agreements" means the Marketing Agreements attached hereto as
EXHIBIT C.
"Person" means any natural person, incorporated entity, limited or general
partnership, business trust, association, joint venture, limited liability
company, agency (government or private), division, political sovereign, or
subdivision or instrumentality, or any other entity of any kind, and any
successor, by merger or otherwise, of such entity.
"Related Agreements" means the Bylaws, the Shareholders Agreement, the
Marketing Agreements and the Employment Agreements.
"Shareholders Agreement" means the Shareholders Agreement attached hereto
as EXHIBIT G.
"US GAAP" means generally accepted accounting principles in effect from
time to time, consistently applied in the United States of America."
1.2 Other Defined Terms. The following terms shall have the meanings
-------------------
specified in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Closing Date 2.3
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Closing 2.1
Employment Agreements 5.15
Material Contracts 3.13
Proprietary Information 3.21
</TABLE>
1.3 Knowledge Standard. When used herein, the phrase "to the knowledge
------------------
of" any Person, "to the best knowledge of" any Person or any similar phrase
shall mean, (i) with respect to any individual, the actual knowledge of such
Person (ii) with respect to any corporation, the actual knowledge of officers
and directors, or Persons acting in similar capacities, of such corporation and
the knowledge of such facts that such persons should have in the exercise of
their duties after reasonable inquiry, (iii) with respect to any limited
liability company, the actual knowledge of the members and the officers and
directors of members, or Persons acting in similar capacities, of such entity
and the knowledge of such facts that such persons should have in the exercise of
their duties after reasonable inquiry, and (iv) with respect to a partnership,
the actual knowledge of the officers and directors of the general partner of
such partnership and the knowledge of such facts that such persons should have
in the exercise of their duties after reasonable inquiry. When used herein, the
phrase "to the knowledge of the Company," "to the best knowledge of the Company"
or any similar phrase shall mean "to the best knowledge of the Company or and
each Affiliate" using the standards set forth in the previous sentence. If such
phrase refers to Investor, Investor shall be substituted for the Company in the
previous sentence.
2. ISSUANCE, SUBSCRIPTION AND PAYMENT OF THE SHARES
------------------------------------------------
2.1 Issuance and Subscription. Subject to all the terms and conditions of
-------------------------
this Agreement and in reliance on the representations and warranties hereafter
set forth, at the closing described below (the "Closing"), (i) each Company and
the Shareholders agree to issue the Shares and the Investor agrees to subscribe
and pay a total subscription amount for the Shares of $32,703,000.00 Mex. Cy.,
which Shares, when issued, shall represent approximately 90% of the capital
stock of Greenver and approximately 93% of the capital stock of Invernaderos,
both on a fully diluted basis, and (ii) Investor agrees to issue the Investor's
Shares and to cause each Company to issue 1.80% of the Shares of Invernaderos
and 2.62% of the Shares of Greenver (together, the "CGH Shares"), and CGH
agrees to subscribe for and pay a total subscription amount for the Investor's
Share and the CGH Shares of US$4,000,000, which Investor's Shares, when issued,
shall represent 25% of the capital stock of Investors.
2.2. Authorization. At the Closing, the Company and the Shareholders will
-------------
have authorized the issuance of the Shares to be subscribed and paid for by
Investor and CGH, and Investor shall have authorized the Investor's Shares to be
subscribed and paid for by CGH. All Shares shall have the rights, preferences,
privileges and restrictions set forth in the Bylaws.
2.3 Closing; Delivery. The Closing shall take place on May 12, 1998 (the
-----------------
"Closing Date") at the offices located at 4379 La Jolla Drive Suite 610, San
Diego,
5
<PAGE>
California 92122, 12:00 local time, or at such other time or place as the
Company, the Shareholders and CGH may mutually agree. At the Closing, each
Company shall deliver to Investor and CGH and shall cause Investor to deliver to
CGH share certificates registered in Investors and CGH's name, representing the
Shares and Investor's Shares subscribed and paid hereunder and the Investor and
CGH shall deliver to each Company, and CGH shall deliver to Investor, the
applicable subscription price in immediately available funds.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
------------------------------------------------------------------
As a material inducement to CGH and Investor to enter into this Agreement,
the Company and the Shareholders make the following representations and
warranties to Investor for the benefit of CGH, and Investor makes certain of the
following representation and warranties to CGH, subject only to such disclosures
and exceptions as set forth in the Disclosure Schedule.
3.1 Organization, Standing, and Qualification of Each Company. Each of
---------------------------------------------------------
the Company and Investor is duly organized and validly existing under the laws
of Mexico. Each of the Company and Investor has all necessary corporate power
and authority to own and operate its properties and assets, to execute and
deliver this Agreement and the Related Agreements, to issue and sell the Shares
and Investor's Shares, as applicable, and to carry out the provisions of this
Agreement and the Related Agreements, and to carry on its business as now owned
and operated by it. Each of the Company and Investor is duly qualified to do
business as a foreign corporation in all jurisdictions, both nationally and
internationally, in which failure to so qualify would have or constitute a
Materially Adverse Effect.
3.2 Capitalization. (a) As of the date of and taking into account the
--------------
transactions occurring by or at the Closing, the authorized capital stock of
Greenver consists of 3,946 shares of Common Stock, $1,000 Mex. Cy. par value per
share. Immediately after the Closing, the outstanding capital stock of Greenver
shall be 50,262 shares of Common Stock divided in Series A Class I and Class II
and Series B Class I and Class II as provided in the Bylaws. A schedule listing
all Shareholders and the number of shares of capital stock held of record by
each such Shareholder, and a listing of all outstanding options and warrants and
any other obligation of Greenver to issue capital stock or securities
convertible into capital stock of Greenver is set forth on Item 3.1 of the
Disclosure Schedule. Such schedule is complete and accurate as of the Closing
Date. Except as set forth on Item 3.1 of the Disclosure Schedule, and taking
into account the transactions occurring by or at the Closing Date, there are no
outstanding rights, subscriptions, options, warrants, conversion privileges,
preemptive rights, or other agreements or commitments obligating Greenver to
issue or transfer any additional equity securities.
(b) As of the date of and taking into account the transactions
occurring by or at the Closing, the authorized capital stock of Invernaderos
consists of 668 shares of
6
<PAGE>
Common Stock, $1,000 Mex. Cy. par value per share. Immediately after the
Closing, the outstanding capital stock of Invernaderos shall be 12,818 shares of
Common Stock divided in Series A Class I and Class II and Series B Class I and
Class II as provided in the Bylaws. A schedule listing all Shareholders and the
number of shares of capital stock held of record by each such Shareholder, and a
listing of all outstanding options and warrants and any other obligation of
Invernaderos to issue capital stock or securities convertible into capital stock
of Invernaderos is set forth on Item 3.1 of the Disclosure Schedule. Such
schedule is complete and accurate as of the Closing Date. Except as set forth on
Item 3.1 of the Disclosure Schedule, and taking into account the transactions
occurring by or at the Closing Date, there are no outstanding rights,
subscriptions, options, warrants, conversion privileges, preemptive rights, or
other agreements or commitments obligating Invernaderos to issue or transfer any
additional equity securities.
(c) As of the date of and taking into account the transaction
occurring by or at the closing, the authorized capital stock of Investor
consists of 100 shares of Common Stock, $1,000 Mex. Cy. par value per share.
Immediately after the Closing, the outstanding capital stock of Investor shall
be 32,703 shares of Common Stock divided in Series A Class I and Class II and
Series B Class I and Class II. A schedule listing all Shareholders and the
number of shares of capital stock held of record by each such Shareholder, and a
listing of all outstanding options and warrants and any other obligation of
Investor to issue capital stock or securities convertible into capital stock of
Investor is set forth on Item 3.1 of the Disclosure Schedule. Such schedule is
complete and accurate as of the Closing Date. Except as set forth on Item 3.1 of
the Disclosure Schedule, and taking into account the transactions occurring by
or at the Closing Date, there are no outstanding rights, subscriptions, options,
warrants, conversion privileges, preemptive rights, or other agreements or
commitments obligating Investor to issue or transfer any additional equity
securities.
3.3 Validity of Stock. The Shares and Investor's Shares, when issued and
-----------------
delivered by each Company and Investors, as applicable, in accordance with the
terms of this Agreement, as well as all prior issuances of each Company's
capital stock, shall be (or have been) duly authorized, validly issued, fully
paid, and non-assessable and free of any liens or encumbrances.
3.4 Authorization; Enforceability. All corporate action on the part of
-----------------------------
each Company and Investor necessary for (i) the authorization, execution,
delivery, and performance of all the obligations of each Company under this
Agreement and the Related Agreements, and the consummation of the transactions
contemplated herein and thereunder, and (ii) the authorization, issuance,
execution, and delivery of the Shares and Investor's Shares to be issued by each
Company or Investor, as applicable, hereunder has been taken. This Agreement and
the Related Agreements constitute valid and binding obligations of Investor,
each Company and the Shareholders, enforceable against each Investor, each
Company and the Shareholders in accordance with their terms, subject only to
applicable bankruptcy, insolvency, reorganization, and moratorium laws and other
laws
7
<PAGE>
of general application affecting enforcement of creditors' rights generally and
to general equitable principles.
3.5 Affiliates. Except for the Mexican corporation Forestal San Angel,
----------
S.A. de C.V., the Company does not own, directly or indirectly, any interest or
investment (whether debt or equity) in any corporation, partnership, business,
trust, or other entity, is not a party to any agreement related thereto and does
not have any Affiliates.
3.6 Financial Statements. Greenver has provided to CGH and Investor the
--------------------
Financial Statements prior to the Closing Date. The Financial Statements have
been prepared in accordance with GAAP throughout the periods indicated and with
each other, except that unaudited Financial Statements may not contain all
footnotes required by GAAP. The Financial Statements present fairly the
financial condition and operating results of Greenver as of the dates, and for
the periods indicated therein, subject in the case of the unaudited Financial
Statements to normal year-end audit adjustments. Except as set forth in the
Financial Statements, neither Company has any liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business after the Balance Sheet Date, and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
GAAP to be reflected in the Financial Statements, which, in both cases,
individually or in the aggregate, are not or would not constitute a Material
Adverse Effect. Neither Company is a guarantor or indemnitor of any indebtedness
of any other person, firm or corporation. Neither Company knows of any
information or fact which has or would have a Material Adverse Effect which has
not been disclosed to CGH and Investor. Each Company maintains and will continue
to maintain a standard system of accounting established and administered in
accordance with GAAP. Greenver and the Shareholders represent that attached
hereto to Exhibit F is a complete, correct and true copy of the Company's
audited Financial Statements as of the Audit Date and the unaudited Financial
Statements as of the Balance Sheet Date.
3.7 Conduct of Business in the Ordinary Course. Since the Balance Sheet
------------------------------------------
Date, and excluding the transactions contemplated in this Agreement and the
Related Agreements, there has not been any of the following which is or may
individually or in the aggregate constitute or result in a Material Adverse
Effect:
(a) any change in the assets, liabilities, financial condition, or
operating results of either Company from that reflected in the Financial
Statements, other than changes in the ordinary course of business;
(b) any damage, destruction or loss, whether or not covered by
insurance of the business of either Company (as such business is presently
conducted and as it is presently proposed to be conducted);
(c) any waiver or compromise by either Company of a valuable right or
of a material debt owed to it;
8
<PAGE>
(d) any satisfaction or discharge of any lien, claim, or encumbrance
or payment of any obligation by either Company, except in the ordinary course of
business (as such business is presently conducted and as it is presently
proposed to be conducted);
(e) any change to a Material Contract or arrangement by which either
Company or any of its assets is bound or subject;
(f) any change in any compensation arrangement or agreement with any
employee, officer, director or shareholder;
(g) any sale, assignment, or transfer of any patents, trademarks,
copyrights, trade secrets, or other intangible assets;
(h) any resignation or termination of employment of any key officer
of either Company; and each Company, to the best of its knowledge, does not know
of the impending resignation or termination of employment of any such officer;
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of either Company;
(j) any mortgage, pledge, transfer of a security interest in, or
lien, created by either Company, with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by either Company to or for the
benefit of its employees, shareholders, officers, or directors, or any members
of their immediate families, other than travel advances and other advances made
in the ordinary course of its business;
(l) any declaration, setting aside, or payment of any dividend or
other distribution of either Company's assets in respect of any of such
Company's capital stock, or any direct or indirect redemption, purchase, or
other acquisition of any of such stock by either Company;
(m) to the best of each Company's knowledge, any other event or
condition of any nature or character; or
(n) any agreement or commitment by either Company to do any of the
things described in this Section 3.7.
3.8 Absence of Undisclosed Liabilities. To the knowledge of Investor and
----------------------------------
each Company, such entity has no liabilities or obligations (fixed or
contingent, including any material tax liabilities due or to become due) that
are not reflected or provided for in the Financial Statements which is or may
individually or in the aggregate constitute or result in a Material Adverse
Effect
9
<PAGE>
3.9 Tax Returns and Audits. The Company and the Shareholders, as the case
----------------------
may be, have timely filed all applicable federal, state, county, local and
foreign tax returns and reports within the times and in the manner prescribed by
law and has paid (or made adequate provision in the Financial Statements for)
all taxes shown due on such returns, as well as all other assessments and
penalties that have become due and payable in Mexico or any other jurisdiction.
The Company's federal income and other tax returns have not been audited by any
competent Mexican authority and no notice of audit has been received. To the
Company's knowledge, the provisions for taxes in the Financial Statements are
adequate for any and all federal, state, county, local and foreign taxes for the
period ending on the Balance Sheet Date and for all prior periods, whether or
not disputed. The Company and the Shareholders have not received notice of any
disputes, deficiency assessments, liens on the assets of the Company for taxes
due and not timely paid, or proposed adjustments to taxes payable by the Company
in Mexico or in any other jurisdiction.
3.10 Assets. Each Company has good and, with respect to real property,
------
marketable, title to all of its real and personal property, including all assets
reflected on the balance sheets included in the Financial Statements or acquired
by either Company since the Balance Sheet Date, all of which are in good
operating condition and free and clear of material restrictions on or conditions
to transfer or assignment, and free and clear of all liens, claims, mortgages,
pledges, charges, equities, easements, rights of way, covenants, conditions,
security interests, encumbrances, or restrictions, except for liens for current
taxes or materialmen not yet due and payable or being contested in good faith.
Set forth on Item 3.2 of the Disclosure Schedule is a correct and complete list
of all real property owned by the Company, a list of each item of personal
property having a market value in excess of US$2,000, and a list (including the
amount of annual rents called for and a summary description of the leased
property) of all leases under which the Company is a lessee. The properties and
leases listed on Item 3.2 of the Disclosure Schedule are sufficient for the
conduct of each Company's business as now being and presently planned to be
conducted. Each Company holds a valid leasehold interest in all leases listed
on Item 3.2 of the Disclosure Schedule, free of any liens, claims, or
encumbrances granted by the Company and, except as set forth on Item 3.2 of the
Disclosure Schedule, is not in default under any such lease. Each Company
enjoys peaceful and undisturbed possession of all premises owned by it, or
leased to it from others, and does not occupy any real property in violation of
any law, regulations, or decree.
3.11 Insurance Policies. The Company has in full force and effect (i)
------------------
adequate insurance policies to protect its assets and businesses covering
property damage by fire, business interruption or other casualty, sufficient in
amount to allow it to replace any of its properties damaged or destroyed; (ii)
insurance policies to protect against all liabilities, claims, and risks against
which it is customary in amounts customary for companies similarly situated with
the Company. Item 3.3 of the Disclosure Schedule accurately summarizes all of
the insurance policies of the Company in effect as of each Closing Date, copies
of which have been provided previously to CGH and Investor, and indicates each
10
<PAGE>
insurer's name, policy and expiration date, amount and type of coverage and
premiums and deductibles.
3.12 Bylaws. Each Company is not currently in violation of any provision
------
of its Bylaws, as in effect on each Closing Date. There is no default or event
that, with notice or lapse of time, or both, would conflict with or constitute a
breach of the Bylaws.
3.13 Material Contracts. Except as set forth on Item 3.4 of the Disclosure
------------------
Schedule, none of Investor or either Company has, nor is it bound by, any
contract, agreement, lease, commitment, or proposed transaction, judgment,
order, writ or decree, written or oral, absolute or contingent, other than (i)
contracts for the purchase of supplies and services that were entered into in
the ordinary course of business and that do not involve more than US$10,000, and
do not extend for more than one year beyond the date hereof; (ii) sales
contracts entered into in the ordinary course of business; and (iii) contracts
terminable at will by Investor or either Company on no more than 30 days' notice
without cost or liability to Investor or either Company and that do not involve
any employment or consulting arrangement and are not material to the conduct of
the Company's business. For the purpose of this paragraph, employment and
consulting contracts, contracts with labor unions, license agreements and any
other agreements relating to the Company's acquisition or disposition of patent,
copyright, trade secret or other proprietary rights or technology (other than
standard end-user license agreements) shall not be considered to be contracts
entered into in the ordinary course of business. Every contract disclosed on
Item 3.4 of the Disclosure Schedule (collectively, the "Material Contracts") is
a legal, valid and binding obligation, enforceable in accordance with its terms
with respect to the Company and any other parties bound thereby, and true and
complete copies of all Material Contracts have been provided to CGH and
Investor. Investor nor either Company is not, nor has it given or been given
notice that any other party is, currently in breach of any of the terms of any
Material Contract. There is no default or event that, with notice or lapse of
time, or both, would conflict with or constitute a breach of any Material
Contract or would result in the creation or imposition of any lien or
encumbrance on Investor or either Company or any of Investor's or either
Company's property. Neither Investor nor either Company has received notice that
any party to any Material Contract intends to cancel, amend or terminate any
such agreement.
3.14 Litigation. There are no actions, suits, or legal, administrative, or
----------
other proceedings or investigations pending or, to the best of Investor's or the
Company's knowledge, threatened before any court, agency, or other tribunal to
which Investor or the Company is a party or against or affecting any of the
property, assets, businesses, or financial condition of Investor or the Company.
None of Investor or either Company is in default with respect to any order,
writ, injunction, or decree of any federal, state, local or foreign court,
department, agency, or instrumentality to which it is a party.
3.15 Related Transactions. Except as set forth on Item 3.5 of the
--------------------
Disclosure Schedule, there are no obligations of Investor or either Company to
its officers, directors, shareholders or employees of Investor or the Company
other than (a) for payment of salary
11
<PAGE>
for services rendered; (b) reimbursement for reasonable expenses incurred on
behalf of Investor or the Company; and (c) for other standard employee benefits
made generally available to all employees. Except as set forth on Item 3.5 of
the Disclosure Schedule, none of the officers, directors or shareholders of
Investor or the Company, or any members of their immediate families, are
indebted to Investor or the Company or have any direct or indirect ownership
interest in any firm or corporation with which Investor or the Company has a
business relationship, or any firm or corporation which competes with the
Investor or Company, except that officers, directors and/or shareholders of
Investor or the Company may own stock in publicly traded companies may compete
with Investor or the Company. Except as set forth on Item 3.5 of the Disclosure
Schedule, (i) no officer, director or shareholder, or any member of their
immediate families, is interested, directly or indirectly, in any Material
Contract with Investor or the Company (other than such contracts as relate to
any such person's ownership of capital stock or other securities of Investor or
the Company) and (ii) none of Investor or either Company neither pays or is
obligated to pay for expenses (including debt service, rent or operating costs)
of assets that are not used in Investor's or the Company's business. Except as
may be disclosed in the Financial Statements, none of Investor or either Company
is a guarantor or indemnitor of any indebtedness of any other Person.
3.16 Agreement Will Not Cause Breach or Violation. The consummation of the
--------------------------------------------
transactions contemplated by this Agreement and the Related Agreements
(including the issuance and sale of the Shares) will not result in any violation
of or constitute a default or an event that, with notice or lapse of time, or
both, would conflict with or constitute a breach or default of the Bylaws of the
Company or Investor, or of any Material Contract or any material provision of
local, state, federal or foreign law, rule or regulation and will not result in
the creation or imposition of any lien or encumbrance on any of Investor's or
the Company's property or on the Shares or Investor's Shares.
3.17 Governmental Approvals/Third Party Consents. All consents, approvals,
-------------------------------------------
or authorizations of, or registrations, qualifications, designations,
declarations, or filings with any federal, state or local governmental
authority, and all consents, approvals or authorizations of any third party
required in connection with the execution of this Agreement, the Related
Agreements and the performance of the transactions contemplated hereby
(including the issuance and sale of the Shares) have been obtained by Investor
or the Company. Each of Investor and the Company has, or has rights to acquire,
all licenses, permits, and other similar authority necessary for the conduct of
its business as now being conducted by it and as planned to be conducted, the
lack of which could cause a Materially Adverse Effect on the Company, and it is
not in default in any material respect under any of such licenses, permits or
other similar authority.
3.18 Registration Rights. None of Investor or either Company is under any
-------------------
obligation to register with any securities authority any of its presently
outstanding shares representing its capital stock pursuant to Mexican law.
12
<PAGE>
3.19 Environmental Matters. Each of Investor and the Company is in
---------------------
compliance in all material respects with all Environmental Laws and, to its
knowledge, no material expenditures are or will be required in order to comply
with any Environmental Law. Each of Investor and the Company is not in violation
of any of its environmental permits required under any Environment Law. Neither
Investor nor the Company has knowingly handled, stored or released, or exposed
any person to, any Hazardous Substances. Each of Investor and the Company is
not, and has no knowledge that it will be in the future, liable or responsible
for clean-up costs, remedial work or damages in connection with the handling,
storage, release, or exposure by Investor or the Company of any Hazardous
Substances. To Investor's or the Company's knowledge, no claims for clean-up
costs, remedial work or damages have been made by any person or entity in
connection with the handling, storage, release, or exposure by Investor or the
Company of any Hazardous Substances, or in connection with any Environmental
Law.
3.20 Bankruptcy. Neither Investor or the Company has admitted in writing
----------
ts inability to pay its debts generally as they become due, filed or consented
to the filing against it of a petition in bankruptcy or a petition to take
advantage of any insolvency act, made an assignment for the benefit of
creditors, consented to the appointment of a receiver for itself or for the
whole or any substantial part of its property, or had a petition in bankruptcy
filed against it, been adjudicated a bankrupt, or filed a petition or answer
seeking reorganization or arrangement under the federal bankruptcy laws or any
other law or statute of Mexico or any other jurisdiction.
3.21 Intellectual Property.
---------------------
(a) Neither Investor, the Company nor the Shareholders own rights to
any intellectual property or hold or control any proprietary information.
(b) There is no pending or threatened claim or litigation against
Investor, the Company or the Shareholders relating to any proprietary
information.
(c) There is no pending or threatened claim or litigation against
Investor, the Company or the Shareholders asserting the infringement or other
violation of any intellectual property rights of any third party or past or
current employee of Investor or the Company.
(d) Except as may be set forth on Item 3.5 of the Disclosure
Schedule, no shareholder, director, officer or employee of Investor or the
Company has any right, title or interest in or to any proprietary information.
3.22 Issuance Taxes. All taxes imposed by law in connection with the
--------------
issuance, sale and delivery of the Shares will have been fully paid, and all
laws imposing such taxes shall have been fully complied with, as of each Closing
Date.
13
<PAGE>
3.23 Employees and Consultants. Except as set forth on Item 3.5 of the
-------------------------
Disclosure Schedule and excluding the transactions contemplated by this
Agreement and the Related Agreements, neither Investor nor the Company has
entered into any arrangement with any present or former employee that will
result in any obligation of Investor or the Company to make any payment to such
employee upon termination. Item 3.5 of the Disclosure Schedule identifies each
director and named executive officer (which includes all officers and the next
10 highest paid employees) of Investor and the Company, such officer's starting
date of employment and current annual salary (including in such salary, the
value of all non cash perquisites such as cars and lodging). True and complete
copies of all written employment agreements with the key executive officers of
Investor and the Company listed on Item 3.5 of the Disclosure Schedule have been
delivered to CGH and Investor prior to the Closing Date. To Investor or the
Company's knowledge, no employee of or consultant to Investor or the Company is
in material violation of any term of any employment contract or any other
contract or agreement relating to the relationship of any such employee or
consultant with Investor or the Company. Neither Investor nor the Company has
not received notice that any executive officer intends to terminate his
employment with Investor or the Company, nor does Investor or the Company have
any present intention to terminate the employment of any executive officer. To
Investor's or the Company's knowledge, none of its employees are obligated under
any contract (including licenses, covenants, or commitments of any nature) or
other agreement, or subject to any judgment, decree, or order of any court or
administrative agency, that would interfere with the use of his/her reasonable
diligence to promote the interests of Investor or the Company or that would
conflict with Investor's or the Company's business as proposed to be conducted.
Neither the execution nor delivery of this Agreement, nor the carrying on of
Investor or the Company's business by the employees of Investor or the Company,
nor the conduct of the Company's business as proposed, will, to Investor's or
the Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant, or instrument under which any of such employees is obligated, which
conflict, breach, or default would be Material Adverse Effect on Investor or
the Company. Each or Investor and the Company has complied and is in no breach
of labor laws, specifically in respect of provisions related to child labor.
Item 3.5 of the Disclosure Schedule contains a true, correct and complete list
of officers and employees of Investor and the Company and their salaries and
compensations valid as of the date hereof.
3.24 Employee Benefits Matters. Neither Investor nor the Company
-------------------------
maintains or contributes to any plan or arrangement that constitutes an employee
pension benefit plan that individually or in the aggregate results in a Material
Adverse Effect.
3.25 Compliance with Laws. (a) Each of Investor and the Company has
--------------------
complied with and is in compliance in all material respects with all foreign,
federal, state and local statutes, laws, ordinances, regulations, rules,
judgments, orders and decrees applicable to it and its assets, business and
operations, and (b) each of Investor and the Company has not received written
notice of any claim of default under or violation of any statute, law,
ordinance, regulation, rule, judgment, order or decree except for any such
14
<PAGE>
noncompliance or claim of default or violation, if any, which in the aggregate
do not and will not have a Material Adverse Effect on Investor or the Company.
3.26 Brokers. All negotiations relating to this Agreement and the
-------
transactions contemplated hereby have been carried on by Investors, the Company
and the Shareholders directly with CGH and without the intervention of any
person on behalf of Investors, the Company or the Shareholders, and in such
manner as not to give rise to any valid claim against any of the parties for a
finder's fee, brokerage commission or like payment.
3.27 Accuracy of Information Furnished. This Agreement, the Related
---------------------------------
Agreements, the Disclosure Schedule, the Financial Statements, as well as any
exhibit, certificate, written statement, material or information furnished by or
on behalf of Investor and the Company pursuant hereto or in connection with the
transactions contemplated hereby to CGH, do not contain any untrue statement of
a material fact or omit to state any material fact that is necessary to make the
statements contained herein or therein not misleading. Further, there is no fact
known to the Company or the Shareholders that the Company or the Shareholders
have not disclosed to CGH and Investor in writing, which has a Material Adverse
Effect on the Company, or insofar as the Company can reasonably foresee, will
have a Material Adverse Effect on the Company, or the ability of the Company to
perform its obligations under this Agreement, the Related Agreements, or any
document contemplated thereby.
4. REPRESENTATIONS AND WARRANTIES OF CGH
-------------------------------------
CGH represents and warrants to Investor, the Company and the Shareholders
that is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. All action on CGH's part required for
the lawful execution and delivery of this Agreement and the Related Agreements
has been or will be effectively taken prior to the Closing Date. Upon their
execution and delivery, this Agreement and the Related Agreements will be valid
and binding obligations of CGH, enforceable in accordance with their terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and (ii) general principles of equity that restrict the
availability of equitable remedies.
5. CONDITIONS TO CGH'S OBLIGATIONS AT CLOSING
------------------------------------------
The obligation of CGH to consummate the transactions contemplated hereby on
the Closing Date is subject to the satisfaction on or before the Closing Date of
the following conditions:
15
<PAGE>
5.1 Representations and Warranties. All representations and warranties of
------------------------------
Investor, the Company and the Shareholders herein or in any exhibit or
certificate delivered hereunder shall be true and correct as of the date hereof,
and as of the Closing Date, with the same force and effect as if made on and as
of such Closing Date, subject to such disclosures and exceptions as may be
specifically described in the Disclosure Schedule.
5.2 Performance. All covenants, obligations and conditions required by
-----------
the terms of this Agreement to be performed or complied with by Investor, the
Company and the Shareholders at or before the Closing Date shall have been duly
and properly performed.
5.3 Approval of Documentation. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated by this Agreement and the form and
substance of all documents delivered hereunder shall be reasonably satisfactory
to CGH and to its counsel.
5.4 Consents. All necessary agreements and consents of any third parties
--------
(including those listed on the Disclosure Schedule) to the consummation of the
transactions contemplated by this Agreement shall have been obtained by Investor
and the Company and delivered to CGH.
5.5 Approvals. All necessary approvals or authorizations of any
---------
governmental authority of Mexico or of any state therein or of any foreign
governmental authority that are required in connection with the execution and
performance of this Agreement, including the issuance and sale of the Shares,
shall have been obtained and shall be effective as of the Closing Date.
5.6 Closing Certificates. Each Company, Investor and the Shareholders
--------------------
shall have delivered to CGH a certificate executed by the President of Investor
and each Company and each Shareholder certifying to such matters as CGH may
reasonably request, including that the representations and warranties of the
Company and the Shareholders in the Agreement are true and correct on and as of
the Closing Date, and that the conditions set forth in this Section 5 to be
satisfied by the Company have been satisfied on and as of the Closing Date.
5.7 Sole Manager's Certificates. CGH shall have received a certificate
---------------------------
from each Company, dated as of the Closing Date and signed by the Sole Manager
of each Company, certifying that the attached copies of the bylaws of each
Company, and resolutions of the Board of Directors approving this Agreement, the
Related Agreements and the transactions contemplated thereby, are all true,
complete and correct and remain unamended and in full force and effect.
5.8 No Material Adverse Effect. Since the Balance Sheet Date, (i) there
--------------------------
shall have been no Material Adverse Effect on the Company, and (ii) there shall
be no fact
16
<PAGE>
known to the Company or that the Company can reasonably foresee that has not
been disclosed to CGH and/ Investor, which will or would be reasonably likely
to have a Material Adverse Effect on the Company.
5.9 Certain Waivers. Each holder of the shares of the capital stock of
---------------
the Company (or any other party who may possess such rights) shall have waived
any and all preemptive rights, rights of first refusal, "tag along" rights,
rights of co-sale and any similar rights with respect to the issuance of the
Shares contemplated hereby.
5.10 No Judgment or Order That Would be a Material Adverse Effect. There
------------------------------------------------------------
shall not be on the Closing Date any judgment or order of a court of competent
jurisdiction or any ruling of any federal, state or local governmental authority
or any condition imposed under any law, rule, regulation or order to which the
Company, its assets, operations, or business is subject that, in the reasonable
judgment of CGH or Investor, would (i) prohibit the purchase of the Shares or
the consummation of the other transactions contemplated hereunder, (ii) subject
CGH or Investor to any penalty if the Shares were to be purchased hereunder,
(iii) question the validity or legality of the transactions contemplated hereby,
or (iv) be reasonably expected to have a Materially Adversely Effect on the
value of the capital stock of the Company, the Shares or the financial condition
of the Company.
5.11 Opinion of Counsel. CGH shall have received an opinion of Mr. Manuel
------------------
Diaz Salazar counsel to the Company, in the form attached hereto as EXHIBIT D,
dated as of the Closing Date.
5.12 Shareholders Meetings. The Shareholders shall have caused the Company
----------------------
on or before the Closing Date to hold a General Extraordinary and Ordinary
Shareholders Meeting of each of Greenver and of Invernaderos, resolving among,
other things, (i) the authorization of the Bylaws; (ii) the appointment of Mr.
James R. Rinella as a member of each Board of Directors or; (iii) approval of
financial statements for 1997; and (iv) the issuance of the Shares and the
increase of the capital stock of Greenver and of Invernaderos and the delivery
of the corresponding stock certificates to Investor and CGH.
5.13 Corporate Records. The Company and the Shareholders have caused the
------------------
registration of the subscription of the Shares by CGH and Investor in the
corporate records of such Company such as the stock registry book.
5.14 Shareholders Agreements; Marketing Agreement. The Company, CGH and
--------------------------------------------
the other parties thereto shall have executed and delivered the Shareholders
Agreement and the Marketing Agreements on or before the Closing Date.
5.15 Employment Agreements. Each of Jorge Guillermo Batiz Guillen, Raul
---------------------
Batiz Guillen, Hector Cuen Lopez, Eduardo Cuen Lopez, Yaron Giras, and Alvaro
Calderon Medina shall have executed and delivered Employment Agreements, in
17
<PAGE>
substantially the same form as is attached hereto as EXHIBIT E on or before the
Closing Date.
5.16 Board of Director Resolutions. All resolutions required by the Board
-----------------------------
of Directors pertaining to this Agreement and the Related Agreements shall have
been delivered to CGH and Investor on or before the Closing Date, and approved
by them.
5.17 CGH Review. CGH shall have completed its due diligence review of, and
----------
shall be satisfied with its conclusions regarding, Investor's and the Company's
business, operations, financial condition and projections on or before the
Closing Date.
6. CONDITIONS TO THE COMPANY'S AND SHAREHOLDERS' OBLIGATIONS AT CLOSING
--------------------------------------------------------------------
The obligation of the Company and the Shareholders to consummate the
transactions contemplated hereby on the Closing Date is subject to the
satisfaction on or before the Closing Date of the following conditions by CGH
and/or Investor:
6.1 Representations and Warranties. All representations and warranties of
------------------------------
CGH herein shall be true and correct as of the Closing Date.
6.2 Performance. All obligations and conditions required by the terms of
-----------
this Agreement to be performed or complied with by CGH and/or Investor on or
before the Closing Date shall have been duly and properly performed.
6.3 Approval of Documentation. All proceedings in connection with the
-------------------------
transaction contemplated by this Agreement and the form and substance of all
documents shall be reasonably satisfactory to the Company and to its counsel on
or before the Closing Date.
6.4 Consents. All necessary agreements and consents of any parties to the
--------
consummation of the transactions contemplated by this Agreement or otherwise
pertaining to the matters covered by it shall have been obtained by CGH and/or
Investor and delivered to the Company on or before the Closing Date.
6.5 Approvals. All necessary approvals or authorizations of any
---------
governmental authority of any foreign state, the United States or of any state
therein that is required in connection with the execution and performance of
this Agreement shall have been obtained and shall be effective as of the Closing
Date.
6.6 Termination of Bridge Loan. The Bridge Loan shall be terminated and
--------------------------
there will be no personal responsibility or guarantee from any of the
Shareholders.
18
<PAGE>
6.7 Shareholders Agreements; Marketing Agreement. The Company, CGH and
----------------------- -------------------
the other parties thereto shall have executed and delivered the Shareholders
Agreement and the Marketing Agreements on or before the Closing Date.
7. COVENANTS OF THE COMPANY FOR THE PERIOD FOLLOWING CLOSING
---------------------------------------------------------
The Company, Investor and the Shareholders covenant to CGH for its benefit
as follows:
7.1 Use of Proceeds. The Company and Investor shall use all proceeds from
---------------
the subscription of the Investor Shares and the Shares by CGH and Investor, as
the case may be, pursuant to the this Agreement and the Related Agreements shall
be used (i) to provide capital for the construction of 30 hectares of new
greenhouse facilities, (ii) to provide the related working capital associated
with the operation of such greenhouses and (iii) up to a US$2,000,000 credit in
favor of the shareholders of record of the Company immediately preceding the
Closing Date; provided, however, that prior to the use of proceeds specified in
-------- -------
subsection (iii) above, the Company either must (y) complete construction of the
30 hectares of new greenhouse facilities to the satisfaction of CGH, or (z)
arrange for a refinancing of the Company's existing indebtedness on terms
mutually satisfactory to the Company, Investor and CGH.
7.2 Maintenance of Corporate Status. Each of the Company and Investor
-------------------------------
shall maintain its corporate existence in good standing under the laws of its
jurisdiction of organization and any other states or jurisdictions in which its
failure to qualify as a foreign corporation would have a material adverse effect
on its operations or financial condition.
7.3 Compliance with Governing Documents. Each of the Company and Investor
-----------------------------------
shall comply in all material respects with its Bylaws or other governing
documents.
7.4 Compliance with Laws, Licenses and Permits; No Infringement. The
-----------------------------------------------------------
Company and Investor shall comply with all applicable federal, state, local,
foreign and other laws, regulations and ordinances, and with all applicable
federal, state, local and foreign governmental licenses and permits necessary
for conducting its business, except to the extent that any noncompliance would
not have a material adverse effect upon the Company or the Investor. The Company
and Investor shall not knowingly engage in any activities that infringe upon the
intellectual property rights of any other person, corporation, partnership or
other entity which could have a material adverse effect upon the Company or the
Investor.
7.5 Discharge of Obligations. The Company and Investor shall pay and
------------------------
discharge all taxes, assessments, and governmental charges lawfully levied or
imposed upon it (in each case before they become delinquent and before penalties
accrue), all lawful claims for labor, materials, supplies and rents, and all
other debts and liabilities that if
19
<PAGE>
unpaid would, by law, be a lien or charge upon any of the asserts or properties
of the Company and Investor or lead to suspension of the business of the Company
or the Investor (except to the extent contested in good faith by the Company or
Investor and for which adequate reserves are established).
7.6 Maintenance of Properties. The Company and Investor shall maintain
-------------------------
all real and personal property used in the business of the Company in good
operating condition, and shall make all repairs, renewals, replacements,
additions and improvements to those properties as are necessary or appropriate
in the ordinary course of business.
7.7 Insurance. The Company and Investor shall maintain in full force and
---------
effect (a) adequate insurance policies to protect its assets and businesses
covering property damage by fire, business interruption or other casualty,
sufficient in amount to allow it to replace any of its properties damaged or
destroyed, and (b) insurance policies to protect against all liabilities,
claims, and risks against which it is customary in amounts customary for
companies similarly situated with the Company.
7.8 Books and Records. The Company and Investor shall keep proper books
-----------------
of records and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company in accordance
with GAAP. The Company and Investor shall provide CGH with access to all such
books and records and allow CGH to make copies and abstracts thereof at
reasonable times.
7.9 Stock Redemptions. The Company and Investor shall not apply any of
-----------------
its assets for the redemption, retirement, purchase or acquisition of any shares
of any series or class of stock of the Company or Investor, except as provided
in the Related Agreements or the Bylaws.
7.10 Further Assurances. Each of the Company, Investor and the
------------------
Shareholders, as the case may be, at its expense, will execute and deliver
promptly to CGH upon request all such other and further documents, agreements
and instruments in compliance with or pursuant to its covenants and agreements
herein, and will make any recordings, file any notices, and obtain any consents
as may be necessary or appropriate in connection therewith.
7.11 Notices. The Company and Investor, as the case may be, shall give
-------
written notice to each member of the Board of Directors of:
(a) any (i) default or event of default under any Material Contract of
the Company or the Investor; (ii) initiation or resolution of any material
dispute, litigation, investigation, or proceeding which may exist at any time
between the Company or the Investor and any private third party or governmental
authority; (iii) any default or breach of the terms of this Agreement or any of
the Related Agreements by the Company or the Investor; (iv) any event which
would render any of the representations, warranties and covenants of the Company
and the Investor contained herein to be untrue; and (v) any
20
<PAGE>
other matter that has resulted in a Material Adverse Effect in the condition of
the Company or the Investor, whether financial or otherwise.
(b) Each notice pursuant to this Section 7.14 shall be accompanied by
a statement on behalf of the Company or Investor by the Chief Executive Officer,
President or Chief Financial Officer of the Company or Investor, as applicable,
setting forth details of the occurrence referred to therein, stating what action
the Company or the Investor proposes to take with respect thereto, the Company
officer responsible for such action and the timetable with respect to such
action.
7.12 Board of Directors; Expenses for Board Members. The Company,
----------------------------------------------
Shareholders and Investor shall cause the Board of Directors of each Company and
Investor to consist of at least one individual designated by CGH until the next
annual meeting of the shareholders. CGH's initial designee shall be James R.
Rinella. The Company or the Investor shall reimburse CGH's designee on the Board
of Directors for all out-of-pocket expenses related to attendance of directors
meetings or other related director activities. The Company's and the Investor's
Board of Directors shall meet monthly.
7.13 Dividends. At any time, the Extraordinary Shareholders Meeting of
---------
the Company or Investor shall resolve on the determination to dividend to its
shareholders all funds legally available therefor except such amounts as are
reasonably determined by such Shareholders Meeting to be retained for capital
expenditures and working capital reserves, according to what is provided the
Bylaws.
7.14 Financial Statements. The Company and Investor shall provide CGH with
--------------------
(i) monthly financial statements within 30 days after the end of each month and
(ii) audited financial statements within 120 days after the end of each fiscal
year of the Company and Investor. The financial statements will be prepared in
accordance with and GAAP. The annual financial statements will be audited by
Arthur Andersen or another internationally recognized accounting firm acceptable
to both the Company, the Investor and CGH. The Company and Investor shall cause
all its financial statements monthly, quarterly and annual to be converted to US
GAAP.
7.15 Related Party Transaction. Without the unanimous consent of all
-------------------------
members of the Company's or Investor's Board of Directors, as the case may be,
the Company and the Investor will not (i) increase the compensation paid to any
of officer, director or owner of five percent or more of the Company's or
Investor's outstanding capital stock (each an "Insider") or (ii) pay for any
expenses of any Insider (or any Affiliate of an Insider) relating to personal
assets of such Insider or Affiliate except to the extent such assets are used by
or for the benefit of the Company and the Investor.
7.16 Budgets. On or before July 31 of each year, the Company and Investor
-------
shall prepare and submit for review and approval by CGH a detailed month-by-
month
21
<PAGE>
budget (including projected capital expenditures, operating costs and revenues,
and scheduled debt payments) for the next calendar year.
7.17 Indebtedness. Without the prior written consent of CGH, the Company
------------
and the Investor shall not incur in any Indebtedness other than Indebtedness
incurred in the ordinary course of business of the Company and Investor and
that, in the aggregate, does not exceed US$250,000.
7.18 New Lines of Business. Neither the Company nor the Investor shall,
---------------------
without the prior written consent of CGH, engage in any material activity in any
line of business other than the Company's Line of Business, or in the case of
Investor, being a holder of stock in the Company.
8. SURVIVAL
All covenants, agreements, representations and warranties and other
statements of the Company, Investor and the Shareholders made herein and in the
certificates, lists, exhibits, attachments, schedules or other written
information delivered or furnished to CGH and Investor in connection herewith
shall be deemed to have been relied upon by CGH and Investor in making their
decision to enter into this Agreement and the Related Agreements, and, except as
may be provided otherwise in this Agreement, shall survive the execution and
delivery of this Agreement, the Closing, the delivery of the Shares, and any
investigation at any time (or any statement as to the results thereof) made by
or on behalf of CGH and Investor and shall remain in full force and effect, and
shall bind the Company's and Investors successors and assigns, whether so
expressed or not, and all such covenants, agreements, representations and
warranties shall inure to the benefit of CGH's successors and assigns and to
transferees of the Shares, whether so expressed or not.
9. INDEMNIFICATION
9.1 Indemnification from the Company and Investor.
---------------------------------------------
(a) Without limitation of any other provision of this Agreement, the
Company and Investor agree to defend, indemnify and hold CGH and their
Affiliates and their respective direct and indirect partners, members,
shareholders, directors, officers, employees and agents and each person who
controls any of them (parties receiving the benefit of the indemnification
provisions herein shall be referred to collectively as "Indemnified Parties" and
individually as an "Indemnified Party") harmless from and against any and all
losses, claims, damages, obligations, liens, assessments, judgments, fines,
liabilities, and other costs and expenses, including, without limitation,
interest, penalties and any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted, as the same are incurred, and including any
diminution in the value of the of any kind or nature whatsoever (collectively,
"Liabilities") that may be sustained or suffered by any
22
<PAGE>
such Indemnified Party, based upon, arising out of, by reason of or otherwise in
respect of or in connection with (i) any material inaccuracy in, or breach of,
any representation or warranty made by the Company or Investor in this
Agreement, in any of the Related Agreements, or in any other agreement,
instrument or other document delivered pursuant to this Agreement or the Related
Agreements, (ii) any material breach of any covenant or agreement made by the
Company and Investor in this Agreement in any of the Related Agreements, or in
any other agreement, instrument or other document delivered pursuant to this
Agreement or the Related Agreements, (iii) any liability or penalty for failure
of the Company or Investor to pay any applicable taxes due and owing prior to
the Closing Date; (iv) any third party or governmental action relating to any
action taken or omitted to be taken or alleged to have been taken or omitted to
have been taken by an Indemnified Party as shareholder, director, agent,
representative or controlling person of the Company or Investor, including,
without limitation, any and all losses, claims, damages, expenses and
liabilities, joint or several (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted, as the same may be incurred)
arising or alleged to arise under any domestic or foreign federal or state
statutory law or regulation, at common law or otherwise, including without
limitation any such claim alleging so-called control person liability or
securities law liability, (v) any third party claims that the terms of this
Agreement violate any preexisting understandings or arrangements with the
Company or Investor, (vi) any claims by the Company or Investor or any third
party relating to any promises, alleged promises, verbal commitments, written
commitments or the like alleged to have been made by CGH that are not reflected
in the terms of this Agreement or the Related Agreements, or (vii) any and all
claims based upon, relating to, or arising out of CGH's status as shareholders
of the Company and Investor and the existence or exercise of the rights and
powers of CGH under this Agreement or the Related Agreements; provided, however,
-------- -------
that the Company and Investor will not be liable to an Indemnified Party (A) to
the extent that it is finally judicially determined that such Liabilities
resulted from the willful misconduct or gross negligence of such Indemnified
Party; or (B) to the extent that it is finally judicially determined that such
Liabilities resulted from the material breach by such Indemnified Party of any
representation, warranty, covenant or other agreement of such Indemnified Party
contained in this Agreement or the Related Agreements; provided, further, that
-------- -------
if and to the extent that such indemnification is unenforceable for any reason,
the Company and Investor shall make the maximum contribution to the payment and
satisfaction of such indemnified liability which shall be permissible under
applicable laws.
(b) The indemnification and contribution provided for in this Section
9.1 will remain in full force and effect regardless of any investigation made by
or on behalf of the Indemnified Parties or any officer, director, partner,
employee, agent or controlling person of the Indemnified Parties.
(c) The Company and Investor, as the case may be, agrees to pay any
and all stamp, transfer and other similar taxes, if any, payable or determined
to be payable
23
<PAGE>
in connection with the execution and delivery of this Agreement and the issuance
of the Shares.
9.2 Notification. Each Indemnified Party under this Section 9 shall
------------
promptly, after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Company or Investor, as the
case may be, under this Section 9, notify the Company or Investor, as the case
may be, in writing of the commencement thereof. The failure of any Indemnified
Party to so notify the Company or Investor of any such action shall not relieve
the such party from any liability which it may have to such Indemnified Party
under this Section 9 except to the extent that such failure to notify results in
a loss of a material defense of such Indemnified Party or in actual prejudice
due to such action. In case any such action, claim or other proceeding shall be
brought against any Indemnified Party and such Indemnified Party shall notify
the Company and the Investor of the commencement thereof, the Company and
Investor, as applicable, shall be entitled to assume the defense thereof at its
own expense, with counsel satisfactory to such Indemnified Party in its
reasonable judgment; provided, however, that any Indemnified Party may, at its
-------- -------
own expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any action, claim or proceeding in which the
Company, or Investor on the one hand and an Indemnified Party on the other hand
is, or is reasonably likely to become, a party, such Indemnified Party shall
have the right to employ separate counsel at the Company's or Investor's expense
and to control its own defense of such action, claim or proceeding if, in the
reasonable opinion of counsel to the Company or Investor, as applicable, a
conflict or potential conflict exists between the Company or Investor, as
applicable, on the one hand, and such Indemnified Party, on the other hand, that
would make such separate representation advisable. Each of the Company and
Investor agree that it will not, without the prior written consent of CGH (such
consent not to be unreasonably withheld), settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated hereby (if any Indemnified Party is a party
thereto or has been actually threatened to be made a party thereto) unless such
settlement, compromise or consent includes an unconditional release of CGH and
each other Indemnified Party from all liability arising or that may arise out of
such claim, action or proceeding. The rights accorded to Indemnified Parties
hereunder shall be in addition to any rights that any Indemnified Party may have
at common law, by separate agreement or otherwise.
10. MISCELLANEOUS PROVISIONS
------------------------
10.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) by the mutual written consent of CGH, the Investor, the
Shareholders and the Company;
24
<PAGE>
(b) by either CGH or the Company if the Closing shall not have
occurred prior to May 31, 1998 (the "Termination Date") unless such Termination
Date is extended by mutual written consent of CGH and the Company, provided that
--------
the right to terminate this Agreement under this Section 10.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or results in, the failure of the Closing to
have occurred by the Termination Date.
10.2 Modifications and Waivers. This Agreement may not be amended or
-------------------------
modified, nor may the rights of any party be waived, except by a written
document that is executed by CGH, Investor and the Company.
10.3 Assignment. This Agreement is and shall be binding upon and inure to
----------
the benefit of the parties and their respective successors and permitted
assigns. Neither party may assign the Agreement to any third party without the
prior written consent of the other parties.
10.4 Rights and Obligations of Third Parties. Nothing in this Agreement,
---------------------------------------
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the parties to it and
their respective successors and permitted assigns, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any
third parties to any party to this Agreement, nor shall any provision give any
third party any right of subrogation or action against any party to this
Agreement.
10.5 Notices. Any notice, request, consent, or other communication
-------
hereunder shall be in writing, and shall be sent by one of the following means:
(a) by registered or certified first class mail, postage prepaid, return receipt
requested; (b) by facsimile transmission with confirmation of receipt; (c) by
overnight courier service; or (d) by personal delivery, and shall be properly
addressed as follows:
If to the Company to:
GREENVER S.A. DE C.V.
INVERNADEROS LA PEQUENA JOLLA, S.A. DE C.V.
Allende y Aquiles Serdan streets s/n 2 (degrees) Piso,
Col. Centro, La Paz, Baja California Sur
C.P. 23000, Mexico,
Facsimile: 011-52-67-171237
Attention: Mr. Guillermo Batiz G.
With a copy to:
MR. MANUEL DIAZ SALAZAR
Av. Obregon 636-6 Nte.
Culiacan, Sinaloa, Mexico, C.P. 80100
25
<PAGE>
Facsimile: 011-52-67-130525
If to CGH to:
COLORADO GREENHOUSE HOLDINGS, INC.
6811 Weld County Road 31
Ft. Lupton, Colorado USA 80621
Facsimile: (303) 857-4049
Attention: James R. Rinella, Chief Executive Officer
With a copy to:
HOLME ROBERTS & OWEN LLP
1401 Pearl Street, Suite 400
Boulder, Colorado USA 80302
Facsimile: (303) 444-1063
Attention: William R. Roberts, Esq.
or to such other address or addresses as the Company, CGH or Investor shall
hereafter designate to the other party in writing. Notices sent by mail shall
be effective five days after they are sent, and notices delivered personally, by
facsimile or by courier shall be effective at the time of delivery thereof.
10.6 Entire Agreement. This Agreement, including the exhibits to the
----------------
Agreement, constitutes the entire agreement between the parties hereto in
relation to the subject matter hereof. Any prior written or oral negotiations,
correspondence, promises or understandings relating to the subject matter
hereof, whether made by the Company, the Shareholders or CGH or Investor, shall
be superseded by this Agreement and shall have no force or effect. The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by CGH.
10.7 Severability. If any provision that is not essential to the
------------
effectuation of the basic purpose of this Agreement is determined by a court of
competent jurisdiction to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of the remaining provisions of
this Agreement.
10.8 Headings. The headings of the Sections of this Agreement are inserted
--------
for convenience of reference only and shall not affect the construction or
interpretation of any provisions hereof.
10.9 Exhibits and Attachments. The Exhibits and Attachments to this
------------------------
Agreement are a part of this Agreement for all purposes. Terms which are
defined in this Agreement shall have the same meanings when used in such
exhibits.
26
<PAGE>
10.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be an original,
but all of which together shall constitute one and the same instrument.
10.11 Expenses. Each party shall bear its own expenses incurred in
--------
connection with the transactions contemplated hereby.
10.12 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).
10.13 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power, or remedy accruing to either party, upon any breach or default of the
other party under this Agreement, shall impair any such right, power, or remedy,
nor shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach of default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent, or approval on the part of either party of any breach
or default by the other party under this Agreement, or any waiver of any
provisions or conditions of this Agreement must be made in writing signed by the
parties and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to either party, shall be cumulative and not alternative.
10.14 Arbitration. Except as may be set forth in Section 9 hereof, the
-----------
parties hereby covenant and agree that any legal suit, dispute, claim, demand,
controversy or cause of action of every kind and nature whatsoever, known or
unknown, fixed or contingent, that either a CGH, Investor, the Shareholders or
the Company may now have or at any time in the future claim to have based in
whole or in part, or arising from or out of or that in any way is related to the
negotiations, execution, interpretation or enforcement of this Agreement
(collectively, the "Disputes") shall be completely and finally settled by
submission of any such Disputes to arbitration under the rules of the ICC. 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
herein shall be conducted in San Diego, California. Arbitration shall be
conducted in English language. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. The
prevailing party in any such action shall be entitled to receive from the losing
party all reasonable costs and expenses, including the reasonable fees of
attorneys, accountants, and other experts, incurred by the prevailing party in
investigating and prosecuting (or defending) such action, together with any such
fees which may be incurred in enforcing any award of judgment.
10.15 Additional Subscription Option. CGH shall have the option
------------------------------
exercisable on 60 days prior written notice to request to subscribe and pay for
a sufficient amount of additional capital stock of Investor so that after such
issuance CGH shall own up to 50%
27
<PAGE>
of the outstanding capital stock of Investor. If such request is granted by
Investor the price for such stock shall be determined by mutual agreement of CGH
and Investor.
[SIGNATURE PAGES FOLLOW]
28
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Series A Preferred
Stock Purchase Agreement by an authorized representative as of the day and year
first above written.
COMPANY:
GREENVER, S.A. DE C.V.
By: /s/ Raul Guillermo Batiz Guillen
------------------------------------
Name: Raul Guillermo Batiz Guillen
Title: attorney-in-fact
INVERNADEROS LA PEQUENA
JOLLA, S.A. DE C.V.
By: /s/ Raul Guillermo Batiz Guillen
------------------------------------
Name: Raul Guillermo Batiz Guillen
Title: attorney-in-fact
CGH:
COLORADO GREENHOUSE HOLDINGS, INC.
By: /s/ James R. Rinella
------------------------------------
Name: James R. Rinella
Title: Chief Executive Officer
INVESTOR:
GRUPO BATIZ CGH, S.A. DE C.V.
By: /s/ Jorge Guillermo Batiz Guillen
------------------------------------
Name: Jorge Guillermo Batiz Guillen
----------------------------------
Title: Chief Executive Officer
---------------------------------
29
<PAGE>
SHAREHOLDERS
/s/ [ILLEGIBLE]
------------------------------------
Gabriela Maria Batiz Gamboa
/s/ [ILLEGIBLE]
------------------------------------
Ricardo Batiz Gamboa
/s/ [ILLEGIBLE]
------------------------------------
Angela Maria Batiz
/s/ [ILLEGIBLE]
------------------------------------
Raul Guillermo Batiz Gamboa
/s/ [ILLEGIBLE]
------------------------------------
Olga Elena Batiz Esquer
/s/ [ILLEGIBLE]
------------------------------------
Gerardo Batiz Esquer
/s/ [ILLEGIBLE]
------------------------------------
Silvia del Carmen Batiz Esquer
/s/ [ILLEGIBLE]
------------------------------------
Jorge Guillermo Batiz Esquer
/s/ [ILLEGIBLE]
------------------------------------
Raul Guillermo Batiz Guillen
/s/ [ILLEGIBLE]
------------------------------------
Jorge Guillermo Batiz Guillen
30
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A -Bylaws of Grupo Batiz CGH, S.A. de C.V.
Exhibit B -Disclosure Schedule
Exhibit C -Marketing Agreement
Exhibit D -Form of Opinion of Company Counsel
Exhibit E -Form of Employment Agreement
Exhibit F -Audited Financial Statements for the fiscal year of ended December 31, 1997
Exhibit G -Shareholders Agreement
Attachment 1 -Description and list of Shareholders
Attachment 2 -Description of the Shares
</TABLE>
31
<PAGE>
EXHIBIT 10.23
GRUPO BATIZ CGH, S.A. de C.V.
GREENVER, S.A. DE C.V.
INVERNADEROS LA PEQUENA JOLLA, S.A. DE C.V.
SHAREHOLDERS AGREEMENT
----------------------
dated May 12, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
</TABLE>
<PAGE>
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (the "Agreement") is entered into as of the
12th day of May, 1998, by and among COLORADO GREENHOUSE HOLDINGS, INC., a
Delaware corporation ("Investor"), and the persons who are currently the
shareholders of GREENVER S.A. DE C.V. ("Greenver"), and INVERNADEROS LA PEQUENA
JOLLA, S.A. DE C.V., ("Invernaderos"), each a corporation ("sociedad anonima de
capital variable") organized and existing under the laws of the United Mexican
States, which shareholders are identified on the signature pages hereto (the
"Common Holders") (the Common Holders and the Investor are sometimes
collectively referred to herein as the "Shareholders").
RECITALS
A. Subject to the terms and conditions of this Agreement, the parties
hereto have agreed, among other things, to the incorporation of GRUPO BATIZ CGH,
S.A. DE C.V. a limited liability corporation ("sociedad anonima de capital
variable") organized and existing under the laws of the United Mexican States
("Holdings"), whereby Investor will directly own at least 25% of the capital
stock of Holdings (the "Holdings Shares") and directly own at least 2.62% of the
capital stock of Greenver and 1.80% of the capital stock of Invernaderos
(together, the "Subsidiary Shares") (the Subsidiary Shares and the Holdings
Shares are sometimes collectively referred to as the "Shares"). Investor will
invest a total amount of US$4,000,000 (the "Investment") and pursuant to the
Subscription Agreement (as defined), Holdings will own approximately 90% of the
capital stock of Greenver and approximately 93% of the capital stock of
Invernaderos. For purposes of this Agreement, Greenver and Invernaderos are
sometimes collectively referred to herein as the "Subsidiaries" and individually
as a "Subsidiary."
B. Pursuant to certain Letter Agreement dated April 14, 1998, entered
into by and between Investor and Greenver, Investor granted a bridge loan to
Greenver in an amount of US$1,000,000, with such amount being credited to the
purchase price of the Investment.
C. It is a condition precedent to the consummation of the transactions
contemplated by the Subscription Agreement that the Shareholders enter into this
Agreement.
D. Messrs. Raul Guillermo Batiz Guillen and Jorge Guillermo Batiz Guillen
have full power and authority to act on behalf of the Common Holders and execute
the Agreement.
E. The Shareholders desire to enter into this Agreement to provide
continuity of management of Holdings and the Subsidiaries and govern certain
aspects of the relationship among the Shareholders and the relationship between
the Shareholders and each of the Holdings and the Subsidiaries.
1
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereby agree
as follows:
1. DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliate" shall mean, with respect to any specified Person, any Person
that, directly or indirectly, controls, is controlled by, or is under common
control with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise. Unless otherwise qualified, all references to an
"Affiliate" or to "Affiliates" in this Agreement shall refer to an Affiliate or
Affiliates of Holdings or the Subsidiaries.
"Business Days" shall mean all days other than Saturday or Sunday or any
day on which banking institutions in Denver, Colorado or Mexico City, Mexico are
authorized or obligated by law to close.
"Fair Value" means the value per share of the Shares determined as follows:
(a) When required to be calculated pursuant to Article 6 hereof, each
of the Investor and a representative of the Common Holders shall
deliver to the other and to the Secretary and the Alternate Secretary
of Holdings within thirty (30) Business Days after the receipt of a
Put Notice (as defined in Section 6.1 hereof), a written communication
which shall contain the price per share that said Shareholder
considers to be the fair value of the Shares being sold under said Put
Notice (each such communication an "Assessment").
(b) If one Shareholder fails to deliver an Assessment within the time
provided in (a) above, the Assessment of the other Shareholder
delivering the Assessment shall be the "Fair Value".
(c) If the difference in the price of such Shareholder's Assessments
is less than 10%, then the average of both Assessments shall be the
"Fair Value".
(d) If the difference in the price between both Shareholder's
Assessments is more than 10%, then Investor and the representative of
the Common Holders shall jointly appoint an appraiser which shall be
an internationally recognized Investment Banking Institution, and if
the Shareholders are unable to agree on such appraiser, such appraiser
shall be selected by the
2
<PAGE>
auditors of Holdings (such appraiser being referred to as the
"Business Valuer"). The Business Valuer shall make an independent
determination of the value per share of Holdings and each Subsidiary
within the 30 Business Days. The determination of the Business Valuer
shall be the "Fair Value" and the Business Valuer shall send a copy of
its decision with reasons therefore to Holdings and each Shareholder.
Subject to compliance with Section 6.2, the Shareholders hereby agree
that the Business Valuer's determination shall be binding upon, and
shall not be subject to challenge by any Shareholder or any third
party in any forum.
"Person" means any natural person, incorporated entity, limited or general
partnership, business trust, association, joint venture, limited liability
company, agency (government or private), division, political sovereign, or
subdivision or instrumentality, or any other entity of any kind.
"Subscription Agreement" shall mean that certain Subscription Agreement,
dated of even date herewith, by and among Greenver, Invernaderos, Investor,
Holdings and certain other parties named therein.
2. INCORPORATION OF HOLDINGS AND OTHER CORRELATED ENTITIES
-------------------------------------------------------
2.1 Incorporation of Holdings and other Correlated Entities. Investor
-------------------------------------------------------
and the Common Holders agree to incorporate Holdings, pursuant to this Agreement
after all of the conditions precedent set forth the Subscription Agreement have
been satisfied, in the form of a stock company with variable capital (sociedad
anonima de capital variable), which must meet all other requirements set forth
by Mexican law and the general provisions contained in this Agreement.
The Shareholders agree that Holdings shall be named "GRUPO BATIZ CGH",
which shall be followed by the words "Sociedad Anonima de Capital Variable" or
the initials "S.A. de C.V."
The Shareholders may consider from time to time whether it is necessary or
convenient to incorporate other companies or entities, in which case, the
Shareholders shall unanimously agree on the terms and conditions under which
such companies shall be incorporated and funded.
2.2 Corporate Bylaws. The Shareholders agree that Holdings and each
----------------
Subsidiary shall be governed by their respective corporate bylaws (Estatutos
Sociales), the text of which is attached to this Agreement as Exhibit I and
forming an integral part hereof.
2.3 Holdings Capital Stock. The Shareholders agree that the subscribed
-----------------------
and paid-in capital stock of Holdings as of the date hereof shall be of $32,
703,000.00 (thirty-two
3
<PAGE>
million, seven hundred three thousand pesos 00/100 Mexican Currency),
represented by 32,703 (thirty-two thousand seven hundred and three) common or
ordinary shares. Shares Series "A" shall be held by Mexican shareholders and
Shares Series "B" shall be of free subscription. Class I Shares shall represent
the minimum fixed portion of the capital stock and Class II Shares the variable
portion of the capital stock. All shares shall have a par value of 1,000.00 (one
thousand pesos 00/100 Mexican Currency) each shall have full and equal voting
rights. The structure of the capital stock of Holdings is more fully described
in Exhibit II hereto.
2.4 Each Subsidiary's Capital Stock. The Shareholders agree that the
-------------------------------
subscribed and paid-in capital stock of Greenver as of the date of this
Agreement shall be of $50,262,000.00 (fifty million two hundred and sixty-two
thousand pesos 00/100 Mexican Currency), represented by 50,262 (fifty thousand
two hundred sixty-two) common or ordinary shares, with full voting rights.
Furthermore, the Shareholders agree that the subscribed and paid-in capital
stock of Invernaderos as of the date of this Agreement shall be of
$12,818,000.00 (twelve million eight hundred eighteen thousand pesos 00/100
Mexican Currency), represented by 12,818 (twelve thousand eight hundred
eighteen) common or ordinary shares. All shares of Greenver and Invernaderos
shall have full and equal voting rights.
The capital stock of Greenver and Invernaderos is represented by Shares
Series "A," which shall be held by Mexican shareholders and Shares Series "B"
which shall be of free subscription. Class I Shares shall represent the minimum
fixed portion of the capital stock and Class II Shares the variable portion of
the capital stock. All shares have a par value of $1,000.00 (one thousand pesos
00/100 Mexican Currency) each. The structure of the capital stock of Greenver
and Invernaderos is more fully described in Exhibit II hereto.
3. RESTRICTIONS ON SALE OR TRANSFER OF SHARES
------------------------------------------
3.1 General Prohibition. No Shareholder shall sell, assign, transfer,
-------------------
give, pledge, encumber or in any way dispose of (collectively, a "Transfer"),
any Shares, or enter into an agreement to Transfer any Shares, other than
pursuant to an Exempt Transfer (as defined in Section 3.4) or pursuant to an
agreement that is expressly subject to compliance with the provisions of this
Article 3. Any purported Transfer in violation of any provision of this
Agreement shall be void and ineffective and shall not operate to Transfer any
interest or title in the Shares to the purported transferee. The prohibitions
set forth in this Section 3.1 shall include, but shall not be limited to, unless
specifically permitted hereunder, any agreement to limit, restrict or grant any
voting rights with respect to any Shares.
3.2 Right of First Refusal. Any Transfer of Shares, other than an Exempt
----------------------
Transfer, shall be subject to the previous authorization of the Board of
Directors. The Board of Directors shall be obligated to approve any Transfer of
Shares if the provisions contained below are fulfilled, which purpose is to
grant to the other Shareholders a right of first refusal to purchase the Shares
to be transferred:
4
<PAGE>
(a) A Shareholder (the "Transferring Shareholder") who desires to effect a
direct or indirect Transfer of any of the Shares owned by it other than
pursuant to Section 3.4 below, shall first negotiate in good faith with the
other shareholder(s) with respect to such Transfer. If a definitive written
agreement with respect to a Transfer is not reached within thirty (30)
calendar days after the date on which the Transferring Shareholder had
offered to negotiate the respective sale, then the Transferring Shareholder
may negotiate with third parties with respect to the Transfer of its Shares
solely for cash payable in full at the closing of such Transfer, subject to
the right of first refusal of the other Shareholder(s) set forth below. If
and when the Transferring Shareholder receives a bona fide written offer
from a third party to purchase its Shares solely for cash payable in full
at the closing of such Transfer, the Transferring Shareholder shall serve
notice (the "Transfer Notice") on the other shareholder(s) and on the
Secretary and Alternate Secretary of Holdings and each Subsidiary, which
Transfer Notice shall include the following:
(i) The Transfer Notice shall state that the Transferring
Shareholder has received a bona fide all cash (payable in full
at the closing) written offer to purchase some or all of its
Shares from a financially responsible third party, the purchase
price of such Shares, the name and address of the prospective
purchaser, and such other information as to the identity,
business and financial condition of the prospective purchaser as
to enable the other Shareholders to make an informed decision
with respect to the exercise of their rights under this Section
3.2.
(ii) Upon receipt of the Transfer Notice, the other Shareholder(s),
individually and collectively, shall have the right to purchase
all, but not less than all, of the Shares to be transferred by
the Transferring Shareholder. The other Shareholder(s) may
purchase such Shares at the price described in the Transfer
Notice, which price shall be payable in full and in cash, at the
date specified in the Transfer Notice, in immediately available
funds.
(iii) The other Shareholder(s) that elect to exercise the aforesaid
right of first refusal (each, a "Proposing Shareholder"), shall
do so by notifying the Transferring Shareholder and the
Secretary and Alternate Secretary of Holdings and each
Subsidiary, as applicable, of such election (the "Notice of
Acceptance"), within thirty (30) calendar days after receipt of
the Transfer Notice from such Transferring Shareholder. The
Notice of Acceptance shall specify the number of Shares that the
Proposing Shareholder delivering such Notice of Acceptance
offers to purchase. In the event that the Notice(s) of
Acceptance delivered within such thirty (30) day period do not,
in the aggregate contains offers to purchase all of the Shares
offered for Transfer by the Transferring Shareholder, the
Secretary or
5
<PAGE>
the Alternate Secretary of Holdings and each Subsidiary, as
applicable, shall notify (the "Second Notice") all Proposing
Shareholders of the amount of such Shares that have not been
accepted for purchase (the "Unsubscribed Shares"). Such
Proposing Shareholders shall have ten (10) days (the "Second
Notice Period") to determine amongst themselves the manner in
which such Unsubscribed Shares shall be allocated, and shall
notify the Transferring Shareholder and the Secretary and
Alternate Secretary of Holdings and each Subsidiary, as
applicable, of such determination (the "Second Notice of
Acceptance"). In the event all Proposing Shareholders desire to
participate in the purchase of such Unsubscribed Shares, such
shares shall be allocated pro rata among all proposing
Shareholders based on the percentage ownership of all Holdings
or Subsidiary Shares, as applicable, owned collectively by the
Proposing Shareholders. If at the expiration of the Second
Notice Period, the Second Acceptance Notice(s) delivered within
such ten (10) day period do not, in the aggregate contain offers
to purchase all of the Shares offered by the Transferring
Shareholder, the Proposing Shareholders and the other
shareholders' right of first refusal shall expire.
(iv) In the event that the Notices of Acceptance, in the aggregate,
contain offer to purchase a larger number of Shares than the
total number of Shares held and to be sold by the Transferring
Shareholder, the assignment of the Shares to be purchased by each
of the Proposing Shareholders shall be made by the Board of
Directors, in proportion to the number of Holdings Shares or
Subsidiary Shares, as applicable, currently held by each
Proposing Shareholder. In such event, any Proposing Shareholder
who offered to purchase through its Notice of Acceptance a
smaller number of Shares to which he/she would otherwise be
entitled pursuant to the above-mentioned criteria, they shall
purchase only such smaller number of Shares and, in such case,
the remaining Shares shall be assigned by the Board pursuant to
the above-mentioned criteria among the other Proposing
Shareholder(s) who offered to purchase a larger number of Shares.
The Board of Directors, through its Secretary and Alternate
Secretary, shall notify the Proposing Shareholder(s) an the
Transferring Shareholder of the number of Shares finally assigned
for purchase by each Proposing Shareholder(s) within the
following five (5) calendar days after the expiration of the
later of the thirty (30) calendar day term or the Second Notice
Period set forth in (iii) above.
(v) The Proposing Shareholder(s) shall pay at the closing the
purchase price of the Shares to be transferred by the
Transferring Shareholder, under the same terms and conditions
contained in the Transfer Notice,
6
<PAGE>
through the exchange of the share certificates representing such
Shares duly endorsed in property. The closing shall be held not
later than forty-five (45) calendar days after the date the
Proposing Shareholder(s) received the notice of the Board of
Directors with respect to the assignment of the offered Shares
pursuant to (iv) above.
(vi) In the event that the right of first refusal of the Proposing
Shareholders and the other shareholder(s) shall expire, pursuant
to subsection (iii) above, the Transferring Shareholder shall be
entitled to make the proposed Transfer to the third party, at the
price (which shall be payable in full in cash at the closing of
such transfer) described in the Transfer Notice. If such Transfer
is not completed within forty five (45) calendar days of the date
of expiration of the right of first refusal granted to the other
shareholders, then the Transferring Shareholder's right to sell
to a third party shall expire and, in such case, the Transferring
Shareholder shall have to comply again with the provisions of
this Article 3 through a new offer to Holdings or each
Subsidiary's then existing Shareholders, as applicable.
3.4 Exempt Transfer. As used herein, the term "Exempt Transfer" shall
---------------
mean (a) Transfers between Shareholders and their Related Parties (as defined in
Section 3.5); (b) any Transfer or disposition by a company (the "Transferor"),
if such Shares are to be transferred to (i) a company of which more than 99% of
the capital stock is owned and shall continue to be owned, directly or
indirectly, by the Transferor, (ii) a company which owns and shall continue to
own, directly or indirectly, more than 99% of the capital stock of the
Transferor, and (iii) a company of which more than 99% of the capital stock is
and shall continue to be owned, directly or indirectly, by a company which owns,
directly or indirectly, more than 99% of the capital stock of the Transferor; or
(c) Transfers by any Shareholder as collateral security for loans made to such
Shareholder, provided, however, that the foreclosure of any lien, pledge or
-------- -------
security interest granted pursuant to this Section 3.4(c) and any Transfer of
such Shares subsequent to such foreclosure shall not constitute an Exempt
Transfer and shall be subject to the right of first refusal set forth in this
Article 3. Any transferee of Shares under this Section 3.4 must agree in
writing, prior to the Transfer, to be bound by the provisions of this Article 3.
3.5 Related Party. As used herein, the term "Related Party" with respect
-------------
to any Shareholder means, as of the time of any Transfer, (a) any person or
entity that, directly or indirectly, through one or more intermediaries, has
voting control of, or is under common voting control with, such Shareholder; (b)
with respect to individuals, such Shareholder's spouse, parents, children,
siblings and/or grandchildren; (c) a trust, partnership or other entity, whose
beneficiaries, shareholders, partners, or owners, or other persons or entities
holding a controlling interest in which, consist of such Shareholder and/or such
other persons or entities referred to in the immediately preceding clauses (a)
or (b); and (d) with respect to
7
<PAGE>
any Shareholder which is a partnership, a limited liability company or a
corporation, such Shareholders' current partners, members or shareholders in
proportion to their ownership.
4. RIGHTS OF FIRST REFUSAL FOR SUBSEQUENT OFFERINGS
------------------------------------------------
4.1 Subsequent Offerings. As provided in the Bylaws of Holdings and each
--------------------
Subsidiary, each Shareholder shall have a right of first refusal to purchase its
pro rata share of all Equity Securities (as defined below) that Holdings or
either Company (the "Selling Entity") may from time to time propose to sell and
issue after the date of this Agreement. Each Shareholder's pro rata share is
equal to the ratio of (a) the number of Shares of the Selling Entity that such
Shareholder is deemed to be a holder immediately prior to the issuance of such
Equity Securities to (b) the total number of Shares or such Selling Entity
(including all Shares issued or issuable upon the exercise of any outstanding
warrants or options) immediately prior to the issuance of the Equity Securities.
The term "Equity Securities" shall mean (i) any Shares or other security of the
Selling Entity; (ii) any security convertible, with or without consideration,
into any Shares, or other security (including any option to purchase such a
convertible security); (iii) any security carrying any warrant or right to
subscribe to or purchase any Shares, or other security; or (iv) any such warrant
or right.
4.2 Exercise of Rights. If the Selling Entity proposes to sell and issue
------------------
any Equity Securities, it shall deliver notice to each Shareholder specifying
that each Shareholder shall have the right to subscribe or purchase its pro rata
share of the Equity Securities pursuant to at resolution adopted at the Selling
Entity's Shareholders Meeting.
4.3 Issuance of Equity Securities to Other Persons. If one of the
----------------------------------------------
Shareholders elects not to purchase its pro rata share of the Equity Securities,
then the Board of Directors of the Selling Entity shall promptly notify, in
writing, the Shareholders who did so elect and shall offer such Shareholders
(the "Electing Participants") the right to acquire such Unsubscribed Shares.
The Electing Participants shall have five days after receipt of such notice to
notify the Selling Entity of its or their election to purchase all or a portion
thereof of such unsubscribed shares. If the Shareholders fail to exercise in
full the rights of first refusal, the selling entity shall have ninety (90) days
thereafter to sell the Equity Securities in respect of which the Shareholders'
rights were not exercised, at a price and upon general terms and conditions
materially no more favorable to the purchasers thereof than specified in the
notice to the Shareholders pursuant to Section 4.2 hereof. If the Selling
Entity has not sold such Equity Securities within ninety (90) days of the notice
provided pursuant to Section 4.2, the Selling Entity shall not thereafter issue
or sell any Equity Securities, without first offering such securities again to
the Shareholders in the manner provided above.
5. SHAREHOLDERS MEETINGS, NUMBER OF DIRECTORS; BOARD COMMITTEES
------------------------------------------------------------
8
<PAGE>
5.1 Shareholders Meetings. Shareholders agree that their resolutions
----------------------
shall be valid and binding and considered to be duly taken at meetings as
provided in the Bylaws, copies of which are attached hereto as Exhibit I.
5.2 Number of Directors. At all times during which this Agreement remains
-------------------
in effect, the Board of Directors (the "Board of Directors") of Holdings shall
consist of five (5) directors and three (3) in the case of either Subsidiary.
Shareholders may elect Alternate Directors which may act in the absence of a
member of the Board of Directors.
5.3 Election of Directors. Each Shareholder hereby agrees at all times
---------------------
during which this Agreement remains in effect to vote all Holdings Shares held
by such Shareholder entitled to vote upon the election of directors for the
election to the Board of Directors of five individuals, one always to be
designated by Investor (the "CGH Director") and one of which shall be an
independent director mutually approved by investor and the Common Holders. In
the case of either Subsidiary, there shall always be a CGH Director. In the
event that any vacancy occurs on the Board of Directors because of death,
disability, resignation, retirement or removal of any director during the period
in which this Agreement remains in effect, each Shareholder shall vote all of
its Shares in a manner to cause such vacancy to be filled so as to give effect
to the foregoing provisions of this Section 5.3. Any election necessary to fill
any such vacancy shall be held as soon as practicable after the occurrence of
any such vacancy, but in any event within twenty (20) Business Days after the
occurrence thereof. No action shall be taken by the Board of Directors after the
occurrence of any vacancy due to the death, disability, resignation, retirement
or removal of any CGH Director (other than any action as may be necessary to
fill such vacancy) until such vacancy is filled in accordance with the foregoing
provisions of this Article 5.
5.4 Compensation of Directors. During the term of this Agreement, each
-------------------------
member of the Board of Directors shall receive reimbursement by each Subsidiary
or Holdings, as applicable, for all reasonable out-of-pocket expenses,
including, without limitation, travel expenses, incurred by such director in
connection with the performance of such director's duties.
5.5 Committees of the Board of Directors. Any committee of the Board of
------------------------------------
Directors of Holdings or any Subsidiary shall consist at all times of at one
least member which shall be the CGH Director.
5.6 Meetings. Until otherwise agreed, the Shareholders agree to cause the
--------
Board of Directors of Holdings to meet monthly.
5.7 Minority Voting Rights. The vote of Investor in respect of the
-----------------------
Holdings Shares and the vote of the CGH Director shall always be required for
those resolutions set forth in Article 30 of the Bylaws to be valid and binding,
as provided in the Bylaws attached hereto as Exhibit I.
9
<PAGE>
6. PUT OPTION AND PROCEDURES TO BE FOLLOWED.
-----------------------------------------
6.1 Put Events. If any of the following shall occur (each, a "Put
----------
Event"): (a) either Subsidiary elects to terminate its respective Marketing
Agreement, dated of even date herewith, by and between each of Greenver and
Investor and Invernaderos and Investor; (b) Investor continues to own any
Holdings Shares on the date that is ten years from the date of this Agreement;
or (c) the Common Holders in the aggregate transfer Shares that represent more
than 50% of the outstanding equity of Holdings or either Subsidiary at any time
for a period of thirty (30) calendar days following such Put Event, Investor
shall have the option, to give a notice (the "Put Notice") to the Common Holders
of Investor's election under this Section 6 and thereafter, the Common Holders
shall have the choice either to: (i) purchase all, but not less than all, of
Investor's Shares at the Put Price (as defined); or (ii) cause the redemption
of the Shares at the Put Price through reduction of capital stock of Holdings or
either Subsidiary through a shareholder meeting or in any other manner permitted
by law.
6.2 Call Event. If shares representing more than 50% of the outstanding
----------
capital stock of CGH are transferred to a third party in one transaction or a
series of related transactions (the "Call Event"), at any time for a period of
thirty (30) calendar days following such Call Event, the Common Holders shall
have the option, in their sole and absolute discretion, to give a notice (the
"Call Notice") to Investor that such Common Holders desire to purchase all, but
not less than all, of Investor's Shares at the Put Price.
6.3 Put Price. The price to be paid for each Share owned by Investor
---------
pursuant to this Section 6 shall be the Fair Value per share (the "Put Price"),
provided, however, that the at no time shall the aggregate Put Price for all
- -------- -------
Shares held by Investor be less than US$4,000,000.
6.4 Closing of Put of Call. Upon delivery of the Put Notice by Investor
----------------------
to the Common Holders,or of the Call Notice by the Common Holders to Investor
the Common Holders, Holdings or either Subsidiary, as determined pursuant to
Section 6.1, shall purchase all of the Shares owned by Investor at the Put Price
and the closing of purchase and sale shall be completed on the earlier of (a)
one hundred twenty (120) days after the date in which the Fair Value is
determined, or (ii) on such other date as may be agreed by the Investor and the
Common Holders. The closing shall occur at the domicile of Holdings and/or the
Subsidiary where delivery of certificates representing the Shares owned by
Investor shall be made by Investor with good title, free and clear of all liens,
charges and encumbrances, against payment by certified check or wire transfer by
the Common Holders for the aggregate Put Price, subject only to any applicable
governmental authorizations, if any.
7. REMEDIES FOR BREACH
-------------------
10
<PAGE>
7.1 General. If any Shareholder under this Agreement fails to give a
-------
notice, make an offer, sell its Shares, or purchase Investor's Shares pursuant
to Article 6, close a sale or do any other act required of such Shareholder
under this Agreement, then, if the failure continues for ten (10) Business Days
after notice to the Shareholder in default (hereinafter sometimes referred to as
the "Defaulting Shareholder") by Holdings or one of the non-defaulting
Shareholders, Holdings and such non-defaulting Shareholders, or any one of them,
may institute and maintain a proceeding to compel the Defaulting Shareholder's
specific performance of this Agreement. The remedy of specific performance
shall be in addition to any and all of the remedies at law or in equity
including, but not limited to, injunctive relief and an action for damages, to
which any Shareholder may be entitled, as provided in this Agreement.
7.2 No Personal Liability. No Shareholder shall have any personal
---------------------
liability for any debts of Holdings or either Subsidiary that may be created as
a result of this Agreement unless otherwise agreed to in writing by such
Shareholder.
8. LEGEND ON STOCK CERTIFICATES
----------------------------
Each Shareholder agrees that the following statement must be contained on
the reverse side of every share certificate representing the Shares:
"THE RIGHT TO ACQUIRE AND TRANSFER BY ANY TITLE THE SHARES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE PRIOR AUTHORIZATION OF THE BOARD OF DIRECTORS
UNDER THE TERMS AND CONDITIONS SET FORTH IN ARTICLE THIRTEEN OF THE COMPANY'S
BYLAWS."
9. CORPORATE OPPORTUNITIES; RIGHT OF FIRST REFUSAL. If any of the Common
-----------------------------------------------
Holders desire to engage in any business in Mexico or in any other jurisdiction
that would be complementary to or compete with the business of Holdings or
either Subsidiary, then such Common Holder shall first offer Investors such
business opportunity in writing. Unless Investors elects in writing within sixty
(60) days of receiving notice of such opportunity to pursue such opportunity,
the offering Common Shareholder shall be free to pursue such opportunity for his
own account.
10. MISCELLANEOUS
-------------
10.1 Modifications and Waivers. This Agreement may not be amended or
-------------------------
modified, nor may the rights of any party be waived, except by a written
document that is executed by the Investor and the Common Holders.
10.2 Rights and Obligations of Third Parties. Nothing in this Agreement,
---------------------------------------
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the parties to it and
their respective successors and permitted assigns, nor is anything in this
Agreement intended to relieve or
11
<PAGE>
discharge the obligation or liability of any third parties to any party to this
Agreement, nor shall any provision give any third party any right of subrogation
or action against any party to this Agreement.
10.3 Notices. Any notice, request, consent, or other communication
-------
hereunder shall be in writing, and shall be sent by one of the following means:
(a) by registered or certified first class mail, postage prepaid, return receipt
requested; (b) by facsimile transmission with confirmation of receipt; (c) by
overnight courier service; or (d) by personal delivery, and shall be properly
addressed to Holdings at its principal offices and to the Shareholders at the
addresses or facsimile numbers set forth in the shareholder records of Holdings.
Holdings hereby agrees to provide a list of Shareholders addresses upon written
request by any party executing this Agreement. Notices sent by mail or by
courier shall be effective seven days after they are sent, and notices delivered
personally or by facsimile shall be effective at the time of delivery thereof.
10.4 Entire Agreement. This Agreement constitutes the entire agreement
------ ---------
between the parties hereto in relation to the subject matter hereof. Any prior
written or oral negotiations, correspondence, or understandings relating to the
subject matter hereof shall be superseded by this Agreement and shall have no
force or effect.
10.5 Severability. If any provision that is not essential to the
------------
effectuation of the basic purpose of this Agreement is determined by a court of
competent jurisdiction to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of the remaining provisions of
this Agreement.
10.6 Headings. The headings of the Sections of this Agreement are inserted
--------
for convenience of reference only and shall not affect the construction or
interpretation of any provisions hereof.
10.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be an original,
but all of which together shall constitute one and the same instrument.
10.8 Governing Law. Each party hereto hereby expressly agrees that 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).
10.9 Delays or Omissions. No delay or omission to exercise any right,
------ -- ---------
power, or remedy accruing to either party, upon any breach or default of the
other party under this Agreement, shall impair any such right, power, or remedy,
nor shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach of default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent, or approval on the part of either party of any breach
or default by the other party under this Agreement, or any waiver of any
provisions or
12
<PAGE>
conditions of this Agreement must be made in writing signed by the parties and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or by law or otherwise afforded to
either party, shall be cumulative and not alternative.
10.10 Arbitration. Except as otherwise provided in Section 7.1, the
-----------
parties hereby covenant and agree that any legal suit, dispute, claim, demand,
controversy or cause of action of every kind and nature whatsoever, known or
unknown, fixed or contingent, that either Investor, the Common Holders, Holdings
or either Subsidiary may now have or at any time in the future claim to have
based in whole or in part, or arising from or out of or that in any way is
related to the negotiations, execution, interpretation or enforcement of this
Agreement (collectively, the "Disputes") shall be completely and finally settled
by submission of any such Disputes to arbitration under the rules of the ICC.
There shall be three arbitrators, with Investor and the representative of the
Common Holders each choosing one arbitrator and those two picking the third.
Unless otherwise agreed by the parties, all arbitration herein shall be
conducted in San Diego, California. Arbitration shall be conducted in English
language. Judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. The prevailing party in any such action
shall be entitled to receive from the losing party all reasonable costs and
expenses, including the reasonable fees of attorneys, accountants, and other
experts, incurred by the prevailing party in investigating and prosecuting (or
defending) such action, together with any such fees which may be incurred in
enforcing any award of judgment.
10.11 Termination. This Agreement shall terminate upon the mutual written
-----------
consent of each party hereto. Upon such termination, all rights and obligations
of the parties hereto shall terminate. This Agreement shall terminate also as to
any party hereto when such party no longer holds any Shares.
[SIGNATURE PAGES FOLLOW]
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Shareholders Agreement
as of the date first above written.
INVESTOR:
COLORADO GREENHOUSE HOLDINGS, INC.
By: /s/ James R. Rinella
-------------------------------
James R. Rinella, Chief Executive Officer
COMMON HOLDERS:
/s/ [SIGNATURE ILLEGIBLE]
--------------------------------
Gabriela Maria Batiz Gamboa
/s/ [SIGNATURE ILLEGIBLE]
--------------------------------
Ricardo Batiz Gamboa
/s/ [SIGNATURE ILLEGIBLE]
--------------------------------
Angela Maria Batiz
/s/ [SIGNATURE ILLEGIBLE]
--------------------------------
Raul Guillermo Batiz Gamboa
/s/ [SIGNATURE ILLEGIBLE]
--------------------------------
Olga Elena Batiz Esquer
/s/ [SIGNATURE ILLEGIBLE]
--------------------------------
Gerardo Batiz Esquer
/s/ [SIGNATURE ILLEGIBLE]
----------------------------------
Silvia del Carmen Batiz Esquer
14
<PAGE>
/s/ [SIGNATURE ILLEGIBLE]
--------------------------------
Jorge Guillermo Batiz Esquer
/s/ Raul Guillermo Batiz Guillen
--------------------------------
Raul Guillermo Batiz Guillen
/s/ Jorge Guillermo Batiz Guillen
---------------------------------
Jorge Guillermo Batiz Guillen
15
<PAGE>
EXHIBIT 10.24
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 GREENVER, S.A. de C.V.
("Greenver"), 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 90% of the
outstanding capital stock of Greenver.
B. Pursuant to the terms of the Subscription Agreement, CGH and Holdings
have agreed to cause CG and Greenver to enter into this Agreement.
AGREEMENT
1. Sale. Greenver 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 Greenver at its current and future facilities in Baja Mexico, together with
any other facilities built or acquired by (i) Greenver, or an Affiliate of
Greenver, or (ii) any other entity in which both CG, or an Affiliate of CG, and
Greenver, or an Affiliate of Greenver, 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. Greenver 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. Greenver shall not
directly, or indirectly through a third 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 to CG by
Grupo Batiz CGH, S.A. de C.V., 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 Greenver 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 Greenver on an as collected basis, subject to the
following provisions:
a. Greenver 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 Greenver 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 Bylaws of Grupo
Batiz CGH, S.A. de C.V.
d. Liquidation of sales proceeds from CG to Greenver to be within 28
days from date of sales.
e. CG has a responsibility to Greenver 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 Greenver 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
Greenver, CGH may obtain such insurance and deduct the cost thereof before
remitting proceeds to Greenver, provided that Greenver 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 Greenver'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. Greenver 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 Greenver 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.
Greenver 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 Greenver and be deducted from its net returns
hereunder.
9. Packaging. Greenver shall ship and return all boxes, delivered to it
---------
for its use and convenience, as agreed upon by the parties. If Greenver 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 Greenver'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. Greenver 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. Greenver
will provide to CG for its review and approval prior to each harvesting season a
list of all chemicals used on the
-3-
<PAGE>
Products together with 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 Greenver 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 Greenver, such personnel shall include an employee designated by
Greenver, 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
Greenver to assist Greenver 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 Greenver'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 Greenver 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. Greenver 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, Chief Executive Officer
GREENVER, 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,
blotchy ripening and translucent or soft conditions.
Cleanliness: Must be free from all 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.
d. All tomatoes must be color stage 3 or more. In each package, one
tomato must be color state 7.
3. All vine tomatoes will be 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 form
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
- ---------- only have minor levels of (#2) can contain russeting Substandard (#3) may which
Russeting refers russeting confined to an levels extending between not exceed 1.5 inches extends
to "micro" area extending 1/2 inch from 1/2 inch and 1 inch from the from the calyx. beyond
cracking of the center of the calyx. calyx. 1.5 inches
tomato skin. from the
The severity calyx is
and severe and
susceptibility to must be
decay varies culled.
greatly from Severe
tomato to russeting is
tomato and associated
variety to with
variety. "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
PUNCTURES AND containing a skin break or breaks must be small (pea skin breaks must be FRESH/WET
SKIN BREAKS puncture must be sized or smaller) closed less than 1 cm, closed SKIN BREAKS
(open and downgraded to standard ("healed/dry/scarred over) ("healed/dry/scarred MUST BE
Closed) must be grade or substandard and minimal (one or less per over") and minimal CULLED!!!!
minimized due (no2/15) if the break is box). Larger rates result (one or less per box).
to the extreme healed or scarred over. from improper handling and Larger rates result
potential for the source should be from improper
bacterial growth ALL FRESH/WET SKIN BREAKS corrected. handling and the
and decay. MUST BE CULLED!!!!! source should be
ALL FRESH/WET SKIN BREAKS corrected.
MUST BE CULLED!!!!!
ALL FRESH/WET SKIN
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> <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 1 cm.
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 PREMIUM (MXL,XL, PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
ISSUES BLOSSOM
END ROT: NO TOLERANCE: All NO TOLERANCE: All Single or multiple Any tomato
Tomatoes with tomatoes exhibiting black tomatoes exhibiting black cracks which do not with a
this condition scars must be downgraded scars must be downgraded exceed 1cm are growth crack
are to substandard if the to substandard if the acceptable. which
characterized by affected area is less than affected area is less than exceeds
dark black scars 1 centimeter. 1 centimeter. 1 cm.
and/or All products with deep
indentations on growth cracks (greater
the blossom If black scars are greater than 4mm must be All products
end, in some than 1 cm the tomato must discarded). with deep
cases, the be culled. growth
border of the cracks
scarred area Products with inflamed (greater than
appears to be scars of any size must be 4mm must
inflamed. culled. be
discarded).
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
A-7
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PUSHERS
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
QUALITATIVE PREMIUM (MXL,XL, PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
ISSUES
"Pushers" are The affected area must be The affected area must be Tomatoes which have All tomatoes
blemishes less than 1/2 cm and must be less than 1/2 cm and must be an opaque, tan, scar-like with opaque
which occur on nearly translucent so that nearly translucent so that appearance must be blemishes
the blossom end the overall premium the overall premium downgraded to which
of a tomato. appearance of the tomato is appearance of the tomato is substandard or culled if exceed 1 cm.
The color (light not compromised. not compromised. the blemish exceeds
and translucent, 1 cm.
light tan,
opaque tan) and Tomatoes which have an Tomatoes which have an
size of the opaque, tan, scar-like opaque, tan, scar-like
affected area appearance must be appearance must be
can vary greatly downgraded to substandard downgraded to substandard
from tomato to or culled if the blemish or culled if the blemish
tomato. exceeds 1 cm. exceeds 1 cm.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-8
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SOFTNESS
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
QUALITATIVE PREMIUM (MXL,XL, PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
ISSUES
In order to NO TOLERANCE: soft NO TOLERANCE: soft NO TOLERANCE: soft All soft
reach the tomatoes are not acceptable tomatoes are not acceptable tomatoes are not tomatoes
retailers in any grade and must be in any grade and must be acceptable in any grade must be
shelves, all culled. culled. and must be 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 All tomatoes
indentations or tomatoes with pits must be tomatoes with pits must be 1 centimeter wide and with
openings which downgraded to Substandard downgraded to Substandard openings less than 1/2 openings
usually occur or culled depending on the or culled depending on the cm deep can be which
near the size and severity of the size and severity of the salvaged in the exceed 1 cm
blossom end of opening. opening. substandard grade. in width and
the tomato and Pits which exceed 1/4 cm in
may be these parameters must depth.
characterized by be culled.
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 Single, small (less than 1/2 These tomatoes can have up More pronounced Severely
superficial cm in diameter) affected to 2 scarred areas which are scarring is acceptable deformed
blemishes or areas are acceptable as long small (1 cm or less). as long as shelf life and fruit.
marks on as the overall appearance is taste are not affected.
tomatoes which premium ("relatively" Severely deformed
detract from the blemish free). fruit resulting from
overall fruit scarring should be
appearance culled.
without
affecting shelf
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 Only slight variations Qualitative Issues Premium
premium from a circular fruit are (mxl,xl,
grade all tomatoes acceptable in this grade. prepacks)
must be round. 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> <C>
The calyx is a Calyx retention is Calyx retention is Calyx retention is
feature imperative. A box which imperative. A box which imperative. A box
recognized by contains more than three contains more than three which contains more
consumers as an tomatoes without a calyx tomatoes without a calyx than three tomatoes
indication of indicates possible picking indicates possible picking without a calyx
premium quality. 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 calyx should be corrected.
calyx should be made less should be made less visible When packing, all
visible by lacing them by lacing them along the tomatoes without a
along the outer perimeter outer perimeter of each box. calyx should be made
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 (NO2/15) 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> <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 10.34
- -------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY
AND
AMONG
COLORADO GREENHOUSE HOLDINGS, INC.;
CATTERTON -SIMON PARTNERS III, L.P.;
BCI GROWTH IV, L.P.
AND
CO-INVESTORS LISTED ON SCHEDULE 1
___________________
Dated as of January 21, 1997
___________________
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. DEFINITIONS............................................................ 1
1.1. Definitions.............................................................. 1
1.2. Accounting Terms; Financial Statements................................... 8
1.3. Knowledge Standard....................................................... 8
1.4. Other Defined Terms...................................................... 9
ARTICLE 2. AUTHORIZATION OF SERIES B PREFERRED STOCK; PURCHASE AND SALE OF
SERIES B PREFERRED STOCK............................................... 9
2.1. Preferred Stock.......................................................... 9
2.2. Purchase and Sale of Series B Preferred Stock............................ 9
2.3. Closing.................................................................. 9
2.4. Fees and Expenses........................................................ 10
2.5. Preferred Stock Conversion Adjustments................................... 10
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO PURCHASE THE
SERIES B PREFERRED STOCK............................................... 10
3.1. Representations and Warranties........................................... 10
3.2. Compliance with Terms and Conditions of this Agreement................... 10
3.3. Delivery of Certificates Evidencing the Series B Preferred Stock......... 10
3.4. Closing Certificates..................................................... 10
3.5. Secretary's Certificates................................................. 11
3.6. Documents................................................................ 11
3.7. Purchase Permitted by Applicable Laws.................................... 11
3.8. Opinion of Counsel....................................................... 11
3.9. Approval of Counsel to Purchasers........................................ 11
3.10. Consents and Approvals.................................................. 11
3.11. Certain Waivers......................................................... 11
3.12. No Material Adverse Effect.............................................. 11
3.13. Certificate and By-laws................................................. 12
3.14. No Material Judgment or Order........................................... 12
3.15. Financial Statements.................................................... 12
3.16. Severance and Noncompete Agreements..................................... 12
3.17. Registration Rights Agreement........................................... 12
3.18. Series A Registration Rights Agreement.................................. 12
3.19. Shareholders' Agreement................................................. 13
3.20. Certificate of Designations............................................. 13
3.21. Redemption Agreement.................................................... 13
3.22. Company Reorganization.................................................. 13
3.23. Purchaser Diligence..................................................... 13
ARTICLE 4. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO CLOSE.................. 13
4.1. Representations and Warranties........................................... 13
</TABLE>
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
4.2. Compliance with Terms and Conditions of this Agreement.................. 13
4.3. Closing Certificates.................................................... 13
4.4. Issuance Permitted by Applicable Laws................................... 13
4.5. Payment of Purchase Price............................................... 14
4.6. Approval of Counsel to Company.......................................... 14
4.7. Consents and Approvals.................................................. 14
4.8. No Material Judgment or Order........................................... 14
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... 14
5.1. Corporate Existence and Authority....................................... 14
5.2. Corporate Authorization; No Contravention............................... 14
5.3. Governmental Authorization; Third Party Consents........................ 15
5.4. Binding Effect.......................................................... 15
5.5. Other Agreements........................................................ 15
5.6. Capitalization.......................................................... 15
5.7. Affiliates.............................................................. 16
5.8. Private Offering........................................................ 16
5.9. Litigation.............................................................. 17
5.10. Financial Statements.................................................... 17
5.11. Title and Condition of Assets........................................... 17
5.12. Contractual Obligations................................................. 18
5.13. Patents, Trademarks, Etc................................................ 18
5.14. Tax Matters............................................................. 19
5.15. Severance Arrangements.................................................. 20
5.16. No Material Adverse Effect.............................................. 20
5.17. Environmental Matters................................................... 21
5.18. Investment Company/Government Regulations............................... 21
5.19. Broker's, Finder's or Similar Fees...................................... 22
5.20. Labor Relations and Employee Matters.................................... 22
5.21. Employee Benefits Matters............................................... 22
5.22. Potential Conflicts of Interest......................................... 23
5.23. Business Relationships.................................................. 24
5.24. Outstanding Borrowings.................................................. 24
5.25. Insurance Schedule...................................................... 24
5.26. Undisclosed Liabilities................................................. 24
5.27. Solvency................................................................ 24
5.28. Compliance with Law..................................................... 25
5.29. No Other Agreements to Sell the Assets or Capital Stock of the Company.. 25
5.30. Hart-Scott-Rodino....................................................... 25
5.31. Disclosure.............................................................. 25
5.32. Restructuring........................................................... 25
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS....................... 26
</TABLE>
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
----
<S> <C>
6.1. Existence and Authority.................................................. 26
6.2. Authorization; No Contravention.......................................... 26
6.3. Binding Effect........................................................... 26
6.4. Purchase for Own Account................................................. 26
6.5. Accredited Investor Status............................................... 27
6.6. Broker's, Finder's or Similar Fees....................................... 27
ARTICLE 7. COVENANTS OF THE COMPANY............................................... 27
7.1. Further Assurances....................................................... 27
7.2. Notification of Certain Matters.......................................... 27
7.3. Access to Information.................................................... 28
7.4. Conduct of Business...................................................... 28
ARTICLE 8. COVENANTS OF THE COMPANY WITH RESPECT TO THE PERIOD FOLLOWING THE
CLOSING................................................................ 28
8.1. Financial Statements and Other Information............................... 28
8.2. Notices.................................................................. 29
8.3. Reservation of Shares.................................................... 30
8.4. Books and Records........................................................ 30
8.5. Use of Proceeds.......................................................... 30
8.6. New Lines of Business.................................................... 30
8.7. Compensation of Directors................................................ 30
8.8. Management Incentive Stock Option Plan................................... 30
8.9. Torrance Greenhouse...................................................... 30
ARTICLE 9. INDEMNIFICATION........................................................ 31
9.1. Indemnification.......................................................... 31
9.2. Notification............................................................. 32
9.3. Registration Rights Agreement............................................ 32
ARTICLE 10. MISCELLANEOUS......................................................... 32
10.1. Termination............................................................. 32
10.2. Survival of Representations and Warranties.............................. 33
10.3. Notices................................................................. 33
10.4. Successors and Assigns.................................................. 34
10.5. Amendment and Waiver.................................................... 34
10.6. Counterparts............................................................ 35
10.7. Headings................................................................ 35
10.8. Governing Law........................................................... 35
10.9. Severability............................................................ 35
10.10. Rules of Construction.................................................. 35
10.11. Entire Agreement....................................................... 35
10.12. Transaction Expenses................................................... 35
</TABLE>
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
----
<S> <C>
10.13. Publicity.............................................................. 35
10.14. Further Assurances..................................................... 35
10.15. Severability of Representations, Warranties and Covenants.............. 36
</TABLE>
<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
-------------------------------
EXHIBITS
--------
Exhibit A - Certificate of Designations for the Series B Preferred Stock
Exhibit B - Lender Letters
Exhibit C - Redemption Agreement
Exhibit D - Registration Rights Agreement
Exhibit E - Series A Registration Rights Agreement
Exhibit F - Shareholders' Agreement
Exhibit G - Severance and Noncompete Agreements
Exhibit H - Preferred Stock Conversion Adjustments
Exhibit I - Opinion of Holme Roberts & Owen LLP
Exhibit J - Amended and Restated Certificate of Incorporation of Colorado
Greenhouse Holdings, Inc.
Exhibit K - Hambrecht & Quist Warrant
SCHEDULES
---------
Shares Being Purchased............................... 1
Lenders.............................................. 1.1
Adjustment Prices.................................... 2
Adjustment Percentages............................... 3
Schedule 3.22 - Restructuring Table
Schedule 5.3 - Consents
Schedule 5.6 - Capitalization
Schedule 5.7 - Affiliates and Project Owners
Schedule 5.9 - Litigation
<PAGE>
Schedule 5.11(a) - Leased Real Property
Schedule 5.12 - Contractual Obligations
Schedule 5.13 - Intellectual Property
Schedule 5.14(c) - Tax Mattters; Audits
Schedule 5.14(f)(i) - Tax Matters; Tax Elections
Schedule 5.14(f)(iii) - Tax Matters; Tax Indemnity
Schedule 5.14(i) - Tax Matters; Excess Parachute Payments
Schedule 5.14(j) - Tax Matters; Joint Ventures
Schedule 5.17(e) - Environmental Matters; Phase I Environmental Assessments
Schedule 5.20 - Employment Agreements
Schedule 5.21 - Employee Benefits Plans
Schedule 5.22 - Potential Conflicts of Interest; Transactions with Affiliates
Schedule 5.24 - Outstanding Borrowings
Schedule 5.25 - Insurance Policies
Schedule 8.5 - Use of Proceeds
ii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
---------
the 21st day of January, 1997 by and among CATTERTON-SIMON PARTNERS III, L.P. a
Delaware limited partnership ("Catterton"), BCI Growth IV, L.P., a Delaware
---------
limited partnership ("BCI"), the other co-investors listed on Schedule 1
----------
attached hereto (the "Co-Investors") and COLORADO GREENHOUSE HOLDINGS, INC., a
------------
Delaware corporation (the "Company").
-------
RECITALS
A. WHEREAS, upon the terms and subject to the conditions set forth in
this Agreement, the Company proposes to issue and sell shares of its Series B
Preferred Stock (as defined herein) to Catterton, BCI and the Co-Investors (each
being referred to herein as a "Purchaser" and collectively referred to herein as
the "Purchasers").
B. WHEREAS, upon the terms and subject to the conditions set forth in
this Agreement, the Purchasers desire to contribute capital to the Company in
exchange for the issuance to the Purchasers of shares of the Series B Preferred
Stock as set forth herein.
C. WHEREAS, the Purchasers desire that, upon the Closing (as defined
in herein), Catterton, BCI and the Co-Investors will collectively own one
hundred percent (100%) of the Company's outstanding Series B Preferred Stock.
D. WHEREAS, the Company, the holders of the Company's Series A
Preferred Stock and the Purchasers desire to set forth the objectives and
agreements that will govern their relations and responsibilities with respect to
each other by entering into concurrently with the sale and purchase of
securities hereunder a Shareholders' Agreement (as defined herein).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
-----------
1.1. Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Actual EBIT" shall mean, for any period, the Consolidated Net Income
-----------
of the Company for such period adjusted to deduct therefrom interest income and
to add thereto the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expenses; (ii) interest expense and
(iii) any non-cash charge related to the issuance of Company options to purchase
Common Stock. Such amounts shall be determined pursuant to an audit by a
nationally recognized accounting firm in accordance with GAAP.
"Adjustment Percentage" shall mean, with respect to any return on
---------------------
Investment in connection with a Liquidity Event, the "Adjustment Percentage" as
set forth on Schedule 3 for such Return on Investment as of the closing date of
----------
such Liquidity Event.
<PAGE>
"Adjustment Price" shall mean, with respect to any date, the
----------------
"Adjustment Price" as set forth on Schedule 2 for such date.
----------
"Affiliate" means, with respect to any specified Person, any Person
---------
that, directly or indirectly, controls, is controlled by, or is under common
control with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise, provided, however, in no event shall Brush
-------- -------
Cogeneration Partners, Colorado Power Partners, American Atlas #1 LTD, CTI,
Inc., CTI Partners I, LLC and CTI Partners II, LLC be deemed an Affiliate of the
Company. 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. Unless otherwise qualified, all references to an "Affiliate" or to
"Affiliates" in this Agreement shall refer to an Affiliate or Affiliates of the
Company.
"Balance Sheet Date" means December 31, 1996.
------------------
"Benefit Arrangement" means any employment, consulting, severance or
-------------------
other similar contract, arrangement or policy and each plan, arrangement
(written or oral), program, agreement or commitment providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, life, health, disability or accident benefits (including,
without limitation, any "voluntary employees' beneficiary association" as
defined in Section 501(c)(9) of the Code providing for the same or other
benefits) or for deferred compensation, profit-sharing bonuses, stock options,
stock appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (A) is
not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as the case may be,
by the Company or an ERISA Affiliate or under which the Company or any ERISA
Affiliate may incur any liability, and (C) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such entities).
"Certificate of Designations" shall mean the Company's Certificate of
---------------------------
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions thereof of Series B Preferred Stock attached hereto as Exhibit A.
---------
"Code" means the Internal Revenue Code of 1986, as amended, or any
----
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Equity" shall mean all shares now or hereafter authorized of
-------------
any class of common stock of the Company, however designated, including the
Common Stock, and any other stock of the Company, however designated, authorized
after the Initial Issue Date, which has the right (subject always to prior
rights of any class or series of preferred stock) to participate in the
distribution of the assets and earnings of the Company without limit as to per
share amount.
"Common Stock" means the common stock, par value $.001 per share, of
------------
the Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
2
<PAGE>
"Company's Line of Business" means the current line of business of the
--------------------------
Company and its Affiliates, any line of business that is related thereto and any
line of business that involves the production and distribution of produce and
related food products and ancillary services.
"Condition of the Company" means the assets, business, properties,
------------------------
operations, financial condition or prospects of the Company and its subsidiaries
taken as a whole.
"Consolidated Net Income" shall have the meaning assigned to such term
-----------------------
in the Certificate of Designations.
"Contractual Obligation" means as to any Person, any provision of any
----------------------
security issued by such Person or any provision of any agreement, lease of real
or personal property, undertaking, contract, indenture, mortgage, deed of trust
or other instrument to which such Person is a party or by which it or any of its
property is bound.
"Defined Benefit Plan" means a defined benefit plan within the meaning
--------------------
of Section 3(35) of ERISA or Section 414(j) of the Code, whether funded or
unfunded, qualified or nonqualified (whether or not subject to ERISA or the
Code).
"Employee Plans" means all Benefit Arrangements, Multiemployer Plans,
--------------
Pension Plans and Welfare Plans.
"Environmental Expenses" means any liability, loss, cost or expense
----------------------
arising from any Pre-Closing Environmental Matter, including, without
limitation, costs of investigation, cleanup, removal, remedial, corrective or
response action, the costs associated with posting financial assurances for the
completion of investigation, cleanup, removal, remedial, corrective or response
actions, the preparation of any closure or other necessary or required plans or
analyses, or other reports or analyses submitted to or prepared by regulating
agencies, including the cost of health assessments, epidemiological studies and
the like, retention of engineers and other expert consultants, legal counsel,
capital improvement, operation and maintenance testing and monitoring costs,
power and utility costs and pumping taxes or fees, and administrative costs or
damages.
"Environmental Laws" means any federal, state, territorial, provincial
------------------
or local law, common law doctrine, rule, order, decree, judgment, injunction,
license, permit or regulation relating to environmental matters, including those
pertaining to land use, air, soil, surface water, ground water (including the
protection, cleanup, removal, remediation or damage thereof), public or employee
health or safety or any other environmental matter, together with any other laws
(federal, state, territorial, provincial or local) relating to emissions,
discharges, releases or threatened releases of any pollutant or contaminant
including, without limitation, medical, chemical, biological, biohazardous or
radioactive waste and materials, into ambient air, land, surface water,
groundwater, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any contaminant, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. (S) 9601 et seq.), the Hazardous Material
-- ---
Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource Conservation and
-- ---
Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal Water Pollution Control
-- ---
Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 1251 et
-- --- --
seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), and the
- --- -- ---
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), as such laws
-- ---
have been
3
<PAGE>
amended, modified or supplemented heretofore and any analogous federal, state or
local laws, statutes and regulations.
"Equipment" means all of the tangible personal property owned or
---------
leased by the Company or any of its Affiliates and used in or held for use in
the operations of the business of the Company or any of its Affiliates.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" means any Person that is (or at any relevant time
---------------
was) a member of a "controlled group of corporations" with or under "common
control" with the Company as defined in Section 414(b), (c), (m) or (o) of the
Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission thereunder.
"Facilities" means the buildings, plants, offices, greenhouses and all
----------
other improvements on any real property (including fixtures affixed thereto)
which are owned or leased by the Company or any of its Affiliates and used or
held for use in the operation of the business of the Company or any of its
Affiliates.
"GAAP" means United States generally accepted accounting principles,
----
in effect from time to time, consistently applied.
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
exercising public functions owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"Hazardous Materials" means those substances which are regulated by or
-------------------
form the basis of liability under any Environmental Laws, including, without
limitation, petroleum products, radon and asbestos.
"Indebtedness" means, as to any Person: (a) all obligations, whether
------------
or not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (e)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) all
Indebtedness of any
4
<PAGE>
other Person referred to in clauses (a) through (f) above, guaranteed, directly
or indirectly, by that Person.
"Initial Issue Date" shall mean the date that shares of Series B
------------------
Preferred Stock are first issued by the Company.
"Letters" means those letters addressed to Colorado Springs Production
-------
Credit Association from each of the lenders set forth on Schedule 1.1 (or their
------------
successors as holders of deeds of trust on any of the Brush I, Brush II or Ft.
Lupton greenhouses) consenting to the execution of a consent and subordination
from the lessor and lessee of the Brush I, Brush II and Ft. Lupton greenhouses
substantially in the form of Exhibit B hereto and containing (and not modifying
---------
or abrogating) the following paragraph:
"Each Project Party agrees that the making of any
distribution by Colorado Greenhouse, LLC to its members after the
payment of all of its other obligations then due (including 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."
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"Liquidity Event" shall have the meaning assigned to such term in the
---------------
Certificate of Designations.
"Material Adverse Effect" means any adverse material change in the
-----------------------
assets, business, properties, operations or financial condition of the Company
or the LLC.
"Multiemployer Plan" means any "multiemployer plan," as defined in
------------------
Section 4001(a)(3) or Section 3(37) of ERISA, (A) which the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA Affiliate
may incur any liability and (B) which covers any employee or former employee of
the Company or any ERISA Affiliate (with respect to their relationship with such
entities).
"Outstanding Borrowings" means all Indebtedness of the Company and/or
----------------------
its Affiliates for borrowed money (including without limitation, reimbursement
and all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), excluding obligations with
respect to trade payables incurred in the ordinary course of business.
"PBGC" means the Pension Benefit Guaranty Corporation.
----
5
<PAGE>
"Pension Plan" means any "employee pension benefit plan" as defined in
------------
Section 3(2) of ERISA (other than a Multiemployer Plan) (A) which the Company or
any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, within the five years prior to the Closing Date, maintained,
administered, contributed to or was required to contribute to, or under which
the Company or any ERISA Affiliate may incur any liability and (B) which covers
any employee or former employee of the Company or any ERISA Affiliate (with
respect to their relationship with such entities).
"Permitted Liens" means (i) Liens for taxes, governmental charges or
---------------
levies which (a) are not yet due and payable, or (b) are being diligently
contested in good faith by appropriate proceedings; provided, that for any such
taxes being diligently contested in good faith, the Company has set aside
adequate reserves, (ii) Liens imposed by law, such as mechanic's, materialman's,
landlord's, warehouseman's and carrier's liens, securing obligations incurred in
the ordinary course of business which are not yet overdue or which are being
diligently contested in good faith by appropriate proceeding and, with respect
to such obligations which are being contested, for which the Company has set
aside adequate reserves, and (iii) Liens which (x) in each case, secure
obligations of less than $10,000, and (y) do not, individually or in the
aggregate, interfere with the use and enjoyment of the property subject thereto.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Pre-Closing Environmental Matters" means (i) the production, use,
---------------------------------
generation, storage, treatment, recycling, disposal, discharge, release, or
other handling or disposition of any kind at any time on or prior to the Closing
Date (collectively "Handling") of any Hazardous Material, either in, on, or
under any real property or facility owned, leased or used at any time by the
Company (or a predecessor or affiliate of the Company) including without
limitation the effects of such Handling of Hazardous Materials on resources,
persons, or property within or outside the boundaries of any facility owned,
operated or otherwise used by the Company; (ii) the presence as of the Closing
Date of Hazardous Materials in, on or under any facility owned, leased or used
at any time by the Company regardless of how the Hazardous Materials came to
rest at, on or under such facility, (iii) the failure on or prior to the Closing
Date of any facility or any operations of the Company to be in compliance with
any Environmental Laws, and (iv) any other act, omission or condition existing
prior to the Closing Date which gives rise to liability under any Environmental
Laws with respect to the Company.
"Preferred Stock" means the Series A Preferred Stock and the Series B
---------------
Preferred Stock.
"Private Placement Memorandum" means the Confidential Private
----------------------------
Placement Memorandum prepared by the Company and dated October 1996.
"Project Owners" means each of Brush Cogeneration Partners, Colorado
--------------
Power Partners and American Atlas #1 LTD.
"Qualified Initial Public Offering" shall have the meaning assigned to
---------------------------------
such term in the Certificate of Designations.
6
<PAGE>
"Redemption Agreement" means the Redemption Agreement attached hereto
--------------------
as Exhibit C.
---------
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement attached hereto as Exhibit D.
---------
"Requirements of Law" means, as to any Person, the provisions of the
-------------------
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise, order, judgment, or
determination, in each case, of an arbitrator or a court or other Governmental
Authority, in each case, applicable to or binding upon such Person or any of its
property (or to which such Person or any of its property is subject) or
applicable to any or all of the transactions contemplated by or referred to in
the Transaction Agreements.
"Return on Investment" shall have the meaning assigned to such term in
--------------------
the Certificate of Designations.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission thereunder.
"Series A Registration Rights Agreement" means the Series A
--------------------------------------
Registration Rights Agreement attached hereto as Exhibit E.
---------
"Series A Preferred Stock" means the Series A Preferred Stock, par
------------------------
value $.001 per share, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Series B Preferred Stock" means the Series B Preferred Stock, par
------------------------
value $.001 per share, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Severance and Noncompete Agreements" means the Severance and
-----------------------------------
Noncompete Agreements entered into between (i) the Company and Mr. Edward
Wetherbee and (ii) the Company and Mr. Matthew Cook, each in a form reasonably
acceptable to the Company and the Purchasers attached hereto Exhibit F.
---------
"Shareholders' Agreement" means the Shareholders' Agreement among the
-----------------------
Company, the holders of Series A Preferred Stock and the Purchasers attached
hereto as Exhibit G.
---------
"Shares" means the Common Stock and the Preferred Stock.
------
"subsidiary" shall mean (i) any corporation, at least 50% of the total
----------
combined voting power of all classes of capital stock of which shall, at the
time as of which any determination is being made, be beneficially owned by the
Company either directly or through subsidiaries, and (ii) any partnership or
other entity in which the Company or any subsidiary beneficially owns more than
a 50% equity interest and controls the management of such entity.
7
<PAGE>
"Tax" or "Taxes" shall mean all federal, state, local foreign and
--- -----
other taxes, assessments or other government charges, including, without
limitation, income, estimated income, business, occupation, franchise, property
sales, transfer, use, employment, commercial rent or withholding taxes,
including interest, penalties and additions in connection therewith for which
the Company may be liable.
"Transaction Agreements" means collectively, this Agreement, the
----------------------
Severance and Noncompete Agreements, the Series A Registration Rights Agreement,
the Series B Registration Rights Agreement, the Certificate of Designations, the
Shareholders' Agreement and the Redemption Agreement.
"Transaction Expenses" means any and all out-of-pocket expenses
--------------------
incurred by the Purchasers in connection with the legal and financial due
diligence review of the Condition of the Company conducted by the Purchasers,
the negotiation and preparation of the Transaction Agreements, the consummation
of the transactions contemplated thereby and preparation for any of the
foregoing, including, without limitation, travel expenses, fees, (including,
without limitation, consulting fees), charges and disbursements of counsel and
any similar or related costs and expenses.
"Welfare Plan" means any "employee welfare benefit plan" as defined in
------------
Section 3(1) of ERISA, (A) which the Company or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or under which the
Company or any ERISA Affiliate may incur any liability and (B) which covers any
employee or former employee of the Company or any ERISA Affiliate (with respect
to their relationship with such entities).
"1997 Target EBIT" means $7,361,000.
----------------
"1998 Target EBIT" means $14,914,000.
----------------
1.2. Accounting Terms; Financial Statements. All accounting terms
--------------------------------------
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with GAAP.
1.3. Knowledge Standard. When used herein, the phrase "to the
------------------
knowledge of" any Person, "to the best knowledge of" any Person or any similar
phrase shall mean, (i) with respect to any individual, the actual knowledge of
such Person (ii) with respect to any corporation, the actual knowledge of
officers and directors, or Persons acting in similar capacities, of such
corporation and the knowledge of such facts that such persons should have in the
exercise of their duties after reasonable inquiry, (iii) with respect to any
limited liability company, the actual knowledge of the members and the officers
and directors of members, or Persons acting in similar capacities, of such
entity and the knowledge of such facts that such persons should have in the
exercise of their duties after reasonable inquiry, and (iv) with respect to a
partnership, the actual knowledge of the officers and directors of the general
partner of such partnership and the knowledge of such facts that such persons
should have in the exercise of their duties after reasonable inquiry. When used
herein, the phrase "to the knowledge of the Company," "to the best knowledge of
the Company" or any similar phrase shall mean "to the best knowledge of the
Company and each Affiliate" using the standards set forth in the previous
sentence.
8
<PAGE>
1.4. Other Defined Terms. The following terms shall have the meanings
-------------------
specified in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Actions 5.9
Budget 8.1
Certificate of Incorporation 3.13
Closing 2.3
Closing Date 2.3
Holders 8.1
HSR Act 5.30
Indemnified Party 9.1
Indemnifying Party 9.1
Initial Determination 9.1
Intellectual Property 5.13
Liability (and Liabilities) 9.1
LLC 3.15
Purchase Price 2.2
Restructuring 3.20
Taxpayer (and Taxpayers) 5.14
Termination Date 10.1
Torrance Greenhouse 5.3
Unaudited Financial 3.15
Statements
</TABLE>
ARTICLE 2.
AUTHORIZATION OF SERIES B PREFERRED STOCK;
PURCHASE AND SALE OF SERIES B PREFERRED STOCK
---------------------------------------------
2.1. Preferred Stock. The Company has authorized (a) the issuance and
---------------
sale to the Purchasers of an aggregate of 1,875,000 shares of Series B Preferred
Stock and (b) has duly adopted resolutions (i) authorizing the filing of the
Certificate of Designations and (ii) establishing the rights, preferences,
privileges and restrictions of the Series B Preferred Stock. The Series B
Preferred Stock will have the respective rights, preferences and privileges set
forth in the Certificate of Designations.
2.2. Purchase and Sale of Series B Preferred Stock. Upon the terms and
---------------------------------------------
subject to the conditions herein contained, at the Closing (as defined herein)
on the Closing Date (as defined herein), the Company agrees that it will issue
and sell to each of the Purchasers, and each Purchaser agrees that it will
acquire and purchase from the Company, the number of shares of Series B
Preferred Stock listed next to such Purchaser's name on Schedule 1 hereto. The
----------
purchase price of the Series B Preferred Stock shall be $8.00 per share. The
aggregate purchase price of such Series B Preferred Stock shall be $15,000,000
(the "Purchase Price").
--------------
2.3. Closing. The closing of the sale to and purchase by the
-------
Purchasers of the Series B Preferred Stock referred to in Section 2.2 hereof
(the "Closing") shall occur at the offices of Holme Roberts & Owen LLP, 1401
-------
Pearl Street, Suite 400, Boulder, CO 80302 at 10:00 a.m. Colorado time on
January 21, 1997 or at such different time of day as the Purchasers and the
Company shall agree (the
9
<PAGE>
"Closing Date"). At the Closing, (i) the Company shall deliver to each
------------
Purchaser certificates evidencing the Series B Preferred Stock being purchased
by such Purchaser, free and clear of any Liens of any nature whatsoever, other
than those created by the Certificate of Designations or the Shareholders'
Agreement, registered in such Purchaser's name, and (ii) each Purchaser shall
deliver to the Company the portion of the Purchase Price listed next to such
Purchaser's name on Schedule 1 hereto, by cashier's check or wire transfer of
----------
immediately available funds.
2.4. Fees and Expenses. Regardless whether the transactions
-----------------
contemplated by this Agreement are consummated, the Company shall reimburse the
Purchasers for all Transaction Expenses, at the Closing out of the proceeds of
the sale of the Series B Preferred Stock hereunder or, if there is no Closing,
promptly upon request therefor, which payment shall be made by wire transfer of
immediately available funds to an account or accounts designated by the
Purchasers.
2.5.Preferred Stock Conversion Adjustments. Attached hereto as
--------------------------------------
Exhibit H are example calculations of the conversion adjustments to be made
- ---------
pursuant to the terms of the Certificate of Designations. The Company and
Purchasers have prepared the example calculations set forth on Exhibit H as
---------
illustrations of the effect of such adjustment terms for the purpose of
assisting in the interpretation of such terms. Such calculations are intended to
implement, not to supersede or modify, the terms of the Certificate of
Designations.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO PURCHASE THE SERIES B PREFERRED STOCK
---------------------------------------------------
The obligation of each Purchaser to purchase the Series B Preferred
Stock, to pay the purchase prices therefor and to perform any obligations
hereunder on the Closing Date (unless otherwise specified) shall be subject to
the satisfaction as determined by, or waiver by, such Purchaser of the following
conditions on or before the Closing Date:
3.1. Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Article 5 hereof shall be true and
correct at and as of the Closing Date (both before and after giving effect to
the transactions contemplated under this Agreement) as if made at and as of such
date.
3.2. Compliance with Terms and Conditions of this Agreement. The
------------------------------------------------------
Company shall have duly and properly performed and complied with all of the
agreements, covenants, obligations and conditions set forth herein that are
required to be performed or complied with by the Company on or before the
Closing Date.
3.3. Delivery of Certificates Evidencing the Series B Preferred Stock.
----------------------------------------------------------------
The Company shall have delivered to each Purchaser the certificates evidencing
the Series B Preferred Stock as set forth in Section 2.1.
3.4. Closing Certificates. The Company shall have delivered to each
--------------------
Purchaser a certificate executed by an authorized officer of the Company
certifying to such matters as the Purchasers may reasonably request, including
that the representations and warranties of the Company contained in the
Agreement are true and correct on and as of the Closing Date, and that the
conditions set forth in this Section 3 to be satisfied by the Company have been
satisfied on and as of the Closing Date.
10
<PAGE>
3.5. Secretary's Certificates. Each Purchaser shall have received a
------------------------
certificates from the Company, dated as of the Closing Date and signed by the
Secretary or an Assistant Secretary of the Company, certifying that the attached
copies of the Certificate of Incorporation, By-laws of the Company, and
resolutions of the Board of Directors of the Company approving the Transaction
Agreements and the transactions contemplated thereby, are all true, complete and
correct and remain unamended and in full force and effect.
3.6. Documents. Each Purchaser or one Purchaser on behalf of all
---------
Purchasers shall have received true, complete and correct copies of such
documents and such other information as it may have reasonably requested in
connection with or relating to the sale of the Series B Preferred Stock and the
transactions contemplated by the Transaction Agreements, all in form and
substance reasonably satisfactory to the Purchasers prior to the Closing.
3.7. Purchase Permitted by Applicable Laws. The acquisition of and
-------------------------------------
payment for the Series B Preferred Stock to be acquired by the Purchasers
hereunder and the consummation of the transactions contemplated by the
Transaction Agreements shall not (a) violate any Requirements of Law, (b) result
in a breach or default (i) under any of the Contractual Obligations of the
Company or (ii) under any order, writ, judgment, injunction, decree,
determination or award of any court, arbitrator, or commission, board, bureau,
agency or other governmental instrumentality, (c) result in, or require, the
creation or imposition of any Lien, or the obligation to make any payment with
respect to any Lien, upon or with respect to any of the property of the Company,
or (d) require any consents, approvals, exemptions, authorizations,
registrations, declarations or filings by the Company.
3.8. Opinion of Counsel. Each Purchaser shall have received an
------------------
opinion of Holme Roberts & Owen LLP, counsel to the Company, dated as of the
Closing Date attached hereto as Exhibit I.
---------
3.9. Approval of Counsel to Purchasers. All actions and proceedings
---------------------------------
required to be performed on or prior to the Closing Date hereunder and all
documents required to be delivered by the Company on or prior to the Closing
Date as required by this Agreement, shall have been acceptable to Latham &
Watkins, counsel to the Purchasers, in its reasonable judgment as to their form
and substance.
3.10. Consents and Approvals. All agreements, approvals, consents,
----------------------
exemptions, authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of Law
and with respect to those material Contractual Obligations of the Company,
necessary or required in connection with the execution, delivery or performance
of the Transaction Agreements (including, without limitation, the issuance of
the Series B Preferred Stock, and issuance of the Common Stock upon conversion
of the Series B Preferred Stock) by the Company, shall have been obtained and be
in full force and effect, and the Purchasers shall have been furnished with
appropriate evidence thereof, and all waiting periods shall have lapsed without
extension or the imposition of any conditions or restrictions.
3.11. Certain Waivers. Each holder of the shares of the capital stock
---------------
of the Company (or any other party who may possess such rights) shall have
waived any and all preemptive rights, rights of first refusal, "tag along"
rights, rights of co-sale and any similar rights with respect to the issuance of
the Series B Preferred Stock contemplated hereby.
3.12. No Material Adverse Effect. Since the Balance Sheet Date, (i)
--------------------------
there shall have been no Material Adverse Effect in the Condition of the Company
which the Company can reasonably foresee, and (ii) there shall be no fact known
to the Company that has not been disclosed to the
11
<PAGE>
Purchasers, which will or would be reasonably likely to have a Material Adverse
Effect on the Condition of the Company which the Company can reasonably foresee.
3.13. Certificate and By-laws. The Company shall have adopted and
-----------------------
filed the Amended and Restated Certificate of Incorporation attached hereto as
Exhibit J (the "Certificate of Incorporation") and the By-laws of the Company
- ---------
shall be amended as may be required by the Certificate of Incorporation and the
Shareholders' Agreement, in form and substance satisfactory to the Purchasers.
3.14. No Material Judgment or Order. There shall not be on the Closing
-----------------------------
Date any judgment or order of a court of competent jurisdiction or any ruling of
any Governmental Authority or any condition imposed under any Requirement of Law
which, in the reasonable judgment of the Purchasers, would (i) prohibit the
purchase of the Series B Preferred Stock or the consummation of the other
transactions contemplated hereunder, (ii) subject the Purchasers to any penalty
if the Series B Preferred Stock were to be purchased hereunder, (iii) question
the validity or legality of the transactions contemplated hereby, or (iv) be
reasonably expected to materially adversely affect the value of the capital
stock of the Company, the Series B Preferred Stock or the Condition of the
Company.
3.15. Financial Statements. The Company shall have delivered to the
--------------------
Purchasers a copy of the (i) audited balance sheet of Colorado Greenhouse L.L.C.
(the "LLC") and of American Atlas #1 LTD (together with consolidating
---
information relating to Wolf Creek Rifle, LLC, ("Wolf Creek")) as of December
31, 1995 and the related consolidated statements of operations and cash flows
for the fiscal year then ended, accompanied by the report of an independent
auditor, (ii) the unaudited consolidated balance sheet of the LLC as of December
31, 1996 and the related consolidated statements of operations and cash flows
for the fiscal year then ended (the "Unaudited Financial Statements"), (iii) a
schedule of the Company's fixed assets as of December 31, 1996, valued at cost
less accumulated depreciation, certified on behalf of the Company and LLC by the
Chief Financial Officer of the Company (the "Certified Fixed Assets Schedule")
and (iv) a schedule of the Company's physical inventory as of December 31, 1996,
valued at the lower of cost and net realizable value, certified on behalf of the
Company and the LLC by the Chief Financial Officer of the Company (the
"Certified Inventory Schedule"). The financial statements identified in clauses
(i) and (ii) above fairly present the financial condition and results of
operations in accordance with GAAP applied on a consistent basis as of the dates
and for the periods set forth in the balance sheet included therein and the
results of operations of the Company for the period covered thereby; provided,
--------
however, that the Unaudited Financial Statements are subject to normal and
- -------
customary year-ending audit adjustments and do not contain all the footnotes
required by GAAP.
3.16. Severance and Noncompete Agreements. The Company and Mr. Edward
-----------------------------------
Wetherbee and the Company and Mr. Matthew Cook shall have duly executed and
delivered to the Purchasers the Severance and Noncompete Agreements attached
hereto as Exhibit F.
---------
3.17. Registration Rights Agreement. The Company and the other parties
-----------------------------
to the Registration Rights Agreement (other than the Purchasers) shall have duly
executed and delivered to the Purchasers the Registration Rights Agreement
attached hereto as Exhibit D.
---------
3.18. Series A Registration Rights Agreement. The Company and the
--------------------------------------
other parties to the Series A Registration Rights Agreement shall have duly
executed and delivered to the Purchasers the Series A Registration Rights
Agreement attached hereto as Exhibit E.
---------
12
<PAGE>
3.19. Shareholders' Agreement. The Company, the holders of Series A
-----------------------
Preferred Stock and the Purchasers shall have entered into a Shareholders
Agreement attached hereto as Exhibit G.
---------
3.20. Certificate of Designations. The Company shall have duly
---------------------------
executed and filed with the Secretary of State of the State of Delaware the
Certificate of Designations attached hereto as Exhibit A.
---------
3.21. Redemption Agreement. The Company and the Purchasers shall have
--------------------
entered into a Redemption Agreement attached hereto as Exhibit C.
---------
3.22. Company Reorganization. The Company shall have completed the
----------------------
restructuring (the "Restructuring"), including (i) the issuance of shares of
-------------
Series A Preferred Stock of the Company in exchange for member interests in the
LLC as set forth in Schedule 3.22; (ii) the formation of Colorado Greenhouse,
-------------
Inc. and CG Member, Inc. as wholly owned subsidiaries of the Company; and (iii)
the acquisition by the Company or a wholly owned subsidiary of the Company of
100% of the member interests in the LLC, all in form and substance satisfactory
to the Purchasers and their counsel.
3.23. Purchaser Diligence. The Purchasers shall be satisfied, in their
-------------------
sole discretion, with the due diligence inquiries made with respect to the
Company, its Affiliates and the Project Owners.
ARTICLE 4.
CONDITIONS TO THE
OBLIGATIONS OF THE COMPANY TO CLOSE
-----------------------------------
The obligation of the Company to issue and sell the Series B Preferred
Stock and the other obligations of the Company hereunder, shall be subject to
the satisfaction as determined by, or waiver by, the Company of the following
conditions on or before the Closing Date:
4.1. Representations and Warranties. The representations and
------------------------------
warranties of the Purchasers contained in Section 6 hereof shall be true and
correct at and as of the Closing Date.
4.2. Compliance with Terms and Conditions of this Agreement. The
------------------------------------------------------
Purchasers shall have performed and complied with all of the obligations and
conditions set forth herein that are required to be performed or complied with
by the Purchasers on or before the Closing Date.
4.3. Closing Certificates. Each Purchaser shall have delivered to the
--------------------
Company a certificate executed by such Purchaser certifying to such matters as
the Company may reasonably request, including that the representations and
warranties of such Purchaser contained in this Agreement are true and correct on
and as of the Closing Date, and that the conditions set forth in this Section 4
to be satisfied by such Purchaser have been satisfied on and as of the Closing
Date.
4.4. Issuance Permitted by Applicable Laws. The issuance of the
-------------------------------------
Series B Preferred Stock by the Company hereunder and the consummation of the
transactions contemplated by the Transaction Agreements shall not (a) violate
any Requirements of Law, or (b) result in a breach or default (i) under any of
the Contractual Obligations of the Purchasers, or (ii) under any order, writ,
judgment, injunction, decree, determination or award of any court, arbitrator,
or commission, board, bureau, agency or other governmental instrumentality, or
(c) require any consents, approvals, exemptions, authorizations, registrations,
declarations or filings by the Purchasers.
13
<PAGE>
4.5. Payment of Purchase Price. The Purchasers shall tender to the
-------------------------
Company the Purchase Price set forth in Section 2.2 in the respective amounts
specified on Schedule 1 hereto.
----------
4.6. Approval of Counsel to Company. All actions and proceedings
------------------------------
required to be performed on or prior to the Closing Date hereunder and all
documents required to be delivered by the Purchasers on or prior to the Closing
Date as required by this Agreement, shall have been acceptable to Holme Roberts
& Owen LLP, counsel to the Company, in their reasonable judgment as to their
form and substance.
4.7. Consents and Approvals. All agreements, approvals consents,
----------------------
exemptions, authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of Law
and with respect to those material Contractual Obligations of the Purchasers
necessary or required in connection with the execution, delivery or performance
of the Transaction Agreements by each Purchaser, shall have been obtained and be
in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof as requested by the Company and all waiting periods
shall have lapsed without extension or imposition of any conditions or
restrictions.
4.8. No Material Judgment or Order. There shall not be on the Closing
-----------------------------
Date any judgment or order of a court of competent jurisdiction or any ruling of
any Governmental Authority or any condition imposed under any Requirements of
Law which, in the reasonable judgment of the Company would (i) prohibit the sale
of the Series B Preferred Stock or the consummation of the other transactions
contemplated hereunder, (ii) subject the Company to any penalty if the Series B
Preferred Stock were to be sold hereunder, or (iii) question the validity or
legality of the transactions contemplated hereby.
ARTICLE 5.
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
-------------------------
The Company hereby represents and warrants to the Purchasers as of the
date hereof as follows:
5.1. Corporate Existence and Authority. The Company (a) is a
---------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, (b) has all requisite corporate power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be
engaged, (c) is duly qualified as a foreign corporation, licensed and in good
standing in each jurisdiction in which such qualification is necessary under
applicable law as a result of the conduct of its business or the ownership of
its properties, and (d) has the corporate power and authority to execute,
deliver and perform its obligations under each Transaction Agreement to which it
is or will be a party.
5.2. Corporate Authorization; No Contravention. The execution,
-----------------------------------------
delivery and performance by the Company of each of the Transaction Agreements
and the consummation of the transactions contemplated thereby, including without
limitation, the issuance of the Series B Preferred Stock (a) has been duly
authorized by all necessary corporate action, including, if required,
stockholder action, (b) does not and will not conflict with or contravene the
terms of the Certificate of Incorporation or the By-Laws of the Company, or any
amendment thereof; and (c) does not and will not violate,
14
<PAGE>
conflict with or result in any material breach or contravention of (i) any
Contractual Obligation of the Company or any of its Affiliates, or (ii) any
Requirements of Law applicable to the Company or any of its Affiliates.
5.3. Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
applicable Requirements of Law, and no lapse of a waiting period under any
applicable Requirements of Law, is necessary or required in connection with the
execution, delivery or performance (including, without limitation, the issuance
of the Series B Preferred Stock, the issuance of the Common Stock upon the
conversion or exercise of the Series B Preferred Stock) by the Company or the
enforcement against the Company of the Transaction Agreements, or the
transactions contemplated thereby. Except as set forth on Schedule 5.3, all
------------
approvals, authorizations, exemptions and permits necessary or required for the
construction, operation and use of that certain greenhouse facility to be
located in Torrance County, New Mexico (the "Torrance Greenhouse") have been
obtained by the Company and its Affiliates from all Governmental Authorities
with applicable jurisdiction.
5.4. Binding Effect. The Transaction Agreements have been duly
--------------
executed and delivered by the Company and constitute the legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as enforceability may be limited by applicable
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity relating to
enforceability.
5.5. Other Agreements. Neither the Company nor any Affiliate has
----------------
previously entered into any agreement which is currently in effect or to which
the Company or any Affiliate is currently bound, granting any registration or
other material rights to any Person, the provision or performance of which would
render the provision or performance (including, without limitation, the issuance
of the Series B Preferred Stock and the issuance of the Common Stock upon the
conversion of the Preferred Stock) of the material rights to be granted to the
Purchasers by the Company in the Transaction Agreements impracticable.
5.6. Capitalization.
--------------
(a) As of the date hereof, the capital stock of the Company consists
solely of (i) 10,600,000 authorized shares of Common Stock (of which none is
issued and outstanding and 7,780,135 reserved for issuance upon the exercise of
outstanding options and the conversion of Preferred Stock) and (ii) 8,100,000
authorized shares of Preferred Stock (of which 6,200,000 shares of Series A
Preferred Stock are issued and outstanding). Immediately following the Closing
(i) no shares of Common Stock will be issued and outstanding; (ii) 1,580,135
shares of Common Stock will be reserved for issuance upon the exercise of
options to purchase such shares, (iii) 6,200,000 shares of Common Stock will be
reserved for issuance upon the conversion of the Series A Preferred Stock, (iv)
2,754,095 shares of Common Stock will be reserved for issuance upon the
conversion of the Series B Preferred Stock; and (v) 1,875,000 shares of Series B
Preferred Stock will be issued and outstanding. A total of 8,650,995 fully
diluted shares of Common Stock will be outstanding immediately following the
Closing, assuming the conversion of all outstanding shares of Series A Preferred
Stock and Series B Preferred Stock and the exercise of all outstanding options
and warrants. All outstanding shares of capital stock of the Company are, and
the Series B Preferred Stock (when issued, sold and delivered against payment
therefor) will be, duly authorized and validly issued, fully paid, nonassessable
and free and clear of any Liens, preferential
15
<PAGE>
rights, priorities, claims, options, charges or other encumbrances or
restrictions, other than those created by the Certificate of Designations and
the Shareholders' Agreement.
(b) Schedule 5.6 sets forth the name of each holder of the issued and
------------
outstanding capital stock of the Company, the number of shares of such capital
stock held of record by each such holder, the name of each Person holding any
options, warrants or other rights to purchase any capital stock of the Company,
the number, class and series of shares of capital stock subject to each such
option, warrant or right and the exercise price of each such option, warrant or
right. Except as set forth on Schedule 5.6, and except for the stock options and
------------
rights referred to in Section 5.6(a) and the Preferred Stock, there are no
outstanding securities convertible into or exchangeable for capital stock of the
Company or options, warrants or other rights to purchase or subscribe to capital
stock of the Company or contracts, commitments, agreements, understandings or
arrangements of any kind to which the Company or any such holder of capital
stock is a party relating to the issuance of any capital stock of the Company,
any such convertible or exchangeable securities or any such options, warrants or
rights.
(c) Except as set forth in the Shareholders' Agreement, no Person has
any preemptive rights, rights of first refusal, "tag along" rights, rights of
co-sale or any similar rights with respect to the issuance of the Series B
Preferred Stock contemplated hereby.
5.7. Affiliates. Schedule 5.7 sets forth a complete and accurate list
---------- ------------
of all of the Affiliates of the Company and all of the Project Owners, together
with their respective jurisdictions of incorporation or organization. Each
Affiliate and Project Owner that is a corporation or a limited liability company
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, with the corporate or
requisite power and authority to own its properties and conduct its business.
Each Affiliate and Project Owner that is a partnership is an existing
partnership under the laws of the jurisdiction of its formation and has full
partnership power and authority to own its properties and conduct its business.
Each Affiliate and Project Owner is qualified and licensed to transact business
in each jurisdiction where such qualification is necessary under applicable law
as a result of the conduct of its business and ownership of its properties. Each
Affiliate and Project Owner has all corporate, partnership or requisite power
and authority to own and operate its properties, to lease the properties it
operates as lessee and to conduct the business in which it is currently, or is
currently proposed to be, engaged. All of the outstanding shares of capital
stock of the Affiliates that are corporations have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth on
Schedule 5.7, all of the outstanding shares of capital stock of, or other
- ------------
ownership interests in, each of the Affiliates are owned by the Company or by a
wholly owned Affiliate free and clear of any Liens, claims, options, charges or
other encumbrances. Except as set forth on Schedule 5.7, no Affiliate has
------------
outstanding options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating the Affiliate to issue,
transfer or sell any securities of the Affiliate.
5.8. Private Offering; California Commissioner of Corporations. No
---------------------------------------------------------
form of general solicitation or general advertising was used by the Company or
its representatives in connection with the offer or sale of the Series B
Preferred Stock. No registration of the Series B Preferred Stock pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws will
be required by the offer, sale or issuance of the Series B Preferred Stock
pursuant to this Agreement. The Company agrees that neither it, nor anyone
acting on its behalf, will offer or sell the Series B Preferred Stock or any
other security so as to require the issuance and sale of the Series B Preferred
Stock pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws, unless such shares are so registered. THE SALE OF THE
SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN
16
<PAGE>
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100,
25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS EXEMPT.
5.9. Litigation. Except as set forth on Schedule 5.9, there is no
---------- ------------
complaint, action, order, writ, injunction, judgment or decree outstanding, or
claim, suit, litigation, proceeding, labor dispute, arbitral action or
investigation (collectively, "Actions") pending or, to the knowledge of the
-------
Company, threatened against, relating to or affecting (i) the assets of the
Company, its Affiliates or the Project Owners, or (ii) the transactions required
to be performed under this Agreement or by the Transaction Agreements. Neither
the Company nor the Affiliates are in default with respect to any judgment,
order, writ, injunction or decree of any court or governmental agency, and there
are no unsatisfied judgments against the Company or any Affiliate. Except as set
forth on Schedule 5.9, there is not a reasonable likelihood of an adverse
------------
determination of any pending Action that would, individually or in the
aggregate, have a Material Adverse Effect on the Condition of the Company.
5.10. Financial Statements. The Company has furnished the Purchasers
--------------------
with (i) the audited balance sheet of LLC and of American Atlas #1 LTD (together
with consolidating information relating to Wolf Creek) as of December 31, 1995
and the related statements of operations and cash flows for the fiscal year then
ended, accompanied by the report of an independent auditor, (ii) the Unaudited
Financial Statements, (iii) the Certified Fixed Assets Schedule and (iv) the
Certified Inventory Schedule. The financial statements identified in clauses (i)
and (ii) above fairly present the financial condition and results of operations
of the Company and LLC as of the dates thereof and were prepared in accordance
with GAAP applied on a consistent basis as of the dates and for the periods set
forth in the balance sheet included therein and the results of operations of the
Company and LLC for the period covered thereby; provided, however, that the
--------- --------
Unaudited Financial Statements are subject to normal and customary year-ending
audit adjustments and do not contain all the footnotes required by GAAP
5.11. Title and Condition of Assets.
-----------------------------
(a) The Company and its Affiliates have good and, with respect to real
property, marketable, title to all of the real and personal property reflected
on the balance sheets included in the Unaudited Financial Statements or acquired
by the Company and its Affiliates since the Balance Sheet Date, free and clear
of any Liens or defects of title, other than Permitted Liens. The Project Owners
have good and, with respect to real property, marketable title to all of their
real and personal property free and clear of any Liens or defects of title,
other than Permitted Liens and such Liens which individually and in the
aggregate do and will not materially impair or interfere with the current or
anticipated uses of such property. All real property which is leased by the
Company and its Affiliates is listed on Schedule 5.11(a) hereto. The Company has
----------------
a valid and enforceable leasehold interest in all real property leased by it
pursuant to the terms of the respective lease agreements. With respect to the
leases listed on Schedule 5.11(a) hereto, the Company or each Affiliate, as
----------------
applicable, is in compliance with the leases and such leases are sufficient for
the conduct of the Company's and its Affiliates' business as now being and
presently planned to be conducted.
17
<PAGE>
(b) The Facilities and Equipment are in good operating condition and
repair (except for ordinary wear and tear and any defect the cost of repairing
which would not be material), are sufficient for the operation of the Company's
business and are in conformity in all material respects with applicable laws,
ordinances, orders, regulations and other requirements (including applicable
zoning, environmental, motor vehicle safety standards, occupational safety and
health laws and regulations) relating thereto, except where such failure to
conform would not have a Material Adverse Effect on the Condition of Company.
The Company and each of its Affiliates enjoy peaceful and undisturbed possession
of all Facilities owned or leased by the Company or such Affiliate, and, to the
best knowledge of the Company, such Facilities are not subject to any
encroachments, building or use restrictions, exceptions, reservations or
limitations which in any material respect interfere with or impair the present
and continued use thereof in the usual and normal conduct of the business of the
Company or its Affiliates. There are no pending or, to the best knowledge of the
Company, threatened, condemnation proceedings relating to any of the Facilities.
The Facilities and the Equipment are insured and are, to the best of the
Company's knowledge, structurally sound with no material defects.
5.12. Contractual Obligations.
-----------------------
(a) Neither the Company nor any of its Affiliates is in default or
breach under or with respect to any Contractual Obligation to which it is a
party (and to the best knowledge of the Company and such Affiliates no other
party to any such Contractual Obligation is in default or breach thereunder),
except any such default which, individually or together with all such defaults,
would not have a Material Adverse Effect on the Condition of the Company or the
ability of the Company to perform its obligations under the Transaction
Agreements. Neither the Company or any of its Affiliates has received notice
that any party to any such Contractual Obligation intends to cancel, amend or
terminate any such agreement.
(b) Schedule 5.12 lists all of the contracts, leases, agreements,
-------------
indentures and undertakings governing or relating to the Contractual Obligations
of the Company and the Affiliates other than (i) the Transaction Agreements,
(ii) purchase orders entered into in the ordinary course of business, and (iii)
any such contracts, leases, agreements, indentures or undertaking that (x) do
not involve the receipt or payment of more than $20,000 each, (y) do not involve
employment or labor matters and (z) do not contain covenants restricting the
Company from engaging in any line of business. The Company has provided the
Purchaser with true, correct and complete copies of all contracts, leases,
agreements, indentures and undertakings listed on Schedule 5.12. Every contract
-------------
listed on Schedule 5.12 is legal, valid, binding and enforceable in accordance
-------------
with its terms with respect to the Company or its Affiliates and any other
parties bound thereby.
5.13. Patents, Trademarks, Etc. As of the Closing, the Company owns
------------------------
or is licensed or otherwise has the right to use all patents, trademarks,
service marks, trade names, copyrights, licenses, franchises and other
intellectual property rights that are material to the operation of the
businesses of the Company (the "Intellectual Property"), and all pending
---------------------
applications related to such Intellectual Property, registered rights in such
Intellectual Property and executed agreements related to such Intellectual
Property are listed on Schedule 5.13 hereto. All registered patents, copyrights,
-------------
trademarks and service marks listed on Schedule 5.13 are in full force and
-------------
effect and are not subject to any taxes or other fees except for annual filing
and maintenance fees. No product, process, method, substance or other material
presently sold by or employed by the Company, or which the Company contemplates
selling or employing, infringes upon the patents, trademarks, service marks,
trade names, copyrights, licenses or other intellectual property rights that are
owned by others. To the Company's knowledge, no litigation is pending and no
claim has been made against the Company or any Affiliate or, to the best
knowledge of the Company, is threatened, contesting the right of the Company or
any Affiliate to sell or use any
18
<PAGE>
product, process, method, substance or other material presently sold by or
employed by the Company or any Affiliate. To the actual knowledge of the
officers and directors of the Company, no patent, invention, devise, principal
or any statute, law, rule, regulation, standard or code is pending or proposed,
which would have a Material Adverse Effect on the Condition of the Company.
5.14. Tax Matters.
-----------
(a) Filing of Tax Returns. Each of the Company, its Affiliates and
---------------------
any predecessor of the Company or any Affiliate (each such entity hereinafter a
"Taxpayer" or collectively the "Taxpayers") have timely filed with the
-------- ---------
appropriate taxing authorities all returns (including without limitation
information returns and other material information) in respect of Taxes required
to be filed through the date hereof and will timely file any such returns
required to be filed on or prior to the Closing Date. The returns and other
information filed (or to be filed) are complete and accurate in all material
respects. No Taxpayer has requested any extension of time within which to file
returns (including without limitation information returns) in respect of any
Taxes that have not been filed.
(b) Payment of Taxes. All Taxes of each of the Taxpayers in respect
----------------
of periods beginning before the Closing Date have been timely paid, or will be
timely paid prior to the Closing Date, and no Taxpayer has any material
liability for Taxes in excess of the amounts so paid. All Taxes that each
Taxpayer has been required to collect or withhold have been duly collected or
withheld and, to the extent required when due, have been or will be (prior to
the Closing Date) duly paid to the proper taxing authority.
(c) Audits, Investigations or Claims. Except as set forth on Schedule
-------------------------------- --------
5.14(c), the federal income tax returns of each of the Taxpayers have not been
- -------
audited by the Internal Revenue Service, and no material deficiencies for Taxes
of any of the Taxpayers have been claimed, proposed or assessed by any taxing or
other governmental authority against any of the Taxpayers. There are no pending
or, to the best knowledge of the Taxpayers, threatened audits, investigations or
claims for or relating to any material additional liability to any of them in
respect of Taxes, and there are no matters under discussion with any
governmental authorities with respect to Taxes that in the reasonable judgment
of any of the Taxpayers, or its or their counsel, is likely to result in a
material additional liability to any of them for Taxes. No audits of any of the
Taxpayers' federal, state, and local returns for Taxes by the relevant taxing
authorities have occurred. None of the Taxpayers have been notified that any
taxing authority intends to audit a return for any period. No extension of a
statute of limitations relating to Taxes is in effect with respect to any of the
Taxpayers.
(d) Lien. There are no liens for Taxes (other than for current Taxes
----
not yet due and payable) on any assets of any Taxpayer.
(e) Partnership Status. The LLC is properly treated as a division of
------------------
the Company for federal and applicable state income tax purposes and, since the
time of its organization, the LLC has not been and will not be treated for
federal or applicable state income tax purposes as an association or publicly
traded partnership taxable as a corporation.
19
<PAGE>
(f) Tax Elections; Tax Sharing Arrangements.
---------------------------------------
(i) All material elections with respect to Taxes affecting each
of the Taxpayers as of the date hereof are set forth on Schedule 5.14(f)(i).
-------------------
(ii) None of the Taxpayers has made an election, and none of
them are required, to treat any asset as owned by another person or as tax-
exempt bond financed property or tax-exempt use property of the Company within
the meaning of section 168 of the Code or under any comparable state or local
income tax or other tax provision.
(iii) Except as set forth on Schedule 5.14(f)(iii), none of the
---------------------
Taxpayers is a party to or bound by any binding tax sharing, tax indemnity or
tax allocation agreement or other similar arrangement with any other party.
(iv) None of the Taxpayers has filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state or local law) or agreed to have Section
341(f)(2) of the Code (or any corresponding provision of state or local law)
apply to any disposition of any asset owned by it.
(g) Affiliated Group. None of the Taxpayers has ever been a member
----------------
of an affiliated group of corporations, within the meaning of Section 1504 of
the Code.
(h) Section 481(a). None of the Taxpayers has agreed to make, or are
--------------
required to make, any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise.
(i) Excess Parachute Payments. Except as set forth on Schedule
------------------------- --------
5.14(i), none of the Taxpayers is a party to any agreement, contract,
- -------
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code.
(j) No Joint Venture. Except as set forth on Schedule 5.14(j), none
---------------- ----------------
of the Taxpayers is a party to any joint venture, partnership, or other
arrangement or contract which could be treated as a partnership for federal
income tax purposes.
5.15. Severance Arrangements. Other than the Severance and Noncompete
----------------------
Agreements, neither the Company nor any Affiliate has entered into any severance
or similar arrangement in respect of any present or former employee that will
result in any obligation (absolute or contingent) of the Company to make any
payment to any present or former employee following termination of employment.
5.16. No Material Adverse Effect. Since the Balance Sheet Date, there
--------------------------
has not been any Material Adverse Effect, nor to the best knowledge of the
Company is any such change threatened, in the Condition of the Company or the
prospects of the Company or any Affiliate which the Company (based on facts
known to it) can reasonably foresee, other than normal market fluctuations.
20
<PAGE>
5.17. Environmental Matters.
---------------------
(a) The property, assets and operations of the Company and each
Affiliate are and have been in compliance in all material respects with all
applicable Environmental Laws; except for commonly used industrial materials,
the presence, use or handling of which does not give rise to liability under any
Environmental Laws, there are and have been no Hazardous Materials stored,
handled or otherwise located in, on or under any of the property or assets of
the Company and each Affiliate, including the groundwater; and, to the best
knowledge of the Company, there have been no releases or threatened releases of
Hazardous Materials in, on or under any property adjoining any of the property
or assets of the Company and each Affiliate. Neither the Company nor any
Affiliate has stored or caused to be stored any Hazardous Materials on or under
any of the property or assets of the Company, including the groundwater, other
than in compliance with Environmental Laws; and the Company has not generated,
released or discharged any Hazardous Materials other than in compliance with
Environmental Laws.
(b) None of the property, assets or operations of the Company or any
Affiliate is the subject of any federal, state or local investigation evaluating
whether (i) any remedial action is needed to respond to a release or threatened
release of any Hazardous Materials into the environment or (ii) any release or
threatened release of any Hazardous Materials into the environment is in
contravention of any Environmental Law.
(c) There are no pending, or, to the best knowledge of the Company,
threatened lawsuits or proceedings against the Company or any Affiliate, with
respect to violations of an Environmental Law or in connection with the presence
of or exposure to any Hazardous Materials in the environment or any release or
threatened release of any Hazardous Materials into the environment, and neither
the Company nor any Affiliate is or was the owner or operator of any property
which (i) pursuant to any Environmental Law has been placed on any list of
Hazardous Materials disposal sites, including without limitation, the "National
Priorities List" or "CERCLIS List," (ii) has or, to the best knowledge of the
Company, had any subsurface storage tanks located thereon; or (iii) to the
knowledge of the Company, has ever been used as or for a waste disposal
facility, a mine, a gasoline service station or a petroleum products storage
facility.
(d) Neither the Company nor any Affiliate has any present or
contingent liability in connection with the presence either on or off the
property or assets of the Company or any Affiliate of any Hazardous Materials or
any release or threatened release of any Hazardous Materials into the
environment, except for any such liability that would not have a Material
Adverse Effect on the Condition of the Company.
(e) Schedule 5.17(e) is a complete and accurate list of the most
----------------
recent Phase I Environmental Site Assessments with respect to environmental
matters prepared with regard to each of the greenhouse sites currently operated
by the LLC.
5.18. Investment Company/Government Regulations. Immediately
-----------------------------------------
following the Closing, after giving effect to the transactions contemplated by
the Transaction Agreements, neither the Company nor any Person controlling,
controlled by or under common control with the Company will be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
The Company is not subject to regulation under the Public Utility Holding
Company Act of 1935, as amended, the Federal Power Act, or any federal or state
statute or regulation limiting its ability to incur Indebtedness.
21
<PAGE>
5.19. Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Company or any officer, director, shareholder, or
Affiliate of the Company, or any action taken by any such person, except for an
amount payable to Hambrecht & Quist of $897,500 and a warrant for the purchase
of 18,500 shares of Series B Preferred Stock of the Company attached hereto as
Exhibit K and granted to Hambrecht & Quist.
- ---------
5.20. Labor Relations and Employee Matters.
------------------------------------
(a) Neither the Company nor any Affiliate is engaged in any unfair
labor practice. There is (i) no unfair labor practice complaint pending or, to
the best knowledge of the Company, threatened against the Company or any
Affiliate before the National Labor Relations Board, and no grievance or
arbitration proceeding arising out of or under collective bargaining agreements
is so pending or, to the best knowledge of the Company, threatened against the
Company or any Affiliate, (ii) no strike, labor dispute, slowdown or stoppage
pending or, to the best knowledge of the Company, threatened against the Company
or any Affiliate, and (iii) no union representation question existing with
respect to the employees of the Company or any Affiliate and, to the knowledge
of the Company, no union organizing activities are taking place.
(b) Except as set forth on Schedule 5.20, the Company is not a party
-------------
to any employment agreement (other than "at will" employment relationships),
collective bargaining agreement or covenant not to compete.
5.21. Employee Benefits Matters.
-------------------------
(a) Except as set forth on Schedule 5.21, neither the Company nor any
-------------
Affiliate maintains or contributes to any Employee Plans which cover or have
covered employees of the Company or a Affiliate (with respect to their
relationship with such entities). True and complete copies of each of the
following documents relating to Employee Plans which cover any employees or
former employees of the Company have been delivered by the Company to the
Purchaser: (i) each Welfare Plan and Pension Plan (and, if applicable, related
trust agreements) and all amendments thereto, all written interpretations
thereof and written descriptions thereof which have been generally distributed
to employees and all annuity contracts or other funding instruments, (ii) each
Benefit Arrangement including written interpretations thereof and written
descriptions thereof which have been generally distributed to employees and a
complete description of any such Benefit Arrangement which is not in writing,
(iii) the most recent determination letter issued by the Internal Revenue
Service for each Pension Plan, (iv) for the three most recent plan years, Annual
Reports on Form 5500 Series required to be filed with any governmental agency
for each Pension Plan or Welfare Plan, (v) a description setting forth the
amount of any liability of the Company as of the Closing Date for payments more
than thirty days past due with respect to each Pension Plan or Welfare Plan.
(b) Except as set forth in Schedule 5.21, the Company represents as
-------------
follows:
(1) Deductibility of Payments. There is no contract, agreement,
-------------------------
plan or arrangement covering any employee or former employee of the Company or a
Affiliate (with respect to their relationship with such entities) that,
individually or collectively, provides for the payment by the
22
<PAGE>
Company of any amount (i) that is not deductible under Section 162(a)(1) or 404
of the Code or (ii) that is an "excess parachute payment" pursuant to Section
280G of the Code.
(2) No Amendments. Except for the Severance and Noncompete
-------------
Agreements, neither the Company nor any Affiliate has any announced plan or
legally binding commitment to create any additional Employee Plan which is
intended to cover employees or former employees of the Company or a Affiliate
(with respect to their relationship with such entities) or to amend or modify
any existing Employee Plan which covers or has covered employees or former
employees of the Company or a Affiliate (with respect to their relationship with
such entities).
(3) No Other Material Liability. No event has occurred in
---------------------------
connection with which the Company or any ERISA Affiliate or any Employee Plan,
directly or indirectly, could be subject to any material liability (i) under any
statute, regulation or governmental order relating to any Employee Plans or (ii)
pursuant to any obligation of the Company or any Affiliate to indemnify any
person against liability incurred under, any such statute, regulation or order
as they relate to the Employee Plans.
(4) No Pension Plan is subject to Title IV of ERISA or Section
412 of the Code. Each Pension Plan, each related trust agreement, annuity
contract or other funding instrument is qualified and tax-exempt under the
provisions of Code Section 401(a) and 501(a) and has been so qualified during
the period from its adoption to date.
(5) Neither the Company nor any ERISA Affiliate contributes to,
or after September 25, 1980 has been obligated to contribute to, any
Multiemployer Plan.
(6) Neither the Company nor any ERISA Affiliate has any present
or future obligation to make any payment to or with respect to any present or
former employee of the Company pursuant to any retiree medical benefit plan,
other than as may be required by federal or state law. Neither the Company nor
any ERISA Affiliate has ever maintained, contributed to or been required to
contribute to any "welfare benefit fund" as defined in Section 419(e) of the
Code. Each Welfare Plan which is a "group health plan," as defined in Section
607(l) of ERISA, has been operated in compliance with provisions of Part 6 of
Title I of ERISA and Sections 162(k) and 4980B of the Code at all times.
(7) Each Welfare Plan, Pension Plan and Benefit Arrangement
which covers or has covered employees or former employees of the Company or any
ERISA Affiliate has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Welfare Plan, Pension Plan or Benefit Arrangement,
including but not limited to ERISA and the Code.
(8) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in the
acceleration or creation of any rights of any person to benefits under any of
the Employee Plans, including but not limited to the acceleration of the
exercisability of any stock options, the acceleration of the vesting of any
restricted stock or any interest in any Pension Plan or Welfare Plan or the
creation of rights under any severance, parachute or change of control
agreement.
5.22. Potential Conflicts of Interest. Except as set forth on Schedule
------------------------------- --------
5.22, no officer, director, or stockholder of five percent (5%) or more of the
- ----
aggregate number of shares of Common Stock then outstanding on a fully diluted
basis (after giving effect to the Restructuring) of the Company
23
<PAGE>
or any Affiliate, no spouse of any such officer, director or stockholder and no
Affiliate of the foregoing: (a) owns, directly or indirectly, any interest in,
or is an officer, director, employee or consultant of, any Person which is, or
is engaged in business as, a competitor, lessor, lessee, supplier, distributor,
sales agent or customer of, or lender to or borrower from, the Company or any
Affiliate; (b) owns, directly or indirectly, in whole or in part, any tangible
or intangible property that the Company or any Affiliate uses in the conduct of
business; or (c) has any cause of action or other claim whatsoever against, or
owes any amount to, the Company or any Affiliate, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements existing on the
date hereof and described in Schedule 5.22.
-------------
5.23. Business Relationships. There exists no actual or to the best
----------------------
of the Company's knowledge, threatened, termination or cancellation, of the
business relationship of the Company or any Affiliate with any customer,
supplier or any group of customers or suppliers whose purchases or sales, as the
case may be, are individually or in the aggregate material to the Condition of
the Company.
5.24. Outstanding Borrowings. Schedule 5.24 lists the amount of all
---------------------- -------------
Outstanding Borrowings as of the date hereof and the name of each lender
thereof.
5.25. Insurance Schedule. Schedule 5.25 accurately summarizes all of
------------------ -------------
the insurance policies or programs of the Company or any Affiliate in effect as
of the date hereof (true and correct copies of which have been provided to the
Purchasers), and indicates the insurer's name, policy number, expiration date,
amount of coverage, type of coverage, annual premiums and deductibles, and also
indicates any self-insurance program that is in effect. The insurance policies
summarized on Schedule 5.25 are in full force and effect and are adequate to
-------------
protect the Company and its Affiliates assets, crops and businesses covering
property damage by fire, business interruption or other casualty, sufficient in
amount to allow it to replace any of its properties damaged or destroyed and are
adequate to protect against all liabilities, claims, and risks against which it
is customary to insure by companies engaged in businesses the same or similar to
the business conducted by the Company.
5.26. Undisclosed Liabilities. Neither the Company nor any Affiliate
-----------------------
has any material liabilities or obligations (absolute, accrued, contingent or
otherwise) to the knowledge of the Company except (i) liabilities that are
reflected and reserved against on the balance sheets included in the Unaudited
Financial Statements (including the notes thereto), (ii) liabilities incurred in
the ordinary course of business and consistent with the past practice of the
Company since the Balance Sheet Date, and which are reflected and reserved for
in the balance sheets included in the Unaudited Financial Statements, and (iii)
liabilities arising under Contractual Obligations described on Schedule 5.12.
-------------
5.27. Solvency. Neither the Company, its Affiliates nor any Project
--------
Owner has (i) made a general assignment for the benefit of its creditors, (ii)
filed any voluntary petition in bankruptcy or suffered the filing of any
involuntary petition in bankruptcy by its creditors, (iii) suffered the
appointment of a receiver to take possession of all or substantially all of its
assets or properties, (iv) suffered the attachment or other judicial seizure of
all or substantially all of its assets or (v) admitted in writing its inability
to pay its debts as they come due. After giving effect to the transactions
contemplated by the Transaction Agreements, the Company will not (i) have
liabilities which exceed the stated value of its assets, or (ii) be left with
unreasonably small capital with which to engage in its respective business for
the foreseeable future, or (iii) have incurred debts beyond its ability to pay
such debts as they mature (as such terms are used with respect to applicable
solvency statutes).
24
<PAGE>
5.28. Compliance with Law. The Company, its Affiliates and the
-------------------
Project Owners and the conduct of their businesses are in compliance with all
applicable laws, statutes, ordinances and regulations, whether federal, state or
local, except where the failure to comply would not have a Material Adverse
Effect on the Condition of the Company. Neither the Company, its Affiliates nor
any Project Owner has received any written notice to the effect that it is not
in compliance with any of such statutes, regulations, orders, ordinances or
other laws where the failure to comply would have a Material Adverse Effect on
the Condition of the Company or, to the best knowledge of the Company, has
reason to anticipate that any presently existing circumstances are likely to
result in violations of any such regulations which would, in any one case or in
the aggregate, have a Material Adverse Effect on the Condition of the Company.
5.29. No Other Agreements to Sell the Assets or Capital Stock of the
--------------------------------------------------------------
Company. Neither the Company nor any Affiliate has any legal obligation,
- -------
absolute or contingent, other than the obligations of the Company and each
Affiliate under the Transaction Agreements, to any person or firm to (i) sell
any material assets other than in the ordinary course of business consistent
with past practices, (ii) sell any capital stock of the Company (other than as
set forth in Section 5.6) or effect any merger, consolidation or other
reorganization of the Company or (iii) enter into any agreement with respect any
of the foregoing.
5.30. Hart-Scott-Rodino. The Person (as that term is defined in 16
-----------------
C.F.R. (S) 801.1(a)(1)) of which the Company is a part does not have total
assets or annual net sales of $100,000,000 or more, as measured under the
applicable rules and regulations interpreting the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act").
-------
5.31. Disclosure.
----------
(a) Agreement and Other Documents. This Agreement does not, and the
-----------------------------
documents and certificates executed by the Company or otherwise furnished by the
Company to the Purchasers at the Closing will not, contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
(b) Material Adverse Effect. There is no fact known to the Company,
-----------------------
which the Company has not disclosed to the Purchasers in writing, which has a
Material Adverse Effect, or insofar as the Company can reasonably foresee, will
have a Material Adverse Effect on the Condition of the Company, or the ability
of the Company to perform its obligations under the Transaction Agreements, or
any document contemplated thereby.
5.32. Restructuring. The Restructuring and the consummation of the
-------------
transactions contemplated in paragraph 3.22 (a) have been duly authorized by all
necessary corporate action, including, if required, stockholder action, (b) do
not and will not conflict with or contravene the terms of the Certificate of
Incorporation or the By-Laws of the Company, or any amendment thereof; and (c)
do not and will not violate, conflict with or result in any material breach or
contravention of (i) any Contractual Obligation of the Company or any of its
Affiliates, or (ii) any Requirements of Law applicable to the Company or any of
its Affiliates
25
<PAGE>
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
----------------------------
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company as of the date hereof as follows:
6.1. Existence and Authority. Such Purchaser (a) is a corporation,
-----------------------
limited liability company, or limited partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
formation, (b) has all requisite partnership or corporate power and authority to
own its assets and operate its business, and (c) has all requisite corporate or
partnership power and authority to execute, deliver and perform its obligations
under each of the Transaction Agreements to which it is or will be a party .
6.2. Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by such Purchaser of the Transaction Agreements to which it is a
party and the consummation of the transactions contemplated thereby, including,
without limitation, the acquisition of the Series B Preferred Stock: (a) is
within such Purchaser's partnership or corporate power and authority and has
been duly authorized by all necessary partnership or corporate action on the
part of such Purchaser; (b) does not conflict with or contravene the terms of
such Purchaser's partnership agreement or certificate of limited partnership or
certificate of incorporation or bylaws or any amendment thereof; and (c) will
not violate, conflict with or result in any material breach or contravention of
(i) any Contractual Obligation of such Purchaser, or (ii) the Requirements of
Law or any order or decree applicable to such Purchaser.
6.3. Binding Effect. This Agreement has been duly executed and
--------------
delivered by such Purchaser, and this Agreement constitutes the legal, valid and
binding obligation of such Purchaser, enforceable against it in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.4. Purchase for Own Account. The Series B Preferred Stock and the
------------------------
Common Stock to be issued upon conversion of the Series B Preferred Stock, are
being or will be acquired by such Purchaser for its own account and with no
intention of distributing or reselling such securities or any part thereof in
any transaction that would be in violation of the securities laws of the United
States of America, or any state, without prejudice, however, to the rights of
such Purchaser at all times to sell or otherwise dispose of all or any part of
the Series B Preferred Stock or the shares of Common Stock issuable upon
conversion of the Series B Preferred Stock under an effective registration
statement under the Securities Act, or under an exemption from such registration
available under the Securities Act, and subject, nevertheless, to the
disposition of such Purchaser's property being at all times within its control,
except as restricted by the Shareholders' Agreement. If such Purchaser should in
the future decide to dispose of any of the Series B Preferred Stock or the
shares of Common Stock issuable upon conversion of the Series B Preferred Stock,
such Purchaser understands and agrees that it may do so only in compliance with
the Securities Act and applicable state securities laws, as then in effect. Such
Purchaser agrees to the imprinting, so long as required by law, of a legend on
certificates representing all of the Series B Preferred Stock or the shares of
Common Stock to be issued upon conversion of the Series B Preferred Stock to the
following effect:
26
<PAGE>
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS.
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SHAREHOLDERS AGREEMENT DATED AS OF JANUARY 21, 1997, AS MAY BE AMENDED FROM TIME
TO TIME, AND SAID SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT.
SUCH AGREEMENT MAY BE EXAMINED AT THE PRINCIPAL PLACE OF BUSINESS OF THE COMPANY
AND A COPY THEREOF WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS
CERTIFICATE UPON RECEIPT BY THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE OF A WRITTEN REQUEST FROM THE SHAREHOLDER."
6.5. Accredited Investor Status. Such Purchaser is an "accredited
--------------------------
investor" as such term is defined in Rule 501(a) of Regulation D, promulgated
under the Securities Act.
6.6. Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Purchasers.
ARTICLE 7.
COVENANTS OF THE COMPANY
------------------------
From the date hereof until the Closing Date, the Company hereby
covenants and agrees with the Purchasers as follows:
7.1. Further Assurances. Upon the terms and subject to the
------------------
conditions contained herein, each of the parties hereto agrees, both before and
after the Closing, (i) to use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement, (ii) to execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing, including using their respective best efforts (A)
to obtain all necessary waivers, consents and approvals from other parties that
may be required, (B) to obtain all necessary permits as are required to be
obtained under any federal, state, local or foreign law or regulations, and (C)
to fulfill all conditions to this Agreement.
7.2. Notification of Certain Matters. From the date hereof through
-------------------------------
the Closing, the Company shall give prompt notice to Purchaser of (a) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty contained in this Agreement or
in any exhibit or schedule hereto to be untrue or inaccurate in any material
respect and (b) any material failure of the Company to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement or any exhibit or schedule hereto.
27
<PAGE>
7.3. Access to Information. From the date hereof through the Closing,
---------------------
the Company shall, and shall cause its officers, directors, employees and agents
to, afford the Purchasers (or its representatives) complete access at all
reasonable times to the Company records for the purpose of inspecting the same,
and to the officers, employees, agents, attorneys, accountants, properties, and
contracts of the Company, and shall furnish Purchasers all financial, operating
and other data and information as Purchaser or its representatives, may
reasonably request.
7.4. Conduct of Business. From the date hereof through the Closing,
-------------------
the Company shall, except as contemplated by this Agreement, or as consented to
by Purchaser in writing which consent will not be unreasonably withheld, operate
the Company in the ordinary course of business and in accordance with past
practice and will not take any action inconsistent with this Agreement or with
the consummation of the Closing.
ARTICLE 8.
COVENANTS OF THE COMPANY WITH
RESPECT TO THE PERIOD FOLLOWING THE CLOSING
-------------------------------------------
Until all shares of Series B Preferred Stock are no longer outstanding
due to conversion, redemption or otherwise, the Company hereby covenants and
agrees with the Purchasers as follows, except with respect to the obligations of
the Company set forth in paragraph 8.1 shall terminate upon the earlier of (a) a
Qualified Initial Public Offering and (b) the date on which the Purchasers or
their Affiliates hold less than 25% of the Series B Preferred Stock (or Common
Stock issued upon conversion of such Series B Preferred Stock) issued hereunder:
8.1. Financial Statements and Other Information.
------------------------------------------
(a) The Company and each Affiliate shall maintain correct and
complete books and records of accounts in which full and correct entries will be
made of all its business transactions pursuant to a system of accounting
established and administered in accordance with GAAP consistently applied to the
extent applicable, and set aside on its books all such proper accruals and
reserves as shall be required under generally accepted accounting principles
consistently applied. The Company shall retain Arthur Andersen or another "Big
Six" accounting firm for the purpose of auditing its financial statements and
reports for each fiscal year.
(b) The Company shall deliver to the holders of the Series B
Preferred Stock (the "Holders"), in form satisfactory to such Holders:
(1) As soon as available after the end of each fiscal year, and
in any event within ninety (90) days thereafter, (i) a consolidated balance
sheet of the Company and its Affiliates, if any, as at the end of such fiscal
year, and consolidated statements of income and retained earnings and
consolidated statements of changes in cash flows of the Company and its
Affiliates, if any, for such year, setting forth in each case in comparative
form the corresponding figures for the previous fiscal year, all prepared in
accordance with GAAP consistently applied and accompanied by a report and
opinion thereon by the Company's independent certified public accountants, which
audit report shall state that such consolidated financial statements present
fairly in all material respects the financial position as of such date and
results of operations and cash flows for the periods indicated, all in
conformity with GAAP; and (ii) a schedule setting forth the number, class and
series of all authorized shares of stock of the Company, the number, class and
series of issued and outstanding stock of the Company, the name of
28
<PAGE>
each record holder of any such stock and the number, class and series of such
stock held by each such holder.
(2) As soon as available after the end of the first fiscal
quarter of the Company after the date hereof, and in any event within forty-five
(45) days after the end of each of the first three fiscal quarters of each
fiscal year, an unaudited balance sheet of the Company and its Affiliates, if
any, as of end of such quarter, and unaudited statements of income, retained
earnings, and changes in cash flows of the Company and its Affiliates, if any,
for such period and the fiscal year to date, setting forth in comparative form
the corresponding figures for the corresponding fiscal quarter of the previous
fiscal year, in each case prepared in accordance with GAAP (subject to normal
year-end adjustments and without footnote disclosure), together with a detailed
analysis of results of operations of the Company or its Affiliate, if any, and
certified on behalf of the Company by the Chief Financial Officer the Company.
(3) As soon as available after the end of each fiscal month, and
in any event within thirty (30) days thereafter, an unaudited balance sheet as
of the end of such month, and unaudited statements of income, retained earnings,
and changes in cash flows for such period and the fiscal year to date, prepared
in accordance with GAAP (subject to normal year-end adjustments and without
footnote disclosure), and certified on behalf of the Company by the Chief
Financial Officer of the Company, setting forth in comparative form (i) the
corresponding figures for the corresponding periods of the preceding year and
(ii) the corresponding figures from the Budget (as defined below) for the same
fiscal year.
(4) At least thirty (30) days prior to the end of each fiscal
year of the Company, the Company shall provide to each Purchaser: a business
plan (the "Budget") which (i) forecasts ahead at least one year the Company's
------
projected costs, revenues, income, balance sheet and cash flow on a monthly
basis, and (ii) forecasts ahead at least one year the capital requirements
necessary to reasonably expand the Company. The Budget shall continue to be
reviewed and approved in advance by the Board of Directors of the Company.
(5) Promptly, upon preparation thereof any revisions of the
Company's Budget.
8.2. Notices. Within 5 business days of obtaining knowledge of any
-------
of the events described below, the Company shall give written notice to each
member of the Company's Board of Directors of:
(a) any (i) default or event of default under any material
Contractual Obligation of the Company or any Affiliate, (ii) initiation or
resolution of any material dispute, litigation, investigation, or proceeding
which may exist at any time between the Company or any Affiliate and any private
third party or Governmental Authority, and (iii) any default or breach of the
terms of any of the Transaction Agreements by the Company; and
(b) any other matter that has resulted in a Material Adverse Effect
in the Condition of the Company.
Each notice pursuant to this Section 8.2 shall be accompanied by a
statement on behalf of the Company by the Chief Executive Officer, President or
Chief Financial Officer of the Company setting forth details of the occurrence
referred to therein, stating what action the Company proposes to take with
respect thereto, the Company officer responsible for such action and the
timetable with respect to such action.
29
<PAGE>
8.3. Reservation of Shares. The Company shall at all times reserve
---------------------
and keep available out of its authorized Common Stock, solely for the purpose of
issue or delivery upon conversion of the Series B Preferred Stock as provided in
the Certificate of Designations, the maximum number of shares of Common Stock
that may be issuable or deliverable upon such conversion, as well as the number
of shares of Common Stock that may be issuable or deliverable upon conversion of
the Series B Preferred Stock issued to the Purchasers as dividends. Such shares
of Common Stock shall, when issued or delivered in accordance with the
provisions of the Certificate of Designations, be duly authorized, validly
issued and fully paid and non-assessable. The Company shall issue such Common
Stock in accordance with the provisions of the Certificate of Designations and
shall otherwise comply with the terms thereof.
8.4. Books and Records. The Company shall, and shall cause each of
-----------------
its Affiliates to, keep proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Company and each of is Affiliates in accordance with GAAP. The
Company shall provide the Purchasers with access to all such books and records
and allow the Purchasers to make copies and abstracts thereof at reasonable
times and, with respect to proprietary or confidential information, subject to
reasonable confidentiality limitations.
8.5. Use of Proceeds. The Company shall use the proceeds of the sale
---------------
of Series B Preferred Stock hereunder only for (a) working capital and general
corporate purposes of the Company as set forth on Schedule 8.5, (b) the
------------
construction of two 20-acre greenhouses, (c) the redemption of not more than
$1,500,000 of outstanding Series A Preferred Stock; and (d) for the payment of
fees and expenses in connection with the transactions contemplated in the
Transaction Agreements.
8.6. New Lines of Business. The Company shall not, without the prior
---------------------
written consent of 66 2/3% of the holders of the then outstanding shares of
Series B Preferred Stock, engage in any material activity in any line of
business other than the Company's Line of Business.
8.7. Compensation of Directors. Each member of the Board of
-------------------------
Directors shall entitled to (i) customary liability insurance obtained at
commercially reasonable rates no later than the earlier of (A) six months from
the date of this Agreement and (B) the date of a Qualified Initial Public
Offering, and (ii) fees and reimbursement by the Company for all out-of-pocket
expenses, including, without limitation, travel expenses, incurred by such
director in connection with the performance of such director's duties.
8.8. Management Incentive Stock Option Plan. The Company shall
--------------------------------------
review completely its existing stock option plan within six months from the date
of this Agreement and, subject to approval by the Board of Directors, make any
necessary revisions or modifications.
8.9. Torrance Greenhouse. The Company shall cause all approvals,
-------------------
authorizations, exemptions and permits necessary or required for the
construction, operation and use of the Torrance Greenhouse, including those set
forth on Schedule 5.3, to be obtained in a timely manner from all Governmental
------------
Authorities with applicable jurisdiction.
30
<PAGE>
ARTICLE 9.
INDEMNIFICATION
---------------
9.1. Indemnification. In addition to all other sums due hereunder or
---------------
provided for in this Agreement and all other remedies that may be otherwise
available, the Company (an "Indemnifying Party") agrees to indemnify and hold
------------------
harmless each Purchaser and its Affiliates and its respective officers,
directors, agents, employees, Affiliates, partners and assigns (each, an
"Indemnified Party") to the fullest extent permitted by law from and against any
-----------------
and all Environmental Expenses and (i) tax liabilities, (ii) losses, costs,
claims, damages, expenses (including reasonable fees, disbursements and other
charges of counsel) and (iii) other liabilities (collectively, "Liabilities")
-----------
based upon, relating to or arising out of any breach of any representation or
warranty, covenant or agreement of such Indemnifying Party in this Agreement or
any legal, administrative or other actions (including actions brought by any of
the Purchasers or any Indemnifying Party or any equity holders of the Company or
derivative actions brought by any Person claiming through or in the Company's
name), proceedings or investigations (whether formal or informal), or written
threats thereof, based upon, relating to or arising out of (A) the status of the
Purchasers as shareholders of the Company and the existence or exercise of the
rights and powers of the Purchasers (including without limitation, any claim
against any Indemnified Party relating to Environmental Matters), (B) violations
of applicable securities laws by the Company in connection with (i) the offering
of the Series A Preferred Stock and Series B Preferred Stock and (ii) the
Restructuring Transactions, or (C) third party claims that the Series B
Preferred Stock hereunder violate preexisting understandings or arrangements
with the Company; provided, however, that no Indemnifying Party shall be liable
-------- -------
under this Section 9.1 to an Indemnified Party: (a) for any amount paid in
settlement of claims without such Indemnifying Party's consent (which consent
shall not be unreasonably withheld), (b) to the extent that it is finally
judicially determined that such Liabilities resulted from the willful misconduct
or gross negligence of such Indemnified Party, or (c) to the extent that it is
finally judicially determined that such Liabilities resulted from the material
breach by such Indemnified Party of any representation, warranty, covenant or
other agreement of such Indemnified Party contained in this Agreement; provided,
--------
further, that if and to the extent that such indemnification is unenforceable
- -------
for any reason, the Indemnifying Party shall make the maximum contribution to
the payment and satisfaction of such indemnified liability which shall be
permissible under applicable laws. In connection with the obligation of the
Indemnifying Party to indemnify for expenses as set forth above, the
Indemnifying Party further agrees to reimburse each Indemnified Party for all
such expenses (including reasonable fees, disbursements and other charges of
counsel) as they are incurred by such Indemnified Party.
At the option of the Holders of 66 2/3% of the then outstanding shares
of the Series B Preferred Stock and lieu of cash payment, the Company shall
satisfy its indemnification obligation under this Article 9 through the issuance
to the Indemnified Party of shares of Common Stock having an aggregate fair
value equal to the amount of such obligation. The fair value of any Common
Stock issued pursuant to the preceding sentence shall be determined initially
(the "Initial Determination") by the Board of Directors (and written notice
---------------------
thereof provided to the holders within two (2) business days) after giving
effect to any indemnification obligation, such determination to be made in good
faith. Any such determination may be challenged in good faith by the holders of
a majority of the Series B Preferred Stock, whereupon a representative of such
holders and the Company shall attempt in good faith to resolve such dispute for
a period not to exceed thirty (30) days. If within such thirty (30) day period,
such parties fail to resolve such dispute, such dispute shall be resolved
promptly (and in no event later than sixty (60) days after any challenge), at
the Company's expense, by an investment banking firm of recognized national
standing selected by the Company and acceptable to such holders of Series B
Preferred Stock. The Initial Determination shall be deemed approved if the
requisite holders have not
31
<PAGE>
notified the Company of any challenge within thirty (30) days after receiving
notice (including a statement in reasonable detail of the bases therefor) of
such determination.
9.2. Notification. Each Indemnified Party under this Article 9
------------
shall, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from any Indemnifying Party under this
Article 9, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such Indemnified Party under this Article 9 except to the extent
that such failure to notify results in a loss of a material defense of such
Indemnified Party in actual prejudice due to such action. In case any such
action, claim or other proceeding shall be brought against any Indemnified Party
and such Indemnified Party shall notify the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that any
-------- -------
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action, claim
or proceeding in which both the Indemnifying Party, on the one hand, and an
Indemnified Party, on the other hand, is, or is reasonably likely to become, a
party, such Indemnified Party shall have the right to employ separate counsel at
the Indemnifying Party's expense and to control its own defense of such action,
claim or proceeding if, in the reasonable opinion of counsel to such Indemnified
Party, a conflict or potential conflict exists between the Indemnifying Party,
on the one hand, and such Indemnified Party, on the other hand, that would make
such separate representation advisable. The Indemnifying Party agrees that it
will not, without the prior written consent of the Purchasers (such consent not
to be unreasonably withheld), settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated hereby (if any Indemnified Party is a party thereto or
has been actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of the Purchasers and
each other Indemnified Party from all liability arising or that may arise out of
such claim, action or proceeding. The rights accorded to Indemnified Parties
hereunder shall be in addition to any rights that any Indemnified Party may have
at common law, by separate agreement or otherwise.
9.3. Registration Rights Agreement. Notwithstanding anything to the
-----------------------------
contrary in this Article 9, the indemnification and contribution provisions of
the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
ARTICLE 10.
MISCELLANEOUS
-------------
10.1. Termination. This Agreement may be terminated at any time prior
-----------
to the Closing Date:
(a) by the mutual written consent of the Purchasers and the Company;
(b) by either Purchaser or the Company if the Closing shall not have
occurred prior to February 15, 1997 (the "Termination Date") unless such
----------------
Termination Date is extended by mutual written consent of the Purchasers and the
Company provided, that the right to terminate this Agreement under
--------
32
<PAGE>
this Section 10.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or results
in, the failure of the Closing to have occurred by such date;
10.2. Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties made herein shall survive the Closing Date of
this Agreement for a period of three (3) years from the date hereof except the
representations and warranties in (i) Sections 5.11(a), 5.17 and 5.21 shall
survive until the statute of limitations period has expired for such
representations and warranties and (ii) Section 5.14 shall survive until thirty
days after the expiration of the statute of limitations period has expired for
such representations and warranties.
10.3 Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, courier service,
personal delivery or facsimile transmission (provided the original of such
notice or communication has been sent by one of the previously listed methods):
(a) if to Catterton or to Catterton-CGH Partners, L.L.C.:
Catterton-Simon Partners III, L.P..
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: Craig H. Sakin
Facsimile: 203-629-4903
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W., Suite 1300
Washington, DC 20004-2505
Attention: Eric A. Stern, Esq.
Facsimile: 202-637-2201
(b) if to BCI:
BCI Growth IV, L.P.
Glenpointe Center West
Teaneck, NJ 07666
Attention: Stephen J. Eley
Facsimile: 201-836-6368
with a copy to:
Reboul, MacMurray, Hewitt, Maynard &
Kristol
45 Rockefeller Plaza
New York, NY 10111
Attention: Robert A. Schwed, Esq.
Facsimile: 212-841-5725
33
<PAGE>
(c) if to the Company:
Colorado Greenhouse, Inc.
4845 Pearl East Circle, # 300
Boulder, Colorado 80301-2474
Attention: Edward J. Wetherbee
Facsimile: 303-442-5113
with a copy to:
Holme Roberts & Owen, LLP
1401 Pearl Street, Suite 400
Boulder, Colorado 80302
Attention: William R. Roberts, Esq.
Facsimile: 303-444-1063
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; when mailed, five
business days after being deposited in the mail, postage prepaid.
10.4. Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. This agreement may be assigned by any Purchaser, subject to
applicable securities laws. The Company may not assign any of its rights under
this Agreement without the written consent of each of the Purchasers. Except as
provided in Article 9, no Person other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of any of the
Transaction Agreements.
10.5. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company, or the Purchasers
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement shall be effective only if it is made or given in writing and
signed by the Company and the Holders of 66 2/3% of the then outstanding shares
of the Series B Preferred Stock. Any waiver of any provision of this Agreement,
and any consent to any departure by any party from the terms of any provision of
this Agreement shall be effective (i) only if it is made in writing and signed
by the Company and the Holders of 66 2/3% of the then outstanding shares of the
Series B Preferred Stock or the parties to be bound thereby and (ii) only in the
specific instance and for the specific purpose for which made or given. Except
where notice is specifically required by this Agreement, no notice to or demand
on any party in any case shall entitle any party hereto any other or further
notice or demand in similar or other circumstances.
34
<PAGE>
10.6. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
10.7. Headings. The headings in this Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
10.8. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law of such state.
10.9. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provision or
provisions held invalid, illegal or unenforceable shall substantially impair the
remaining provisions hereof.
10.10. Rules of Construction. Unless the context otherwise requires,
---------------------
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
10.11. Entire Agreement. This Agreement, together with the exhibits
----------------
and schedules hereto and the other Transaction Agreements is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, warranties or undertakings, other than
those set forth herein or therein. This Agreement, together with the exhibits
and schedules hereto, the other Transaction Agreements, supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
10.12. Transaction Expenses. The Company will pay all Transaction
--------------------
Expenses of the Purchasers in accordance with Section 2.4 of this Agreement,
regardless whether the transactions contemplated hereby are consummated.
10.13. Publicity. Except as may be required by applicable law, none of
---------
the parties hereto shall issue a publicity release or announcement or otherwise
make any public disclosure concerning this Agreement or the transactions
contemplated hereby, without prior approval by the other parties hereto. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
10.14. Further Assurances. Upon the terms and subject to the
------------------
conditions contained herein, each of the parties hereto agrees, both before and
after the Closing, (i) to use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement, (ii) to execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing, including using their respective best efforts (A)
to obtain all necessary waivers, consents and approvals from other parties that
may be required; (B) to obtain all
35
<PAGE>
necessary permits as are required to be obtained under any federal, state, local
or foreign law or regulations, and (C) to fulfill all conditions to this
Agreement.
10.15. Severability of Representations, Warranties and Covenants.
---------------------------------------------------------
Catterton and BCI shall not be liable to the Company for the breach or
violation, if any, of any representation, warranty or covenant made or to be
complied with by any of the other Purchasers, but each such Purchaser shall be
liable to the Company solely for its own breach or violation, if any, of any
representation, warranty or covenant made or to be complied with by such
Purchaser. The Company shall not be liable to the Purchasers for the breach or
violation, if any, of any representation, warranty or covenant made or to be
complied with by any party hereto, but the Company shall be liable to the
Purchasers solely for its own breach or violation, if any, of any
representation, warranty, or covenant made or to be complied with by the
Company.
[signature pages follow]
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
COLORADO GREENHOUSE HOLDINGS, INC.
By: /s/ Ed Wetherbee
------------------------------------------------
Name:
Title: CEO
CATTERTON-SIMON PARTNERS III, L.P.
By: Catterton-Simon Managing Partner III, L.L.C.,
its General Partner
By: /s/ Craig Sakin
------------------------------------------------
Name:
Title:
CATTERTON-CGH PARTNERS, L.L.C.
By: Catterton Partners Management Company, L.L.C.,
its Managing Member
By: /s/ Craig Sakin
------------------------------------------------
Name:
Title:
BCI GROWTH IV, L.P.
By: Glenpointe Associates, L.L.C.,
its General Partner
By: /s/ Stephen Eley
------------------------------------------------
Name:
Managing Member
37
<PAGE>
H&Q COLORADO GREENHOUSE INVESTORS, L.P.
By: /s/ Jackie Berterretche
------------------------------------------------
Name: Jackie Berterretche
Title: Attorney-in-Fact
38
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES B CONVERTIBLE
PREFERRED STOCK
OF
COLORADO GREENHOUSE HOLDINGS, INC.
___________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________________________
COLORADO GREENHOUSE HOLDINGS, INC., a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article IV
-----------
of its Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware (the "DGCL"), the Board of
----
Directors of the Corporation by written consent dated as of January 16, 1997,
duly adopted the following resolution, which resolution remains in full force
and effect on the date hereof:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation in accordance with the
provisions of its Restated Certificate of Incorporation, a series of Preferred
Stock of the Corporation be and hereby is established, consisting of 1,893,500
shares. $.001 par value per share, to be designated the "Series B Convertible
Preferred Stock" (hereinafter, "Series B Preferred Stock"); that the Board of
------------------------
Directors be and hereby is authorized to issue such shares of Series B Preferred
Stock from time to time and for such consideration and on such terms as the
Board of Directors shall determine; and that, subject to the limitations
provided by law and by the Restated Certificate of Incorporation, the voting
powers, preferences and relative, participating, optional and other special
rights, and qualifications, limitations and restrictions thereof shall be as
follows:
1. Certain Definitions.
-------------------
Unless the context otherwise requires, the terms defined in this
Section 1 shall have, for all purposes of this resolution, the meanings herein
specified (with terms defined in the singular having comparable meanings when
used in the plural).
"Actual EBIT" shall mean, for any period, the Consolidated Net Income
-----------
of the Corporation for such period adjusted to deduct therefrom interest income
and to add thereto the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense; (ii) interest expense and (iii)
any non-cash charge related to the issuance of Company options to purchase
Common Stock. Such amounts shall be determined pursuant to an audit by a
nationally recognized accounting firm in accordance with GAAP.
"Adjustment Percentage" shall mean, with respect to any Return on
---------------------
Investment in connection with a Liquidity Event, the "Adjustment Percentage" as
set forth on Schedule 3 to the Stock Purchase Agreement for such Return on
----------
Investment as of the closing date of such Liquidity Event.
"Adjustment Price" shall mean, with respect to any date, the
----------------
"Adjustment Price" as set forth on Schedule 3 to the Stock Purchase Agreement
----------
for such date.
"Affiliate" shall have the meaning given to such term under Rule 12b-2
---------
of the rules promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
<PAGE>
EXHIBIT B
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>
EXHIBIT C
REDEMPTION AGREEMENT
--------------------
THIS REDEMPTION AGREEMENT (this "Agreement") is made as of the 21st day of
January, 1997, among Colorado Greenhouse Holdings, Inc., a Delaware corporation
(the "Company"), Catterton-Simon Partners III, L.P., a Delaware limited
partnership ("Catterton-Simon"), BCI Growth IV, L.P., a Delaware limited
partnership ("BCI"), H & Q Colorado Greenhouse Investors, L.P., a Delaware
limited partnership ("H&Q") and Catterton - CGH Partners, LLC, a Delaware
limited liability company ("Catterton, LLC"). Catterton-Simon, BCI, H&Q and
Catterton, LLC are collectively referred to herein as "Purchasers."
RECITALS
--------
A. Purchasers and the Company are parties to that certain Stock Purchase
Agreement of even date herewith (the "Purchase Agreement") pursuant to which
Purchasers will acquire from the Company certain shares of its Series B
Preferred Stock.
B. Following the acquisition by the Purchasers of the Series B Preferred
Stock, the Company desires to redeem certain outstanding shares of its Series A
Preferred Stock from the holders thereof.
C. As additional consideration for the obligations of Purchasers under
the Purchase Agreement, the Company has agreed to limits its redemption of the
Series A Preferred Stock as set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. Redemption. The Company shall not redeem outstanding shares of its
----------
Series A Preferred Stock except in conformity with the following terms:
a. Value of Redeemed Shares. The aggregate value of the outstanding
------------------------
shares of Series A Preferred Stock the Company shall be entitled to redeem shall
not exceed $1,500,000.
b. Price Per Share. The price per share of any share of Series A
---------------
Preferred Stock redeemed by the Company shall not exceed $6.75 per share.
2. Time for Redemption. The Company must consummate any redemption
-------------------
pursuant to this Agreement within 90 days after the date hereof.
<PAGE>
EXHIBIT D
COLORADO GREENHOUSE HOLDINGS, INC.
REGISTRATION RIGHTS AGREEMENT
Dated as of January 21, 1997
<PAGE>
EXHIBIT E
COLORADO GREENHOUSE HOLDINGS, INC.
SERIES A REGISTRATION RIGHTS AGREEMENT
Dated as of January 21, 1997
<PAGE>
EXHIBIT F
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (the "Agreement") is entered into as of
---------
the 21st day of January, 1997 by and among CATTERTON-SIMON PARTNERS III, L.P., a
Delaware limited partnership ("Catterton"), BCI GROWTH IV, L.P., a Delaware
limited partnership ("BCI"), the other co-investors listed on Schedule 1
----------
attached hereto (the "Co-Investors"), the holders of Series A Preferred Stock
------------
(collectively, the "Shareholders") and COLORADO GREENHOUSE HOLDINGS, INC., a
Delaware corporation (the "Company").
-------
RECITALS
WHEREAS, Company, Catterton, and the Co-Investors (the "Purchasers")
----------
have entered into that certain Stock Purchase Agreement (the "Stock Purchase
--------------
Agreement") dated as of January 21, 1997, pursuant to which the Purchasers have
- ---------
agreed to purchase from the Company, and the Company has agreed to sell to the
Purchasers 1,875,000 shares of the Preferred Stock (as hereinafter defined) of
the Company;
WHEREAS, it is a condition precedent to the consummation of the
transactions contemplated by the Stock Purchase Agreement that the Company and
the Shareholders enter into this Agreement; and
WHEREAS, the Company and the Shareholders desire to enter into this
Agreement to provide continuity of management of the Company and to govern
certain aspects of the relationship among the Shareholders and the relationship
between the Shareholders and the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements herein contained and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
-----------
shall have the following meanings:
a. "Affiliate" means, with respect to any specified Person, any
---------
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person, whether by contract, through one or
more intermediaries, or otherwise. Unless otherwise qualified, all references to
an "Affiliate" or to "Affiliates" in this Agreement shall refer to an Affiliate
or Affiliates of the Company.
b. "Business Days" shall mean all days other than Saturday or
-------------
Sunday or any day on which banking institutions in New York, New York are
authorized or obligated by law to close.
c. "Common Stock" shall mean: (i) the common stock of the
------------
Company, par value $.001 per share; (ii) any other capital stock of the Company
into which such common stock is converted, exchanged, reclassified or
reconstituted; (iii) any warrants or options exercisable for any of the
foregoing; and (iv) any right to receive any of the foregoing other than upon
conversion of any security convertible into any of the foregoing.
1
<PAGE>
EXHIBIT G
SEVERANCE AND NONCOMPETE AGREEMENT
----------------------------------
THIS SEVERANCE AND NONCOMPETE AGREEMENT (this "AGREEMENT"), dated
effective as of December 31, 1996, is between Colorado Greenhouse, Inc., a
Delaware corporation (the "Company"), and Edward J. Wetherbee ("Employee").
In consideration of the mutual covenants and agreements contained
herein, the parties hereto agree as follows:
1. Employment. The Company hereby employs Employee and Employee
----------
hereby agrees to be employed by the Company for the period and upon the terms
and conditions hereinafter set forth.
2. Capacity and Duties. Employee shall be employed by the Company as
-------------------
its Chief Executive Officer or in such other executive capacity as the board of
directors shall determine. During his employment, Employee shall perform the
duties and bear the responsibilities commensurate with his position and shall
serve the Company faithfully and to the best of his ability, under the direction
of the board of directors. Employee shall devote such time, attention and
energies to the business of the Company as shall be necessary to perform the
duties requested by the board of directors; provided that Employee shall be free
to engage in other business activities. His actions shall at all times be such
that they do not discredit the Company or its products and services.
3. Compensation.
------------
<PAGE>
EXHIBIT G
SEVERANCE AND NONCOMPETE AGREEMENT
----------------------------------
THIS SEVERANCE AND NONCOMPETE AGREEMENT (this "Agreement"), dated effective
as of December 31, 1996, is between Colorado Greenhouse, Inc., a Delaware
corporation (the "Company"), and Matthew Brian Cook ("Employee").
In consideration of the mutual covenants and agreements contained herein,
the parties hereto agree as follows:
1. Employment. The Company hereby employs Employee and Employee hereby
----------
agrees to be employed by the Company for the period and upon the terms and
conditions hereinafter set forth.
2. Capacity and Duties. Employee shall be employed by the Company as its
-------------------
Chief Operating Officer or in such other executive capacity as the board of
directors shall determine. During his employment, Employee shall perform the
duties and bear the responsibilities commensurate with his position and shall
serve the Company faithfully and to the best of his ability, under the direction
of the board of directors and the duly elected officers of the Company. Employee
shall devote his entire working time, attention and energies to the business of
the Company. His actions shall at all times be such that they do not discredit
the Company or its products and services. Except for his involvement in personal
investments, Employee shall not engage in any other business activity or
activities that require significant personal services by Employee that, in the
judgment of the board of directors, may conflict with the proper performance of
Employee's duties hereunder.
<PAGE>
EXHIBIT H
COLORADO GREENHOUSE, INC.
Anti-Dilution Formula For Weighted Average Ratchet
--------------------------------------------------
<TABLE>
<CAPTION>
SHARES CONV RATIO
------ ----------
<S> <C> <C>
Existing Shares of Series A & Options on CS 7,020,000 1,0000
New Shares of $14 mm Series B @ $8.00 1,750,000 1,0000
New Shares of $14 mm Series B @ $5.50 2,545,455 1,4545
Total Common Shares of A & B @ $5.50 9,565,455
Symbol Description Number Memo
------ ----
O= # of shares of Outstanding at Record Date 9,565,455 (Should include CS which Pfd is convert into &
N= # of shares which each B is convertible into 1,4545 options)
P= Offering Price Per Share of Additional CS
M= Market value of CS
A= Number of Shares of CS offered (Never less than $5.50)
</TABLE>
(C) Rights, Options or Warrants
Ex) #1 Assume they issue Warrants to purchase 1,000,000 CS at $0.01 for $2.00
Warrant (within 60 days)
O= 9,565,455
N= 1.4545
P= $2.01
M= $5.50
A= 1,000,000
N/1/= N x (O divided by A)
-------------------
O - ((AxP)/M)
N/1/= 1.4545 x (9,565,455 + 1,000,000)
-------------------------------
9,565,455 + ((1,000,000 x 2.01)/5.5)
N/1/= 15,367,934
---------------
9,930,909
N/1/= $1.5475
memo 8/1.5475= $5.1697 Price per Share of B
CHECK: (9,565,455 x 5.5) + (1,000,000 x 2.01)
-------------------------------------
Weighted (9,565,455 + 1,000,000)
Avg Formula
$5.1697
Ex) #2 Assume they issue Rights purchase 10,000,000 CS at $5.00.
O= 9,565,455
N= 1.4545
P= $5.00
M= $5.50
A= 10,000,000
N/1/= N x (O + A)
----------
O divided by ((AxP)/M)
N/1/= 1.4545 x (9,565,455 + 10,000,000)
--------------------------------
9,565,455 + ((10,000,000 x 5)/5.5)
N/1/= 28,458,842.98
-------------
18,656,363.64
N/1/= 1.5254
memo 8/1.5254= $5.2444 Price per Share of B
CHECK: (9,565,455 x 5.5) + (10,000,000 x 5)
-----------------------------------
Weighted (9,565,455 + 10,000,000)
Avg Formula
$5.2444
<PAGE>
EXHIBIT I
[LETTERHEAD OF HOLME ROBERTS & OWEN LLP APPEARS HERE]
January 21, 1997
Catterton-Simon Partners III, L.P.
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: Craig H. Sakin
BCI Growth IV, L.P.
Glenpointe Center West
Teaneck, New Jersey 07666
Attention: Stephen J. Eley
H & Q Colorado Greenhouse Investors, L.P.
One Bush Street
San Francisco, California 94104
Attention: Marti Wyman
Catterton-CGH Partners, LLC
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: Craig H. Sakin
Re: Colorado Greenhouse, Inc., Series B Preferred Stock Sale
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Colorado Greenhouse Holdings, Inc., a Delaware
corporation (the "Company"), Colorado Greenhouse LLC, a Colorado limited
liability company ("CG, LLC"), Colorado Greenhouse, Inc. ("CG, Inc.") and CG
Member, Inc., a Delaware corporation ("CGM, Inc.") (CG, LLC, CG, Inc. and CGM,
Inc. are sometimes referred to herein as the "Subsidiaries"), in connection with
the restructuring of the Company and the LLC (the "Restructuring Transaction"),
the organization of CG, Inc. and CGM, Inc. and the negotiation, preparation,
execution and delivery of the Stock Purchase Agreement (the "Agreement") dated
as of the date of this opinion, by and among the Company, Catterton-Simon
Partners III, L.P., a Delaware limited partnership ("Catterton-Simon"), BCI
Growth IV, L.P., a Delaware limited partnership ("BCI"), H&Q
<PAGE>
EXHIBIT I
[LETTERHEAD OF MODRALL, SPERLING,ROEHL,HARRIS & SISK, P.A. APPEARS HERE]
- --------------------------------------------------------------------------------
VIA FACSIMILE
AND U.S MAIL
January 21, 1997
Mr. Robert C. Clark
Colorado Greenhouse, Inc.
4845 Pearl East Circle, Suite 300
Boulder, Colorado 80301
Re: Estancia Greenhouse Project: Opinion on Governmental Approvals
---------------------------------------------------------------
Dear Mr. Clark:
As you know, we have acted as local counsel for Colorado Greenhouse, Inc.,
a Delaware Corporation ("Colorado Greenhouse"). This opinion identifies the
governmental approvals required for the development, design, construction,
start-up, testing, operation and maintenance of the Estancia Greenhouse Project
("Project"). In connection with this opinion, we have examined, among other
things, the documents and agreements listed on Exhibit A attached hereto (the
"Documents"). We have also examined other agreements and information pertaining
to the Project and have made such investigations of law as we have deemed
relevant and necessary for the purposes of rendering this opinion.
The opinions, review and analysis set forth below are subject to the
following further qualifications:
(a) This opinion is subject to the effect of bankruptcy, solvency,
reorganization, moratorium and similar loss generally affecting creditors'
rights.
(b) This opinion does not address matters related to the Occupational
Safety and Health Act, 29 U.S.C. (S)(S) 651 to 678; the Emergency Planning and
Community Right to Know Act of 1986 (as set forth in Title III of the Superfund
Amendments); or any governmental approvals by or with any governmental authority
pertaining to lending, banking, fiscal or monetary matters.
<PAGE>
EXHIBIT J
PAGE 1
State of Delaware
Office of the Secretary of State
______________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"COLORADO GREENHOUSE, INC.", CHANGING ITS NAME FROM "COLORADO GREENHOUSE, INC."
TO "COLORADO GREENHOUSE HOLDINGS, INC.", FILED IN THIS OFFICE ON THE SEVENTEENTH
DAY OF JANUARY, A.D. 1997, AT 4 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
[SEAL APPEARS HERE] ------------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8290856
DATE: 01-17-97
<PAGE>
EXHIBIT K
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
OR UNLESS SOLD PURSUANT TO AN EXEMPTION TO SUCH ACT.
COLORADO GREENHOUSE HOLDINGS, INC.
WARRANT TO PURCHASE 18,500
SHARES OF SERIES B PREFERRED STOCK
Void after January 31, 2002
THIS CERTIFIES THAT, for value received, Hambrecht & Quist LLC (the
"Holder") is entitled to purchase, on the terms and subject to the conditions
hereof, up to 18,500 shares of Series B Convertible Preferred Stock, par value
$0.001 per share (the "Series B Stock"), of Colorado Greenhouse Holdings, Inc.,
a Delaware corporation (the "Company"), at a per share purchase price of $8.00
(the "Exercise Price"), subject to adjustment as provided herein.
The following terms shall apply to this Warrant:
1. Exercise of Warrant. The terms and conditions upon which this Warrant
-------------------
may be exercised, and the Series B Stock covered hereby (the "Warrant Shares"),
may be purchased, are as follows:
1.1 Number of Shares. This Warrant is being delivered to Holder in
----------------
exchange for Holder's financial advisory services pursuant to that letter
agreement dated September 23, 1996. The number of Warrant Shares for which this
Warrant is initially exercisable is 18,500 shares, which number is subject to
adjustment pursuant to Section 2 of this Warrant.
1.2 Exercise. This Warrant may be exercised in whole or in part at
--------
any time or from time to time up until 5:00 p.m. Mountain Standard Time, January
31, 2002, and shall be void thereafter. The exercise of the purchase rights
hereunder, in whole or in part shall be effected by (a) the surrender of this
Warrant, together with a duly executed copy of the form of the subscription
attached as Exhibit A hereto, to the Company at its principal offices, and (b)
---------
the delivery of the Exercise Price by (i) check or bank draft payable to the
Company's order, or (ii) by wire transfer to the Company's account for the
number of Warrant Shares for which the purchase rights hereunder are being
exercised.
1.3 Automatic Exercise. Notwithstanding the provisions of Section 1.1
------------------
above, this Warrant shall automatically be deemed to be exercised in full in the
manner set forth in Section
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
SHARES BEING PURCHASE
PURCHASER PURCHASED PRICE
--------- --------- -----
<S> <C> <C>
Catterton-Simon Partners III, 875,000 $7,000,000
L.P.
Catterton-CGH Partners, L.L.C. 31,250 $ 250,000
BCI Growth IV, L.P. 875,000 $7,000,000
H&Q Colorado Greenhouse 93,750 $ 750,000
Investors, L.P.
</TABLE>
<PAGE>
SCHEDULE 1.1
------------
LENDERS
-------
The Prudential Insurance Company of America
Pruco Life Insurance Company
Credit Suisse
The Fuji Bank, Limited
Credit Local de France
Credit Lyonnais
Mellon Bank, N.A.
The Sanwa Bank, Limited
Campagnie Financiere de Cic et de L'Union Europeene
<PAGE>
SCHEDULE 2
----------
ADJUSTMENT PRICES
-----------------
For Calendar Year 1997
- ----------------------
If the Company's Actual EBIT is equal to or less than $7,361,000 but greater
than $6,974,000, the Adjustment Price shall be $7.60
If the Company's Actual EBIT is equal to or less than $6,974,000 but greater
than $6,586,000, the Adjustment Price shall be $7.20
If the Company's Actual EBIT is equal to or less than $6,586,000 but greater
than $6,199,000, the Adjustment Price shall be $6.80
If the Company's Actual EBIT is equal to or less than $6,199,000 but greater
than $5,811,000, the Adjustment Price shall be $6.40
If the Company's Actual EBIT is equal to or less than $5,811,000 but greater
than $5,424,000, the Adjustment Price shall be $6.00
If the Company's Actual EBIT is equal to or less than $5,424,000 but greater
than $5,331,000, the Adjustment Price shall be $5.60
If the Company's Actual EBIT is equal to or less than $5,331,000, the Adjustment
Price shall be $5.50
For Calendar Year 1998
- ----------------------
If the Company's Actual EBIT is equal to or less than $14,914,000 but greater
than $14,129,000, the Adjustment Price shall be $7.60
If the Company's Actual EBIT is equal to or less than $14,129,000 but greater
than $13,344,000, the Adjustment Price shall be $7.20
If the Company's Actual EBIT is equal to or less than $13,344,000 but greater
than $12,559,000, the Adjustment Price shall be $6.80
If the Company's Actual EBIT is equal to or less than $12,559,000 but greater
than $11,774,000, the Adjustment Price shall be $6.40
If the Company's Actual EBIT is equal to or less than $11,774,000 but greater
than $10,989,000, the Adjustment Price shall be $6.00
If the Company's Actual EBIT is equal to or less than $10,989,000 but greater
than $10,801,000, the Adjustment Price shall be $5.60
<PAGE>
If the Company's Actual EBIT is equal to or less than $10,801,000, the
Adjustment Price shall be $5.50
<PAGE>
SCHEDULE 3
----------
<TABLE>
<CAPTION>
1997
Liquidity Event
After Closing, but on or Before Dec., Adjustment
31, 1997 Percentage
-------- ----------
<S> <C> <C>
If ROI is greater than 200.0% then adj % shall be 100%
If ROI is greater than 196.7% then adj % shall be 95%
If ROI is greater than 193.3% then adj % shall be 90%
If ROI is greater than 190.0% then adj % shall be 85%
If ROI is greater than 186.7% then adj % shall be 80%
If ROI is greater than 183.3% then adj % shall be 75%
If ROI is greater than 180.0% then adj % shall be 70%
If ROI is greater than 176.7% then adj % shall be 65%
If ROI is greater than 173.3% then adj % shall be 60%
If ROI is greater than 170.0% then adj % shall be 55%
If ROI is greater than 166.7% then adj % shall be 50%
If ROI is greater than 163.3% then adj % shall be 45%
If ROI is greater than 160.0% then adj % shall be 40%
If ROI is greater than 156.7% then adj % shall be 35%
If ROI is greater than 153.3% then adj % shall be 30%
If ROI is greater than 150.0% then adj % shall be 25%
</TABLE>
<TABLE>
<CAPTION>
1998
Liquidity Event
After
Dec. 31, 1997, but on or Adjustment
Before Dec. 31, 1998 Percentage
-------------------- ----------
<S> <C> <C>
If ROI is greater than 250.0% then adj % shall be 100%
If ROI is greater than 246.7% then adj % shall be 95%
If ROI is greater than 243.3% then adj % shall be 90%
If ROI is greater than 240.0% then adj % shall be 85%
If ROI is greater than 236.7% then adj % shall be 80%
If ROI is greater than 233.3% then adj % shall be 75%
If ROI is greater than 230.0% then adj % shall be 70%
If ROI is greater than 226.7% then adj % shall be 65%
If ROI is greater than 223.3% then adj % shall be 60%
If ROI is greater than 220.0% then adj % shall be 55%
If ROI is greater than 216.7% then adj % shall be 50%
If ROI is greater than 213.3% then adj % shall be 45%
If ROI is greater than 210.0% then adj % shall be 40%
If ROI is greater than 206.7% then adj % shall be 35%
If ROI is greater than 203.3% then adj % shall be 30%
If ROI is greater than 200.0% then adj % shall be 25%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1999
Liquidity Event
After
Dec. 31, 1998, but on or Adjustment
Before Dec. 31, 1999 Percentage
-------------------- ----------
<S> <C> <C>
If ROI is greater than 350.0% then adj % shall be 100%
If ROI is greater than 343.3% then adj % shall be 95%
If ROI is greater than 336.7% then adj % shall be 90%
If ROI is greater than 330.0% then adj % shall be 85%
If ROI is greater than 323.3% then adj % shall be 80%
If ROI is greater than 316.7% then adj % shall be 75%
If ROI is greater than 310.0% then adj % shall be 70%
If ROI is greater than 303.3% then adj % shall be 65%
If ROI is greater than 296.7% then adj % shall be 60%
If ROI is greater than 290.0% then adj % shall be 55%
If ROI is greater than 283.3% then adj % shall be 50%
If ROI is greater than 276.7% then adj % shall be 45%
If ROI is greater than 270.0% then adj % shall be 40%
If ROI is greater than 263.3% then adj % shall be 35%
If ROI is greater than 256.7% then adj % shall be 30%
If ROI is greater than 250.0% then adj % shall be 25%
</TABLE>
<TABLE>
<CAPTION>
2000
Liquidity Event
After
Dec. 31, 1999, but on or Adjustment
Before Dec. 31, 2000 Percentage
-------------------- ----------
<S> <C> <C>
If ROI is greater than 450.0% then adj % shall be 100%
If ROI is greater than 443.3% then adj % shall be 95%
If ROI is greater than 436.7% then adj % shall be 90%
If ROI is greater than 430.0% then adj % shall be 85%
If ROI is greater than 423.3% then adj % shall be 80%
If ROI is greater than 416.7% then adj % shall be 75%
If ROI is greater than 410.0% then adj % shall be 70%
If ROI is greater than 403.3% then adj % shall be 65%
If ROI is greater than 396.7% then adj % shall be 60%
If ROI is greater than 390.0% then adj % shall be 55%
If ROI is greater than 383.3% then adj % shall be 50%
If ROI is greater than 376.7% then adj % shall be 45%
If ROI is greater than 370.0% then adj % shall be 40%
If ROI is greater than 363.3% then adj % shall be 35%
If ROI is greater than 356.7% then adj % shall be 30%
If ROI is greater than 350.0% then adj % shall be 25%
</TABLE>
"ROI" = Return on Investment
"adj. %" = Adjustment Percentage
<PAGE>
SCHEDULE 3.22
-------------
Exchange of Membership Interests in Colorado Greenhouse LLC
-----------------------------------------------------------
For Series A Preferred Stock in Colorado Greenhouse Holdings, Inc.
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Holder Shares Issued Date Issued % of MI's Exchanged
- ------ ------------- ----------- -------------------
<S> <C> <C> <C>
Brush Greenhouse Partners 3,100,000 12/31/96 50%
Brush Greenhouse Partners II 3,038,000 12/31/96 49%
Brush Greenhouse Partners II 62,000 1/1/97 1%
--------- -------- -------
TOTAL: 6,200,000 100%
</TABLE>
<PAGE>
SCHEDULE 8.5
------------
USE OF PROCEEDS
- ---------------
1. Fees and expenses associated with Farm Credit loan agreement.
2. Reimbursement of CG, LLC for costs related to reorganization,
financing and expansion.
3. Funding of $10 million for special construction account per Farm
Credit loan agreement ($1 million to be refunded upon completion of
construction).
4. Working capital requirements (start-up costs) for new greenhouses and
other corporate working capital requirements.
<PAGE>
EXHIBIT 10.35
AMENDMENT TO STOCK PURCHASE AGREEMENT
-------------------------------------
THIS AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Agreement") is entered
into as of the 29th day of September, 1997, by and among Colorado Greenhouse
Holdings, Inc., a Delaware corporation (the "Company"), Catterton-Simon Partners
III, L.P., a Delaware limited partnership ("Catterton-Simon"), BCI Growth IV,
L.P., a Delaware limited partnership ("BCI"), H & Q Colorado Greenhouse
Investors, L.P., a Delaware limited partnership ("H&Q") and Catterton - CGH
Partners, LLC, a Delaware limited liability company ("Catterton, LLC").
Catterton-Simon, BCI, H&Q and Catterton, LLC are collectively referred to herein
as "Purchasers."
RECITALS
--------
A. Purchasers and the Company previously entered into that certain Stock
Purchase Agreement (the "Stock Purchase Agreement") dated as of January 21,
1997, pursuant to which the Purchasers purchased certain shares of the Company's
Series B Preferred Stock. Capitalized terms not defined herein shall have the
meaning assigned to them in the Stock Purchase Agreement.
B. Purchasers made claims against the Company concerning certain alleged
nondisclosures and misrepresentations made by the Company at the time Purchasers
purchased the Series B Preferred Stock.
C. Purchasers and the Company have agreed to settle such claims and in
connection therewith, have agreed to amend the Stock Purchase Agreement as set
forth herein.
AGREEMENT
---------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Amendments. The following sections of the Stock Purchase Agreement
----------
shall be amended:
(a) The following definitions in Section 1.1 shall be deleted in
their entirety: "Actual EBIT," "Adjustment Price," "Consolidated Net
Income," "1997 Target EBIT" and "1998 Target EBIT."
(b) Section 2.5 ("Preferred Stock Conversion Adjustments") is hereby
deleted in its entirety.
(c) Exhibit H is hereby deleted in its entirety.
(d) Schedule 2 is hereby deleted in its entirety.
<PAGE>
2. Interpretation. Except as expressly amended by this Agreement, the
--------------
Stock Purchase Agreement shall remain in full force and effect without change.
3. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be an original,
but all of which together shall constitute one and the same instrument.
[signature page follows]
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
COLORADO GREENHOUSE HOLDINGS, INC.
By: /s/ Edward J. Wetherbee
---------------------------------------------
Edward J. Wetherbee
Chief Executive Officer
CATTERTON-SIMON PARTNERS III, L.P.
By: Catterton-Simon Managing Partner III, LLC, its
general partner
By: /s/ Craig Sakin
---------------------------------------------
Its: _____________________________________________
BCI GROWTH IV, L.P.
By: Glenpointe Associates, LLC, its general
partner
By: /s/ Stephen J. Eley
---------------------------------------------
Its: Member
---------------------------------------------
H & Q COLORADO GREENHOUSE
INVESTORS, L.P.
By: /s/ Jackie Berterretche
---------------------------------------------
Jackie Berterretche, Attorney-In-Fact
CATTERTON - CGH PARTNERS, LLC
By: Catterton Partners Management Company,
LLC, its Manager
By: /s/ Craig Sakin
---------------------------------------------
Manager
3
<PAGE>
EXHIBIT 10.36
COLORADO GREENHOUSE HOLDINGS, INC.
REGISTRATION RIGHTS AGREEMENT
Dated as of January 21, 1997
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is entered into as of
---------
the 21st day of January, 1997 by and among CATTERTON-SIMON PARTNERS III, L.P., a
Delaware limited partnership ("Catterton"), BCI GROWTH IV, L.P. a Delaware
---------
limited partnership ("BCI") and the other co-investors listed on Schedule 1
----------
attached hereto (the "Co-Investors"), (Catterton, BCI and the Co-Investors each
------------
being referred to herein as a "Purchaser" and collectively referred to herein as
the "Purchasers") and COLORADO GREENHOUSE HOLDINGS, INC., a Delaware corporation
(the "Company").
This Agreement is made pursuant to the Stock Purchase Agreement, dated as
of January 21, 1997 by and among the Company and the Purchasers (the "Stock
Purchase Agreement"). In order to induce the Purchasers to enter into the Stock
Purchase Agreement, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to closing under the Stock Purchase Agreement.
The parties hereby agree as follows:
1. Definitions.
-----------
As used in this Agreement, and unless the context requires a different
meaning, the following terms shall have the meanings indicated:
"Agent" means any Person authorized to act and who acts on behalf of any
-----
holder of Registrable Securities with respect to the transactions contemplated
by this Agreement or the Purchase Agreement.
"Agreement Year" means each consecutive twelve-month period beginning with
--------------
the date of this Agreement.
"Business Days" means all days other than Saturday or Sunday or any day on
-------------
which banking institutions in New York, New York are authorized or obligated by
law to close.
"Common Stock" means capital stock of the Company, however designated,
------------
which is not limited as to the amount of dividends, or which is not limited as
to the amount of distributions upon liquidation or dissolution of the Company,
and shall include, without limitation, the Company's presently authorized
10,600,000 shares of Common Stock, par value $.001 per share.
"Demand Registration" means a registration pursuant to Section 3(a).
-------------------
"Exchange Act" means the Securities Exchange Act of 1934, and the rules and
------------
regulations thereunder as amended from time to time.
"NASD" means National Association of Securities Dealers, Inc.
----
"Person" means an individual, firm, partnership, corporation, trust,
------
incorporated or unincorporated association, joint venture, joint stock company
or a government or agency or political subdivision thereof.
1
<PAGE>
"Piggy-Back Registration" means a registration pursuant to Section 3(f).
-----------------------
"Prospectus" means the prospectus included in any Registration Statement,
----------
as amended or supplemented by any prospectus supplement with respect to the
terms of the offering of any portion of the Registrable Securities covered by
the Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
"Preferred Stock" means the Series B Preferred Stock.
---------------
"Registrable Securities" means: (a) all shares of Common Stock owned now or
----------------------
in the future by any Purchaser; (b) the shares of Common Stock issued or
issuable upon conversion of the Preferred Stock, whether owned by any Purchaser
or not; and (c) any shares of Common Stock issued or issuable with respect to
such Common Stock by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or
reorganization; provided, however, that any such share or other security shall
be deemed to be a Registrable Security only if and so long as it is a Transfer
Restricted Security.
"Registration Expenses" See Section 6 hereof.
---------------------
"Registration Statement" means any registration statement of the Company
----------------------
which covers Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, and all exhibits
and all material incorporated by reference in such Registration Statement.
"S-3 Registration" means a registration pursuant to Section 3(g).
----------------
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time.
"SEC" means the Securities and Exchange Commission.
---
"Series A Registration Rights Agreement" means the Registration Rights
--------------------------------------
Agreement dated January 21, 1997 among the holders of Series A Preferred Stock
and the Company.
"Series A Preferred Stock" means the Series A Convertible Preferred Stock
------------------------
of the Company, par value $.001 per share.
"Series B Preferred Stock" means the Series B Convertible Preferred Stock
------------------------
of the Company, par value $.001 per share, issued or sold pursuant to the Stock
Purchase Agreement, or issued by way of stock dividend or stock split in respect
thereof, together with any securities issued in substitution or exchange
therefor.
"Transfer Restricted Securities" means securities acquired by the holder
------------------------------
thereof other than pursuant to an effective registration under Section 5 of the
Securities Act or pursuant to Rule 144; provided that a Registrable Security
that has ceased to be a Transfer Restricted Security cannot thereafter become a
Transfer Restricted Security.
"Underwritten Registration or Underwritten Offering" means a registration
--------------------------------------------------
in which securities of the Company are sold (whether by the Company or by
selling stockholders) to an underwriter for reoffering to the public.
2
<PAGE>
2. Securities Subject to this Agreement.
------------------------------------
Registrable Securities. The securities entitled to the benefits of this
----------------------
Agreement are the Registrable Securities.
(a) Holders of Registrable Securities. A Person is deemed to be
---------------------------------
a holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected and disregarding the legal
restrictions upon the exercise of such right; provided, however, that a Person
-------- -------
shall not be deemed to be a holder of Registrable Securities who, together with
such Person's affiliates, then holds Registrable Securities constituting less
than one percent (1%) of the then issued and outstanding Common Stock and who
may then sell all Registrable Securities owned by such holder in reliance upon
Rule 144 of the Securities Act within six months pursuant to the volume
restrictions under said Rule based upon the average weekly reported trading
volume of trading (currently Rule 144(e)(1)(ii)).
3. Demand Registration, Piggy-Back Registration and S-3
----------------------------------------------------
Registration.
- ------------
(a) Request for Registration by Holders of Registrable
--------------------------------------------------
Securities. At any time after the earlier of (i) the last day of the second
- ----------
Agreement Year or (ii) sixty (60) days after the effective date of any
registration of any of the Company's securities (subject to any hold-back period
agreed upon by the holders of Registrable Securities), if the Company receives
from the holders of at least 30% of the then outstanding Registrable Securities,
a written request specifying that the Company effect any registration or
qualification with respect to the Registrable Securities pursuant to this
Section 3(a) (a "Demand Registration"), the Company will:
-------------------
(1) within ten (10) days of receipt of such a request, give
written notice of the proposed registration or qualification to all other
holders of Registrable Securities; and
(2) as soon as practicable, use its best efforts to effect
such registration or qualification (including, without limitation, the execution
in the applicable Registration Statement of an undertaking to file required
post-effective amendments, appropriate qualification under the applicable blue
sky or other state securities laws and appropriate compliance with exemptive
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as are reasonably
necessary to permit or facilitate the sale and distribution of all or such
portion of such holder's or holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other holder or holders joining in such request, or the Company in the case
of securities requested by the Company to be registered (provided, however, the
-------- -------
Company shall be permitted to participate in such registration only to the
extent that all Registrable Securities as are specified by any holder in a
Demand Registration request have been included in such registration), as are
specified in a written notice given to the Company within 20 days after the date
of such written notice from the Company pursuant to Section 3(a)(1); provided,
--------
however that the Company will not be obligated to take any action to effect any
- -------
such registration, qualification or compliance pursuant to this Section 3(a)
after the completion of four (4) Demand Registrations as set forth in Section
3(b).
Subject to the foregoing provisions, the Company will file a registration
statement covering the Registrable Securities so requested to be registered as
soon as practicable, but in any event within one hundred twenty (120) days,
after receipt of the request or requests of the initiating holders, and shall
3
<PAGE>
use its best efforts to cause such Registration Statement and Prospectus through
which such Demand Registration is effected to remain effective until all
Registrable Securities are sold.
Notwithstanding anything to the contrary set forth in this Agreement, if at
any time any request to register securities pursuant to this Section 3(a) or
Section 3(g), such registration would, in the good faith determination of the
Board of Directors, be substantially detrimental to the Company, then the
Company may direct in writing ("Delay Notice") to the holders of Registrable
------------
Securities that such request of registration be delayed for a period of time not
to exceed sixty (60) days from the date of the request, which right to delay may
be exercised not more than once in any one year period. Upon receipt of a Delay
Notice, the holders of Registrable Securities requesting the Demand Registration
or S-3 Registration (as the case may be) may, upon written notice to the
Company, withdraw such request.
(b) Effective Registration. A registration of Registrable
----------------------
Securities will not count as a Demand Registration until it has become effective
and all Registrable Securities included in such Demand Registration have been
sold pursuant thereto. A Demand Registration under Section 3(a) shall be
effected pursuant to a Registration Statement on Form S-3 at any time that the
Company is eligible to use such form for such purpose.
(c) Priority on Demand Registrations. If the holder or holders
--------------------------------
of a majority in number of the Registrable Securities to be registered in a
Demand Registration under this Section 3 (or the holder or holders who initiated
the Demand Registration) so elect, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of an Underwritten
Offering. In such event, if the managing underwriter or underwriters of such
offering advise the Company and the holders in writing that in their opinion the
Registrable Securities requested to be included in such offering is sufficiently
large so as to materially and adversely affect the success of the offering, the
Company shall include in such registration the maximum amount of Registrable
Securities which in the opinion of such managing underwriter or underwriters can
be sold without any such material adverse effect. The Company shall include
Registrable Securities in such registration as follows: (i) first, pro rata
--- ----
among the holders of Registrable Securities who have requested to be included in
such registration pursuant to Section 3(a); (ii) second, all securities held by
the Company for which the Company has requested inclusion pursuant to Section
3(a); and (iii) third, any other holders of securities of the Company who have
requested to be included in such registration statement.
(d) Contemporaneous Demands. Subject to the proviso in the last
-----------------------
sentence of Section 3(h) of the Series A Registration Rights Agreement, in the
event that the Company shall receive a request to effect a registration of its
securities pursuant to the Series A Registration Rights Agreement or otherwise
(an "Other Demand Registration"), the Company shall, within five (5) days after
-------------------------
receipt of such request, give written notification of such proposed registration
(which notice shall include without limitation the identity of the parties
making such request, the nature and amount of the securities proposed to be
registered and the estimated gross proceeds of such offering) to all holders of
Registrable Securities. If, within thirty (30) days after receipt of such
notice, the holders of Registrable Securities shall deliver to the Company a
request to effect a Demand Registration, then the Company shall effect such
Demand Registration and shall not effect the Other Demand Registration, which
Other Demand Registration shall be withdrawn and shall be of no further force
and effect.
(e) Selection of Underwriters. In the event any such
-------------------------
registration is in the form of an Underwritten Offering, the investment banker
or bankers and manager or managers that will administer the offering will be
nationally recognized investment banking firm(s) selected by the
4
<PAGE>
Company with the prior written consent of the holders of a majority in number of
Registrable Securities to be included in such offering, such consent not to be
unreasonably withheld.
(f) Piggy-Back Registration. If the Company determines to file
-----------------------
a Registration Statement under the Securities Act relating to a proposed sale to
the public of shares of its securities (but excluding registrations relating
solely to employees' stock option or purchase plans or relating solely to a
transaction employing Securities and Exchange Commission Form S-4 or Form S-8 or
successor forms thereto), either for its own account or the account of a
security holder or holders, the Company shall:
(1) promptly give to each holder of Registrable Securities
written notice thereof (which will include, to the extent known at the time, a
list of the jurisdictions in which the Company intends to qualify such
securities under the applicable blue sky or other state securities laws, the
proposed offering price or price range, and the plan of distribution);
(2) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within forty-five (45) days after such written notice from the
Company, by holders of Registrable Securities; and
(3) use its best efforts to cause the managing underwriter
or underwriters of such proposed Underwritten Offering to permit the Registrable
Securities requested to be included in the registration statement for such
offering to be included on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding the foregoing, if
the managing underwriter or underwriters of such offering deliver a written
opinion to the Company and the holders of such Registrable Securities that
marketing considerations require a limitation on the number of shares of Common
Stock offered pursuant to any Registration Statement filed under this Section
3(e), such limitation shall be allocated among all holders of Common Stock
(other than such holders, if any, initiating the registration pursuant to demand
registration rights granted by the Company, which holders shall receive priority
with respect to inclusion in such registration in accordance with such
contractual rights) and the holders of Registrable Securities who requested
inclusion in the registration as follows: (i) first, Registrable Securities
shall be included in such registration in a number equal to the greater of (A)
the pro rata portion (in proportion to all shares of Registrable Securities and
--- ----
other shares of Common Stock requested to be included in the offering which are
subject to such underwriter's limitation) of Registrable Securities requested to
be included in such registration and (B) seventy-five percent (75%) of the total
number of shares to be included in such registration (other than such holders,
if any, initiating the registration pursuant to demand registration rights
granted by the Company) after giving effect to such underwriter's limitation;
and (ii) second, any other holders of securities of the Company who have
requested to be included in such registration statement pursuant to contractual
piggy-back registration rights.
(g) Request for Registration on Form S-3 by Holders of
--------------------------------------------------
Registrable Securities. At any time after the Company becomes eligible to file
- ----------------------
a Registration Statement on Form S-3, if the Company receives from the holders
of at least 25% of the then outstanding Registrable Securities, a written
request specifying that the Company effect any registration or qualification
with respect to the Registrable Securities pursuant to this Section 3(g) (an "S-
-
3 Registration"), the Company will:
- --------------
5
<PAGE>
(1) within ten (10) days of receipt of such a request, give
written notice of the proposed registration or qualification to all other
holders of Registrable Securities; and
(2) as soon as practicable, effect such registration or
qualification (including, without limitation, the execution in the applicable
Registration Statement of an undertaking to file required post-effective
amendments, appropriate qualification under the applicable blue sky or other
state securities laws and appropriate compliance with exemptive regulations
issued under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as are reasonably necessary to permit or
facilitate the sale and distribution of all or such portion of such holder's or
holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other holder or holders
joining in such request, or the Company in the case of securities requested by
the Company to be registered (provided, however, the Company shall be permitted
-------- -------
to participate in such registration only to the extent that all Registrable
Securities as are specified by any holder in a S-3 Registration request have
been included in such registration), as are specified in a written notice given
to the Company within 20 days after the date of such written notice from the
Company pursuant to Section 3(a)(1); provided, however that the Company will not
-------- -------
be obligated to take any action to effect any such registration, qualification
or compliance pursuant to this Section 3(g) after the completion of two (2) S-3
Registrations as set forth in Section 3(g).
Subject to the foregoing provisions, the Company will file a registration
statement covering the Registrable Securities so requested to be registered as
soon as practicable, but in any event within one hundred twenty (120) days,
after receipt of the request or requests of the initiating holders, and shall
use its best efforts to cause such Registration Statement and Prospectus through
which such S-3 Registration is effected to remain effective until all
Registrable Securities are sold.
(h) Effective Registration. A registration of Registrable
----------------------
Securities will not count as an S-3 Registration until it has become effective
and all Registrable Securities included in such S-3 Registration have been sold
pursuant thereto.
(i) Minimum Requirement for Registration. The Company shall be
------------------------------------
obligated to effect a registration or qualification pursuant to Section 3(a) and
Section 3(g) only if the anticipated gross offering proceeds pursuant to: (1) a
Demand Registration requested pursuant to Section 3(a) hereof equals or exceeds
$10,000,000 and (2) an S-3 Registration requested pursuant to Section 3(g)
hereof equals or exceeds $1,000,000.
4. Hold-Back Agreements.
--------------------
(a) Restrictions on Public Sale by the Company of Registrable
---------------------------------------------------------
Securities. Each holder of Registrable Securities whose Registrable Securities
- ----------
are covered by a Registration Statement filed pursuant to Section 3 hereof
agrees, if requested in writing by the managing underwriters in an Underwritten
Offering, not to effect any public sale or distribution of securities of the
Company of the same class as the securities included in such Registration
Statement, including a sale pursuant to Rule 144 under the Securities Act
(except as part of such Underwritten Registration), during the ninety (90) day
period subsequent to the filing of the Registration Statement for each
Underwritten Offering pursuant to such Registration Statement and during such
other period (not less than ninety (90) days) following such effective date as
shall be reasonably agreed upon by the Company, the holders of the Registrable
Securities whose Registrable Securities are covered by such registration and the
managing underwriters.
6
<PAGE>
(b) Restrictions on Public Sale by the Company and Others. The
-----------------------------------------------------
Company agrees:
(1) not to effect any public or private sale or
distribution of its debt or equity securities, including a sale pursuant to
Regulation D under the Securities Act, during the ninety (90) day period prior
to the filing of a Registration Statement under Section 3 hereof, and during the
one hundred twenty (120) day period beginning on, the closing date of each
Underwritten Offering made pursuant to a Registration Statement filed under
Section 3 hereof, to the extent timely requested in writing by the managing
underwriters (except as part of such Underwritten Registration or pursuant to
registrations on Forms S-4 or S-8 or any successor forms thereto), and
(2) to cause each holder of its privately placed debt or
equity securities issued by the Company at any time on or after the date of this
Agreement (other than securities issued upon the exercise or conversion of
securities outstanding as of the date hereof) to agree not to effect any public
sale or distribution of any such securities, including a sale pursuant to Rule
144 under the Securities Act (except as part of such Underwritten Registration,
if permitted), during the ninety (90) day period subsequent to the filing of the
Registration Statement for each Underwritten Offering and during the 180 day
period following the effective date of such Registration Statement, in each case
to the extent the managing underwriter makes a timely written request that
specifically identifies such holder(s).
5. Registration Procedures.
-----------------------
In connection with the Company's registration obligations pursuant to
Section 3 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Company will as expeditiously as possible:
(a) before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, furnish to the holders of the Registrable
Securities covered by such Registration Statement and the managing underwriters,
if any, copies of all such documents proposed to be filed, which documents will
be made available for review by such holders and managing underwriters, and (i)
with respect to any Demand Registration or S-3 Registration, the Company will
not file any such Registration Statement or amendment thereto or any such
Prospectus or any supplement thereto to which the holders of a majority in
number of the Registrable Securities covered by such Registration Statement or
the underwriters, if any, shall reasonably object; and (ii) with respect to any
Piggy-Back Registration, the Company will not file any such Registration
Statement or amendment thereto or any such Prospectus or any supplement thereto
to which the holders of a majority in number of the Registrable Securities
covered by such Registration Statement or the underwriters, if any, shall
reasonably object to any information contained therein related to such holders
or the plan of distribution of such holders' Registrable Securities;
(b) prepare and file with the Securities and Exchange Commission
such amendments and post-effective amendments to any Registration Statement, and
such supplements to the Prospectus, as may be reasonably requested by any
holders of a majority of Registrable Securities covered by the Registration
Statement or any managing underwriter of Registrable Securities or as may be
required by the rules, regulations or instructions applicable to the
registration form utilized by the Company or by the Securities Act or otherwise
necessary to keep such Registration Statement effective for the applicable
period and cause the Prospectus as so supplemented to be filed pursuant to Rule
424
7
<PAGE>
under the Securities Act; and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the sellers thereof set forth in such Registration Statement
or supplement to the Prospectus;
(c) notify the counsel to the selling holders of Registrable
Securities and the managing underwriters, if any, promptly, and (if requested by
any such Person) confirm such advice in writing,
(1) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment, when the same has become effective,
(2) of any request by the Securities and Exchange
Commission for amendments or supplements to the Registration Statement or the
Prospectus or for additional information,
(3) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose,
(4) if at any time the representations and warranties of
the Company contemplated by paragraph (n) below cease to be true and correct,
(5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, and
(6) of the existence of any fact which results in the
Registration Statement, the Prospectus or any document incorporated therein by
reference containing an untrue statement of material fact or omitting to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading;
(d) use every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriter or
underwriters or a holder of Registrable Securities being sold in connection with
an Underwritten Offering, immediately incorporate in a Prospectus supplement or
post-effective amendment such necessary information as the managing underwriters
and the holders of a majority of the Registrable Securities being sold
reasonably request to have included therein relating to the plan of distribution
with respect to such Registrable Securities, including, without limitation,
information with respect to the amount of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such underwriters
and with respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or post-
effective amendment as soon as notified of the matters to be incorporated in
such Prospectus supplement or post-effective amendment;
(f) at the request of any selling holder of Registrable
Securities, furnish to such selling holder of Registrable Securities and each
managing underwriter, without charge, such number of conformed copies of the
Registration Statement and any post-effective amendment thereto,
8
<PAGE>
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits (including those incorporated by reference) as
such holder may reasonable request;
(g) deliver to each selling holder of Registrable Securities and
the underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities,
register or qualify or cooperate with the selling holders of Registrable
Securities, the managing underwriters, if any, and their respective counsel in
connection with the registration or qualification of such Registrable Securities
for offer and sale under the securities or blue sky laws of such jurisdictions
as any seller or underwriter reasonably requests in writing and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statement; provided that the Company will not be required to qualify generally
--------
to do business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of process in any such
jurisdiction where it is not then so subject;
(i) cooperate with the selling holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and, if
not required by applicable law, not bearing any restrictive legends; and enable
such Registrable Securities to be in such denominations and registered in such
names as the managing underwriters may request at least two business days prior
to any sale of Registrable Securities to the underwriters;
(j) use its best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities;
(k) if any fact contemplated by paragraph (c)(6) above shall
exist during the period that the Company shall be required hereunder to use its
best efforts to maintain the effectiveness of the applicable Registration
Statement, prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading;
(l) use its best efforts to cause all Registrable Securities
covered by the Registration Statement to be listed on each securities exchange
on which similar securities issued by the Company are then listed if requested
by the holders of a majority in number of such Registrable Securities or by the
managing underwriters, if any;
(m) not later than the effective date of the applicable
Registration Statement, provide a CUSIP number for all Registrable Securities
and provide the applicable trustees or
9
<PAGE>
transfer agents with printed certificates for the Registrable Securities which
are in a form eligible for deposit with Depository Trust Company;
(n) enter into agreements (including underwriting agreements) in
a form reasonably satisfactory to the Company and take all other appropriate and
reasonable actions in order to expedite or facilitate the disposition of such
Registrable Securities and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an Underwritten
Registration:
(1) make such representations and warranties to the holders
of such Registrable Securities and the underwriters, if any, in form, substance
and scope as are customarily made by issuers to underwriters in primary
Underwritten Offerings, in a manner reasonably satisfactory to the Company;
(2) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the counsel to
the holders of Registrable Securities being sold) addressed to each selling
holder and the underwriters, if any, covering the matters customarily covered in
opinions requested in Underwritten Offerings, in a manner reasonably
satisfactory to the Company;
(3) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to the selling
holders of Registrable Securities and the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters to underwriters in connection with primary Underwritten
Offerings;
(4) if an underwriting agreement is entered into, cause the
same to set forth in full the indemnification provisions and procedures of
Section 7 hereof (or such other substantially similar provisions and procedures
as the underwriters shall reasonably request) with respect to all parties to be
indemnified pursuant to said Section; and
(5) deliver such documents and certificates as may be
reasonably requested by the holders of a majority of the Registrable Securities
being sold and the managing underwriters, if any, to evidence compliance with
paragraph (k) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
The actions set forth in the above paragraph (n) shall be done at the
effectiveness of such Registration Statement, each closing under any
underwriting or similar agreement as and to the extent required thereunder and
from time to time as may reasonably be requested by any selling holder in
connection with the disposition of Registrable Securities pursuant to such
Registration Statement, all in a manner consistent with customary industry
practice;
(o) make available to a representative of the holders of a
majority in number of the Registrable Securities being sold, any managing
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant retained by the sellers or managing
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with the
registration, with respect to each at such time or times as the Company shall
10
<PAGE>
reasonably determine; provided that any records, information or documents that
--------
are designated by the Company in writing as confidential shall be kept
confidential by such Persons unless disclosure of such records, information or
documents is required by court or administrative order;
(p) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
generally available to its security holders, earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 promulgated
thereunder;
(q) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD); and
(r) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement) provide copies of such
document to counsel to the selling holders of Registrable Securities and to the
managing underwriters, if any, make the Company's representatives available for
discussion of such document and make such changes in such document prior to the
filing thereof as counsel for such selling holders or underwriters may
reasonably request.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (k) above, such holder
will forthwith discontinue disposition of Registrable Securities until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by paragraph (k) above, or until it is advised in writing by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the Prospectus, and, if so directed by the Company, such holder will deliver to
the Company (at the Company's expense, unless such supplement or amendment is
due to inaccurate information supplied by such holder to the Company in writing
specifically for inclusion in the applicable Registration Statement) all copies,
other than permanent file copies then in such holder's possession, of the
Prospectus covering such Registrable Securities current at the time of receipt
of such notice. In the event the Company shall give any such notice, the time
periods mentioned in Section 4(a) hereof shall be extended by the number of days
during the period from and including the date of the giving of such notice to
and including the date when each seller of Registrable Securities covered by
such Registration Statement either receives the copies of the supplemented or
amended Prospectus contemplated by paragraph (k) above or is advised in writing
by the Company that the use of the Prospectus may be resumed.
6. Registration Expenses.
---------------------
(a) Except as set forth in Section 6(c), all expenses incident
to the Company's performance of or compliance with this Agreement will be paid
by the Company, regardless whether the Registration Statement becomes effective
including without limitation:
11
<PAGE>
(1) all registration and filing fees (including, without
limitation, with respect to filings required to be made with the NASD);
(2) fees and expenses of compliance with securities or blue
sky laws (including, without limitation, fees and disbursements of counsel for
the underwriters or selling holders in connection with blue sky qualifications
of the Registrable Securities and determination of their eligibility for
investment under the laws of such jurisdictions as the managing underwriters or
holders of a majority of the Registrable Securities being sold may designate);
(3) printing (including, without limitation, expenses of
printing or engraving certificates for the Registrable Securities in a form
eligible for deposit with Depository Trust Company and of printing
prospectuses), messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel for the Company, the
underwriters and for the selling holders of the Registrable Securities;
(5) fees and disbursements of all independent certified
public accountants of the Company (including, without limitation, the expenses
of any special audit and "cold comfort" letters required by or incident to such
performance);
(6) fees and disbursements of underwriters as reasonably
approved by the Company (excluding (x) discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities or (y)
legal expenses of any Person other than the Company, the underwriters and the
selling holders);
(7) securities acts liability insurance if the Company so
desires, and in such event, coverage for, the underwriters or selling holders of
Registrable Securities should they so request;
(8) fees and expenses associated of other Persons retained
by the Company; and
(9) fees and expenses associated with any NASD filing
required to be made in connection with the Registration Statement, including, if
applicable, the fees and expenses of any "qualified independent underwriter"
(and its counsel) that is required to be retained in accordance with the rules
and regulations of the NASD (all such expenses being herein called "Registration
Expenses").
The Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on each securities exchange on which similar securities issued by
the Company are then listed, rating agency fees and the fees and expenses of any
Person, including special experts, retained by the Company.
(b) In connection with each Registration Statement required
hereunder, the Company will reimburse the holders of Registrable Securities
being registered (together with the holders of all other securities being
registered) pursuant to such Registration Statement for the reasonable fees and
disbursements of not more than one counsel (or more than one counsel if a
conflict
12
<PAGE>
exists among such selling holders in the exercise of the reasonable judgment of
counsel for the selling holders and counsel for the Company) chosen by the
holders of a majority of such Registrable Securities and such other securities
being registered under such Registration Statement.
(c) All expenses incident to the Company's performance of or
compliance with Section 3(g) of this Agreement will be paid by the holders of
Registrable Securities participating in such registration, on a pro rata basis,
regardless whether the Registration Statement becomes effective.
7. Indemnification.
---------------
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless each holder of Registrable Securities, its officers,
directors, employees and Agents and each Person who controls such holder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each such person being sometimes hereinafter referred to as an
"Indemnified Holder") from and against all losses, claims, damages, liabilities
------------------
and expenses (including reasonable costs of investigation and legal expenses)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement or Prospectus or in any
amendment or supplement thereto or in any preliminary Prospectus, or arising out
of or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
allegation thereof based upon information furnished in writing to the Company by
such holder expressly for use therein; provided, however, that the Company shall
-------- -------
not be liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any preliminary
Prospectus if (i) such holder failed to send or deliver a copy of the Prospectus
with or prior to the delivery of written confirmation of the sale of Registrable
Securities and (ii) the Prospectus would have corrected such untrue statement or
omission; and provided, further, that the Company shall not be liable in any
-------- -------
such case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission in the Prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the Prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such holder thereafter fails to deliver such Prospectus
as so amended or supplemented prior to or concurrently with the sale of a
Registrable Security to the person asserting such loss, claim, damage, liability
or expense who purchased such Registrable Security which is the subject thereof
from such holder. This indemnity will be in addition to any liability which the
Company may otherwise have. The Company will also provide customary
indemnification to underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
Indemnified Holders of Registrable Securities.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against an Indemnified Holder in respect
of which indemnity may be sought from the Company, such Indemnified Holder shall
promptly notify the Company in writing, and the Company shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Indemnified Holder and the payment of all expenses. Such Indemnified Holder
shall have the right to employ separate counsel in any such action and to
participate in the defense
13
<PAGE>
thereof, but the fees and expenses of such counsel shall be the expense of such
Indemnified Holder unless (a) the Company has agreed to pay such fees and
expenses or (b) the Company shall have failed to assume the defense of such
action or proceeding or has failed to employ counsel reasonably satisfactory to
such Indemnified Holder in any such action or proceeding or (c) if the
representation of such Indemnified Holder by the counsel retained by the Company
would be inappropriate due to actual or potential conflicts of interests between
the Indemnified Holder and any other party represented by such counsel in such
proceeding based on written advice of counsel made available to the Company (in
which case, if such Indemnified Holder notifies the Company in writing that it
elects to employ separate counsel at the expense of the Company, the Company
shall not have the right to assume the defense of such action or proceeding on
behalf of such Indemnified Holder, it being understood, however, that the
Company shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for such Indemnified Holder and any other Indemnified
Holders, which firm shall be designated in writing by such Indemnified Holders).
The Company shall not be liable for any settlement of any such action or
proceeding effected without its written consent, but if settled with its written
consent, or if there be a final judgment for the plaintiff in any such action or
proceeding, the Company agrees to indemnify and hold harmless such Indemnified
Holders from and against any loss or liability by reason of such settlement or
judgment.
(b) Indemnification by Holder of Registrable Securities. Each
---------------------------------------------------
holder of Registrable Securities agrees to indemnify and hold harmless the
Company, its directors and officers and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to such holder, but only with respect to information relating to such
holder furnished in writing by such holder expressly for use in any Registration
Statement or Prospectus, or any amendment or supplement thereto, or any
preliminary Prospectus. In case any action or proceeding shall be brought
against the Company or its directors or officers or any such controlling person,
in respect of which indemnity may be sought against a holder of Registrable
Securities, such holder shall have the rights and duties given the Company and
the Company or its directors or officers or such controlling person shall have
the rights and duties given to each holder by Section 7(a). In no event shall
the liability of any selling holder of Registrable Securities under this Section
7(b) be greater in amount than the dollar amount of the net proceeds received by
such holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
The Company shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information so furnished in writing by such Persons specifically for
inclusion in any Prospectus or Registration Statement or any amendment or
supplement thereto, or any preliminary Prospectus.
(c) Contribution. If the indemnification provided for in this
------------
Section 7 is unavailable to an indemnified party under Section 7(a) or Section
7(b) hereof (other than by reason of exceptions provided in those Sections) in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand, and of the Indemnified Holder, on the other hand,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities
14
<PAGE>
or expenses, as well as any other relevant equitable considerations. The
relative fault of the Company, on the one hand, and of the Indemnified Holder,
on the other hand, shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Indemnified Holder and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in the second paragraph
of Section 7(a), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Company and each holder of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this Section 7(c) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section
7(c), an Indemnified Holder shall not be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities sold by such Indemnified Holder or its affiliated Indemnified Holders
and distributed to the public were offered to the public exceeds the amount of
any damages which such Indemnified Holder, or its affiliated Indemnified
Holders, has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
8. Rule 144.
--------
The Company covenants that it will file the reports required to be filed by
it under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder and, at all times after the effective date of the
first registration filed by the Company which involves a sale of securities of
the Company to the general public, will take such further action as any holder
of Registrable Securities may reasonably request, all to the extent required
from time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time or (b) any similar rule or regulation hereafter adopted by the
SEC. Upon the request of any holder of Registrable Securities, the Company will
deliver to such holder a written statement as to whether it has complied with
such information and requirements.
9. Participation in Underwritten Registrations.
-------------------------------------------
No holder of Registrable Securities (or its successors or assigns) may
participate in any Underwritten Registration hereunder unless such Person (a)
agrees to sell such Person's Registrable Securities on the basis provided in any
underwriting arrangements approved by the underwriters and other Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
10. Miscellaneous.
-------------
(a) Remedies. Each holder of Registrable Securities, in addition
--------
to being entitled to exercise all rights provided herein, and as provided in the
Transaction Agreements, and
15
<PAGE>
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. The Company will not on or after
--------------------------
the date of this Agreement enter into any agreement, and as of the date of this
Agreement the Company is not a party to any agreement, with respect to its
securities which is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof or impairs the rights granted hereunder. The Company has not
previously entered into any agreement with respect to its securities granting
any registration rights to any Person which has not been terminated on or prior
to the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least 66 2/3% of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other holders of Registrable Securities may be given by the holders of
50% of the Registrable Securities being sold.
(d) Notices. All notices and other communications provided for
-------
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(1) if to a holder of Registrable Securities, at the most
current address given by such holder to the Company in accordance with the
provisions of this Section 10(d) (with the initial addresses for each person
which the Purchaser comprises as set forth in the Purchase Agreement, and with
copies to be sent as specified in the Purchase Agreement); and
(2) if to the Company, initially at its address set forth
in the Purchase Agreement and thereafter at such other address, notice of which
is given in accordance with the provisions of this Section 11(e), with copies to
be sent as specified in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when received if
deposited in the mail, postage prepaid, if mailed; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation, and without the need for an express
assignment, subsequent holders of Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number
------------
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall
16
<PAGE>
be deemed to be an original and all of which taken together shall constitute one
and the same agreement.
(g) Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
(i) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties
----------------
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings as to the subject matter, other than those
set forth or referred to herein with respect to the registration rights granted
by the Company with respect to the securities sold pursuant to the Purchase
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
[signature pages follow]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Colorado Greenhouse Holdings, Inc.
By: /s/ Ed Wetherbee
--------------------------------------------
Name:
Title: CEO
Catterton-Simon Partners III, L.P.
By: Catterton-Simon Managing Partner III, L.L.C.,
its General Partner
By: /s/ Craig Sakin
--------------------------------------------
Name:
Title: Authorized Person
Catterton-CGH Partners, L.L.C.
By: Catterton Partners Management Company,
L.L.C., its Managing Member
By: /s/ Craig Sakin
-----------------------------------------
Name:
Title: Member
BCI Growth IV, L.P.
By: Glenpointe Associates, L.L.C., its
General Partner
By: /s/ Stephen Eley
--------------------------------------------
Name:
Managing Member
18
<PAGE>
H&Q Colorado Greenhouse Investors, L.P.
By: /s/ Jackie Berterretche
--------------------------------------------
Name: Jackie Berterretche
Title: Attorney-in-Fact
19
<PAGE>
SCHEDULE 1
----------
CO-INVESTORS
Catterton-CGH Partners, L.L.C.
H&Q Colorado Greenhouse Investors, L.P.
20
<PAGE>
EXHIBIT 10.37
COLORADO GREENHOUSE HOLDINGS, INC.
SERIES A REGISTRATION RIGHTS AGREEMENT
Dated as of January 21, 1997
<PAGE>
SERIES A REGISTRATION RIGHTS AGREEMENT
--------------------------------------
This Series A Registration Rights Agreement (the "Agreement") is
---------
entered into as of the 21st day of January, 1997 by and among the holders of
Series A Preferred Stock of the Company listed on Schedule 1 attached hereto
----------
(the "Holders") and COLORADO GREENHOUSE HOLDINGS, INC., a Delaware corporation
-------
(the "Company").
-------
Recitals
--------
A. In connection with the formation of the Company, the Holders have
transferred certain assets to the Company. In consideration for the transfer of
such assets, the Company agrees to grant to the Holders certain registration
rights as set forth herein.
B. In connection with a Stock Purchase Agreement (the "Stock Purchase
--------------
Agreement"), dated the date hereof, between Catterton-Simon Partners III, L.P.,
- ---------
BCI Growth IV, L.P. and the other purchasers named therein (collectively, the
"Purchasers") and the Company, the Company is entering into a Registration
----------
Rights Agreement, dated the date hereof, with the Purchasers (the "Series B
--------
Registration Rights Agreement"). The Company and the Holders desire to
- -----------------------------
coordinate the respective rights granted in the Series B Registration Rights
Agreement and this Agreement.
The parties hereby agree as follows:
1. Definitions.
-----------
As used in this Agreement, and unless the context requires a different
meaning, the following terms shall have the meanings indicated:
"Agent" means any Person authorized to act and who acts on behalf of
-----
any holder of Registrable Securities with respect to the transactions
contemplated by this Agreement or the Purchase Agreement.
"Agreement Year" means each consecutive twelve-month period beginning
--------------
with the date of this Agreement.
"Business Days" means all days other than Saturday or Sunday or any
-------------
day on which banking institutions in New York, New York are authorized or
obligated by law to close.
"Common Stock" means capital stock of the Company, however designated,
------------
which is not limited as to the amount of dividends, or which is not limited as
to the amount of distributions upon liquidation or dissolution of the Company,
and shall include, without limitation, the Company's presently authorized
10,600,000 shares of Common Stock, par value $.001 per share.
"Demand Registration" means a registration pursuant to Section 3(a).
-------------------
1
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, and the
------------
rules and regulations thereunder as amended from time to time.
"NASD" means National Association of Securities Dealers, Inc.
----
"Person" means an individual, firm, partnership, corporation, trust,
------
incorporated or unincorporated association, joint venture, joint stock company
or a government or agency or political subdivision thereof.
"Piggy-Back Registration" means a registration pursuant to Section
-----------------------
3(e).
"Prospectus" means the prospectus included in any Registration
----------
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by the Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"Registrable Securities" means: (a) all shares of Common Stock owned
----------------------
now or in the future by any Holder; (b) the shares of Common Stock issued or
issuable upon conversion of the Series A Preferred Stock, (c) any shares of
Common Stock issued or issuable with respect to such Common Stock by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or reorganization; provided, however,
that any such share or other security shall be deemed to be a Registrable
Security only if and so long as it is a Transfer Restricted Security.
"Registration Expenses" See Section 6 hereof.
---------------------
"Registration Statement" means any registration statement of the
----------------------
Company which covers Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, and all exhibits
and all material incorporated by reference in such Registration Statement.
"S-3 Registration" means a registration pursuant to Section 3(f).
----------------
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"SEC" means the Securities and Exchange Commission.
---
"Series A Holders" means those holders of the Registrable Securities
-----------------
under this Agreement.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock of the Company, par value $.001 per share, issued by the Company, together
with any securities issued in substitution or exchange therefor.
2
<PAGE>
"Series B Demand Registration" means a "Demand Registration" as
----------------------------
defined in the Series B Registration Rights Agreement.
"Series B Holders" means those holders of the Series B Preferred Stock
----------------
under the Series B Registration Rights Agreement between the Company and the
Purchasers.
"Series B Preferred Stock" means the Series B Convertible Preferred
------------------------
Stock of the Company, par value $.001 per share, issued by the Company, together
with any securities issued in substitution or exchange therefor.
"Series B Registrable Securities" means "Registrable Securities" as
-------------------------------
defined in the Series B Registration Rights Agreement.
"Series B Registration" means a Series B Demand Registration or a
---------------------
Series B S-3 Registration.
"Series B Registration Rights Agreement" shall have the meaning
--------------------------------------
assigned to it in the recitals of this Agreement.
"Series B S-3 Registration" means an "S-3 Registration" as defined in
-------------------------
the Series B Registration Rights Agreement.
"Transfer Restricted Securities" means securities acquired by the
------------------------------
holder thereof other than pursuant to an effective registration under Section 5
of the Securities Act or pursuant to Rule 144; provided that a Registrable
Security that has ceased to be a Transfer Restricted Security cannot thereafter
become a Transfer Restricted Security.
"Underwritten Registration or Underwritten Offering" means a
--------------------------------------------------
registration in which securities of the Company are sold (whether by the Company
or by selling stockholders) to an underwriter for reoffering to the public.
2. Securities Subject to this Agreement.
------------------------------------
(a) Registrable Securities. The securities entitled to the
----------------------
benefits of this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is deemed to
---------------------------------
be a holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected and disregarding the legal
restrictions upon the exercise of such right; provided, however, that a Person
-------- -------
shall not be deemed to be a holder of Registrable Securities who, together with
such Person's affiliates, then holds Registrable Securities constituting less
than one percent (1%) of the then issued and outstanding Common Stock or who may
then sell all Registrable Securities owned by such holder in reliance upon Rule
144 of the Securities Act within six months pursuant to the volume restrictions
under said Rule based upon the average weekly reported trading volume of trading
(currently Rule 144(e)(1)(ii)).
3
<PAGE>
3. Demand Registration, Piggy-Back Registration and S-3
----------------------------------------------------
Registration.
- ------------
(a) Request for Registration by Holders of Registrable
--------------------------------------------------
Securities. Subject to Section 3(h) hereof, at any time after sixty (60) days
- ----------
after the effective date of any registration of any of the Company's securities
(subject to any additional holdback period required by the underwriter in
connection with an underwritten offering), but in no event (i) prior to the
completion of at least one effective Series B Demand Registration or (ii) within
270 days after the effective date of any Series B Registration (or such shorter
period agreed to by the underwriter (but in any event not less than 90 days)),
if the Company receives from the holders of at least 30% of the then outstanding
Registrable Securities a written request that the Company effect any
registration or qualification with respect to Registrable Securities pursuant to
this Section 3(a) (a "Demand Registration") the Company will:
(1) within ten days of receipt of such a request, give
written notice of the proposed registration or qualification to all other
holders of Registrable Securities; and
(2) as soon as practicable, use its best efforts to effect
such registration or qualification (including, without limitation, the execution
in the applicable Registration Statement of an undertaking to file required
post-effective amendments, appropriate qualification under the applicable blue
sky or other state securities laws and appropriate compliance with exemptive
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as are reasonably
necessary to permit or facilitate the sale and distribution of all or such
portion of such holder's or holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other holder or holders joining in such request, or the Company in the case
of securities requested by the Company to be registered (provided, however, the
-------- -------
Company shall be permitted to participate in such registration only to the
extent that all Registrable Securities as are specified by any holder in a
Demand Registration request have been included in such registration), as are
specified in a written notice given to the Company within 20 days after the date
of such written notice from the Company pursuant to Section 3(a)(1); provided,
--------
however that the Company will not be obligated to take any action to effect any
- -------
such registration, qualification or compliance pursuant to this Section 3(a)
after the completion of three Demand Registrations as set forth in Section 3(b).
Subject to the foregoing provisions, the Company will file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, but in any event within one hundred twenty
(120) days, after receipt of the request or requests of the initiating holders,
and shall use its best efforts to cause such Registration Statement and
Prospectus through which such Demand Registration is effected to remain
effective until all Registrable Securities are sold.
Notwithstanding anything to the contrary set forth in this Agreement,
if at any time any request to register securities pursuant to this Section 3(a)
or Section 3(f), such
4
<PAGE>
registration would, in the good faith determination of the Board of Directors,
be substantially detrimental to the Company, then the Company may direct in
writing ("Delay Notice") to the holders of Registrable Securities that such
------------
request of registration be delayed for a period of time not to exceed sixty (60)
days from the date of the request, which right to delay may be exercised not
more than once in any one year period. Upon receipt of a Delay Notice, the
holders of Registrable Securities requesting the Demand Registration or S-3
Registration may, upon written notice to the Company, withdraw such request.
(b) Effective Registration. A registration of Registrable
----------------------
Securities will not count as a Demand Registration until it has become effective
and all Registrable Securities included in such Demand Registration have been
sold pursuant thereto. A Demand Registration under Section 3(a) shall be
effected pursuant to a Registration Statement on Form S-3 at any time that the
Company is eligible to use such form for such purpose.
(c) Underwritten Offering. If the holder or holders of a
---------------------
majority in number of the Registrable Securities to be registered in a Demand
Registration under this Section 3 (or the holder or holders who initiated the
Demand Registration) so elect, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of an Underwritten
Offering. In such event, if the managing underwriter or underwriters of such
offering advise the Company and the holders in writing that in their opinion the
Registrable Securities requested to be included in such offering is sufficiently
large so as to materially and adversely affect the success of the offering, the
Company shall include in such registration the maximum amount of Registrable
Securities which in the opinion of such managing underwriter or underwriters can
be sold without any such material adverse effect.
(d) Selection of Underwriters. In the event any such
-------------------------
registration is in the form of an Underwritten Offering, the investment banker
or bankers and manager or managers that will administer the offering will be
nationally recognized investment banking firm(s) selected by the Company.
(e) Piggy-Back Registration. If the Company determines to file
-----------------------
a Registration Statement under the Securities Act relating to a proposed sale to
the public of shares of its securities (but excluding registrations relating
solely to employees' stock option or purchase plans or relating solely to a
transaction employing Securities and Exchange Commission Form S-4 or Form S-8 or
successor forms thereto), either for its own account or the account of a
security holder or holders, the Company shall:
(1) promptly give to each holder of Registrable Securities
written notice thereof (which will include, to the extent known at the time, a
list of the jurisdictions in which the Company intends to qualify such
securities under the applicable blue sky or other state securities laws, the
proposed offering price or price range, and the plan of distribution);
(2) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the
5
<PAGE>
Registrable Securities specified in a written request or requests, made within
twenty days after such written notice from the Company, by holders of
Registrable Securities; and
(3) use its best efforts to cause the managing underwriter
or underwriters of such proposed Underwritten Offering to permit the Registrable
Securities requested to be included in the registration statement for such
offering to be included on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding the foregoing, if
(i) holders of Series B Registrable Securities shall have requested inclusion in
such offering pursuant to their piggy-back rights and (ii) the managing
underwriter or underwriters of such offering deliver a written opinion to the
Company and the holders of such Registrable Securities that marketing
considerations require a limitation on the number of shares of Common Stock
offered in such offering, such limitation shall be allocated among all holders
of Common Stock (other than such holders, if any, initiating the registration
pursuant to demand registration rights granted by the Company, which holders
shall receive priority with respect to inclusion in such registration in
accordance with such contractual rights) and the holders of Registrable
Securities who requested inclusion in the registration as follows: (i) first,
Series B Registrable Securities shall be included in such registration in a
number equal to the greater of (A) the pro rata portion (in proportion to all
shares of Registrable Securities and other shares of Common Stock requested to
be included in the offering which are subject to such underwriter's limitation)
of Registrable Securities requested to be included in such registration and (B)
seventy-five percent (75%) of the total number of shares to be included in such
registration (other than such holders, if any, initiating the registration
pursuant to demand registration rights granted by the Company) after giving
effect to such underwriter's limitation; and (ii) second, holders of Registrable
Securities and (iii) third, any other holders of securities of the Company who
have requested to be included in such registration statement pursuant to
contractual piggy-back registration rights.
(f) Request for Registration on Form S-3 by Holders of
--------------------------------------------------
Registrable Securities. At any time after the Company becomes eligible to file
- ----------------------
a Registration Statement on Form S-3, if the Company receives from the holders
of at least 20% of the then outstanding Registrable Securities, a written
request specifying that the Company effect any registration or qualification
with respect to the Registrable Securities pursuant to this Section 3(f) (an "S-
3 Registration"), the Company will:
(1) within ten days of receipt of such a request, give
written notice of the proposed registration or qualification to all other
holders of Registrable Securities; and
(2) as soon as practicable, the Company shall use its best
efforts effect such registration or qualification (including, without
limitation, the execution in the applicable Registration Statement of an
undertaking to file required post-effective amendments, appropriate
qualification under the applicable blue sky or other state securities laws and
appropriate compliance with exemptive regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as are reasonably necessary to permit or facilitate the sale and
distribution of all or such portion of such holder's or
6
<PAGE>
holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other holder or holders
joining in such request, or the Company in the case of securities requested by
the Company to be registered (provided, however, the Company shall be permitted
-------- -------
to participate in such registration only to the extent that all Registrable
Securities as are specified by any holder in a S-3 Registration request have
been included in such registration), as are specified in a written notice given
to the Company within 20 days after the date of such written notice from the
Company pursuant to Section 3(a)(1); provided, however that the Company will not
-------- -------
be obligated to take any action to effect any such registration, qualification
or compliance pursuant to this Section 3(f) after the completion of two (2) S-3
Registrations as set forth in Section 3(g).
Subject to the foregoing provisions, the Company will use its best
efforts to file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable, but in any event within 120
days, after receipt of the request or requests of the initiating holders, and
shall use its best efforts to cause such Registration Statement and Prospectus
through which such S-3 Registration is effected to remain effective until all
Registrable Securities are sold.
The Company will not be obligated to file a registration statement
pursuant to this Section 3(f), if the Company, in the good faith determination
of the Board of Directors, such registration would be substantially detrimental
to the Company.
(g) Effective Registration. A registration of Registrable
----------------------
Securities will not count as an S-3 Registration until it has become effective
and all Registrable Securities included in such S-3 Registration have been sold
pursuant thereto.
(h) Coordination with Series B Holders. Notwithstanding anything
----------------------------------
to the contrary set forth herein, at such time as the holders of Registrable
Securities request a Demand Registration or an S-3 Registration hereunder, such
holders or the Company shall deliver to the holders of Series B Preferred Stock
a notice specifying: (i) the fact that such holders have delivered to the
Company a request for a Demand Registration or S-3 Registration, as the case may
be; (ii) reasonable details regarding the expected timing and amount of
securities involved in such registration, including without limitation the
expected filing date and effective date of the Registration Statement relating
to such registration, the number of Registrable Securities (and, if applicable,
other securities) expected to be included in such Registration Statement and the
expected gross proceeds of such offering; and (iii) the rights of the holders of
Series B Registrable Securities to terminate such Demand Registration or S-3
Registration by submitting to the Company a request of the holders of the
requisite number of shares of Series B Registrable Securities (as specified in
the Series B Registration Rights Agreement) for a Series B Demand Registration
(a "Series B Demand Notice") within thirty (30) days after receipt of such
notice. In the event that the holders of Series B Registrable Securities deliver
to the Company a Series B Demand Notice within such 30-day period, the Company
shall thereupon notify the holders of Registrable Securities who initiated the
request for a Demand Registration or S-3 Registration, as the case may be, that
such request is denied due to the receipt of a Series B Demand Notice, and such
request for a Demand Registration or S-3 Registration shall be deemed
7
<PAGE>
withdrawn; provided, however, that the holders of Series B Registrable
Securities may deliver a Series B Demand Notice and cause such a withdrawal of
such a Demand Registration or S-3 Registration no more than two times.
(i) Minimum Requirement for Registration. The Company shall be
------------------------------------
obligated to effect a registration or qualification pursuant to Section 3(a) and
Section 3(f) only if the anticipated gross offering proceeds pursuant to: (1) a
Demand Registration requested pursuant to Section 3(a) hereof equals or exceeds
$10,000,000 and (2) an S-3 Registration requested pursuant to Section 3(f)
hereof equals or exceeds $1,000,000.
4. Hold-Back Agreements.
--------------------
(a) Restrictions on Sale by the Holders of Registrable
--------------------------------------------------
Securities. Each holder of Registrable Securities agrees, if requested in
- ----------
writing by the managing underwriters in an Underwritten Offering, not to effect
any public sale or distribution of securities of the Company of the same class
as the securities included in such Registration Statement, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
Underwritten Registration), during such period subsequent to the filing of the
Registration Statement as required by the Underwriter for each Underwritten
Offering pursuant to such Registration Statement and during such other period
(not less than 90 days) following such effective date as shall be reasonably
agreed upon by the Company and the managing underwriters.
(b) Restrictions on Public Sale by the Company and Others. The
-----------------------------------------------------
Company agrees to use reasonable efforts to cause each holder of its privately
placed debt or equity securities issued by the Company at any time on or after
the date of this Agreement (other than securities issued upon the exercise or
conversion of securities outstanding as of the date hereof) to agree not to
effect any public sale or distribution of any such securities, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
Underwritten Registration, if permitted), during the ninety (90) day period
subsequent to the filing of the Registration Statement for each Underwritten
Offering and during the 180 day period following the effective date of such
Registration Statement, in each case to the extent the managing underwriter
makes a timely written request that specifically identifies such holder(s).
5. Registration Procedures.
-----------------------
In connection with the Company's registration obligations pursuant to
Section 3 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Company will as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission
such amendments and post-effective amendments to any Registration Statement, and
such supplements to the Prospectus as may be required by the rules, regulations
or instructions applicable to the registration form utilized by the Company or
by the Securities Act or otherwise necessary to keep such Registration Statement
effective for the applicable period and cause the Prospectus as so supplemented
to be filed pursuant to Rule 424 under the Securities Act; and
8
<PAGE>
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement during the applicable
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement or supplement to the
Prospectus;
(b) notify the counsel to the selling holders of Registrable
Securities and the managing underwriters, if any, promptly, and (if requested by
any such Person) confirm such advice in writing,
(1) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment, when the same has become effective,
(2) of any request by the Securities and Exchange
Commission for amendments or supplements to the Registration Statement or the
Prospectus or for additional information,
(3) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose,
(4) if at any time the representations and warranties of
the Company made in agreements (including underwriting agreements) to the
holders of Registrable Securities in connection with such registration, cease to
be true and correct, and
(5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose.
(c) use every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(d) if reasonably requested by the managing underwriter or
underwriters or a holder of Registrable Securities being sold in connection with
an Underwritten Offering, immediately incorporate in a Prospectus supplement or
post-effective amendment such necessary information as the managing underwriters
and the holders of a majority of the Registrable Securities being sold
reasonably request to have included therein relating to the plan of distribution
with respect to such Registrable Securities, including, without limitation,
information with respect to the amount of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such underwriters
and with respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or post-
effective amendment as soon as notified of the matters to be incorporated in
such Prospectus supplement or post-effective amendment;
9
<PAGE>
(e) at the request of any selling holder of Registrable
Securities, furnish to such selling holder of Registrable Securities and each
managing underwriter such number of conformed copies of the Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits (including those incorporated by reference) as such holder may
reasonably request;
(f) deliver to each selling holder of Registrable Securities and
the underwriters, if any, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such Persons
may reasonably request; the Company consents to the use of the Prospectus or any
amendment or supplement thereto by each of the selling holders of Registrable
Securities and the underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto;
(g) prior to any public offering of Registrable Securities,
register or qualify or cooperate with the selling holders of Registrable
Securities, the managing underwriters, if any, and their respective counsel in
connection with the registration or qualification of such Registrable Securities
for offer and sale under the securities or blue sky laws of such jurisdictions
as any seller or underwriter reasonably requests in writing and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statement; provided that the Company will not be required to qualify to do
--------
business in any jurisdiction where it is not then so qualified or to take any
action which would subject it to general service of process in any such
jurisdiction where it is not then so subject;
(h) cooperate with the selling holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and, if
not required by applicable law or by contract, not bearing any restrictive
legends; and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters may request at least two
business days prior to any sale of Registrable Securities to the underwriters;
(i) use its best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities;
(j) use its best efforts to cause all Registrable Securities
covered by the Registration Statement to be listed on each securities exchange
on which similar securities issued by the Company are then listed if requested
by the holders of a majority in number of such Registrable Securities or by the
managing underwriters, if any;
(k) not later than the effective date of the applicable
Registration Statement, provide a CUSIP number for all Registrable Securities
and provide the applicable
10
<PAGE>
trustees or transfer agents with printed certificates for the Registrable
Securities which are in a form eligible for deposit with Depository Trust
Company; and
(l) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD).
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such securities as the
Company may from time to time reasonably request in writing. Each holder of
Registrable Securities agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company to the effect that the
Registration Statement, the Prospectus or any document incorporated therein by
reference contains an untrue statement of material fact or omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, such holder will forthwith discontinue disposition of
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended Prospectus addressing the matters giving rise to such
notice, or until it is advised in writing by the Company that the use of the
Prospectus may be resumed.
6. Registration Expenses. To the extent of up to four registrations,
---------------------
all expenses incident to the Company's performance of or compliance with this
Agreement will be paid by the Company, regardless whether the Registration
Statement becomes effective including without limitation:
(1) all registration and filing fees (including, without
limitation, with respect to filings required to be made with the NASD);
(2) fees and expenses of compliance with securities or blue
sky laws (including, without limitation, fees and disbursements of counsel for
the underwriters in connection with blue sky qualifications of the Registrable
Securities and determination of their eligibility for investment under the laws
of such jurisdictions as the managing underwriters may designate);
(3) printing (including, without limitation, expenses of
printing or engraving certificates for the Registrable Securities in a form
eligible for deposit with Depository Trust Company and of printing
prospectuses), messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel for the Company;
(5) fees and disbursements of all independent certified
public accountants of the Company (including, without limitation, the expenses
of any special audit and "cold comfort" letters required by or incident to such
performance);
11
<PAGE>
(6) fees and expenses associated of other Persons retained
by the Company; and
(7) fees and expenses associated with any NASD filing
required to be made in connection with the Registration Statement (all such
expenses being herein called "Registration Expenses").
The Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on each securities exchange on which similar securities issued by
the Company are then listed, rating agency fees and the fees and expenses of any
Person, including special experts, retained by the Company.
7. Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock or, if the
managing underwriter or agent expressly consents to the inclusion in such
underwriting, other securities under the Act, the Company shall not be required
under this Section 7 to include any of a holder's Registrable Securities in such
underwriting unless such holder accepts the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it.
8. Indemnification.
---------------
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless each holder of Registrable Securities, its officers,
directors, employees and Agents and each Person who controls such holder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each such person being sometimes hereinafter referred to as an
"Indemnified Holder") from and against all losses, claims, damages, liabilities
------------------
and expenses (including reasonable costs of investigation and legal expenses)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement or Prospectus or in any
amendment or supplement thereto or in any preliminary Prospectus, or arising out
of or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
allegation thereof based upon information furnished in writing to the Company by
such holder expressly for use therein; provided, however, that the Company shall
-------- -------
not be liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any preliminary
Prospectus if (i) such holder failed to send or deliver a copy of the Prospectus
with or prior to the delivery of written confirmation of the sale of Registrable
Securities and (ii) the Prospectus would have corrected such untrue statement or
omission; and provided, further, that the Company shall not be liable in any
-------- -------
such case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission in the Prospectus, if such untrue
12
<PAGE>
statement or alleged untrue statement, omission or alleged omission is corrected
in an amendment or supplement to the Prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such holder thereafter fails to deliver such Prospectus
as so amended or supplemented prior to or concurrently with the sale of a
Registrable Security to the person asserting such loss, claim, damage, liability
or expense who purchased such Registrable Security which is the subject thereof
from such holder. This indemnity will be in addition to any liability which the
Company may otherwise have.
If any action or proceeding (including any governmental investigation
or inquiry) shall be brought or asserted against an Indemnified Holder in
respect of which indemnity may be sought from the Company, such Indemnified
Holder shall promptly notify the Company in writing, and the Company shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Holder and the payment of all expenses. Such
Indemnified Holder shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be the expense of such Indemnified Holder unless (a) the
Company has agreed to pay such fees and expenses or (b) the Company shall have
failed to assume the defense of such action or proceeding or has failed to
employ counsel reasonably satisfactory to such Indemnified Holder in any such
action or proceeding or (c) if the representation of such Indemnified Holder by
the counsel retained by the Company would be inappropriate due to actual or
potential conflicts of interests between the Indemnified Holder and any other
party represented by such counsel in such proceeding based on written advice of
counsel made available to the Company (in which case, if such Indemnified Holder
notifies the Company in writing that it elects to employ separate counsel at the
expense of the Company, the Company shall not have the right to assume the
defense of such action or proceeding on behalf of such Indemnified Holder, it
being understood, however, that the Company shall not, in connection with any
one such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for such Indemnified Holder
and any other Indemnified Holders, which firm shall be designated in writing by
such Indemnified Holders). The Company shall not be liable for any settlement of
any such action or proceeding effected without its written consent, but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Company agrees to indemnify and
hold harmless such Indemnified Holders from and against any loss or liability by
reason of such settlement or judgment.
(b) Indemnification by Holder of Registrable Securities. Each holder
---------------------------------------------------
of Registrable Securities agrees to indemnify and hold harmless the Company, its
directors and officers and each Person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such holder, but only with respect to information relating to such holder
furnished in writing by such holder expressly for use in any Registration
Statement or Prospectus, or any amendment or supplement thereto, or any
preliminary Prospectus. In case any action or proceeding shall be brought
against the Company or its directors or officers or any
13
<PAGE>
such controlling person, in respect of which indemnity may be sought against a
holder of Registrable Securities, such holder shall have the rights and duties
given the Company and the Company or its directors or officers or such
controlling person shall have the rights and duties given to each holder by
Section 8(a). In no event shall the liability of any selling holder of
Registrable Securities under this Section 8(b) be greater in amount than the
dollar amount of the net proceeds received by such holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as provided
above with respect to information so furnished in writing by such Persons
specifically for inclusion in any Prospectus or Registration Statement or any
amendment or supplement thereto, or any preliminary Prospectus.
(c) Contribution. If the indemnification provided for in this
------------
Section 8 is unavailable to an indemnified party under Section 8(a) or Section
8(b) hereof (other than by reason of exceptions provided in those Sections) in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand, and of the Indemnified Holder, on the other hand,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Indemnified Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Indemnified Holder and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 8(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company and each holder of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 8(c)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section
8(c), an Indemnified Holder shall not be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities sold by such Indemnified Holder or its affiliated Indemnified Holders
and distributed to the public were offered to the public exceeds the amount of
any damages which such Indemnified Holder, or its affiliated Indemnified
Holders, has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent
14
<PAGE>
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
To the extent the terms of this Section 8 are inconsistent with those
set forth in any agreement between the Company and an underwriter, such
underwriter's agreement shall control.
9. Rule 144.
--------
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder and, at all times after the effective
date of the first registration filed by the Company which involves a sale of
securities of the Company to the general public, will take such further action
as any holder of Registrable Securities may reasonably request, all to the
extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time or (b) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such information and requirements.
10. Participation in Underwritten Registrations.
-------------------------------------------
No holder of Registrable Securities (or its successors or assigns) may
participate in any Underwritten Registration hereunder unless such Person (a)
agrees to sell such Person's Registrable Securities on the basis provided in any
underwriting arrangements approved by the underwriters and other Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
11. Miscellaneous.
-------------
(a) Remedies. Each holder of Registrable Securities, in
--------
addition to being entitled to exercise all rights provided herein, and as
provided in the Transaction Agreements, and granted by law, including recovery
of damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or
--------------------------
after the date of this Agreement enter into any agreement, and as of the date of
this Agreement the Company is not a party to any agreement, with respect to its
securities which is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof or impairs the rights granted hereunder. The Company has
15
<PAGE>
not previously entered into any agreement with respect to its securities
granting any registration rights to any Person which has not been terminated on
or prior to the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least 50% of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other holders of Registrable
Securities may be given by the holders of 50% of the Registrable Securities
being sold.
(d) Notices. All notices and other communications provided for
-------
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(1) if to a holder of Registrable Securities, at the most
current address given by such holder to the Company in accordance with the
provisions of this Section 11(d) (with the initial addresses for each person
which the Purchaser comprises as set forth in the Purchase Agreement, and with
copies to be sent as specified in the Purchase Agreement); and
(2) if to the Company, initially at its address set forth
in the Purchase Agreement and thereafter at such other address, notice of which
is given in accordance with the provisions of this Section 11(d), with copies to
be sent as specified in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when received if
deposited in the mail, postage prepaid, if mailed; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation, and without the need for an express
assignment, subsequent holders of Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number
------------
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
16
<PAGE>
(h) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
(i) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties
----------------
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings as to the subject matter, other than those
set forth or referred to herein with respect to the registration rights granted
by the Company with respect to the securities sold pursuant to the Purchase
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COLORADO GREENHOUSE HOLDINGS, INC.
By: /s/ Ed Wetherbee
---------------------------------
Name:
Title: CEO
BRUSH GREENHOUSE PARTNERS
By: /s/ Ed Wetherbee
---------------------------------
Name:
Title: MANAGEMENT COMMITTEE MEMBER
By:_________________________________
Name:
Title:
BRUSH GREENHOUSE PARTNERS II, LLC
By: /s/ Ed Wetherbee
---------------------------------
Name:
Title: MANAGER
18
<PAGE>
SCHEDULE 1
LIST OF HOLDERS OF SERIES A
PREFERRED STOCK OF THE COMPANY
Brush Greenhouse Partners
Brush Greenhouse Partners II, LLC
19
<PAGE>
EXHIBIT 10.38
COLORADO GREENHOUSE HOLDINGS, INC.
SERIES C REGISTRATION RIGHTS AGREEMENT
Dated as of May 8, 1998
<PAGE>
SERIES C REGISTRATION RIGHTS AGREEMENT
--------------------------------------
This Series C Registration Rights Agreement (the "Agreement") is
---------
entered into as of the 8th day of May, 1998 by and among the holders of Series C
Preferred Stock of the Company listed on Schedule 1 attached hereto (the "Series
---------- ------
C Holders") and COLORADO GREENHOUSE HOLDINGS, INC., a Delaware corporation (the
- ---------
"Company").
-------
Recital
-------
As a condition to the closing of the purchase of shares of Series C
Preferred Stock of the Company by the Series C Holders, the Company has agreed
to grant certain registration rights to the Series C Holders as more
particularly described herein.
Agreement
---------
NOW, THEREFORE, in consideration of the foregoing recital and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:
1. Definitions.
-----------
As used in this Agreement, and unless the context requires a different
meaning, the following terms shall have the meanings indicated:
"Agent" means any Person authorized to act and who acts on behalf of
-----
any holder of Registrable Securities with respect to the transactions
contemplated by this Agreement or the Purchase Agreement.
"Business Days" means all days other than Saturday or Sunday or any
-------------
day on which banking institutions in New York, New York are authorized or
obligated by law to close.
"Common Stock" means capital stock of the Company, however designated,
------------
which is not limited as to the amount of dividends, or which is not limited as
to the amount of distributions upon liquidation or dissolution of the Company,
and shall include, without limitation, the Company's presently authorized
12,675,000 shares of Common Stock, par value $.001 per share.
"Exchange Act" means the Securities Exchange Act of 1934, and the
------------
rules and regulations thereunder as amended from time to time.
"NASD" means National Association of Securities Dealers, Inc.
----
"Person" means an individual, firm, partnership, corporation, trust,
------
incorporated or unincorporated association, joint venture, joint stock company
or a government or agency or political subdivision thereof.
"Piggy-Back Registration" means a registration pursuant to Section
-----------------------
3(a).
<PAGE>
"Prospectus" means the prospectus included in any Registration
----------
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by the Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"Registrable Securities" means: (a) all shares of Common Stock owned
----------------------
now or in the future by any Series C Holder; (b) the shares of Common Stock
issued or issuable upon conversion of the Series C Preferred Stock, (c) any
shares of Common Stock issued or issuable with respect to such Common Stock by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or reorganization; provided,
however, that any such share or other security shall be deemed to be a
Registrable Security only if and so long as it is a Transfer Restricted
Security.
"Registration Expenses" See Section 6 hereof.
---------------------
"Registration Statement" means any registration statement of the
----------------------
Company which covers Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, and all exhibits
and all material incorporated by reference in such Registration Statement.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"SEC" means the Securities and Exchange Commission.
---
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock of the Company, par value $.001 per share, issued by the Company, together
with any securities issued in substitution or exchange therefor.
"Series A Registrable Securities" means "Registrable Securities" as
-------------------------------
defined in the Series A Registration Rights Agreement.
"Series A Registration Rights Agreement" means that certain
--------------------------------------
Registration Rights Agreement dated as of January 21, 1997, as amended, between
the Company and the holders of the Series A Preferred Stock.
"Series B Preferred Stock" means the Series B Convertible Preferred
------------------------
Stock of the Company, par value $.001 per share, issued by the Company, together
with any securities issued in substitution or exchange therefor.
"Series B Registrable Securities" means "Registrable Securities" as
-------------------------------
defined in the Series B Registration Rights Agreement.
"Series B Registration Rights Agreement" means that certain
--------------------------------------
Registration Rights Agreement dated as of January 21, 1997, as amended, between
the Company and the holders of the Series B Preferred Stock.
2
<PAGE>
"Series C Preferred Stock" means the Series C Convertible Preferred
------------------------
Stock of the Company, par value $.001 per share, issued by the Company, together
with any securities issued in substitution or exchange therefor.
"Transfer Restricted Securities" means securities acquired by the
------------------------------
holder thereof other than pursuant to an effective registration under Section 5
of the Securities Act or pursuant to Rule 144; provided that a Registrable
Security that has ceased to be a Transfer Restricted Security cannot thereafter
become a Transfer Restricted Security.
"Underwritten Registration or Underwritten Offering" means a
--------------------------------------------------
registration in which securities of the Company are sold (whether by the Company
or by selling stockholders) to an underwriter for reoffering to the public.
2. Securities Subject to this Agreement.
------------------------------------
(a) Registrable Securities. The securities entitled to the
----------------------
benefits of this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is deemed to be
---------------------------------
a holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected and disregarding the legal
restrictions upon the exercise of such right; provided, however, that a Person
-------- -------
shall not be deemed to be a holder of Registrable Securities who, together with
such Person's affiliates, then holds Registrable Securities constituting less
than one percent of the then issued and outstanding Common Stock or who may then
sell all Registrable Securities owned by such holder in reliance upon Rule 144
of the Securities Act within six months pursuant to the volume restrictions
under said Rule based upon the average weekly reported trading volume of trading
(currently Rule 144(e)(1)(ii)).
3. Piggy-Back Registration. Whenever the Company determines to
-----------------------
file a Registration Statement under the Securities Act relating to a proposed
sale to the public of shares of its securities (but excluding registrations
relating solely to employees' stock option or purchase plans or relating solely
to a transaction employing Securities and Exchange Commission Form S-4 or Form
S-8 or successor forms thereto), either for its own account or the account of a
security holder or holders, the Company shall:
(a) promptly give to each holder of Registrable Securities
written notice thereof (which will include, to the extent known at the time, a
list of the jurisdictions in which the Company intends to qualify such
securities under the applicable blue sky or other state securities laws, the
proposed offering price or price range, and the plan of distribution);
(b) subject to Section 3(c) below, include in such registration
(and any related qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within twenty days after such written notice
from the Company, by holders of Registrable Securities; and
3
<PAGE>
(c) use its best efforts to cause the managing underwriter or
underwriters of such proposed Underwritten Offering to permit the Registrable
Securities requested to be included in the Registration Statement for such
offering to be included on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding the foregoing, if
(i) holders of Series B Registrable Securities shall have requested inclusion in
such offering pursuant to their piggy-back rights as set forth in the Series B
Registration Rights Agreement and (ii) the managing underwriter or underwriters
of such offering deliver a written opinion to the Company and the holders of
such Registrable Securities that marketing considerations require a limitation
on the number of shares of Common Stock offered in such offering, such
limitation shall be allocated among all holders of Common Stock (other than such
holders, if any, initiating the registration pursuant to demand registration
rights granted by the Company, which holders shall receive priority with respect
to inclusion in such registration in accordance with such contractual rights)
and the holders of Registrable Securities who requested inclusion in the
registration as follows: (x) first, Series B Registrable Securities shall be
included in such registration in a number equal to the greater of: (A) the pro
rata portion (in proportion to all shares of Registrable Securities and other
shares of Common Stock requested to be included in the offering which are
subject to such underwriter's limitation) of Series B Registrable Securities
requested to be included in such registration, or (B) up to 75% of the total
number of shares to be included in such registration (other than the shares of
such holders, if any, initiating the registration pursuant to demand
registration rights granted by the Company) after giving effect to such
underwriter's limitation; (y) second, holders of Registrable Securities, pro
rata with the holders of Series A Registrable Securities, and (z) third, any
other holders of securities of the Company who have requested to be included in
such registration statement pursuant to contractual piggy-back registration
rights.
4. Hold-Back Agreements.
--------------------
(a) Restrictions on Sale by the Holders of Registrable
--------------------------------------------------
Securities. Each holder of Registrable Securities agrees, if requested in
- ---------
writing by the managing underwriters in an Underwritten Offering, not to effect
any public sale or distribution of securities of the Company of the same class
as the securities included in such Registration Statement, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
Underwritten Registration), during such period subsequent to the filing of the
Registration Statement as required by the Underwriter for each Underwritten
Offering pursuant to such Registration Statement and during such other period
(not less than 90 days) following such effective date as shall be reasonably
agreed upon by the Company and the managing underwriters.
(b) Restrictions on Public Sale by the Company and Others. The
-----------------------------------------------------
Company agrees to use reasonable efforts to cause each holder of its privately
placed debt or equity securities issued by the Company at any time on or after
the date of this Agreement (other than securities issued upon the exercise or
conversion of securities outstanding as of the date hereof) to agree not to
effect any public sale or distribution of any such securities, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
Underwritten Registration, if permitted), during the ninety day period
subsequent to the filing of the Registration Statement for each Underwritten
Offering and during the 180 day period following the effective date of such
Registration Statement, in each case to the extent the managing underwriter
makes a timely written request that specifically identifies such holder(s).
4
<PAGE>
5. Registration Procedures.
-----------------------
In connection with any registration by the Company's pursuant to which
the provisions of Section 3 hereof apply, the Company will use its best efforts
to effect such registration to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company will as expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission such amendments and post-effective amendments to any Registration
Statement, and such supplements to the Prospectus as may be required by the
rules, regulations or instructions applicable to the registration form utilized
by the Company or by the Securities Act or otherwise necessary to keep such
Registration Statement effective for the applicable period and cause the
Prospectus as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the sellers thereof set forth in such Registration Statement
or supplement to the Prospectus;
(b) notify the counsel to the selling holders of Registrable
Securities and the managing underwriters, if any, promptly, and (if requested by
any such Person) confirm such advice in writing,
(1) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment, when the same has become effective,
(2) of any request by the Securities and Exchange
Commission for amendments or supplements to the Registration Statement or the
Prospectus or for additional information,
(3) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose,
(4) if at any time the representations and warranties of
the Company made in agreements (including underwriting agreements) to the
holders of Registrable Securities in connection with such registration, cease to
be true and correct, and
(5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose.
(c) use every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(d) at the request of any selling holder of Registrable
Securities, furnish to such selling holder of Registrable Securities and each
managing underwriter such number of
5
<PAGE>
conformed copies of the Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference) as such holder may reasonably request;
(e) deliver to each selling holder of Registrable Securities
and the underwriters, if any, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such Persons
may reasonably request; the Company consents to the use of the Prospectus or any
amendment or supplement thereto by each of the selling holders of Registrable
Securities and the underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto;
(f) use its best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities; and
(g) use its best efforts to cause all Registrable Securities
covered by the Registration Statement to be listed on each securities exchange
on which similar securities issued by the Company are then listed if requested
by the holders of a majority in number of such Registrable Securities or by the
managing underwriters, if any;
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such securities as the
Company may from time to time reasonably request in writing. Each holder of
Registrable Securities agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company to the effect that the
Registration Statement, the Prospectus or any document incorporated therein by
reference contains an untrue statement of material fact or omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, such holder will forthwith discontinue disposition of
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended Prospectus addressing the matters giving rise to such
notice, or until it is advised in writing by the Company that the use of the
Prospectus may be resumed.
6. Registration Expenses. All expenses incident to the Company's
---------------------
performance of or compliance with this Agreement will be paid by the Company,
regardless whether the Registration Statement becomes effective including,
without limitation:
(1) all registration and filing fees (including, without
limitation, with respect to filings required to be made with the NASD);
(2) fees and expenses of compliance with securities or blue
sky laws (including, without limitation, fees and disbursements of counsel for
the underwriters in connection with blue sky qualifications of the Registrable
Securities and determination of their eligibility for investment under the laws
of such jurisdictions as the managing underwriters may designate);
6
<PAGE>
(3) printing (including, without limitation, expenses of
printing or engraving certificates for the Registrable Securities in a form
eligible for deposit with Depository Trust Company and of printing
prospectuses), messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel for the Company;
(5) fees and disbursements of all independent certified
public accountants of the Company (including, without limitation, the expenses
of any special audit and "cold comfort" letters required by or incident to such
performance);
(6) fees and expenses associated of other Persons retained
by the Company; and
(7) fees and expenses associated with any NASD filing
required to be made in connection with the Registration Statement (all such
expenses being herein called "Registration Expenses").
The Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on each securities exchange on which similar securities issued by
the Company are then listed, rating agency fees and the fees and expenses of any
Person, including special experts, retained by the Company.
7. Indemnification.
---------------
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless each holder of Registrable Securities, its officers,
directors, employees and Agents and each Person who controls such holder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each such person being sometimes hereinafter referred to as an
"Indemnified Holder") from and against all losses, claims, damages, liabilities
- -------------------
and expenses (including reasonable costs of investigation and legal expenses)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement or Prospectus or in any
amendment or supplement thereto or in any preliminary Prospectus, or arising out
of or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
allegation thereof based upon information furnished in writing to the Company by
such holder expressly for use therein; provided, however, that the Company shall
-------- -------
not be liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any preliminary
Prospectus if (i) such holder failed to send or deliver a copy of the Prospectus
with or prior to the delivery of written confirmation of the sale of Registrable
Securities and (ii) the Prospectus would have corrected such untrue statement or
omission; and provided, further, that the Company shall not be liable in any
-------- -------
such case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue
7
<PAGE>
statement or alleged untrue statement or omission or alleged omission in the
Prospectus, if such untrue statement or alleged untrue statement, omission or
alleged omission is corrected in an amendment or supplement to the Prospectus
and if, having previously been furnished by or on behalf of the Company with
copies of the Prospectus as so amended or supplemented, such holder thereafter
fails to deliver such Prospectus as so amended or supplemented prior to or
concurrently with the sale of a Registrable Security to the person asserting
such loss, claim, damage, liability or expense who purchased such Registrable
Security which is the subject thereof from such holder. This indemnity will be
in addition to any liability which the Company may otherwise have.
If any action or proceeding (including any governmental investigation
or inquiry) shall be brought or asserted against an Indemnified Holder in
respect of which indemnity may be sought from the Company, such Indemnified
Holder shall promptly notify the Company in writing, and the Company shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Holder and the payment of all expenses. Such
Indemnified Holder shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be the expense of such Indemnified Holder unless (a) the
Company has agreed to pay such fees and expenses or (b) the Company shall have
failed to assume the defense of such action or proceeding or has failed to
employ counsel reasonably satisfactory to such Indemnified Holder in any such
action or proceeding or (c) if the representation of such Indemnified Holder by
the counsel retained by the Company would be inappropriate due to actual or
potential conflicts of interests between the Indemnified Holder and any other
party represented by such counsel in such proceeding based on written advice of
counsel made available to the Company (in which case, if such Indemnified Holder
notifies the Company in writing that it elects to employ separate counsel at the
expense of the Company, the Company shall not have the right to assume the
defense of such action or proceeding on behalf of such Indemnified Holder, it
being understood, however, that the Company shall not, in connection with any
one such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for such Indemnified Holder
and any other Indemnified Holders, which firm shall be designated in writing by
such Indemnified Holders). The Company shall not be liable for any settlement
of any such action or proceeding effected without its written consent, but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Company agrees to indemnify and
hold harmless such Indemnified Holders from and against any loss or liability by
reason of such settlement or judgment.
(b) Indemnification by Holder of Registrable Securities. Each
---------------------------------------------------
holder of Registrable Securities agrees to indemnify and hold harmless the
Company, its directors and officers and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to such holder, but only with respect to information relating to such
holder furnished in writing by such holder expressly for use in any Registration
Statement or Prospectus, or any amendment or supplement thereto, or any
preliminary Prospectus. In case any action or proceeding shall be brought
against the Company or its directors or officers or any such controlling person,
in respect of which indemnity may be sought against a holder of Registrable
Securities, such holder
8
<PAGE>
shall have the rights and duties given the Company and the Company or its
directors or officers or such controlling person shall have the rights and
duties given to each holder by Section 7(a). In no event shall the liability of
any selling holder of Registrable Securities under this Section 7(b) be greater
in amount than the dollar amount of the net proceeds received by such holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as provided
above with respect to information so furnished in writing by such Persons
specifically for inclusion in any Prospectus or Registration Statement or any
amendment or supplement thereto, or any preliminary Prospectus.
(c) Contribution. If the indemnification provided for in this
------------
Section 7 is unavailable to an indemnified party under Section 7(a) or Section
7(b) hereof (other than by reason of exceptions provided in those Sections) in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand, and of the Indemnified Holder, on the other hand,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Indemnified Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Indemnified Holder and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 7(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company and each holder of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 7(c)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section
7(c), an Indemnified Holder shall not be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities sold by such Indemnified Holder or its affiliated Indemnified Holders
and distributed to the public were offered to the public exceeds the amount of
any damages which such Indemnified Holder, or its affiliated Indemnified
Holders, has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
To the extent the terms of this Section 7 are inconsistent with those
set forth in any agreement between the Company and an underwriter, such
underwriter's agreement shall control.
9
<PAGE>
8. Rule 144.
--------
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder and, at all times after the effective
date of the first registration filed by the Company which involves a sale of
securities of the Company to the general public, will take such further action
as any holder of Registrable Securities may reasonably request, all to the
extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time or (b) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such information and requirements.
9. Participation in Underwritten Registrations.
-------------------------------------------
No holder of Registrable Securities (or its successors or assigns) may
participate in any Underwritten Registration hereunder unless such Person (a)
agrees to sell such Person's Registrable Securities on the basis provided in any
underwriting arrangements approved by the underwriters and other Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
10. Miscellaneous.
-------------
(a) Remedies. Each holder of Registrable Securities, in
--------
addition to being entitled to exercise all rights provided herein and granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Agreement and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or
--------------------------
after the date of this Agreement enter into any agreement, and as of the date of
this Agreement the Company is not a party to any agreement, with respect to its
securities which is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof or impairs the rights granted hereunder.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least 50% of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other holders of Registrable
Securities may be given by the holders of 50% of the
10
<PAGE>
Registrable Securities being sold.
(d) Notices. All notices and other communications provided for
-------
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(1) if to a holder of Registrable Securities, at the most
current address given by such holder to the Company in accordance with the
provisions of this Section 10(d); and
(2) if to the Company, initially at the address of its
principal administrative offices, notice of which is given in accordance with
the provisions of this Section 10(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when received if
deposited in the mail, postage prepaid, if mailed; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation, and without the need for an express
assignment, subsequent holders of Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number
------------
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
(i) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties
----------------
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings as to the subject matter, other than those
set forth or referred to herein with respect to the registration rights granted
by the Company with respect to the securities sold pursuant to the Purchase
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE COMPANY:
COLORADO GREENHOUSE HOLDINGS, INC.
By: _________________________________________
James R. Rinella, Chief Executive Officer
SERIES C HOLDER:
_____________________________________________
Print Name: _______________________________
12
<PAGE>
SCHEDULE 1
LIST OF SERIES C PREFERRED STOCK HOLDERS
BCI Growth IV, L.P.
Ronald D. Bloomer
Julie A. Boston
Barbara A. Brenton
Thomas P. Brock
CVM Management, Inc
C.A. Carroll
Cartterton - CGH Partners, LLC
Catterton-Simon Partners III, L.P.
Robert C. Clark, Inc.
Robert C. Clark
Elizabeth Coleman
William E. Coleman
M.E.C. Dean
Louis J. DellaCava
Joyce A. Edwards
Paul F. Glenn Revokable Trust
June or Theodore H. Goldberg as Joint Tenants
H&Q Colorado Greenhouse Investors, L.P.
Michael C. Hinton
Holbrook & Company
Holbrook Partners
George W. Holbrook, Jr.
Charles A. Hurth, Jr.
A. Kit Jackson
Harold Kirk or Glen Rose Jackson as Joint Tenants
Jana Jacobsen or John Frenz as Joint Tenants
Marian Jacobson
Eric Jacobson
Linda L. Johnson and Clayton N. Johnson as Joint Tenants
T. Kim Kenney or Brian J. Kenney as Tenants in Common
Marian H. Kent
Bruce G. Klaas
Kyle Lefkoff
James R. McGoogan
J. Allan Mactier
Robert Matthews
R.C. Mercure, Jr.
The Mitchell-Hunt Trust
Edwin H. Morgens
Nicholas G. Muller, Inc.
James R. Rinella
Greg H. Schlender
Schlender Family Limited Partnership, LLP
Gregory L. Twombly, Inc.
Vernon J. Twombly, Inc.
Boyd R. West and Eva J. West as Tenants in Common
Edward J. Wetherbee
13
<PAGE>
EXHIBIT 10.39
COLORADO GREENHOUSE, INC.
1996 STOCK OPTION PLAN
EFFECTIVE NOVEMBER 19, 1996
[Amended January 21, 1997]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - INTRODUCTION............................................... 1
1.1 Establishment................................................ 1
1.2 Purposes..................................................... 1
1.3 Effective Date............................................... 1
ARTICLE 2 - DEFINITIONS................................................ 1
2.1 Affiliated Corporation....................................... 1
2.2 Board........................................................ 1
2.3 Code......................................................... 2
2.4 Committee.................................................... 2
2.5 Disabled or Disability....................................... 2
2.6 Eligible Consultants......................................... 2
2.7 Eligible Employees........................................... 2
2.8 Fair Market Value............................................ 2
2.9 Incentive Stock Option....................................... 3
2.10 Non-Qualified Option......................................... 3
2.11 Option....................................................... 3
2.12 Option Certificate........................................... 3
2.13 Option Holder................................................ 3
2.14 Option Price................................................. 3
2.15 Share........................................................ 3
2.16 Stock........................................................ 3
ARTICLE 3 - PLAN ADMINISTRATION........................................ 3
ARTICLE 4 - STOCK SUBJECT TO THE PLAN.................................. 4
4.1 Number of Shares............................................. 4
4.2 Adjustments for Stock Split, Stock Dividend, Etc............. 4
4.3 Adjustments for Certain Distributions of Property............ 4
4.4 Distributions of Capital Stock and Indebtedness.............. 5
4.5 No Rights as Stockholder..................................... 5
4.6 Fractional Shares............................................ 5
4.7 Determination by the Committee, Etc.......................... 5
ARTICLE 5 - PARTICIPATION.............................................. 5
ARTICLE 6 - STOCK OPTIONS.............................................. 6
6.1 Grant of Options to Eligible Employees and Eligible
Consultants................................................. 6
6.2 Option Certificates.......................................... 6
6.3 Certain Option Terms......................................... 6
6.4 Restrictions on Incentive Stock Options...................... 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 7 - CORPORATE REORGANIZATION................................... 10
7.1 Reorganization............................................... 10
7.2 Required Notice.............................................. 10
7.3 Acceleration of Exercisability............................... 10
ARTICLE 8 - EMPLOYMENT; TRANSFERABILITY................................ 11
8.1 Employment................................................... 11
8.2 Other Employee Benefits...................................... 11
8.3 Transferability.............................................. 11
ARTICLE 9 - SECURITIES LAW RESTRICTIONS................................ 11
ARTICLE 10 - WITHHOLDING............................................... 12
ARTICLE 11 - MISCELLANEOUS............................................. 12
11.1 Expiration................................................... 12
11.2 Amendments, Etc.............................................. 12
11.3 Treatment of Proceeds........................................ 12
11.4 Section Headings............................................. 12
11.5 Severability................................................. 12
11.6 Notices...................................................... 12
11.7 Gender and Number............................................ 13
</TABLE>
ii
<PAGE>
COLORADO GREENHOUSE, INC.
1996 STOCK OPTION PLAN
ARTICLE 1
INTRODUCTION
1.1 Establishment. Colorado Greenhouse, Inc., a Delaware corporation
-------------
(hereinafter referred to, together with its Affiliated Corporations (as defined
in subsection 2.1) as the "Company," except where the context otherwise
requires), hereby establishes the Colorado Greenhouse, Inc. 1996 Stock Option
Plan (the "Plan") for certain employees of the Company and certain consultants
to the Company.
1.2 Purposes. The purposes of the Plan are to provide those who are
--------
selected for participation in the Plan with added incentive to continue in the
long-term service of the Company and to create in such persons a more direct
interest in the future success of the operations of the Company by relating
incentive compensation to increases in stockholder value, so that the income of
those participating in the Plan is more closely aligned with the income of the
Company's stockholders. The Plan is also designed to provide a financial
incentive that will help the Company attract, retain and motivate the most
qualified employees and consultants.
1.3 Effective Date. The effective date of the Plan shall be November
--------------
___, 1996 (the "Effective Date"), subject to approval by the affirmative votes
of the holders of a majority of the shares of the Company pursuant to applicable
Delaware law within one year following the Effective Date. If the stockholders
of the Company do not approve the Plan as specified above, Options granted under
the Plan shall be deemed to be rescinded without any further action by the Board
or the Company, and the Plan shall automatically terminate.
ARTICLE 2
DEFINITIONS
The following terms shall have the meanings set forth below:
2.1 "Affiliated Corporation" means any corporation or other
entity (including but not limited to a partnership) that is affiliated with
Colorado Greenhouse, Inc. through stock ownership or otherwise and is treated as
a common employer under the provisions of Sections 414(b) and (c) of the Code,
and, for purposes of Incentive Stock Options granted pursuant to the Plan, means
any parent or subsidiary of the Company as defined in Section 424 of the Code.
2.2 "Board" means the Board of Directors of the Company.
1
<PAGE>
2.3 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.4 "Committee" means the committee appointed pursuant to
Section 3.1. If the Board does not appoint a separate Committee, the Board shall
serve as the Committee.
2.5 "Disabled" or " Disability" shall have the meaning given to
such terms in Section 22(e)(3) of the Code.
2.6 "Eligible Consultants" means those consultants and other
individuals who provide services to the Company and whose judgment, initiative
and effort are important to the Company for the management and growth of its
business. For purposes of the Plan, Eligible Consultants include only those
individuals who do not receive wages from the Company subject to the withholding
of federal income tax under Section 3401 of the Code.
2.7 "Eligible Employees" means those employees (including,
without limitation, officers and directors who are also employees) of the
Company, whose judgment, initiative and efforts are important to the Company for
the management and growth of its business. For purposes of the Plan, an employee
is an individual whose wages from the Company are subject to the withholding of
federal income tax under Section 3401 of the Code.
2.8 "Fair Market Value" of a Share of Stock shall be determined
as follows:
(a) If the Company's Stock is not publicly traded, the Fair
Market Value of a Share of Stock shall be such value as is determined
by the Board of Directors of the Company in good faith in its
reasonable discretion; or
(b) If the Company sells shares of Stock to the public in
an initial public offering and the Company becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as
amended (a "Public Company"), the "Fair Market Value" of a Share of
Stock shall be based upon the last reported sale price of the Stock on
the NASDAQ National Market System on the day the determination is to
be made, or if no sale took place on such day, the average of the
closing bid and asked prices of the Stock on the NASDAQ National
Market System on such day, or if the market is closed on such day, the
last day prior to the date of determination on which the market was
open for the transaction of business, as reported by NASDAQ. If,
however, the Stock should be listed or admitted for trading on a
national securities exchange, the Fair Market Value of a share of the
Stock shall be the last sales price, or if no sales took place, the
average of the closing bid and asked prices on the day the
determination is to be made, or if the market is closed on such day,
the last day prior to the date of determination on which the market
was open for the transaction of business, as reported in the principal
consolidated transaction reporting system for the
2
<PAGE>
principal national securities exchange on which the Stock is listed or
admitted for trading.
(2.9) "Incentive Stock Option" means any Option designated as
such and granted in accordance with the requirements of Section 422 of the Code.
(2.10) "Non-Qualified Option" means any Option other than an
Incentive Stock Option.
(2.11) "Option" means a right granted under the Plan to purchase
Stock at a stated price for a specified period of time.
(2.12) "Option Certificate" shall have the meaning given to
such term in Section 6.2 hereof.
(2.13) "Option Holder" means an Eligible Employee or Eligible
Consultant designated by the Committee from time to time during the term of the
Plan to receive one or more Options under the Plan.
(2.14) "Option Price" means the price at which shares of Stock
subject to an Option may be purchased, determined in accordance with subsection
6.3(b).
(2.15) "Share" means a share of Stock.
(2.16) "Stock" means the Common Stock, no par value, of the
Company.
ARTICLE 3
PLAN ADMINISTRATION
The Committee shall be responsible for administration of the Plan. The
Committee shall consist of members of the Board and/or officers of the Company
who are empowered hereunder to take actions in the administration of the Plan.
Members of the Committee shall be appointed from time to time by the Board,
shall serve at the pleasure of the Board and may resign at any time upon written
notice to the Board. Unless the Board designates specific members of the
Committee, the entire Board shall serve as the Committee. From and after the
time that the Company becomes a Public Company, the Committee shall be so
constituted that it satisfies the requirement of "disinterested administration"
imposed by Rule 16b-3 promulgated by the Securities Exchange Commission under
the Securities Exchange Act of 1934, as such rule may be amended from time to
time, and each successor applicable rule thereunder. The Committee shall
determine the form or forms of the Option Certificates and other agreements with
Option Holders which shall evidence the particular provisions, terms,
conditions, rights and duties of the Company and the Option Holders with respect
to Options granted pursuant to the Plan, which provisions need not be identical
except as may be provided
3
<PAGE>
herein. The Committee may from time to time adopt such rules and regulations for
carrying out the purposes of the Plan as it may deem proper and in the best
interests of the Company. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any agreement entered
into hereunder in the manner and to the extent it shall deem expedient and it
shall be the sole and final judge of such expediency. No member of the Committee
shall be liable for any action or determination made in good faith. The
determinations, interpretations and other actions of the Committee pursuant to
the provisions of the Plan shall be binding and conclusive for all purposes on
all persons.
ARTICLE 4
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. The total number of Shares as to which Options
----------------
may be granted pursuant to the Plan shall be 1,580,135 in the aggregate. Such
number shall be adjusted in accordance with the provisions of Section 4.2.
Shares issued upon the exercise of Options shall be applied to reduce the
maximum number of Shares remaining available for use under the Plan. Shares
underlying expired or terminated and unexercised Options are available for grant
of Options under the Plan. The Company shall at all times during the term of
the Plan and while any Options are outstanding retain as authorized and unissued
Stock, or as treasury Stock, at least the number of Shares from time to time
required under the provisions of the Plan, or otherwise assure itself of its
ability to perform its obligations hereunder.
4.2 Adjustments for Stock Split, Stock Dividend, Etc. If the Company
-------------------------------------------------
shall at any time increase or decrease the number of its outstanding Shares by
means of payment of a stock dividend or any other distribution upon such Shares
payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, or change
in any way the rights and privileges of such Shares, then the numbers, rights
and privileges of the following shall be increased, decreased or changed in like
manner as if the corresponding Shares had been issued and outstanding, fully
paid and nonassessable at the time of such occurrence: (a) the Shares as to
which Options may be granted under the Plan; and (b) the Shares then subject to
each outstanding Option. Upon any occurrence described in this Section 4.2, the
total Option Price under each then outstanding Option shall remain unchanged but
shall be apportioned ratably over the increased or decreased number of Shares
subject to the Option.
4.3 Adjustments for Certain Distributions of Property. If the
-------------------------------------------------
Company shall at any time distribute with respect to its Stock assets or
securities of other persons (excluding cash dividends or distributions payable
out of capital surplus and dividends or other distributions referred to in
Section 4.2 or 4.4), the Option Price of outstanding Options shall be adjusted
to reflect the fair market value of the assets or securities distributed, the
Company shall provide for the delivery upon exercise of such Options of cash in
an amount equal to the fair market value of the assets or securities distributed
or a combination of such actions shall be taken, all as
4
<PAGE>
determined by the Committee in its discretion. Fair market value of the assets
or securities distributed for this purpose shall be as determined by the
Committee.
4.4 Distributions of Capital Stock and Indebtedness. If the Company
-----------------------------------------------
shall at any time distribute with respect to its Stock shares of its capital
stock (other than Stock) or evidences of indebtedness, then a proportionate part
of such capital stock and evidences of indebtedness shall be set aside for each
outstanding Option and, upon the exercise of such Option, delivered to the
Option Holder.
4.5 No Rights as Stockholder. An Option Holder shall have none of
------------------------
the rights of a stockholder with respect to the Shares subject to an Option
until such Shares are transferred to the Option Holder upon the exercise of such
Option. Except as provided in this Article 4, no adjustment shall be made for
dividends, rights or other property distributed to stockholders (whether
ordinary or extraordinary) for which the record date is prior to the date such
Shares are so transferred.
4.6 Fractional Shares. No adjustment or substitution provided for in
-----------------
this Article 4 shall require the Company to issue a fractional share. The total
substitution or adjustment with respect to each Option shall be limited by
deleting any fractional share.
4.7 Determination by the Committee, Etc. Adjustments under this
------------------------------------
Article 4 shall be made by the Committee, whose determinations with regard
thereto shall be final and binding.
ARTICLE 5
PARTICIPATION
In accordance with the provisions of the Plan, the Committee shall, in
its sole discretion, select Option Holders from among Eligible Employees and
Eligible Consultants to whom Options will be granted and shall specify the
number of Shares subject to each Option and such other terms and conditions of
each Option as the Committee may deem necessary or desirable and consistent with
the terms of the Plan. Eligible Employees shall be selected from the employees
of the Company who are performing services in the management, operation and
growth of the Company, and contribute, or are expected to contribute, to the
achievement of long-term corporate objectives. Eligible Consultants shall be
selected from the consultants and other individuals who provide services to the
Company with respect to the operation and growth of the Company and who
contribute, or are expected to contribute, to the achievement of long-term
corporate objectives. Eligible Employees and Eligible Consultants may be
granted from time-to-time one or more Options. The grant of each such Option
shall be separately approved by the Committee, and receipt of one such Option
shall not result in automatic receipt of any other Option. Upon determination
by the Committee that an Option is to be granted to an Eligible Employee or
Eligible Consultant, written notice shall be given to such person, specifying
the terms, conditions, rights and duties related thereto.
5
<PAGE>
ARTICLE 6
STOCK OPTIONS
6.1 Grant of Options to Eligible Employees and Eligible Consultants.
---------------------------------------------------------------
Coincident with or following designation for participation in the Plan, Eligible
Employees, Eligible Consultants and members of the Board of Directors may be
granted one or more Options. The Committee in its sole discretion shall
designate whether an Option is to be considered an Incentive Stock Option or a
Non-Qualified Option. Incentive Stock Options may be granted only to Eligible
Employees. The Committee may grant both an Incentive Stock Option and a Non-
Qualified Option to an Eligible Employee at the same time or at different times.
Incentive Stock Options and Non-Qualified Options, whether granted at the same
or different times, shall be deemed to have been awarded in separate grants and
shall be clearly identified, and in no event shall the exercise of one Option
affect the right to exercise any other Option or affect the number of Shares for
which any other Option may be exercised. An Option shall be considered as
having been granted on the date specified in the grant resolution of the
Committee. Notwithstanding anything to the contrary contained in this Plan, the
maximum number of Shares that may be granted under this Plan to any one
individual shall not exceed 450,000 shares.
6.2 Option Certificates. Each Option granted under the Plan shall be
-------------------
evidenced by a written stock option certificate (an "Option Certificate") issued
in the name of the Option Holder and in such form as may be approved by the
Committee. The Option Certificate shall incorporate and conform to the terms
and conditions set forth herein, as well as such other terms and conditions, not
inconsistent herewith, as the Committee may consider appropriate in each case.
6.3 Certain Option Terms. Options granted pursuant to the Plan shall
--------------------
have terms and conditions consistent with the following in addition to the terms
and conditions set forth elsewhere herein:
(a) Number of Shares. Each Option shall relate to a specified
number of Shares determined by the Committee.
(b) Price. Each Option shall have an Option Price that is
determined by the Committee. Incentive Stock Options shall have an Option Price
that is equal to or greater than the Fair Market Value of the Stock on the date
the Option is granted.
(c) Duration and Exercise of Options. Each Option shall relate
to a specified period of time, as determined by the Committee, within which the
Option may be exercised by the Option Holder (the "Option Period"). The Option
Period must end, in all cases, not more than ten years from the date the Option
is granted. Each Option shall become exercisable (vest) over such period of
time, if any, as is determined by the Committee.
6
<PAGE>
(d) Termination of Employment or Service, Death, Disability,
Etc. The Committee may specify the period during which an Option may be
exercised following termination of the employment of an Eligible Employee or
termination of the relationship with an Eligible Consultant. The effect of this
subsection 6.3(d) shall be limited to determining the consequences of a
termination and nothing in this subsection 6.3(d) shall restrict or otherwise
interfere with the Company's discretion with respect to the termination of any
person's employment or other relationship. If the Committee does not so specify,
the following shall apply:
(i) If the employment or consulting relationship of an
Option Holder by or with the Company terminates for any reason other
than death or Disability within six months after the date the Option
is granted or if the employment or consulting relationship of the
Option Holder by or with the Company is terminated within the Option
Period for cause, as determined by the Company, the Option shall
thereafter be void for all purposes. As used in this subsection
6.3(d), "cause" shall mean a gross violation, as determined by the
Company, of the Company's established policies and procedures.
(ii) If the employment or consulting relationship of the
Option Holder terminates because the Option Holder becomes Disabled
within the Option Period, the Option may be exercised by the Option
Holder (or, in the case of his or her death after becoming Disabled,
by those entitled to do so under his or her will or by the laws of
descent and distribution) within one year following such termination
(if otherwise within the Option Period), but not thereafter. In any
such case, the Option may be exercised only as to the Shares as to
which the Option had become vested and exercisable on or before the
date of termination because of Disability.
(iii) If the Option Holder dies within the Option Period,
while employed by the Company, while a consultant to the Company or
within the three-month period referred to in (iv) below, the Option
may be exercised by those entitled to do so under his or her will or
by the laws of descent and distribution within one year following his
or her death (if otherwise within the Option Period), but not
thereafter. In any such case the Option may be exercised only as to
the Shares as to which the Option had become vested and exercisable on
or before the date of the Option Holder's death.
(iv) If the employment or consulting relationship of the
Option Holder by or with the Company terminates within the Option
Period for any reason other than for cause, Disability or death, and
such termination occurs more than six months after the Option is
granted, the Option may be exercised by the Option Holder within three
months following the date of such termination (if otherwise within the
Option Period), but not thereafter. In any such case, the Option may
be exercised only as to the Shares as to which the Option had become
vested and exercisable on or before the date of termination.
7
<PAGE>
(v) In all of the foregoing cases, the Option may only be
exercised with respect to Shares as to which the Option had become
vested on or before the date of termination of employment.
(e) Consideration for Grant of Option. The Committee may require
each Eligible Employee who is granted an Option to agree to remain in the
employment of the Company, at the pleasure of the Company, for a continuous
period of time after the date an Option is granted, at the salary rate or other
compensation in effect on the date of such agreement or at such changed rate as
may be fixed, from time to time, by the Company. Nothing in this paragraph shall
offset or impair the Company's right to terminate the employment of any
employee. The Committee may require each Eligible Consultant who is granted an
Option to agree to comply with all of the terms and conditions or specified
terms and conditions of the agreement between such Eligible Consultant and the
Company. If an Option Holder violates any such agreement, the Company may, in
its sole discretion, rescind the transfer of any Shares to the Option Holder
pursuant to the exercise of any portion of the Option. Upon notice of any such
rescission, the Option Holder will deliver promptly to the Company certificates
representing the Shares, duly endorsed for transfer to the Company. All Shares
issued pursuant to the Plan shall be subject to the terms and conditions,
including the Company's right to purchase the Shares in certain circumstances,
set forth in the Company's shareholder agreement (the "Shareholder Agreement").
The Shareholder Agreement shall be executed by the Company and each Eligible
Employee or Eligible Consultant prior to the issuance of any Shares pursuant to
the exercise of any portion of the Option.
(f) Exercise, Payments, Etc.
(i) Manner of Exercise. The method for exercising each
Option granted hereunder shall be by delivery to the Company of
written notice specifying the number of Shares with respect to which
such Option is exercised. If the Shares of Stock covered by this
Option are not issued in a registered transaction, the issuance of the
Shares will be subject to the receipt by the Company of appropriate
investment representations from the Option Holder and the certificate
representing such Shares of Stock shall bear such legends as may be
required by the Company in order to assure compliance with federal and
state securities laws.
The purchase of such Shares shall take place at the
principal offices of the Company within thirty days following delivery
of such notice, at which time the Option Price of the Shares shall be
paid in full by any of the methods set forth below or a combination
thereof. The Option shall be exercised when the Option Price for the
number of shares as to which the Option is exercised is paid to the
Company in full. A properly executed certificate or certificates
representing the Shares shall be delivered to or at the direction of
the Option Holder upon payment therefor. If Options on less than all
shares evidenced by an Option Certificate are exercised, the Company
shall deliver a
8
<PAGE>
new Option Certificate evidencing the Option on the remaining shares
upon delivery of the Option Certificate for the Option being
exercised.
(ii) Manner of Payment. The Option Price shall be paid by
any of the following methods or any combination of the following
methods at the option of the Option Holder, or by any other method
approved by the Committee upon the request of the Option Holder: (A)
cash; (B) certified, cashier's or other check acceptable to the
Company, payable to the order of the Company; or (C) if permitted by
the Committee in its sole discretion, through delivery to the Company
of the Option Holder's full recourse promissory note, containing such
provisions for repayment, interest and security as shall be specified
by the Committee.
(g) Withholding.
(i) Non-Qualified Options. Upon exercise of an Option, the
Option Holder shall make appropriate arrangements with the Company to
provide for the amount of additional withholding required by Sections
3102 and 3402 of the Code and applicable state income tax laws.
(ii) Incentive Options. If an Option Holder makes a
disposition (as defined in Section 424(c) of the Code) of any Stock
acquired pursuant to the exercise of an Incentive Stock Option prior
to the expiration of two years from the date on which the Incentive
Stock Option was granted or prior to the expiration of one year from
the date on which the Option was exercised, the Option Holder shall
send written notice to the Company at its principal office in Boulder,
Colorado (Attention: Chief Financial Officer) of the date of such
disposition, the number of shares disposed of, the amount of proceeds
received from such disposition and any other information relating to
such disposition as the Company may reasonably request. The Option
Holder shall, in the event of such a disposition, make appropriate
arrangements with the Company to provide for the amount of additional
withholding, if any, required by Sections 3102 and 3402 of the Code
and applicable state income tax laws.
6.4 Restrictions on Incentive Stock Options.
---------------------------------------
(a) Initial Exercise. The aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by an Option Holder in any calendar year, under the Plan or
otherwise, shall not exceed $100,000. For this purpose, the Fair Market Value of
the Shares shall be determined as of the date of grant of the Option.
(b) Ten Percent Stockholders. Incentive Stock Options granted to
an Option Holder who is the holder of record of stock of the Company having more
than 10% of the total combined voting power of all classes of outstanding stock
of the Company shall have an
9
<PAGE>
Option Price equal to 110% of the Fair Market Value of the Shares on the date of
grant of the Option and the Option Period for any such Option shall not exceed
five years.
ARTICLE 7
CORPORATE REORGANIZATION
7.1 Reorganization. Upon the occurrence of any of the following
--------------
events, if the notice required by Section 7.2 shall have first been given, the
Plan and all Options then outstanding hereunder shall automatically terminate
and be of no further force and effect whatsoever, without the necessity for any
additional notice or other action by the Board or the Company: (a) the merger
or consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change of outstanding shares of
Stock); or (b) the sale or conveyance of the property of the Company as an
entirety or substantially as an entirety (other than a sale or conveyance in
which the Company continues as a holding company of an entity or entities that
conduct the business or businesses formerly conducted by the Company); or (c)
the dissolution or liquidation of the Company.
7.2 Required Notice. At least 30 days' prior written notice of any
---------------
event described in Section 7.1 shall be given by the Company to each Option
Holder, unless in the case of the events described in clauses (a) or (b) of
Section 7.1, the Company, or the successor or purchaser, as the case may be,
shall make adequate provision for the assumption of the outstanding Options or
the substitution of new options for the outstanding Options on terms comparable
to the outstanding Options except that the Option Holder shall have the right
thereafter to purchase the kind and amount of securities or property or cash
receivable upon such merger, consolidation, sale or conveyance by a holder of
the number of Shares that would have been receivable upon exercise of the Option
immediately prior to such merger, consolidation, sale or conveyance (assuming
such holder of Stock failed to exercise any rights of election and received per
share the kind and amount received per share by a majority of the non-electing
shares). The provisions of this Article 7 shall similarly apply to successive
mergers, consolidations, sales or conveyances. Such notice shall be deemed to
have been given when delivered personally to an Option Holder or when mailed to
an Option Holder by registered or certified mail, postage prepaid, at such
Option Holder's address last known to the Company.
7.3 Acceleration of Exercisability. Option Holders notified in
------------------------------
accordance with Section 7.2 may exercise their Options at any time before the
occurrence of the event requiring the giving of notice (but subject to
occurrence of such event), to the extent such Options are exercisable and any
vesting requirements with respect to periods of employment or otherwise have
been satisfied. In addition, the Committee, in its sole discretion, may
accelerate the vesting of any Option, in full or in part, in the event of an
occurrence described in this Article 7.
10
<PAGE>
ARTICLE 8
EMPLOYMENT; TRANSFERABILITY
8.1 Employment. Nothing contained in the Plan or in any Option
----------
granted under the Plan shall confer upon any Option Holder any right with
respect to the continuation of his or her employment by or service with the
Company, or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement or other contract to the contrary, at
any time to terminate the employment or service of such Option Holder or to
increase or decrease the compensation of the Option Holder from the rate in
existence at the time of the grant of an Option. The Committee shall determine
whether an authorized leave of absence, or absence in military or government
service, shall constitute a termination of employment.
8.2 Other Employee Benefits. The amount of any compensation deemed
-----------------------
to be received by an Option Holder as a result of the exercise of an Option
shall not constitute "earnings" with respect to which any other employee
benefits of such person are determined, including without limitation benefits
under any pension, profit sharing, life insurance or salary continuation plan.
8.3 Transferability. No right or interest of any Option Holder in
---------------
an Option granted pursuant to the Plan shall be assignable or transferable
during the lifetime of the Option Holder, either voluntarily or involuntarily,
or be subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of an Option Holder's death, an Option Holder's rights
and interests in Options shall be transferable by will or pursuant to the laws
of descent and distribution. Each Option granted under the Plan shall be
exercisable during the Holder's lifetime only by the Option Holder or, in the
event of Disability or incapacity, by the Option Holder's guardian or legal
representative.
ARTICLE 9
SECURITIES LAW RESTRICTIONS
Each Option shall be subject to the requirement that if at any time
counsel to the Company shall determine that the listing, registration or
qualification of the Shares subject to such Option upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental or regulatory body, is necessary as a condition of, or in
connection with, the issuance or purchase of Shares thereunder, such Option may
not be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained on
conditions acceptable to the Committee. Nothing herein shall be deemed to
require the Company to apply for or obtain such listing, registration or
qualification.
11
<PAGE>
ARTICLE 10
WITHHOLDING
The Company's obligations to deliver Shares upon the exercise of an
Option shall be subject to the Option Holder's satisfaction of all applicable
federal, state and local income and other tax withholding requirements.
ARTICLE 11
MISCELLANEOUS
11.1 Expiration. The Plan shall terminate whenever the Board adopts a
----------
resolution to that effect. If not sooner terminated by the Board, the Plan
shall terminate and expire on November 1, 2006. After termination, no
additional Options shall be granted under the Plan, but the Company shall
continue to recognize Options previously granted.
11.2 Amendments, Etc. The Board may from time to time amend, modify,
----------------
suspend or terminate the Plan. Nevertheless, no such amendment, modification,
suspension or termination shall, without the consent of the Option Holder,
impair any Option previously granted under the Plan or deprive any Option Holder
of any Shares that he or she may have acquired through or as a result of the
Plan.
11.3 Treatment of Proceeds. Proceeds from the sale of Stock pursuant
---------------------
to Options granted under the Plan shall constitute general funds of the Company.
11.4 Section Headings. The section headings are included herein only
----------------
for convenience, and they shall have no effect on the interpretation of the
Plan.
11.5 Severability. If any article, section, subsection or specific
------------
provision is found to be illegal or invalid of any reason, such illegality or
invalidity shall not affect the remaining provisions of the Plan, and the Plan
shall be construed and enforced as if such illegal and invalid provision had
never been set forth in the Plan.
11.6 Notices. All notices required or permitted under the Plan
-------
shall be given by certified mail or personal delivery and shall be effective
when delivered or, on the third day after deposit in the United States mails
with adequate postage, addressed as follows:
(a) If intended for the Option Holder, to the Option Holder's
address as listed in the records of the Company.
(b) If intended for the Company, to the address of the principal
business office of the Company.
12
<PAGE>
11.7 Gender and Number. Except when otherwise indicated by the
-----------------
context, the masculine gender shall include the feminine gender, and the
definition of any term herein in the singular shall also include the plural.
Adopted as of November 19, 1996.
COLORADO GREENHOUSE, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
13
<PAGE>
EXHIBIT 10.40
Certificate No. 1997-01
-------
COLORADO GREENHOUSE HOLDINGS, INC.
----------------------------------
INCENTIVE STOCK OPTION CERTIFICATE
----------------------------------
Option Holder: James R. Rinella
Option Price: $4.25 per share
Date of Grant: October 15, 1997
Number of Shares: 94,116
1. This certifies that the above named Option Holder (the "Holder") is the
holder of an incentive stock option (the "Option") to acquire, at the exercise
price per share specified above, the number of shares of the $0.001 par value
common stock ("Stock"), of Colorado Greenhouse Holdings, Inc., a Delaware
corporation (the "Company"), specified above. The Option evidenced by this
Certificate is intended to qualify as an incentive stock option within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended from
time to time (the "Code"), and is granted as of the date specified above and
expires, unless sooner terminated, at 5:00 p.m., Boulder, Colorado time, October
31, 2004.
2. This Certificate is issued as evidence of the Option granted the Holder
pursuant to the Company's 1996 Stock Option Plan effective November 19, 1996
(the "Plan"). Subject to the express terms of this Option, the Option is
subject to all terms and conditions of the Plan, which provisions are
incorporated herein by reference. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Plan. A copy
of the Plan is available on request from the Company.
3. The Option shall become exercisable as follows: 23,529 shares on the date
hereof and an additional 23,529 shares on each of October 15, 1998, 1999 and
2000.
4. In the event that any of the following occurs prior to October 15, 2000,
all shares of the Option shall vest on the date of such event, provided the
continuous employment requirement set forth in the Plan is satisfied: (i) there
occurs a greater than 40% change in ownership of the outstanding capital stock
of the Company, other than a transfer of such capital stock to a successor
entity that is a related party or affiliate of the Company or to the beneficial
owners of the current stockholders, or (ii) the Company consummates an
underwritten initial public offering.
5. Notwithstanding the terms of Section 6.3(d)(ii) and (iii) of the Plan, if
Holder's employment by the Company is terminated because the Holder becomes
Disabled within the Option Period, or because Holder dies within the Option
Period, while employed by the Company or within the three-month period referred
to in Section 6.3(d)(iv), the Option may be exercised by Holder or those
entitled to do so under his will or by the laws of descent and distribution
within three years following his death or disability (if otherwise within the
Option Period) but not thereafter.
6. Except as explicitly set forth in this Certificate, under the provisions of
the Plan or as the Board of Directors may determine in its sole and absolute
discretion, the Option shall not be exercisable as to any shares as to which the
continuous employment requirement is not satisfied, regardless of the
circumstances under which the Holder's employment by the Company is terminated.
The number of shares as to which the Option may be exercised is cumulative, so
that once the Option is exercisable as to any shares it shall continue to be
exercisable as to such shares until expiration or termination of the Option as
provided in the Plan. A form of written notice for the purpose of exercising
the Option is attached. Pursuant to the Plan, the Company may require the
Holder to execute a Shareholders' Agreement in connection with exercise of the
Option.
<PAGE>
Date: October 15, 1997 Colorado Greenhouse Holdings, Inc., a
Delaware corporation
By: _______________________________
Name:______________________________
Title: ____________________________
<PAGE>
FORM OF OPTION EXERCISE NOTICE
------------------------------
The undersigned Holder hereby exercises the Option described in this
Certificate as to the number of shares specified below and includes herewith the
purchase price for such shares.
Number of Shares: ___________________________________________
Signature of Holder: ___________________________________________
Printed Name: ___________________________________________
Fiduciary Capacity, if any: ___________________________________________
Address: ___________________________________________
___________________________________________
Telephone: ___________________________________________
Signature Guarantee: ___________________________________________
Date: ___________________________________________
<PAGE>
EXHIBIT 10.41
Certificate No. 1997-02
-------
COLORADO GREENHOUSE HOLDINGS, INC.
----------------------------------
NONINCENTIVE STOCK OPTION CERTIFICATE
-------------------------------------
Option Holder: James R. Rinella
Option Price: $4.25 per share
Date of Grant: October 15, 1997
Number of Shares: 155,884
1. This certifies that the above named Option Holder (the "Holder") is
the holder of a nonincentive stock option (the "Option") to acquire, at the
exercise price per share specified above, the number of shares of the $0.001 par
value common stock ("Stock"), of Colorado Greenhouse Holdings, Inc., a Delaware
corporation (the "Company"), specified above. The Option evidenced by this
Certificate is granted as of the date specified above and expires, unless sooner
terminated, at 5:00 p.m., Boulder, Colorado time, October 31, 2004.
2. This Certificate is issued as evidence of the Option granted the
Holder pursuant to the Company's 1996 Stock Option Plan effective November 19,
1996 (the "Plan"). Subject to the express terms of this Option, the Option is
subject to all terms and conditions of the Plan, which provisions are
incorporated herein by reference. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Plan. A copy of
the Plan is available on request from the Company.
3. The Option shall become exercisable as follows: 51,961 shares on each
of October 15, 1998 and 1999, and 51,962 shares on October 15, 2000.
4. In the event that any of the following occurs prior to October 15,
2000, all shares of the Option shall vest on the date of such event, provided
the continuous employment requirement set forth in the Plan is satisfied: (i)
there occurs a greater than 40% change in ownership of the outstanding capital
stock of the Company, other than a transfer of such capital stock to a successor
entity that is a related party or affiliate of the Company or to the beneficial
owners of the current stockholders, or (ii) the Company consummates an
underwritten initial public offering.
5. Notwithstanding the terms of Section 6.3(d)(ii) and (iii) of the Plan,
if Holder's employment by the Company is terminated because the Holder becomes
Disabled within the Option Period, or because Holder dies within the Option
Period, while employed by the Company or within the three-month period referred
to in Section 6.3(d)(iv), the Option may be exercised by Holder or those
entitled to do so under his will or by the laws of descent and distribution
within three years following his death or disability (if otherwise within the
Option Period) but not thereafter.
6. Except as explicitly set forth in this Certificate, under the
provisions of the Plan or as the Board of Directors may determine in its sole
and absolute discretion, the Option shall not be exercisable as to any shares as
to which the continuous employment requirement is not satisfied, regardless of
the circumstances under which the Holder's employment by the Company is
terminated. The number of shares as to which the Option may be exercised is
cumulative, so that once the Option is exercisable as to any shares it shall
continue to be exercisable as to such shares until expiration or termination of
the Option as provided in the Plan. A form of written notice for the purpose of
exercising the Option is attached. Pursuant to the Plan, the Company may
require the Holder to execute a Shareholders' Agreement in connection with
exercise of the Option.
<PAGE>
Date: October 15, 1997 Colorado Greenhouse Holdings, Inc., a
Delaware corporation
By: ___________________________
Name:__________________________
Title: ________________________
<PAGE>
FORM OF OPTION EXERCISE NOTICE
------------------------------
The undersigned Holder hereby exercises the Option described in this
Certificate as to the number of shares specified below and includes herewith the
purchase price for such shares.
Number of Shares: ___________________________________________
Signature of Holder: ___________________________________________
Printed Name: ___________________________________________
Fiduciary Capacity, if any: ___________________________________________
Address: ___________________________________________
___________________________________________
Telephone: ___________________________________________
Signature Guarantee: ___________________________________________
Date: ___________________________________________
<PAGE>
EXHIBIT 10.42
Certificate No. 1997- 3
-------
COLORADO GREENHOUSE HOLDINGS, INC.
----------------------------------
INCENTIVE STOCK OPTION CERTIFICATE
----------------------------------
Option Holder: Alan Fine
Option Price: $4.25 per share
Date of Grant: September 15, 1997
Number of Shares: 100,000
1. This certifies that the above named Option Holder (the "Holder") is the
holder of an incentive stock option (the "Option") to acquire, at the exercise
price per share specified above, the number of shares of the $0.001 par value
common stock ("Stock"), of Colorado Greenhouse Holdings, Inc., a Delaware
corporation (the "Company"), specified above. The Option evidenced by this
Certificate is intended to qualify as an incentive stock option within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended from
time to time, and is granted as of the date specified above and expires, unless
sooner terminated, at 5:00 p.m., Boulder, Colorado time, August 31, 2004.
2. This Certificate is issued as evidence of the Option granted the Holder
pursuant to the Company's 1996 Stock Option Plan effective November 19, 1996
(the "Plan"). The Option is subject to all terms and conditions of the Plan,
which provisions are incorporated herein by reference. Capitalized terms used
herein and not otherwise defined shall have the meaning assigned to them in the
Plan. A copy of the Plan is available on request from the Company.
3. The Option shall become exercisable as follows: 23,529 shares on the date
hereof, an additional 23,529 shares on each of September 15, 1998, 1999 and
2000, and 5,884 shares on January 2, 2001.
4. In the event that any of the following occurs prior to January 2, 2001, all
shares of the Option shall vest on the date of such event, provided the
continuous employment requirement set forth in the Plan is satisfied: (i) there
occurs a greater than 40% change in ownership of the outstanding capital stock
of the Company, other than a transfer of such capital stock to a successor
entity that is a related party or affiliate of the Company or to the beneficial
owners of the current stockholders, or (ii) the Company consummates an
underwritten initial public offering.
5. Except as explicitly set forth in this Certificate, under the provisions of
the Plan or as the Board of Directors may determine in its sole and absolute
discretion, the Option shall not be exercisable as to any shares as to which the
continuous employment requirement is not satisfied, regardless of the
circumstances under which the Holder's employment by the Company is terminated.
The number of shares as to which the Option may be exercised is cumulative, so
that once the Option is exercisable as to any shares it shall continue to be
exercisable as to such shares until expiration or termination of the Option as
provided in the Plan. A form of written notice for the purpose of exercising
the Option is attached. Pursuant to the Plan, the Company may require the
Holder to execute a Shareholders' Agreement in connection with exercise of the
Option.
Date: September 15, 1997 Colorado Greenhouse Holdings, Inc., a
Delaware corporation
By: /s/ James R. Rinella
---------------------------------
Name: James R. Rinella
------------------------------
Title: CEO
------------------------------
<PAGE>
FORM OF OPTION EXERCISE NOTICE
------------------------------
The undersigned Holder hereby exercises the Option described in this
Certificate as to the number of shares specified below and includes herewith the
purchase price for such shares.
Number of Shares: ___________________________________________
Signature of Holder: ___________________________________________
Printed Name: ___________________________________________
Fiduciary Capacity, if any: ___________________________________________
Address: ___________________________________________
___________________________________________
Telephone: ___________________________________________
Signature Guarantee: ___________________________________________
Date: ___________________________________________
<PAGE>
EXHIBIT 10.43
Certificate No. 96-01
-----
COLORADO GREENHOUSE, INC.
-------------------------
NON-QUALIFIED STOCK OPTION CERTIFICATE
--------------------------------------
Option Holder: Edward J. Wetherbee
Option Price: $0.74 per share
Date of Grant: November 19, 1996
Number of Shares: 202,725
This certifies that the above named Option Holder (the "Holder") is the
holder of a non-qualified stock option (the "Option") to acquire at the exercise
price per share specified above the number of shares of the $0.001 par value
common stock ("Stock"), of Colorado Greenhouse, Inc., a Delaware corporation
(the "Company"), specified above. The Option evidenced by this Certificate is
not intended to qualify as an incentive stock option within the meaning of
section 422 of the Internal Revenue Code of 1986, as amended from time to time,
and is granted as of the date specified above and expires, unless sooner
terminated, at 5:00 p.m., Boulder, Colorado time, June 30, 2003.
This Certificate is issued as evidence of the Option granted the Holder
pursuant to the Company's Stock Option Plan effective November 19, 1996 (the
"Plan"). The Option is subject to all terms and conditions of the Plan, which
provisions are incorporated by reference herein. To the extent the Plan's
provisions conflict with those of this Certificate, the Plan's provisions
supersede and control. A copy of the Plan is available on request from the
Company.
By accepting this Certificate, the Holder acknowledges and agrees that this
Certificate replaces in its entirety that certain Equity Option Certificate
dated August 21, 1996 among the Holder, Brush Greenhouse Partners, Brush
Greenhouse Partners II LLC and Colorado Greenhouse LLC (the "LLC"), which Equity
Option Certificate and all of Holder's right to exercise the purchase of
membership interests in the LLC thereunder are hereby terminated.
The Option shall become exercisable in increments if the Holder is
continuously employed from the date of grant through the following vesting
dates: 33% of the option shall vest immediately upon the granting of the
Option, an additional 33% of the option shall vest on the earlier of (i) the
closing date of the greenhouse expansion, in an amount not less than $24
million, or such lesser amount acceptable to the Management Committee of the
Company, or (ii) December 31, 1996, and the remaining 34% of the option shall
vest on the earlier of (a) the closing date of the Company's underwritten public
offering, or (b) the sale of all substantially all of the Company's assets, or
(c) December 31, 1997. Except as set forth in Section 7.3 of the Plan, the
Option shall not be exercisable as to any shares as to which the continuous
employment requirement is not satisfied, regardless of the circumstances under
which the Holder's employment by the Company is terminated. The number of
shares as to which the Option may be exercised is cumulative, so that once the
Option is exercisable as to any shares it shall continue to be exercisable as to
such shares until expiration or termination of the Option as provided in the
Plan. A form of written notice for the purpose of exercising the Option is
attached. Pursuant to the Plan, the Company may require the Holder to execute a
Shareholders'
<PAGE>
Agreement in connection with exercise of the Option.
Date: November 19, 1996 Colorado Greenhouse, Inc.
By: /s/ Ed Wetherbee
---------------------------
Its: CEO
---------------------------
<PAGE>
FORM OF OPTION EXERCISE NOTICE
------------------------------
The undersigned Holder hereby exercises the Option described in this
Certificate as to the number of shares specified below and includes herewith the
purchase price for such shares.
Number of Shares: ___________________________________________
Signature of Holder: ___________________________________________
Printed Name: ___________________________________________
Fiduciary Capacity, if any: ___________________________________________
Address: ___________________________________________
___________________________________________
Telephone: ___________________________________________
Signature Guarantee: ___________________________________________
Date: ___________________________________________
<PAGE>
EXHIBIT 10.44
Certificate No. 96-03
-----
COLORADO GREENHOUSE, INC.
-------------------------
NON-QUALIFIED STOCK OPTION CERTIFICATE
--------------------------------------
Option Holder: Matthew Cook
Option Price: $0.74 per share
Date of Grant: November 19, 1996
Number of Shares: 202,725
This certifies that the above named Option Holder (the "Holder") is the
holder of a non-qualified stock option (the "Option") to acquire at the exercise
price per share specified above the number of shares of the $0.001 par value
common stock ("Stock"), of Colorado Greenhouse, Inc., a Delaware corporation
(the "Company"), specified above. The Option evidenced by this Certificate is
not intended to qualify as an incentive stock option within the meaning of
section 422 of the Internal Revenue Code of 1986, as amended from time to time,
and is granted as of the date specified above and expires, unless sooner
terminated, at 5:00 p.m., Boulder, Colorado time, June 30, 2003.
This Certificate is issued as evidence of the Option granted the Holder
pursuant to the Company's Stock Option Plan effective November 19, 1996 (the
"Plan"). The Option is subject to all terms and conditions of the Plan, which
provisions are incorporated by reference herein. To the extent the Plan's
provisions conflict with those of this Certificate, the Plan's provisions
supersede and control. A copy of the Plan is available on request from the
Company.
By accepting this Certificate, the Holder acknowledges and agrees that this
Certificate replaces in its entirety that certain Equity Option Certificate
dated August 21, 1996 among the Holder, Brush Greenhouse Partners, Brush
Greenhouse Partners II LLC and Colorado Greenhouse LLC (the "LLC"), which Equity
Option Certificate and all of Holder's right to exercise the purchase of
membership interests in the LLC thereunder are hereby terminated.
The Option shall become exercisable in increments if the Holder is
continuously employed from the date of grant through the following vesting
dates: 25% of the option shall vest immediately upon the granting of the
Option, an additional 25% of the option shall vest on June 30, 1997, an
additional 25% of the option shall vest on June 30, 1998, and the remaining 25%
of the option shall vest on the June 13, 1999. Except as set forth in Section
7.3 of the Plan, the Option shall not be exercisable as to any shares as to
which the continuous employment requirement is not satisfied, regardless of the
circumstances under which the Holder's employment by the Company is terminated.
The number of shares as to which the Option may be exercised is cumulative, so
that once the Option is exercisable as to any shares it shall continue to be
exercisable as to such shares until expiration or termination of the Option as
provided in the Plan. A form of written notice for the purpose of exercising
the Option is
<PAGE>
attached. Pursuant to the Plan, the Company may require the Holder to execute a
Shareholders' Agreement in connection with exercise of the Option.
Date: November 19, 1996 Colorado Greenhouse, Inc.
By: /s/ Ed Wetherbee
-------------------------
Its: CEO
-------------------------
<PAGE>
FORM OF OPTION EXERCISE NOTICE
------------------------------
The undersigned Holder hereby exercises the Option described in this
Certificate as to the number of shares specified below and includes herewith the
purchase price for such shares.
Number of Shares: ___________________________________________
Signature of Holder: ___________________________________________
Printed Name: ___________________________________________
Fiduciary Capacity, if any: ___________________________________________
Address: ___________________________________________
___________________________________________
Telephone: ___________________________________________
Signature Guarantee: ___________________________________________
Date: ___________________________________________
<PAGE>
EXHIBIT 10.45
Certificate No. 1997- 11
--------
COLORADO GREENHOUSE HOLDINGS, INC.
----------------------------------
INCENTIVE STOCK OPTION CERTIFICATE
----------------------------------
Option Holder: Ludo Van Boxem
Option Price: $4.25 per share
Date of Grant: September 15, 1997
Number of Shares: 15,000
1. This certifies that the above named Option Holder (the "Holder") is the
holder of an incentive stock option (the "Option") to acquire, at the exercise
price per share specified above, the number of shares of the $0.001 par value
common stock ("Stock"), of Colorado Greenhouse Holdings, Inc., a Delaware
corporation (the "Company"), specified above. The Option evidenced by this
Certificate is intended to qualify as an incentive stock option within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended from
time to time (the "Code"), and is granted as of the date specified above and
expires, unless sooner terminated, at 5:00 p.m., Boulder, Colorado time,
September 15, 2004.
2. This Certificate is issued as evidence of the Option granted the Holder
pursuant to the Company's 1996 Stock Option Plan effective November 19, 1996
(the "Plan"). The Option is subject to all terms and conditions of the Plan,
which provisions are incorporated herein by reference. Capitalized terms used
herein and not otherwise defined shall have the meaning assigned to them in the
Plan. A copy of the Plan is available on request from the Company.
3. The Option shall become exercisable as follows: 5,000 shares on the date
hereof and an additional 5,000 shares on each of September 15, 1998 and 1999.
4. In the event that any of the following occurs prior to September 15, 1999,
all shares of the Option shall vest on the date of such event, provided the
continuous employment requirement set forth in the Plan is satisfied: (i) there
occurs a greater than 40% change in ownership of the outstanding capital stock
of the Company, other than a transfer of such capital stock to a successor
entity that is a related party or affiliate of the Company or to the beneficial
owners of the current stockholders, or (ii) the Company consummates an
underwritten initial public offering.
5. Except as explicitly set forth in this Certificate, under the provisions of
the Plan or as the Board of Directors may determine in its sole and absolute
discretion, the Option shall not be exercisable as to any shares as to which the
continuous employment requirement is not satisfied, regardless of the
circumstances under which the Holder's employment relationship with the Company
is terminated. The number of shares as to which the Option may be exercised is
cumulative, so that once the Option is exercisable as to any shares it shall
continue to be exercisable as to such shares until expiration or termination of
the Option as provided in the Plan. A form of written notice for the purpose of
exercising the Option is attached. Pursuant to the Plan, the Company may require
the Holder to execute a Shareholders' Agreement in connection with exercise of
the Option.
Date: September 15, 1997 Colorado Greenhouse Holdings, Inc., a
Delaware corporation
By: /s/ James R. Rinella
----------------------------------
Name: JAMES R. RINELLA
----------------------------------
Title: C.E.O.
----------------------------------
<PAGE>
FORM OF OPTION EXERCISE NOTICE
------------------------------
The undersigned Holder hereby exercises the Option described in this
Certificate as to the number of shares specified below and includes herewith the
purchase price for such shares.
Number of Shares: ___________________________________________
Signature of Holder: ___________________________________________
Printed Name: ___________________________________________
Fiduciary Capacity, if any: ___________________________________________
Address: ___________________________________________
___________________________________________
Telephone: ___________________________________________
Signature Guarantee: ___________________________________________
Date: ___________________________________________
2
<PAGE>
EXHIBIT 10.47
SEVERANCE AND NONCOMPETE AGREEMENT
----------------------------------
THIS SEVERANCE AND NONCOMPETE AGREEMENT (this "Agreement"), dated
effective as of December 31, 1996, is between Colorado Greenhouse, Inc., a
Delaware corporation (the "Company"), and Matthew Brian Cook ("Employee").
In consideration of the mutual covenants and agreements contained
herein, the parties hereto agree as follows:
1. Employment. The Company hereby employs Employee and Employee
----------
hereby agrees to be employed by the Company for the period and upon the terms
and conditions hereinafter set forth.
2. Capacity and Duties. Employee shall be employed by the Company as
-------------------
its Chief Operating Officer or in such other executive capacity as the board of
directors shall determine. During his employment, Employee shall perform the
duties and bear the responsibilities commensurate with his position and shall
serve the Company faithfully and to the best of his ability, under the direction
of the board of directors and the duly elected officers of the Company. Employee
shall devote his entire working time, attention and energies to the business of
the Company. His actions shall at all times be such that they do not discredit
the Company or its products and services. Except for his involvement in personal
investments, Employee shall not engage in any other business activity or
activities that require significant personal services by Employee that, in the
judgment of the board of directors, may conflict with the proper performance of
Employee's duties hereunder.
<PAGE>
3. Compensation.
------------
(a) For all services rendered by Employee, the Company shall pay
Employee during the term of this Agreement an annual salary as set forth herein,
payable semimonthly in arrears. Employee's initial annual salary shall be
$120,000. During the term of this Agreement, the amount of Employee's annual
salary shall be reviewed at periodic intervals and, upon agreement of the
parties hereto, appropriate adjustments in such salary may be made.
(b) In addition to salary payments as provided in Section 3(a),
the Company shall provide Employee, during the term of this Agreement, with the
benefits of such insurance plans, hospitalization plans and other employee
fringe benefit plans as shall be generally provided to executive employees of
the Company and for which Employee may be eligible under the terms and
conditions thereof. Nothing herein contained shall require the Company to adopt
or maintain any such employee benefit plans.
(c) During the term of this Agreement, except as otherwise
provided in Section 5(b), Employee shall be entitled to sick leave and annual
vacation consistent with the Company's customary sick leave and vacation
policies.
(d) During the term of this Agreement the Company shall
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee in connection with the business of the Company and in the performance
of his duties under this Agreement upon presentation to the Company of an
itemized accounting of such expenses with reasonable supporting data.
4. Term. Unless sooner terminated in accordance with Section 5, the
----
term of this Agreement shall be 1 year commencing on the date hereof, and
thereafter shall continue from year to year unless and until either party shall
give notice to the other at least 90 days prior to the
2
<PAGE>
end of the original or then current renewal term of his or its intention to
terminate at the end of such term. The provisions of Sections 6, 7, 8 and 10
shall remain in full force and effect for the time periods specified in such
Sections notwithstanding the earlier termination of this Agreement.
5. Termination.
-----------
(a) If Employee dies during the term of this Agreement, the
Company shall pay his estate the compensation that would otherwise be payable to
him for the month in which his death occurs, and this Agreement shall be
considered terminated on the last day of such month.
(b) If, during the term of this Agreement, Employee is prevented
from performing his duties by reason of illness or incapacity for a continuous
period of 120 days, the Company may terminate this Agreement upon 30 days' prior
notice thereof to Employee or his duly appointed legal representative. For the
purposes of this Section 5(b), a period of illness or incapacity shall be deemed
"continuous" notwithstanding Employee's performance of his duties during such
period for continuous periods of less than 15 days in duration.
(c) The Company may terminate this Agreement upon at least 30
days' prior notice to him upon the happening of any of the following events:
(i) the sale by the Company of substantially all of its
assets to a single purchaser or associated group of purchasers who are
not then affiliates of the Company;
(ii) the sale, exchange or other disposition in one
transaction of 80% or more of the outstanding voting stock of the
Company to or with a person, firm or corporation not then an affiliate
of the Company;
(iii) a bona fide decision by the Company to terminate its
business and liquidate its assets (but only if such liquidation is not
part of a plan to carry on the Company's business through its
shareholders);
3
<PAGE>
(iv) the merger or consolidation of the Company in a
transaction in which the shareholders of the Company receive less than
50% of the outstanding voting stock of the new or continuing
corporation; or
(v) damage, destruction or other loss (including that
caused by condemnation or similar proceedings) to the Company's
facilities to such an extent that the Company is unable to conduct the
ordinary course of its business for a continuous period of 90 days or
more.
For purposes of this Agreement, the term "affiliate" or "affiliates" means a
person, firm or corporation that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with the
Company.
(d) The Company may terminate this Agreement at any time, upon
10 days' prior notice, for Employee's misconduct or gross negligence or for a
material breach of any obligation created by this Agreement.
(e) The Company may terminate this Agreement at any time for any
or no reason upon payment to Employee of an amount equal to Employee's annual
salary.
6. Confidential Information.
------------------------
(a) Employee recognizes and acknowledges that the trade secrets,
know-how and proprietary processes of the Company as may exist from time to
time, as well as confidential business plans, strategies, concepts, prospects
and financial data (collectively, the "Confidential Information") of the Company
are valuable, special and unique assets of the business of the Company. Employee
shall, at all times during his employment by the Company and thereafter, hold in
strictest confidence any and all Confidential Information that may have come or
may come into Employee's possession or within Employee's knowledge. Employee
agrees that neither he nor any person or entity, directly or indirectly,
controlled or under common control with the Employee will for any reason, except
in the course of performing his duties
4
<PAGE>
hereunder or with the Company's prior express written consent, for himself or
any other person, use or disclose to anyone, exclusive of Company employees,
agents or independent consultants to the Company or any of its subsidiaries or
affiliates, any Confidential Information; provided, however, that Employee may
disclose Confidential Information which has become generally available to the
public other than as a result of any act or failure to act by the Employee.
(b) Employee covenants and agrees that he will, upon termination of
this Agreement or, if later, upon termination of his employment with the
Company, deliver to the Company any and all records, forms, contracts, studies,
reports, appraisals, financial data, lists of names or other customer data, and
any other articles or papers, computer tapes and materials that have come into
his possession by reason of his employment with the Company, whether or not any
of said items were prepared by him, and he shall not retain memoranda or copies
of any of said items.
7. Covenants Not to Compete or Interfere.
-------------------------------------
(a) During the term of this Agreement (or, if longer, during the term
of Employee's employment with the Company or any of its affiliates) and for a
period of 18 months after termination of this Agreement (or, if later,
termination of Employee's employment with the Company or any of its affiliates),
Employee shall not, within the United States, directly or indirectly, own,
manage, operate, control, be employed by, participate in or be connected in any
manner with the ownership, management, operation or control of any person, firm
or entity that has services or products competitive with or similar to the
services or products of the Company; provided, however, that nothing in this
Agreement shall prohibit Employee from owning equity interests or securities in
another firm or entity engaged in any activity that, if engaged in by Employee,
would be prohibited hereunder, so long as the equity interests or securities so
owned
5
<PAGE>
by Employee do not represent in the aggregate more than 10% of the aggregate
voting power of all outstanding equity interests or securities in such firm or
entity.
(b) During the term of this Agreement (or, if longer, during the term
of Employee's employment with the Company or any of its affiliates) and for a
period of 18 months after termination of this Agreement (or, if later,
termination of Employee's employment with the Company or any of its affiliates),
Employee shall not (i) directly or indirectly cause or attempt to cause any
employee of the Company to leave the employ of the Company, (ii) in any way
interfere with the relationship between the Company and any employee or customer
of the Company, (iii) directly or indirectly hire any employee of the Company to
work for any person, firm or entity of or for which Employee is an officer,
director, employee, consultant, independent contractor or owner of an equity or
other financial interest, or (iv) interfere or attempt to interfere with any
transaction in which the Company was involved during the term of this Agreement
or his employment.
(c) In consideration for Employee's agreement to be bound by the
terms of this Section 7(a) and (b), the Company shall upon any expiration or
termination of this Agreement (other than a termination under Section 5(d)), pay
to Employee severance pay in an amount equal to Employee's annual salary as of
the date of such termination or expiration.
8. Injunctive Relief. Upon a breach or threatened breach by Employee
-----------------
of any of the provisions of Sections 6 or 7 of this Agreement, the Company shall
be entitled to an injunction restraining Employee from such breach. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies for such breach or threatened breach, including recovery of damages
from Employee.
6
<PAGE>
9. Waiver of Breach. A waiver by the Company of a breach of any
----------------
provision of this Agreement by Employee shall not operate or be construed as a
waiver of any subsequent breach by Employee.
10. Severability. It is the desire and intent of the parties that the
------------
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision or portion of
this Agreement shall be adjudicated to be invalid or unenforceable, this
Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of this Section in the particular jurisdiction in which
such adjudication is made.
11. Notices. All communications, requests, consents and other notices
-------
provided for in this Agreement shall be in writing and shall be deemed given if
mailed by first class mail, postage prepaid, addressed as follows:
(i) If to the Company: to its principal office at P.O. Box
309, Ft. Lupton, Colorado 80621;
(ii) If to Employee: to Matthew Brian Cook, 4845 Pearl East
Circle, Suite 300, Boulder, Colorado 80301-2474;
or such other address as either party may hereafter designate by notice as
herein provided. Notwithstanding the foregoing provisions of this Section 11, so
long as Employee is employed by the Company any such communication, request,
consent or other notice shall be deemed given if delivered as follows: if to
the Company, by hand delivery to any executive officer of the Company, and if to
Employee, by hand delivery to him.
7
<PAGE>
12. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Colorado.
13. Assignment. The Company may assign its rights and obligations
----------
under this Agreement to any affiliate of the Company or to any acquirer of
substantially all of the business of the Company, and all covenants and
agreements hereunder shall inure to the benefit of and be enforceable by or
against any such assignee. Neither this Agreement nor any rights or duties
hereunder may be assigned, transferred or delegated by Employee.
14. Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding of the parties and supersedes all prior understandings,
agreements or representations by or between the parties, whether written or
oral, which relate in any way to the subject matter hereof.
15. Amendments. No provision of this Agreement shall be altered,
----------
amended, revoked or waived except by an instrument in writing signed by the
party sought to be charged with such amendment, revocation or waiver.
16. Binding Effect. Except as otherwise provided herein, this
--------------
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective legal representatives, heirs, successors and
assigns.
8
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement to be
effective as of the date first above written.
THE COMPANY:
-----------
Colorado Greenhouse, Inc., a Delaware
corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
EMPLOYEE:
--------
Matthew Brian Cook
By:_____________________________________
Matthew Brian Cook
9
<PAGE>
EXHIBIT 10.48
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated effective
_________, __, 1997, is between Colorado Greenhouse Holdings, Inc., a Delaware
corporation (the "Company"), and Alan Fine ("Employee").
In consideration of the mutual covenants and agreements contained
herein, the parties hereto agree as follows:
1. Employment. The Company hereby employs Employee and Employee
----------
hereby agrees to be employed by the Company for the period and upon the terms
and conditions hereinafter set forth.
2. Capacity and Duties. Employee shall initially be employed by the
-------------------
Company as its Vice-President of Finance or in such other executive capacity as
the officers or directors of the Company shall determine. During his employment
Employee shall perform the duties and bear the responsibilities commensurate
with his position and shall serve the Company faithfully and to the best of his
ability, under the direction of the board of directors and the duly elected
officers of the Company. Employee shall devote his entire working time,
attention and energies to the business of the Company. His actions shall at all
times be such that they do not discredit the Company or its products and
services. Except for his involvement in personal investments, provided such
involvement does not require any significant services on his part, Employee
shall not engage in any other business activity or activities that require
significant personal services by Employee or that, in the judgment of the board
of directors, may conflict with the proper performance of Employee's duties
hereunder.
3. Compensation.
------------
(a) For all services rendered by Employee the Company shall pay
Employee during the term of this Agreement an annual salary as set forth herein,
payable semimonthly in arrears. Employee's initial annual salary shall be
$105,000. During the term of this Agreement, the amount of Employee's salary
shall be reviewed at periodic intervals and, upon agreement of the parties
hereto, appropriate adjustments in such salary may be made.
(b) In addition to salary payments as provided in Section 3(a),
the Company shall provide Employee, during the term of this Agreement, with the
benefits of such insurance plans, hospitalization plans and other employee
fringe benefit plans as shall be generally provided to employees of the Company
and for which Employee may be eligible under the terms and conditions thereof.
Nothing herein contained shall require the Company to adopt or maintain any such
employee benefit plans.
(c) During the term of this Agreement, except as otherwise
provided in Section 5(b), Employee shall be entitled to sick leave and annual
vacation consistent with the Company's customary sick leave and vacation
policies.
(d) During the term of this Agreement the Company shall
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee in connection with the business of the Company and in the performance
of his duties under this Agreement upon presentation to the Company of an
itemized accounting of such expenses with reasonable supporting data.
<PAGE>
(e) The Company shall reimburse Employee for reasonable moving
expenses not to exceed $15,000 within 30 days after presentation of reasonable
documentation thereof.
(f) The Company's compensation committee (the "Compensation
Committee") shall establish a performance based bonus plan that will provide for
annual bonuses of up to 30% of Employee's annual salary based upon achieving
certain milestones.
(g) The Company shall grant to Employee the option to acquire
shares of the Company's common stock as provided in the Incentive Stock Option
Certificate attached as Exhibit A. In addition, the Company may grant to
Employee such other stock options as may be approved by the Compensation
Committee.
4. Term. Unless sooner terminated in accordance with Section 5, the
----
term of this Agreement shall be from the date of this Agreement until December
31, 1998, and thereafter shall continue from year to year unless and until
either party shall give notice to the other at least 60 days prior to the end of
the original or then current renewal term of his or its intention to terminate
at the end of such term. The provisions of Sections 6, 7, 8 and 10 shall remain
in full force and effect for the time periods specified in such Sections
notwithstanding the termination of this Agreement.
5. Termination.
-----------
(a) If Employee dies during the term of this Agreement, the
Company shall pay his estate the compensation that would otherwise be payable to
him for the month in which his death occurs, and this Agreement shall be
considered terminated on the last day of such month.
(b) If during the term of this Agreement Employee is prevented
from performing his duties by reason of illness or incapacity for a continuous
period of 120 days the Company may terminate this Agreement upon 30 days' prior
notice thereof to Employee or his duly appointed legal representative. For the
purposes of this Section 5(b), a period of illness or incapacity shall be deemed
"continuous" notwithstanding Employee's performance of his duties during such
period for continuous periods of less than 15 days in duration.
(c) The Company may terminate this Agreement upon at least 30
days' prior notice to him upon the happening of any of the following events:
(i) the sale by the Company of substantially all of its
assets to a single purchaser or associated group of purchasers who are
not then affiliates of the Company;
(ii) the sale, exchange or other disposition in one
transaction of 51% or more of the outstanding voting stock of the
Company to or with a person, firm or corporation not then an affiliate
of the Company;
(iii) a bona fide decision by the Company to terminate its
business and liquidate its assets (but only if such liquidation is not
part of a plan to carry on the Company's business through its
shareholders);
2
<PAGE>
(iv) the merger or consolidation of the Company in a
transaction in which the shareholders of the Company receive less than
50% of the outstanding voting stock of the new or continuing
corporation; or
(v) the damage, destruction or other loss (including that
caused by condemnation or similar proceedings) to the Company's
facilities to such an extent that the Company is unable to conduct the
ordinary course of its business for a continuous period of 90 days or
more.
(d) The Company may terminate this Agreement at any time, upon
10 days' prior notice, for Employee's misconduct or gross negligence or for a
material breach of any obligation created by this Agreement.
(e) The Company may terminate this Agreement at any time for any
or no reason upon payment to Employee of an amount equal to Employee's annual
salary under this Agreement at the time of such termination.
For purposes of this Agreement, the term "affiliate" or "affiliates" means a
person, firm or corporation that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with the
Company.
6. Confidential Information.
------------------------
(a) As used in this Agreement, the term "Confidential
Information" shall include all nonpublic information concerning or arising from
the Company's business, including, without limitation, trade secrets used or
developed by the Company in connection with its business; information concerning
the manner and details of the Company's operation, organization and management;
financial information and/or documents and nonpublic policies, procedures and
other printed or written material generated or used in connection with the
Company's business; the Company's business plans and strategies; the identities
of the Company's customers and the specific individual customer representatives
with whom the Company works and details of the Company's relationship with such
customers and customer representatives; the identities of distributors,
suppliers, contractors and vendors utilized in the Company's business and
details of the Company's relationship with such distributors, suppliers,
contractors and vendors; the nature of fees and charges made to the Company's
customers; nonpublic forms, contracts and other documents used in the Company's
business; the nature and content of computer software used in the Company's
business, whether proprietary to the Company or used by the Company under
license from a third party; and/or other information concerning know-how,
research, inventions, copyrights, trademarks, patents, processes, designs,
methods, concepts, prospects, customers, employees, contractors, earnings,
products, services, formulas, recipes, compositions, machines, equipment,
systems, and/or prospective and executed contracts and other business
arrangements.
(b) Except in connection with and in furtherance of Employee's
official duties with and on behalf of the Company, Employee shall not at any
time or in any manner use, copy, disclose, divulge, transmit, convey, transfer
or otherwise communicate any Confidential Information to any person or entity,
either directly or indirectly, without the Company's prior written consent.
(c) Employee acknowledges that during the term of this
Agreement, Employee will have access to Confidential Information, all of which
shall be made accessible to Employee
3
<PAGE>
only in strict confidence; that unauthorized disclosure of Confidential
Information will damage the Company's business; that Confidential Information
would be susceptible to immediate competitive application by a competitor of the
Company; that the Company's business is substantially dependent on access to and
the continuing secrecy of Confidential Information; that Confidential
Information is unique and proprietary to the Company and known only to Employee,
the Company and certain key employees and contractors of the Company; and that
title, ownership, possession and control of Confidential Information shall at
all times remain vested in the Company. Consequently, Employee acknowledges that
the restrictions contained in this Section 6 are reasonable and necessary for
the protection of the Company's business.
(d) All documents or other records containing or referring to
Confidential Information that are prepared by or provided to Employee during the
term of this Agreement or that come into Employee's possession in connection
with Employee's performance of services under this Agreement are and shall
remain the Company's property. Employee shall not copy or use any such
documents or Confidential Information for any purpose not relating directly to
Employee's duties under this Agreement, nor shall Employee market or in any way
provide or make available to any party other than the Company any of the
Confidential Information, except pursuant to prior written authorization from
the Company. Upon the termination of this Agreement for any reason and
regardless of the circumstances of such termination or the existence of any
dispute between Employee and the Company following or concerning the termination
of Employee's employment, or upon the request of the Company, its successors or
assigns, Employee shall immediately deliver to the Company or its designee (and
will not keep in Employee's possession or deliver to anyone else) any and all
devices, records, data, notes, reports, proposals, lists, correspondence,
specifications, drawings, blueprints, sketches, materials, equipment, other
documents or property, or reproductions of any aforementioned items belonging to
the Company, its successors or assigns. Notwithstanding any other provision of
this Agreement, this Agreement shall not bar Employee from complying with any
subpoena or court order, provided that prior to doing so Employee shall give the
Company's Manager prior written notice, at the Company's principal place of
business, of Employee's receipt of any such subpoena or court order as far as
possible in advance of the appearance time set forth in the subpoena or court
order.
(e) Employee acknowledges that the Company has received and in
the future will receive from third parties confidential or proprietary
information, and that the Company must maintain the confidentiality of such
information and use it only for proper purposes. Employee shall not use or
disclose any such information except as permitted by the Company or the third
party to whom the information belongs.
(f) Employee shall not, during Employee's employment with the
Company, improperly use or disclose any proprietary information or trade secrets
belonging to any former employer or any third party to whom Employee owes a duty
of nondisclosure.
7. Covenants Not to Compete or Interfere.
-------------------------------------
(a) During the term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates) and for
a period of eighteen months after termination of this Agreement (or, if later,
termination of Employee's employment with the Company or any of its affiliates),
Employee shall not, within the United States or within a 50 mile radius of any
area where the Company is or contemplates doing business at the time of such
termination, directly or indirectly, own, manage, operate, control, be employed
by, participate in or be connected in any manner
4
<PAGE>
with the ownership, management, operation or control of any business that has
services or products competitive or similar to the services or products of the
Company or its affiliates.
(b) During the term of this Agreement (or, if longer, during the
term of Employee's employment with the Company or any of its affiliates) and for
a period of eighteen months after termination of this Agreement (or, if later,
termination of Employee's employment with the Company or any of its affiliates),
Employee shall not (i) directly or indirectly cause or attempt to cause any
employee of the Company or of any of its affiliates to leave the employ of the
Company or any affiliate, (ii) in any way interfere with the relationship
between the Company and any employee or between an affiliate and any employee of
the affiliate, (iii) directly or indirectly hire any employee of the Company or
of any affiliate to work for any organization of which Employee is an officer,
director, employee, consultant, independent contractor or owner of an equity or
other financial interest, or (iv) interfere or attempt to interfere with any
transaction in which the Company or any of its affiliates was involved during
the term of this Agreement or his employment.
(c) Employee acknowledges that through his employment with the
Company he will acquire access to information suited to immediate application by
a business in competition with the Company. Accordingly, Employee considers the
foregoing restrictions on his future employment or business activities in all
respects reasonable. Employee specifically acknowledges that the Company and its
licensees, as well as the Company's competitors, distribute their products
throughout the United States. Employee therefore specifically consents to the
foregoing geographic restriction on competition and believes that such a
restriction is reasonable, given the scope of the Company's business and the
nature of Employee's position with the Company.
(d) Employee acknowledges the following provisions of Colorado
law, set forth in Colorado Revised Statutes (S) 8-2-113(2):
"Any covenant not to compete which restricts the right of any person
to receive compensation for performance of skilled or unskilled labor
for any employer shall be void, but this subsection (2) shall not
apply to:
(a) Any contract for the purchase and sale of a business or
the assets of a business;
(b) Any contract for the protection of trade secrets;
(c) Any contract provision providing for the recovery of
the expense of educating and training an employee who
has served an employer for a period of less than two
years;
(d) Executive and management personnel and officers and
employees who constitute professional staff to
executive and management personnel."
Employee acknowledges that this Agreement is a contract for the protection of
trade secrets under (S) 8-2-113(2)(b), and is intended to protect the
confidential information and trade secrets of the Company; and that Employee is
an executive and management employee or professional staff to executive or
management personnel, within the meaning of (S) 8-2-113(2)(d).
5
<PAGE>
(e) Employee acknowledges and is prepared for the possibility
that his standard of living may be reduced during the noncompetition period
provided in this Section following the termination of this Agreement, and fully
accepts any risk associated with that possibility.
8. Injunctive Relief. Upon a breach or threatened breach by
-----------------
Employee of any of the provisions of Sections 6 or 7 of this Agreement, the
Company shall be entitled to an injunction restraining Employee from such
breach. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies for such breach or threatened breach, including
recovery of damages from Employee.
9. Waiver of Breach. A waiver by the Company of a breach of any
----------------
provision of this Agreement by Employee shall not operate or be construed as a
waiver of any subsequent breach by Employee.
10. Severability. It is the desire and intent of the parties that
------------
the provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision or
portion of this Agreement shall be adjudicated to be invalid or unenforceable,
this Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of this Section in the particular jurisdiction in which
such adjudication is made.
11. Inventions and Discoveries.
--------------------------
(a) Employee agrees to disclose promptly to the Company the full
details of any and all ideas, processes, recipes, trademarks and service marks,
works, inventions, discoveries, marketing and business ideas, and improvements
or enhancements to any of the foregoing, that Employee conceives, develops or
creates alone or with the aid of others during the term of Employee's employment
with the Company (whether or not conceived, developed or created during regular
working hours) that: (i) relate to the Company's business; (ii) result from any
work performed by Employee for the Company; (iii) involve the use of the
Company's equipment, supplies, facilities, or trade secret information; (iv)
result from or are suggested by any work done at the Company's request or by any
Company employee other than Employee, or relate to any problems specifically
assigned to Employee; or (v) result from Employee's access to any of the
Company's memoranda, notes, records, drawings, sketches, models, maps, customer
lists, research results, data, formula, specifications, inventions, processes,
recipes, equipment, or the like.
(b) Employee shall assign to the Company, without further
consideration, Employee's entire right to any concept, idea or invention
described in the preceding subsection, which shall be the sole and exclusive
property of the Company whether or not patentable. Employee also acknowledges
that all original works of authorship which are made by Employee (solely or
jointly with others), within the scope of Employee's employment, and which are
protectable by copyright, are "works made for hire," as that term is defined in
the United States Copyright Act (17 U.S.C. (S) 101). To the extent that any
such works, by operation of law, cannot be "works made for hire," Employee
hereby assigns to the Company all right, title, and interest in and to such
works and to any related copyrights.
12. Notices. All communications, requests, consents and other
-------
notices provided for in this Agreement shall be in writing and shall be deemed
given if mailed by first class mail, postage prepaid, addressed as follows:
6
<PAGE>
(i) If to the Company: to its principal office at P.O. Box
309, Fort Lupton, Colorado 80621;
(ii) If to Employee: to _______________________________;
or such other address as either party may hereafter designate by notice as
herein provided. Notwithstanding the foregoing provisions of this Section 12, so
long as Employee is employed by the Company any such communication, request,
consent or other notice shall be deemed given if delivered as follows: if to
the Company, by hand delivery to any executive officer of the Company [other
than Employee], and if to Employee, by hand delivery to him.
13. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Colorado.
14. Assignment. The Company may assign its rights and obligations
----------
under this Agreement to any affiliate of the Company or to any acquirer of
substantially all of the business of the Company, and all covenants and
agreements hereunder shall inure to the benefit of and be enforceable by or
against any such assignee. Neither this Agreement nor any rights or duties
hereunder may be signed or delegated by Employee.
15. Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding of the parties and supersedes all prior understandings,
agreements or representations by or between the parties, whether written or
oral, which relate in any way to the subject matter hereof.
16. Amendments. No provision of this Agreement shall be altered,
----------
amended, revoked or waived except by an instrument in writing signed by the
party sought to be charged with such amendment, revocation or waiver.
17. Binding Effect. Except as otherwise provided herein, this
--------------
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective legal representatives, heirs, successors and
assigns.
7
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
THE COMPANY:
-----------
COLORADO GREENHOUSE HOLDINGS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
EMPLOYEE:
--------
_______________________________________
ALAN FINE
8
<PAGE>
EXHIBIT 10.49
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated effective October 15,
1997, is between Colorado Greenhouse Holdings, Inc., a Delaware corporation (the
"Company"), and James R. Rinella ("Employee").
In consideration of the mutual covenants and agreements contained herein,
the parties hereto agree as follows:
1. Employment. The Company hereby employs Employee and Employee hereby
----------
agrees to be employed by the Company for the period and upon the terms and
conditions hereinafter set forth.
2. Capacity and Duties. Employee shall be employed by the Company as its
-------------------
Chief Executive Officer. During his employment Employee shall perform the
duties and bear the responsibilities commensurate with his position and shall
serve the Company faithfully and to the best of his ability, under the direction
of the board of directors of the Company. Employee shall devote his entire
working time, attention and energies to the business of the Company. His
actions shall at all times be such that they do not discredit the Company or its
products and services. Except for his involvement in personal investments,
provided such involvement does not require any significant services on his part,
Employee shall not engage in any other business activity or activities that
require significant personal services by Employee or that, in the judgment of
the board of directors, may conflict with the proper performance of Employee's
duties hereunder.
3. Compensation.
------------
(a) For all services rendered by Employee the Company shall pay
Employee during the term of this Agreement an annual salary as set forth herein,
payable semimonthly in arrears. Employee's initial annual salary shall be
$200,000. During the term of this Agreement, the amount of Employee's salary
shall be reviewed at periodic intervals and, upon agreement of the parties
hereto, appropriate adjustments in such salary may be made.
(b) In addition to salary payments as provided in Section 3(a), the
Company shall provide Employee, during the term of this Agreement, with the
benefits of such insurance plans, hospitalization plans and other employee
fringe benefit plans as shall be generally provided to employees of the Company
and for which Employee may be eligible under the terms and conditions thereof.
Nothing herein contained shall require the Company to adopt or maintain any such
employee benefit plans.
(c) During the term of this Agreement, except as otherwise provided in
Section 5(b), Employee shall be entitled to sick leave consistent with the
Company's customary sick leave and vacation policies. Employee shall be
entitled to three weeks annual vacation.
(d) During the term of this Agreement the Company shall reimburse
Employee for all reasonable out-of-pocket expenses incurred by Employee in
connection with the business of the Company and in the performance of his duties
under this Agreement upon presentation to the Company of an itemized accounting
of such expenses with reasonable supporting data. Without limiting the
foregoing, the Company shall reimburse Employee for the cost of one home
telephone line plus facsimile equipment.
<PAGE>
(e) The Company shall reimburse Employee for reasonable moving
expenses (including the cost of one trip by Employee and his spouse to survey
the Front Range housing market) not to exceed $25,000 within 30 days after
presentation of reasonable documentation thereof.
(f) The Company's compensation committee (the "Compensation
Committee") shall establish a performance based bonus plan that will provide for
annual bonuses of up to 50% of Employee's annual salary based upon achieving
certain milestones. Currently, as to Employee, the Compensation Committee
expects to authorize a bonus of $100,000 if annual EBT projections are achieved,
plus $10,000 for each additional $500,000 in EBT above projections.
(g) The Company shall grant to Employee the option to acquire shares
of the Company's common stock as provided in the Incentive and Nonincentive
Stock Option Certificates (the "Certificate") attached as Exhibits A-1 and A-2.
In addition, the Company may grant to Employee such other stock options as may
be approved by the Compensation Committee.
(h) The Company shall negotiate a vehicle and mileage allowance with
and for Employee.
4. Term/Severance.
--------------
(a) Unless sooner terminated in accordance with Section 5, the term of
this Agreement shall be from the date of this Agreement until December 31, 2002.
The provisions of Sections 6, 7, 8 and 10 shall remain in full force and effect
for the time periods specified in such Sections notwithstanding the termination
of this Agreement.
(b) If this Agreement is terminated by the Company prior to the end of
its term pursuant to any provision other than Section 5(d), then the Company
shall pay to Employee one year's annual salary in 12 monthly installments as
severance. The Company shall deduct from such severance payment all applicable
deductions and withholdings.
5. Termination.
-----------
(a) If Employee dies during the term of this Agreement, the Company
shall pay his estate the compensation that would otherwise be payable to him for
the month in which his death occurs, and this Agreement shall be considered
terminated on the last day of such month. In addition, as provided in the
Company's stock option plan and the Certificate vested stock option may be
exercised by Employee's heirs.
(b) If during the term of this Agreement Employee is prevented from
performing his duties by reason of illness or incapacity for a continuous period
of 120 days the Company may terminate this Agreement upon 30 days' prior notice
thereof to Employee or his duly appointed legal representative. For the
purposes of this Section 5(b), a period of illness or incapacity shall be deemed
"continuous" notwithstanding Employee's performance of his duties during such
period for continuous periods of less than 15 days in duration.
(c) The Company may terminate this Agreement upon at least 30 days'
prior notice to him upon the happening of any of the following events:
(i) the sale by the Company of substantially all of its assets to
a single purchaser or associated group of purchasers who are not then
affiliates of the Company;
2
<PAGE>
(ii) the sale, exchange or other disposition in one
transaction of 51% or more of the outstanding voting stock of the
Company to or with a person, firm or corporation not then an affiliate
of the Company;
(iii) a bona fide decision by the Company to terminate its
business and liquidate its assets (but only if such liquidation is not
part of a plan to carry on the Company's business through its
shareholders);
(iv) the merger or consolidation of the Company in a
transaction in which the shareholders of the Company receive less than
50% of the outstanding voting stock of the new or continuing
corporation; or
(v) the damage, destruction or other loss (including that
caused by condemnation or similar proceedings) to the Company's
facilities to such an extent that the Company is unable to conduct the
ordinary course of its business for a continuous period of 90 days or
more.
(d) The Company may terminate this Agreement at any time upon 10
days' prior notice, for Employee's misconduct or gross negligence or for a
material breach of any obligation created by this Agreement.
(e) The Company may terminate this Agreement at any time for any or
no reason upon payment to Employee of an amount equal to Employee's annual
salary under this Agreement at the time of such termination.
(f) Either party may elect to terminate this Agreement by giving
notice to the other party at least 60 days prior to any anniversary of the
execution of this Agreement.
For purposes of this Agreement, the term "affiliate" or "affiliates" means a
person, firm or corporation that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with the
Company.
6. Confidential Information.
------------------------
(a) As used in this Agreement, the term "Confidential Information"
shall include all nonpublic information concerning or arising from the
Company's business, including, without limitation, trade secrets used or
developed by the Company in connection with its business; information concerning
the manner and details of the Company's operation, organization and management;
financial information and/or documents and nonpublic policies, procedures and
other printed or written material generated or used in connection with the
Company's business; the Company's business plans and strategies; the identities
of the Company's customers and the specific individual customer representatives
with whom the Company works and details of the Company's relationship with such
customers and customer representatives; the identities of distributors,
suppliers, contractors and vendors utilized in the Company's business and
details of the Company's relationship with such distributors, suppliers,
contractors and vendors; the nature of fees and charges made to the Company's
customers; nonpublic forms, contracts and other documents used in the Company's
business; the nature and content of computer software used in the
3
<PAGE>
Company's business, whether proprietary to the Company or used by the Company
under license from a third party; and/or other information concerning know-how,
research, inventions, copyrights, trademarks, patents, processes, designs,
methods, concepts, prospects, customers, employees, contractors, earnings,
products, services, formulas, recipes, compositions, machines, equipment,
systems, and/or prospective and executed contracts and other business
arrangements.
(b) Except in connection with and in furtherance of Employee's
official duties with and on behalf of the Company, Employee shall not at any
time or in any manner use, copy, disclose, divulge, transmit, convey, transfer
or otherwise communicate any Confidential Information to any person or entity,
either directly or indirectly, without the Company's prior written consent.
(c) Employee acknowledges that during the term of this Agreement,
Employee will have access to Confidential Information, all of which shall be
made accessible to Employee only in strict confidence; that unauthorized
disclosure of Confidential Information will damage the Company's business; that
Confidential Information would be susceptible to immediate competitive
application by a competitor of the Company; that the Company's business is
substantially dependent on access to and the continuing secrecy of Confidential
Information; that Confidential Information is unique and proprietary to the
Company and known only to Employee, the Company and certain key employees and
contractors of the Company; and that title, ownership, possession and control of
Confidential Information shall at all times remain vested in the Company.
Consequently, Employee acknowledges that the restrictions contained in this
Section 6 are reasonable and necessary for the protection of the Company's
business.
(d) All documents or other records containing or referring to
Confidential Information that are prepared by or provided to Employee during the
term of this Agreement or that come into Employee's possession in connection
with Employee's performance of services under this Agreement are and shall
remain the Company's property. Employee shall not copy or use any such
documents or Confidential Information for any purpose not relating directly to
Employee's duties under this Agreement, nor shall Employee market or in any way
provide or make available to any party other than the Company any of the
Confidential Information, except pursuant to prior written authorization from
the Company. Upon the termination of this Agreement for any reason and
regardless of the circumstances of such termination or the existence of any
dispute between Employee and the Company following or concerning the termination
of Employee's employment, or upon the request of the Company, its successors or
assigns, Employee shall immediately deliver to the Company or its designee (and
will not keep in Employee's possession or deliver to anyone else) any and all
devices, records, data, notes, reports, proposals, lists, correspondence,
specifications, drawings, blueprints, sketches, materials, equipment, other
documents or property, or reproductions of any aforementioned items belonging to
the Company, its successors or assigns. Notwithstanding any other provision of
this Agreement, this Agreement shall not bar Employee from complying with any
subpoena or court order, provided that prior to doing so Employee shall give the
Company's Manager prior written notice, at the Company's principal place of
business, of Employee's receipt of any such subpoena or court order as far as
possible in advance of the appearance time set forth in the subpoena or court
order.
(e) Employee acknowledges that the Company has received and in the
future will receive from third parties confidential or proprietary information,
and that the Company must maintain the confidentiality of such information and
use it only for proper purposes. Employee shall not use or disclose any such
information except as permitted by the Company or the third party to whom the
information
4
<PAGE>
belongs.
(f) Employee shall not, during Employee's employment with the
Company, improperly use or disclose any proprietary information or trade secrets
belonging to any former employer or any third party to whom Employee owes a duty
of nondisclosure.
7. Covenants Not to Compete or Interfere.
-------------------------------------
(a) During the term of this Agreement (or, if longer, during the term
of Employee's employment with the Company or any of its affiliates) and for a
period of eighteen months after termination of this Agreement (or, if later,
termination of Employee's employment with the Company or any of its affiliates),
Employee shall not, within the United States or within a 50 mile radius of any
area where the Company is or contemplates doing business at the time of such
termination, directly or indirectly, own, manage, operate, control, be employed
by, participate in or be connected in any manner with the ownership, management,
operation or control of any business that has services or products competitive
or similar to the services or products of the Company or its affiliates.
(b) During the term of this Agreement (or, if longer, during the term
of Employee's employment with the Company or any of its affiliates) and for a
period of eighteen months after termination of this Agreement (or, if later,
termination of Employee's employment with the Company or any of its affiliates),
Employee shall not (i) directly or indirectly cause or attempt to cause any
employee of the Company or of any of its affiliates to leave the employ of the
Company or any affiliate, (ii) in any way interfere with the relationship
between the Company and any employee or between an affiliate and any employee of
the affiliate, (iii) directly or indirectly hire any employee of the Company or
of any affiliate to work for any organization of which Employee is an officer,
director, employee, consultant, independent contractor or owner of an equity or
other financial interest, or (iv) interfere or attempt to interfere with any
transaction in which the Company or any of its affiliates was involved during
the term of this Agreement or his employment.
(c) Employee acknowledges that through his employment with the
Company he will acquire access to information suited to immediate application by
a business in competition with the Company. Accordingly, Employee considers the
foregoing restrictions on his future employment or business activities in all
respects reasonable. Employee specifically acknowledges that the Company and its
licensees, as well as the Company's competitors, distribute their products
throughout the United States. Employee therefore specifically consents to the
foregoing geographic restriction on competition and believes that such a
restriction is reasonable, given the scope of the Company's business and the
nature of Employee's position with the Company.
(d) Employee acknowledges the following provisions of Colorado law,
set forth in Colorado Revised Statutes (S) 8-2-113(2):
"Any covenant not to compete which restricts the right of any person
to receive compensation for performance of skilled or unskilled labor
for any employer shall be void, but this subsection (2) shall not
apply to:
(a) Any contract for the purchase and sale of a business or
the assets
5
<PAGE>
of a business;
(b) Any contract for the protection of trade secrets;
(c) Any contract provision providing for the recovery of
the expense of educating and training an employee who
has served an employer for a period of less than two
years;
(d) Executive and management personnel and officers and
employees who constitute professional staff to
executive and management personnel."
Employee acknowledges that this Agreement is a contract for the protection of
trade secrets under (S) 8-2-113(2)(b), and is intended to protect the
confidential information and trade secrets of the Company; and that Employee is
an executive and management employee or professional staff to executive or
management personnel, within the meaning of (S) 8-2-113(2)(d).
(e) Employee acknowledges and is prepared for the possibility that
his standard of living may be reduced during the noncompetition period provided
in this Section following the termination of this Agreement, and fully accepts
any risk associated with that possibility.
8. Injunctive Relief. Upon a breach or threatened breach by Employee of
-----------------
any of the provisions of Sections 6 or 7 of this Agreement, the Company shall be
entitled to an injunction restraining Employee from such breach. Nothing herein
shall be construed as prohibiting the Company from pursuing any other remedies
for such breach or threatened breach, including recovery of damages from
Employee.
9. Waiver of Breach. A waiver by the Company of a breach of any
----------------
provision of this Agreement by Employee shall not operate or be construed as a
waiver of any subsequent breach by Employee.
10. Severability. It is the desire and intent of the parties that the
------------
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision or portion of
this Agreement shall be adjudicated to be invalid or unenforceable, this
Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of this Section in the particular jurisdiction in which
such adjudication is made.
11. Inventions and Discoveries.
--------------------------
(a) Employee agrees to disclose promptly to the Company the full
details of any and all ideas, processes, recipes, trademarks and service marks,
works, inventions, discoveries, marketing and business ideas, and improvements
or enhancements to any of the foregoing, that Employee conceives, develops or
creates alone or with the aid of others during the term of Employee's employment
with the Company (whether or not conceived, developed or created during regular
working hours) that: (i) relate to the Company's business; (ii) result from any
work performed by Employee for the Company; (iii) involve
6
<PAGE>
the use of the Company's equipment, supplies, facilities, or trade secret
information; (iv) result from or are suggested by any work done at the Company's
request or by any Company employee other than Employee, or relate to any
problems specifically assigned to Employee; or (v) result from Employee's access
to any of the Company's memoranda, notes, records, drawings, sketches, models,
maps, customer lists, research results, data, formula, specifications,
inventions, processes, recipes, equipment, or the like.
(b) Employee shall assign to the Company, without further
consideration, Employee's entire right to any concept, idea or invention
described in the preceding subsection, which shall be the sole and exclusive
property of the Company whether or not patentable. Employee also acknowledges
that all original works of authorship which are made by Employee (solely or
jointly with others), within the scope of Employee's employment, and which are
protectable by copyright, are "works made for hire," as that term is defined in
the United States Copyright Act (17 U.S.C. (S) 101). To the extent that any such
works, by operation of law, cannot be "works made for hire," Employee hereby
assigns to the Company all right, title, and interest in and to such works and
to any related copyrights.
12. Notices. All communications, requests, consents and other notices
-------
provided for in this Agreement shall be in writing and shall be deemed given if
mailed by first class mail, postage prepaid, addressed as follows:
(i) If to the Company: to its principal office at 6811 Weld
County Road #31, Fort Lupton, Colorado
80621;
(ii) If to Employee: to his home at 564 West Sagebrush Court
Louisville, Colorado 80027;
or such other address as either party may hereafter designate by notice as
herein provided. Notwithstanding the foregoing provisions of this Section 12, so
long as Employee is employed by the Company any such communication, request,
consent or other notice shall be deemed given if delivered as follows: if to
the Company, by hand delivery to any executive officer of the Company other than
Employee, and if to Employee, by hand delivery to him.
13. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Colorado.
14. Assignment. The Company may assign its rights and obligations under
----------
this Agreement to any affiliate of the Company or to any acquirer of
substantially all of the business of the Company, and all covenants and
agreements hereunder shall inure to the benefit of and be enforceable by or
against any such assignee. Neither this Agreement nor any rights or duties
hereunder may be signed or delegated by Employee.
15. Entire Agreement. This Agreement sets forth the entire agreement and
----------------
understanding of the parties and supersedes all prior understandings, agreements
or representations by or between the parties, whether written or oral, which
relate in any way to the subject matter hereof.
16. Amendments. No provision of this Agreement shall be altered, amended,
----------
revoked or waived except by an instrument in writing signed by the party sought
to be charged with such amendment, revocation or waiver.
7
<PAGE>
17. Binding Effect. Except as otherwise provided herein, this Agreement
--------------
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective legal representatives, heirs, successors and assigns.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first above written.
THE COMPANY:
-----------
COLORADO GREENHOUSE HOLDINGS, INC.
By: /s/ R. C. Mercure Jr
-----------------------------------
Name: R. C. Mercure Jr
---------------------------------
Title: Chairman Compensation Comm.
--------------------------------
EMPLOYEE:
--------
/s/ James R. Rinella
--------------------------------------
JAMES R. RINELLA
8
<PAGE>
VESTING SCHEDULE FOR JAMES R. RINELLA AND ALAN FINE
STOCK OPTIONS
EXERCISE PRICE: $4.25
<TABLE>
<CAPTION>
RINELLA FINE
- ------- ----
<S> <C>
250,000 options 100,000 options
(94,116 incentive and (all incentive)
155,884 non-incentive)
</TABLE>
<TABLE>
<CAPTION>
Incentive Non-incentive Calendar Year Number
- --------- ------------- ------------- ------
<S> <C> <C> <C>
23,529 --- 1997 23,529
23,529 51,961 1998 23,529
23,529 51,962 1999 23,529
23,529 51,962 2000 23,529
2001 5,884
</TABLE>
<PAGE>
EXHIBIT A-1
Certificate No. 1997-[ ]
---------
COLORADO GREENHOUSE HOLDINGS, INC.
----------------------------------
INCENTIVE STOCK OPTION CERTIFICATE
----------------------------------
Option Holder: James R. Rinella
Option Price: $4.25 per share
Date of Grant: October 15, 1997
Number of Shares: 94,116
1. This certifies that the above named Option Holder (the "Holder") is the
holder of an incentive stock option (the "Option") to acquire, at the exercise
price per share specified above, the number of shares of the $0.001 par value
common stock ("Stock"), of Colorado Greenhouse Holdings, Inc., a Delaware
corporation (the "Company"), specified above. The Option evidenced by this
Certificate is intended to qualify as an incentive stock option within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended from
time to time (the "Code"), and is granted as of the date specified above and
expires, unless sooner terminated, at 5:00 p.m., Boulder, Colorado time, October
31, 2004.
2. This Certificate is issued as evidence of the Option granted the Holder
pursuant to the Company's 1996 Stock Option Plan effective November 19, 1996
(the "Plan"). Subject to the express terms of this Option, the Option is
subject to all terms and conditions of the Plan, which provisions are
incorporated herein by reference. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Plan. A copy
of the Plan is available on request from the Company.
3. The Option shall become exercisable as follows; 23,529 shares on the date
hereof and an additional 23,529 on each of October 15, 1998, 1999 and 2000.
4. In the event that any of the following occurs prior to October 15, 2000, all
shares of the Option shall vest on the date of such event, provided the
continuous employment requirement set forth in the Plan is satisfied: (i) there
occurs a greater than 40% change in ownership of the outstanding capital stock
of the Company, other than a transfer of such capital stock to a successor
entity that is a related party or affiliate of the Company or to the beneficial
owners of the current stockholders, or (ii) the Company consummates an
underwritten initial public offering.
5. Notwithstanding the terms of Section 6.3(d)(ii) and (iii) of the Plan, if
Holder's employment by the Company is terminated because the Holder becomes
Disabled within the Option Period, or because Holder dies within the Option
Period, while employed by the Company or within the three-month period referred
to in Section 6.3(d)(iv), the Option may be exercised by Holder or those
entitled to do so under his will or by the laws of descent and distribution
within three years following his death or disability (if otherwise within the
Option Period) but not thereafter.
6. Except as explicitly set forth in this Certificate, under the provisions of
the Plan or as the Board of Directors may determine in its sole and absolute
discretion, the Option shall not be exercisable as to any shares as to which the
continuous employment requirement is not satisfied, regardless of the
circumstances under which the Holder's employment by the Company is terminated.
The number of shares as to which the Option may be exercised is cumulative, so
that once the Option is exercisable as to any shares it shall continue to be
exercisable as to such shares until expiration or termination of the Option as
provided in the Plan. A form of written notice for the purpose of exercising
the Option is attached. Pursuant to the Plan,
A-1
<PAGE>
exercising the Option is attached. Pursuant to the Plan, the Company may require
the Holder to execute a Shareholders' Agreement in connection with exercise of
the Option.
Date: October 15, 1997 Colorado Greenhouse Holdings, Inc., a
Delaware corporation
By: /s/ R.C Mercure Jr.
--------------------------------
Name: R.C. MERCURE JR.
------------------------------
Title: CHAIRMAN, COMPENSATION, COMM.
----------------------------
A-2
<PAGE>
FORM OF OPTION EXERCISE NOTICE
------------------------------
The undersigned Holder hereby exercises the Option described in this
Certificate as to the number of shares specified below and includes herewith the
purchase price for such shares.
Number of Shares: ___________________________________________
Signature of Holder: ___________________________________________
Printed Name: ___________________________________________
Fiduciary Capacity, if any: ___________________________________________
Address: ___________________________________________
___________________________________________
Telephone: ___________________________________________
Signature Guarantee: ___________________________________________
Date: ___________________________________________
A-3
<PAGE>
EXHIBIT A-2
Certificate No. 1997-[ ]
---------
COLORADO GREENHOUSE HOLDINGS, INC.
----------------------------------
NONINCENTIVE STOCK OPTION CERTIFICATE
-------------------------------------
Option Holder: James R. Rinella
Option Price: $4.25 per share
Date of Grant: October 15, 1997
Number of Shares: 155,884
1. This certifies that the above named Option Holder (the "Holder") is the
holder of an incentive stock option (the "Option") to acquire, at the exercise
price per share specified above, the number of shares of the $0.001 par value
common stock ("Stock"), of Colorado Greenhouse Holdings, Inc., a Delaware
corporation (the "Company"), specified above. The Option evidenced by this
Certificate is granted as of the date specified above and expires, unless sooner
terminated, at 5:00 p.m., Boulder, Colorado time, October 31, 2004.
2. This Certificate is issued as evidence of the Option granted the Holder
pursuant to the Company's 1996 Stock Option Plan effective November 19, 1996
(the "Plan"). Subject to the express terms of this Option, the Option is
subject to all terms and conditions of the Plan, which provisions are
incorporated herein by reference. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Plan. A copy
of the Plan is available on request from the Company.
3. The Option shall become exercisable as follows; 51,961 shares on each of
October 15, 1998 and 1999, and 51,962 shares on October 15, 2000.
4. In the event that any of the following occurs prior to October 15, 2000, all
shares of the Option shall vest on the date of such event, provided the
continuous employment requirement set forth in the Plan is satisfied: (i) there
occurs a greater than 40% change in ownership of the outstanding capital stock
of the Company, other than a transfer of such capital stock to a successor
entity that is a related party or affiliate of the Company or to the beneficial
owners of the current stockholders, or (ii) the Company consummates an
underwritten initial public offering.
5. Notwithstanding the terms of Section 6.3(d)(ii) and (iii) of the Plan, if
Holder's employment by the Company is terminated because the Holder becomes
Disabled within the Option Period, or because Holder dies within the Option
Period, while employed by the Company or within the three-month period referred
to in Section 6.3(d)(iv), the Option may be exercised by Holder or those
entitled to do so under his will or by the laws of descent and distribution
within three years following his death or disability (if otherwise within the
Option Period) but not thereafter.
6. Except as explicitly set forth in this Certificate, under the provisions of
the Plan or as the Board of Directors may determine in its sole and absolute
discretion, the Option shall not be exercisable as to any shares as to which the
continuous employment requirement is not satisfied, regardless of the
circumstances under which the Holder's employment by the Company is terminated.
The number of shares as to which the Option may be exercised is cumulative, so
that once the Option is exercisable as to any shares it shall continue to be
exercisable as to such shares until expiration or termination of the Option as
provided in the Plan. A form of written notice for the purpose of
A-1
<PAGE>
the Company may require the Holder to execute a Shareholders' Agreement in
connection with exercise of the Option.
Date: October 15, 1997 Colorado Greenhouse Holdings, Inc., a
Delaware corporation
By: /s/ R.C Mercure Jr.
--------------------------------
Name: R.C. Mercure Jr.
------------------------------
Title: Chairman, Compensation, Comm.
----------------------------
A-2
<PAGE>
FORM OF OPTION EXERCISE NOTICE
------------------------------
The undersigned Holder hereby exercises the Option described in this
Certificate as to the number of shares specified below and includes herewith the
purchase price for such shares.
Number of Shares: ___________________________________________
Signature of Holder: ___________________________________________
Printed Name: ___________________________________________
Fiduciary Capacity, if any: ___________________________________________
Address: ___________________________________________
___________________________________________
Telephone: ___________________________________________
Signature Guarantee: ___________________________________________
Date: ___________________________________________
A-3
<PAGE>
EXHIBIT 10.50
SEPARATION AGREEMENT AND LEGAL RELEASE
This agreement is between Colorado Greenhouse Holdings, Inc. ("CG"), and
Edward J. Wetherbee ("Wetherbee"), and shall be effective as of October 20, 1997
(the "Effective Date").
RECITALS
--------
1. Wetherbee is employed by CG as its chief executive officer, but
desires to resign as chief executive officer as of the Effective Date.
2. CG and Wetherbee are parties to that certain Severance and Noncompete
Agreement (the "Agreement") dated effective as of December 31, 1996. CG and
Wetherbee desire fully and completely to resolve all matters between them
relating in any way to Wetherbee's resignation and the Agreement.
AGREEMENT
---------
In consideration of the conditions, covenants, and agreements set forth
below, the receipt and sufficiency of which are hereby acknowledged by CG and
Wetherbee, the parties agree as follows:
1. Duties. Between the Effective Date and December 31, 1997, Wetherbee
------
shall continue to perform the non-operating duties of Chairman of the Board (the
"Board") and shall perform such tasks as he and the Board may mutually agree.
2. Compensation and Benefits.
-------------------------
a. Between the Effective Date and December 31, 1997, Wetherbee shall
remain on CG's payroll and shall continue to receive the same base salary that
he received for the pay period immediately preceding the Effective Date, payable
in installments on CG's customary paydays, less legally required withholdings.
Wetherbee shall be deemed an employee of CG until December 31, 1997, at which
time his employment with CG shall terminate.
b. Between the Effective Date and December 31, 1997, Wetherbee
shall be eligible to continue to participate in CG's company-sponsored benefit
plans, including its health insurance plan and its 401k plan, on the same terms
as applied to him immediately before the Effective Date. After the effective
date, however, Wetherbee shall not accrue any paid vacation, sick days or other
paid leave of any kind.
3. Stock Options. The parties acknowledge that Wetherbee currently holds
-------------
certain unvested stock options, consisting of the option to buy 202,725 shares
of CG stock at a strike price of $.74 per share, two-thirds of which are fully
vested and one-third of which is not scheduled to vest until December 31, 1997.
In order to remove any ambiguity concerning the vesting of the final one-third
of such options, CG agrees that on the Effective Date, the last one-third of the
stock options that are scheduled to vest in Wetherbee on December 31, 1997 shall
instead vest in Wetherbee immediately. CG further agrees to amend Wetherbee's
<PAGE>
existing option agreement to extend the exercise period as set forth on Exhibit
A attached hereto and made a part hereof.
4. Agreement; Payments. CG and Wetherbee acknowledge and agree that the
-------------------
Agreement will terminate according to its terms on December 31, 1997. As final
payment of all amounts owned to Wetherbee thereunder, CG agrees to pay and
Wetherbee agrees to accept the payment of $120,000 as follows: $40,000 shall be
paid on January 2, 1998 and $6666.66 shall be paid monthly for 12 months on the
last day of each month beginning January 31, 1998 with the last payment on
December 31, 1998.
5. Release by Wetherbee. Wetherbee, for himself and his heirs, personal
--------------------
representatives and assigns, and any other firm or entity that could or might
act on behalf of him including, without limitation, his attorneys (all of whom
are collectively referred to as "Releasors"), hereby fully and forever release
and discharge CG, its present and future affiliates and subsidiaries, and each
of their past, present, and future officers, directors, employees, shareholders,
independent contractors, attorneys, insurers and any and all other persons or
entities that are now or may become liable to any Releasor due to any Releasee's
act or omission, all of whom are collectively referred to as "Releasees", of and
from any and all actions, causes of action, claims, demands, costs and expenses,
including attorneys' fees, of every kind and nature whatsoever, in law or in
equity, whether now known or unknown, that Releasors, or any person acting under
any of them, may now have, or claim at any future time to have, based in whole
or in part upon any act or omission occurring prior to the Effective Date,
without regard to present actual knowledge of such acts or omissions, including
specifically, but not by way of limitation, matters which may arise at common
law, such as breach of contract, express or implied, promissory estoppel,
wrongful discharge, tortious interference with contractual rights, infliction of
emotional distress, defamation, or under federal, state or local laws, such as
the Fair Labor Standards Act, the Employee Retirement Income Security Act, the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Rehabilitation Act of 1973, the Equal Pay
Act, the Americans with Disabilities Act, and the Colorado Civil Rights Act;
EXCEPT for the rights and obligations created by this agreement. Wetherbee
understands and agrees that by signing this agreement he is giving up his right
to bring any legal claim against CG of any nature related in any way, directly
or indirectly, to Wetherbee's employment relationship with CG, including his
separation from employment. Wetherbee agrees that this paragraph is intended to
be interpreted in the broadest possible manner in favor of CG, to include all
actual or potential legal claims that Wetherbee may have against CG, except as
specifically provided otherwise in this agreement.
6. Release by CG. CG, for itself and its affiliates, hereby fully and
-------------
forever releases and discharges Wetherbee of and from any and all actions,
causes of action, claims, demands, costs and expenses, including attorneys'
fees, of every kind and nature whatsoever, in law or in equity, whether now
known or unknown, that CG, or any person acting under it, may now have, or claim
at any time to have, based in whole or in part upon any act or omission
occurring prior to the Effective Date, without regard to present actual
knowledge of such acts or omissions, including specifically, but not by way of
limitation, matters which arise at common law, such as breach of contract,
express or implied, promissory estoppel, wrongful discharge, tortious
interference with contractual rights, infliction of emotional distress,
defamation or under federal, state or local laws.
2
<PAGE>
7. Authority and Nonassignment. The parties warrant that each has
---------------------------
authority to enter into this agreement, and that neither has transferred to any
other person or entity any claim, action, demand, or cause of action released by
this agreement.
8. Survival of Covenants and Warranties. All covenants and warranties
------------------------------------
contained in this agreement are contractual and shall survive the closing of
this agreement.
9. Miscellaneous. (a) Successors and Assigns. This agreement shall be
-------------
binding in all respects upon, and shall inure to the benefit of, the parties'
heirs, successors and assigns. (b) Governing Law. This agreement shall be
governed by the law of the State of Colorado, irrespective of the choice of law
principles of any jurisdiction. (c) Severability. In the event that a court of
competent jurisdiction enters a final judgement holding invalid any material
provision of this agreement, the remainder of this agreement shall be fully
enforceable. (d) Integration. This agreement and the Agreement constitute the
entire agreement of the parties and a complete merger of prior negotiations and
agreements. (e) Modification. This agreement and the Agreement shall not be
modified except in a writing signed by the parties. (f) Waiver. No term or
condition of this agreement shall be deemed to have been waived, nor shall there
be an estoppel against the enforcement of any provision of this agreement except
by written instruments signed by the party charged with the waiver or estoppel.
No waiver shall be deemed a continuing waiver unless specifically stated
therein, and the written waiver shall operate only as to the specific term or
condition waived, and not for the future or as to any act other than that
specifically waived. (g) Headings. Paragraph headings are intended solely as a
convenience and shall not control the meaning or interpretation of any provision
of this agreement. (h) Gender and Number. Pronouns contained in this agreement
shall equally apply to the feminine, neuter, and masculine genders. The singular
shall include the plural and the plural shall include the singular. (i) Burden
of Proof. Any party contesting the validity or enforceability of any term of
this agreement shall have the burden of proof as to fraud, concealment or
failure to disclose material information, unconscionability, misrepresentation,
mistake of fact or law, and any other matters. (j) Ambiguities. The parties
acknowledge that they have reviewed this agreement in its entirety and have had
a full opportunity to negotiate its terms, and therefore waive all applicable
rules of construction that any provision of this agreement should be construed
against its drafter and agree that all provisions of the agreement shall be
construed as a whole, according to the fair meaning of the language used.
In witness whereof, this agreement has been executed on the dates below
written, to be effective on the last such date.
Edward J. Wetherbee Colorado Greenhouse Holdings, Inc.
/s/ Edward J. Wetherbee By: /s/ R.C. Mercure, Jr.
- --------------------------------- ----------------------------------
R.C. Mercure, Jr.
DATE: Oct 31, 1997 Chairman of Compensation Committee
--------------
DATE: 10/31/97
----------
3
<PAGE>
EXHIBIT A
WRITTEN CONSENT IN LIEU OF MEETING
OF
DIRECTORS OF COLORADO GREENHOUSE HOLDINGS, INC.
THE UNDERSIGNED, being all of the Directors of COLORADO GREENHOUSE
HOLDINGS, INC., a Delaware corporation (the "Corporation"), do hereby consent
to, vote in favor of and adopt the following resolutions by unanimous written
consent to action without a meeting pursuant to Section 141(f) of the General
Corporation Law of the State of Delaware:
WHEREAS, Edward J. Wetherbee was granted an option (the "Option") on
November 19, 1996 to purchase shares of the Common Stock of the Corporation
pursuant to the Corporation's 1996 Stock Option Plan (the "Plan");
WHEREAS, the Section 6.3(d) of the Plan provides that the Option Committee
(which, at this time, consists of the full Board of Directors of the
Corporation) may specify the period during which an option may be exercised
following termination of the employment of an option holder and that in lieu of
so specifying, if the employment relationship with the Corporation terminates
within the Option Period (as defined in the Plan) for any reason, other than for
cause, and such termination occurs more than six months after the option is
granted, the Option may be exercised by the option holder within three months
following the date of such termination (if otherwise within the Option Period),
but not thereafter.
WHEREAS, the Option Committee did not specify the period during which
Edward J. Wetherbee's Option may be exercised following termination and now
desires to do so.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
determines that the period in which Edward J. Wetherbee may exercise his Option
following termination of his employment relationship with the Corporation shall
be three years from October 20, 1997.
[Directors' signatures follow]
<PAGE>
EXECUTED as of the dates set forth below.
______________________________ October ___, 1997
Edward J. Wetherbee, Chairman
______________________________ October ___, 1997
Steven J. Eley
______________________________ October ___, 1997
Charles Hurth
______________________________ October ___, 1997
Kit Jackson
/s/ R. C. Mercure, Jr. October ___, 1997
- ------------------------------
R. C. Mercure, Jr.
______________________________ October ___, 1997
Craig H. Sakin
______________________________ October ___, 1997
Vernon J. Twombly
-2-
<PAGE>
Exhibit 21.1
List of Subsidiaries of Colorado Greenhouse Holdings, Inc.
<TABLE>
<CAPTION>
Subsidiary State of Incorporation/Organization
---------- -----------------------------------
<S> <C>
Colorado Greenhouse, Inc. Delaware
CG Member, Inc. Delaware
CGH Sales, Inc. Delaware
Colorado Greenhouse, LLC Colorado
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and all references to our Firm) included in or made part of this
registration statement.
Arthur Andersen LLP
Denver, Colorado
June 19, 1998
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James R. Rinella and Alan R. Fine, and each of
them, his attorneys-in-fact, with full power of substitution, for him in any and
all capacities, to sign (i) a registration statement to be filed with the
Securities and Exchange Commission (the "Commission") on Form S-1 in connection
with the registration by Colorado Greenhouse Holdings, Inc., a Delaware
corporation (the "Company"), of shares of its Common Stock (the "Shares") and
initial public offering of such Shares, and (ii) all amendments (including post-
effective amendments) thereto; to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission; and to sign all
documents in connection with the qualification and sale of the Shares with Blue
Sky authorities; granting unto said attorneys-in-fact full power and authority
to perform any other act on behalf of the undersigned required to be done in the
premises, hereby ratifying and confirming all that said attorneys-in-fact may
lawfully do or cause to be done by virtue hereof.
Date: May 28, 1998 /s/ James R. Rinella
---------------------------------------------------
James R. Rinella
Date: May 28, 1998 /s/ Alan R. Fine
---------------------------------------------------
Alan R. Fine
Date: May 28, 1998 /s/ Edward J. Wetherbee
---------------------------------------------------
Edward J. Wetherbee
Date: May 28, 1998 /s/ Charles A. Hurth, Jr.
---------------------------------------------------
Charles A. Hurth, Jr.
Date: May 28, 1998 /s/ R.C. Mercure, Jr.
---------------------------------------------------
R.C. Mercure, Jr.
Date: May 19, 1998 /s/ Craig H. Sakin
---------------------------------------------------
Craig H. Sakin
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COLORADO
GREENHOUSE HOLDINGS, INC.'S 12/31/97 BALANCE SHEET & INCOME STATEMENT & 3/31/98
BALANCE SHEET & INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 2,055 2,262
<SECURITIES> 0 0
<RECEIVABLES> 3,464 3,219
<ALLOWANCES> 101 392
<INVENTORY> 3,927 5,664
<CURRENT-ASSETS> 10,541 12,259
<PP&E> 26,277 24,831
<DEPRECIATION> 1,253 1,618
<TOTAL-ASSETS> 37,869 41,494
<CURRENT-LIABILITIES> 7,507 9,101
<BONDS> 0 0
13,789 13,864
6 6
<COMMON> 0 0
<OTHER-SE> 6,121 7,678
<TOTAL-LIABILITY-AND-EQUITY> 37,869 41,494
<SALES> 24,944 10,070
<TOTAL-REVENUES> 24,944 10,070
<CGS> 22,257 5,671
<TOTAL-COSTS> 26,866 7,188
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 137 181
<INCOME-PRETAX> (1,729) 2,744
<INCOME-TAX> 653 (1,042)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,076) 1,702
<EPS-PRIMARY> 0 6,581.48
<EPS-DILUTED> (.11) .17
</TABLE>
