<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended December 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period from ____________ to
____________
Commission File Number: 0-8767
CALNETICS CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-2303687
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20401 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311
(Address of principal executive offices) (zip code)
(818) 886-9819
Registrant's telephone number, including area code
N/A
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the Registrant's Common Stock as of
December 31, 1996 was 2,969,799.
<PAGE> 2
CALNETICS CORPORATION
INDEX
Part I. Financial Information Page Number
- ------------------------------ -----------
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
Three Months and Six Months Ended December 31, 1996 and 1995 . . . 3
Condensed Consolidated Balance Sheets (Unaudited)
December 31, 1996 and June 30, 1996 . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended December 31, 1996 and 1995 . . . . . . . . . . . 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . 11
Part II. Other Information
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Page 2 of 44
<PAGE> 3
PART I - FINANCIAL INFORMATION
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------------- -----------------------------------
1996 1995 1996 1995
------------ ------------ -------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 8,586,411 $ 7,627,663 $17,032,431 $16,398,938
Cost of Sales 6,461,118 5,829,512 12,789,017 12,637,091
------------ ------------ -------------- -------------
Gross Profit 2,125,293 1,798,151 4,243,414 3,761,847
------------ ------------ -------------- -------------
Selling, general
and administrative
expenses 1,420,870 1,219,614 2,750,511 2,551,887
Other expense, net, including
interest 88,218 115,308 176,989 239,827
------------ ------------ -------------- -------------
Total costs and
expenses 1,509,088 1,334,922 2,927,500 2,791,714
Income from operations
before income taxes 616,205 463,229 1,315,914 970,133
Provision for
income taxes 257,000 192,300 553,000 403,000
------------ ------------ -------------- -------------
Net income $ 359,205 $ 270,929 $ 762,914 $ 567,133
============ ============ ============== =============
Earnings per common
share and common
share equivalent $ 0 .11 $ 0.09 $ 0.24 $ 0.19
Weighted average common
shares and common
share equivalents
outstanding 3,119,688 3,059,416 3,124,347 3,063,260
============ ============ ============== =============
</TABLE>
No dividends were paid during the periods set forth above.
See accompanying notes to condensed consolidated financial statements.
Page 3 of 44
<PAGE> 4
CALNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
December 31, 1996 June 30, 1996
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,215,305 $ 1,877,633
Accounts receivable, net 4,774,713 4,997,471
Inventories 5,808,606 5,470,710
Prepaid expenses 321,416 254,608
Deferred income taxes 342,000 342,000
------------ ------------
Total current assets 12,462,040 12,942,422
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
(at cost):
Land 466,288 466,288
Buildings and leasehold
improvements 2,277,763 2,269,525
Machinery and equipment 5,114,725 4,587,322
Furniture and fixtures 266,283 248,220
------------ ------------
8,125,059 7,571,355
Less--accumulated depreciation
and amortization 3,745,571 3,399,998
------------ ------------
Property, plant and equipment,
net 4,379,488 4,171,357
------------ ------------
Deposits and other assets 173,211 171,245
Goodwill 1,364,968 1,401,268
------------ ------------
Total assets $18,379,707 $18,686,292
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 44
<PAGE> 5
CALNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
----------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of
long-term debt $ 287,556 $ 247,187
Accounts payable 3,027,940 3,214,786
Accrued liabilities 1,000,993 1,167,707
Income taxes payable 69,021 386,021
------------ ------------
Total current liabilities 4,385,510 5,015,701
------------ ------------
LONG-TERM DEBT,
net of current portion 4,287,132 4,740,820
------------ ------------
DEFERRED INCOME TAXES 57,000 57,000
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock: authorized-
2,000,000 shares, none issued --- ---
Common stock, no par value:
authorized - 20,000,000 shares;
issued and outstanding --
2,969,799 at December 31, 1996
and 2,959,799 at June 30, 1996 2,476,725 2,462,345
Retained earnings 7,173,340 6,410,426
------------ ------------
Total shareholders' equity 9,650,065 8,872,771
------------ ------------
Total liabilities and
shareholders' equity $18,379,707 $18,686,292
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5 of 44
<PAGE> 6
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 762,914 $ 567,133
------------ ------------
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 385,866 303,703
Provision for doubtful accounts --- 11,000
Changes in operating assets and
liabilities:
Accounts receivable 222,758 278,361
Inventories (337,896) (349,454)
Prepaid expenses (66,808) 4,551
Deposits and other assets (1,966) (49,213)
Accounts payable (186,846) (147,836)
Customer deposits --- (103,934)
Accrued liabilities (166,714) (178,763)
Income taxes payable (317,000) (193,172)
------------ ------------
Total adjustments (468,606) (424,757)
------------ ------------
Net cash provided by
operating activities 294,308 142,376
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (557,697) (345,957)
------------ ------------
Net cash used in investing activities (557,697) (345,957)
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 6 of 44
<PAGE> 7
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $ (413,319) $ (421,222)
Net proceeds from issuance of
common stock 14,380 ---
------------ ------------
Net cash used in financing
activities (398,939) (421,222)
------------ ------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (662,328) (624,803)
CASH AND CASH EQUIVALENTS,
beginning of period 1,877,633 1,580,974
------------ ------------
CASH AND CASH EQUIVALENTS,
end of period $ 1,215,305 $ 956,171
============ ============
Supplemental disclosures of cash flow
information:
Cash paid for interest $ 176,989 $ 243,790
============ ============
Cash paid for income taxes $ 678,000 $ 597,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 7 of 44
<PAGE> 8
CALNETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 1996
1. General.
In the opinion of the management of Calnetics Corporation (the
"Company"), the accompanying condensed consolidated unaudited financial
statements contain all adjustments, consisting of only normal recurring
accruals, necessary to present fairly the Company's financial position at
December 31, 1996, the results of its operations for the three and six months
ended December 31, 1996 and 1995 and the cash flows for the six months ended
December 31, 1996 and 1995. Certain information and footnote disclosures
normally included in financial statements that would have been prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, although management of the Company believes that the disclosures in
these financial statements are adequate to make the information presented
therein not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's June 30, 1996 Form 10-K filed with the
Securities and Exchange Commission.
The results of operations for the three and six months ended December
31, 1996 are not necessarily indicative of the results of operations to be
expected for the full fiscal year ending June 30, 1997.
2. Receivables.
The following tabulation shows the elements of receivables:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
----------------- -----------------
<S> <C> <C>
Trade accounts receivable $5,090,713 $5,313,471
Less allowance for doubtful
accounts 316,000 316,000
------------ ------------
Total $ 4,774,713 $ 4,997,471
============ ============
</TABLE>
Page 8 of 44
<PAGE> 9
3. Income Taxes.
Income taxes for the six-month period ended December 31, 1996
were computed using the effective tax rate estimated to be applicable for the
full fiscal year. This rate is subject to ongoing evaluation and review by
management.
4. Long-term debt.
At December 31, 1996 and June 30, 1996, long-term debt
consisted of the following:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
----------------- -------------
<S> <C> <C>
Term loans payable to banks,
unsecured, interest at the
banks' reference rate (8.25
percent at December 31, 1996)
plus 0.25 percent, due in
various monthly install-
ments of principal and
interest through July 1,
1999, with balloon payments
totaling $1,458,462 due on
August 1, 1999 $2,483,297 $2,949,948
Industrial revenue bonds payable,
principal due in annual
sinking fund installments
ranging from $15,000 to
$130,000 through December
2021, plus interest due
monthly based on the Issuer's
Weekly Adjustable Interest
Rates for Revenue Bonds
(3.4 percent at December 31,
1996), secured by a letter of
credit issued by a bank with
an annual fee of 1.125 percent 1,420,000 1,440,000
</TABLE>
Page 9 of 44
<PAGE> 10
Long-term debt (cont'd)
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
----------------- -------------
<S> <C> <C>
Loans payable to former Agricultural
Products, Inc. ("API") shareholders,
unsecured, interest payable
semi-annually at 7.50 percent,
principal payable in three equal
annual installments through June
1999 301,532 301,532
Mortgage payable to bank, secured
by the related building and
land, principal payable in monthly
installments of $1,665 plus
interest at the bank's
prime rate (8.25 percent at
December 31, 1996), with
a balloon payment of $201,415
due on March 5, 2000 264,697 274,687
Other 105,162 21,840
------------ ------------
$4,574,688 $4,988,007
Current portion of long-term debt 287,556 247,187
------------ ------------
Long-term portion $4,287,132 $4,740,820
============ ============
</TABLE>
The term loans and notes payable include certain restrictive
financial and non-financial covenants, including certain cash
restrictions and limitations on payment of cash dividends and
redemption of stock.
5. Earnings per common share and common share equivalent.
Earnings per common share and common share equivalent are
based on the weighted average number of shares of common stock and
common stock equivalents (dilutive stock options) outstanding during
the related periods. The weighted average number of common stock
equivalent shares includes shares issuable upon the assumed exercise
of stock options less the number of shares assumed purchased with the
proceeds available from such exercise. Fully diluted net income per
share does not differ materially from net income per common share and
common share equivalent.
Page 10 of 44
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial condition.
In general, there were no significant changes in current
assets or current liabilities or the overall financial condition of the Company
between December 31, 1996, the end of the second quarter, and June 30, 1996.
However, cash and cash equivalents decreased by approximately $662,000 due in
part to purchases of equipment and the voluntary payment of $150,000,
representing three monthly installments, of the Company's long-term bank loan,
the payment of which was in addition to the regular scheduled monthly payments.
Liquidity and Capital Resources.
At December 31, 1996, the Company's working capital was
$8,076,530 compared to $7,367,826 at the same time a year ago.
The Company has a working capital agreement with a bank under
which the Company may borrow up to $2,500,000 on an unsecured basis at the
bank's prime rate. As of December 31, 1996, the entire amount of $2,500,000
was available under this credit arrangement, which is scheduled to expire on
December 31, 1997.
The Company has no immediate plans for any significant capital
expenditures and the Company believes that its available funds and internally
generated cash from operations will be sufficient to meet its working capital
needs in fiscal 1997. Certain loan agreements limit capital expenditures to
$1,000,000 in the fiscal year ending June 30, 1997 and also contain limits on
subsequent years.
The Company was pleased with the operating results for the
first half of the fiscal year, but there is concern about the adverse effect
the floods are having in northern California and the resulting likelihood, in
the next several months, of the deferral of incoming orders and shipments for
the Company's agricultural irrigation products.
Certain statements made herein that are not related to
historical results are forward-looking in nature within the meaning of the
Private Securities Litigation Reform Act of 1995 and involve risks and
uncertainties. Such forward-looking statements are based upon assumptions as
to the future events that may not prove to be accurate, and actual results
could differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, a change in the need to make capital expenditures based on market
factors, a decrease in internally generated cash due to a downturn in market
conditions, and a different effect than anticipated on orders or shipments of
the Company's agricultural irrigation products due to the floods.
Page 11 of 44
<PAGE> 12
Results of Operations.
Three months ended December 31, 1996 compared to three months ended December
31, 1995
Net sales for the three-month period ended December 31, 1995
increased 13% from $7,627,663 in 1995, to $8,586,411 in 1996. The increase is
attributed to improved business conditions.
Cost of sales as a percentage of sales decreased to 75.2%
during the three-month period ended December 31, 1996, as compared to 76.4% for
the same period in the prior year. The decrease is attributed to decreases in
raw material resin prices.
Selling, general and administrative expenses increased to
$1,420,870 as compared with $1,219,614 for the same period in the prior year,
an increase of 16.5%. The increase due mainly to increased sales volume.
Net income for the current three-month period was $359,205 as
compared with $270,929 for the same period in the prior year after provisions
for income taxes of $257,000 and $192,300, respectively. Earnings per share
increased to $0.11 from $0.09 per share for the three months ended December 31,
1996 and 1995, respectively. The increase in net income is attributed to
increased sales volume during the three months ended December 31, 1996.
Six Months ended December 31, 1996 compared to six months ended December 31,
1995
Net sales for the six-month period ended December 31, 1996
increased 3.9% from $16,398,938 in 1995, to $17,032,431 in 1996. The increase
is attributed to improved business conditions.
Cost of sales as a percentage of sales decreased to 75.1%
during the six-month period ended December 31, 1996, as compared to 77.1% for
the same period in the prior year. The decrease is attributed to increases in
sales volumes and the resultant lower fixed expenses per unit sold.
Selling, general and administrative expenses increased to
$2,750,511 as compared with $2,551,887 for the same period in the prior year.
The increase was mainly attributed to increased sales volume.
Net income for the current six-month period was $762,914 as
compared with $567,133 for the same period in the prior year after provisions
for income taxes of $553,000 and $403,000, respectively. The improvement in
net income is attributed to increased sales volume in the current period.
Page 12 of 44
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on November
8, 1996. At such meeting, the following persons were elected as
directors of the Company by the votes indicated:
<TABLE>
<CAPTION>
Abstentions
and Broker
Name For Against Withheld Non-votes
---- -------------- ------- -------- ----------
<S> <C> <C> <C> <C>
Clinton G. Gerlach 2,797,610 0 510 0
Fred E. Edward 2,797,610 0 510 0
Peter H. Griffith 2,797,610 0 510 0
Michael A. Hornak 2,797,610 0 510 0
Steven L. Strawn 2,797,610 0 510 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
Number Description
<S> <C>
3.1 Amended and Restated Articles of
Incorporation of Calnetics (Exhibit 3.1
to Form 10-K filed September 25, 1989).
3.2 Bylaws of Calnetics (Exhibit 1.2 to Form
10-K filed September 21, 1978).
3.3 Amendment to Bylaws of Calnetics
(Exhibit 3 to Form 8 filed September 28,
1989).
10.1 Lease dated November 22, 1989 between
Manchester and Tom Schneider and Arlene
Schneider and Amendment to said lease
dated December 5, 1989 (Exhibit 10.12 to
Form 10-K dated June 30, 1991).
10.2 Lease dated June 2, 1992 by and between
Honey Protas and Ny-Glass (Exhibit 10.19
to Form 10-K dated June 30, 1992).
10.3 Addendum No. 1 to Lease dated June 2,
1992 (Exhibit 10.20
</TABLE>
Page 13 of 44
<PAGE> 14
<TABLE>
<S> <C>
to Form 10-K dated June 30, 1992).
10.4 Lease Guaranty Agreement entered into as
of June 2, 1992 by Calnetics (Exhibit
10.21 to Form 10-K dated June 30, 1992).
10.5 Memorandum of Lease with Right of First
Refusal and Option to Purchase dated May
22, 1992 (Exhibit 10.22 to Form 10-K
dated June 30, 1992).
10.6 Side Letter Agreement re Standard
Industrial Commercial Single Tenant Lease
by and between Honey Protas as lessor and
Ny-Glass as lessee dated May 22, 1992
(Exhibit 10.23 to Form 10- K dated June
30, 1992).
10.7 Calnetics Corporation 1988 Employee Stock
Option Plan (Exhibit 10.25 to Form 10-K
dated June 30, 1993).
10.8 Calnetics Corporation 1993 Nonstatutory
Stock Option Plan (Exhibit 10.26 to Form
10-K dated June 30, 1993).
10.9 Business Loan Agreement dated June 28,
1993 among Bank of America National Trust
and Savings Association, Calnetics,
Manchester and Ny-Glass (Exhibit 10.27 to
Form 10-K dated June 30, 1993).
10.10 First Amendment to Business Loan
Agreement of June 28, 1993 dated as of
June 20, 1994 among Bank of America
National Trust and Savings Association,
Calnetics, Manchester and Ny-Glass
(Exhibit 10.17 to Form 10-K dated June
30, 1994).
10.11 Stock Purchase Agreement among Calnetics
and the Selling Shareholders of API
effective as of April 30, 1994 (Exhibit 2
to Form 8-K filed June 24, 1994).
10.12 Business Loan Agreement dated June 20,
1994 among The Bank of California, N.A.,
Calnetics, Manchester, Ny-Glass and API
(Exhibit 10.19 to Form 10-K dated June
30, 1994).
10.13 Term Loan Note dated June 20, 1994 among
The Bank of California, N.A., Calnetics,
Manchester, Ny-Glass and API (Exhibit
10.24 to Form 10-K dated June 30, 1994).
</TABLE>
Page 14 of 44
<PAGE> 15
<TABLE>
<S> <C>
10.14 Business Loan Agreement dated June 20,
1994 among Bank of America National Trust
and Savings Association, Calnetics,
Manchester, Ny-Glass and API (Exhibit
10.25 to Form 10-K dated June 30, 1994).
10.15 Noncompetition and Noninterference
Agreement dated June 20, 1994 among
Calnetics, API and Lon Schultz,
individually and as trustee of the Lon
Schultz Charitable Remainder Unitrust
(Exhibit 10.31 to Form 10-K dated June
30, 1994).
10.16 Employment Agreement dated June 20, 1994
between API and Lon Schultz, an
individual (Exhibit 10.32 to Form 10-K
dated June 30, 1994).
10.17 Parts Purchase and Supply Agreement dated
June 20, 1994 between API and Story
Plastics, Inc., a California corporation
(Exhibit 10.33 to Form 10-K dated June
30, 1994).
10.18 Loan Agreement dated December 31, 1991
between California Statewide Communities
Development Authority and API (Exhibit
10.34 to Form 10-K dated June 30, 1994).
10.19 Reimbursement Agreement dated December 1,
1991 between API and Union Bank (Exhibit
10.35 to Form 10-K dated June 30, 1994).
10.20 Renewal/Consolidation Promissory Note and
Security Agreement dated March 13, 1992
between API as borrower and First Union
National Bank of Florida as lender
(Exhibit 10.38 to Form 10-K dated June
30, 1994).
10.21 Amendment dated November 30, 1994 to
Business Loan Agreement dated June 20,
1994 among Bank of America National Trust
and Savings Association, Calnetics,
Manchester, Ny-Glass and API (Exhibit
10.31 to Form 10-K dated June 30, 1995).
10.22 Mortgage Modification, Consolidation,
Spreader, and Extension Agreement dated
March 31, 1995 among First Union National
Bank of Florida, API and Calnetics
(Exhibit 10.32 to Form 10-K Dated June
30, 1995).
10.23 API Profit Sharing Plan Adoption
Agreement dated
</TABLE>
Page 15 of 44
<PAGE> 16
<TABLE>
<S> <C>
November 21, 1991 (Exhibit 10.39 to Form
10-K dated June 30, 1994).
10.24 API 401(k) Plan Adoption Agreement
effective as of January 1, 1993 (Exhibit
10.40 to Form 10-K dated June 30, 1994).
10.25 Nonstatutory Stock Option Agreement
between Calnetics and Michael A. Hornak
dated February 28, 1994 (Exhibit 10.41 to
Form 10-K dated June 30, 1994).
10.26 Nonstatutory Stock Option Agreement
between Calnetics and Steven L. Strawn
dated February 28, 1994 (Exhibit 10.42 to
Form 10-K dated June 30, 1994).
10.27 Nonstatutory Stock Option Agreement
between Calnetics and Lon Schultz dated
July 18, 1994 (Exhibit 10.37 to Form 10-K
dated June 30, 1995).
10.28 Amendment No.2 dated December 21, 1995 to
Business Loan Agreement dated June 20,
1994 among Bank of America National Trust
and Savings Association, Calnetics,
Manchester, Ny-Glass and API (Exhibit
10.38 to Form 10-K dated June 30, 1996).
10.29 Amendment No.3 dated June 28, 1996 to
Business Loan Agreement dated June 20,
1994 among Bank of America National Trust
and Savings Association, Calnetics,
Manchester, Ny-Glass and API (Exhibit
10.39 to Form 10-K dated June 30, 1996).
10.30 1995 Employee Stock Option Plan Dated
September 27, 1995 (Exhibit 10.40 to Form
10-K dated June 30, 1996).
10.31* Amendment No.4 dated December 20, 1996 to
Business Loan Agreement dated June 20,
1994 among Bank of America National Trust
and Savings Association, Calnetics,
Manchester, Ny-Glass and API.
10.32* Amendment No.3 dated December 19, 1996 to
Business Loan Agreement dated June 20,
1994 among The Bank of California, a
division of Union Bank of California,
N.A., Calnetics, Manchester, Ny-Glass and
API.
</TABLE>
Page 16 of 44
<PAGE> 17
<TABLE>
<S> <C>
10.33* Amendment No.1 dated November 8, 1996 to
Reimbursement Agreement dated December 1,
1991 between Union Bank of California,
N.A. and API.
10.34* Hazardous Materials and Enviromental
Indemnity Agreement between Union Bank of
California, N.A. and API.
27.1* Financial Data Schedule
(b) Reports on Form 8-K
None.
</TABLE>
- -------------------------------------------------------------------------------
* Filed herewith
Page 17 of 44
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CALNETICS CORPORATION
(Registrant)
Dated: February 7, 1997 /s/ Clinton G. Gerlach
------------------------------------
Clinton G. Gerlach
President
Dated: February 7, 1997 /s/ Teresa S. Louie
------------------------------------
Teresa S. Louie
Treasurer
Page 18 of 44
<PAGE> 1
Exhibit 10.31
BANK OF AMERICA AMENDMENT TO DOCUMENTS
AMENDMENT NO. 4 TO BUSINESS LOAN AGREEMENT
This Amendment No. 4 (the "Amendment") dated as of December 20, 1996
is among Bank of America National Trust and Savings Association (the "Bank")
and CALNETICS CORPORATION ("Borrower 1"), MANCHESTER PLASTICS CO., INC.
("Borrower 2"), NY-GLASS PLASTICS, INC. ("Borrower 3") and AGRICULTURAL
PRODUCTS, INC. ("Borrower 4") (Borrower 1, Borrower 2, Borrower 3 and Borrower
4 are sometimes referred to collectively as the "Borrowers" and individually as
the "Borrowee").
RECITALS
A. The Bank and the Borrowers entered into a certain Business
Loan Agreement dated as of June 20, 1994, as previously amended (the
"Agreement").
B. The Bank and the Borrowers desire to further amend the
Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in
this Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 Subparagraph (a) of Paragraph 1.3 of the Agreement is
amended to read in its entirety as follows:
"(a) The interest rate is the Bank's Reference Rate
plus one-quarter (.25) of a percentage point."
2.2 In Paragraph IA.2 of the Agreement, the date
"DECEMBER 31, 1997" is substituted for the date "DECEMBER 30, 1996".
2.3 The first paragraph in Paragraph 4.7 of the Agreement
is amended to read in its entirety as follows:
4.7 INTEREST ON LATE PAYMENTS. At the Bank's
sole option in each instance, any amount not paid when due under this
Agreement (including interest) shall bear interest from the due date at the
Bank's Reference Rate plus one- quarter (.25) of a percentage point."
2.4 The first paragraph in Paragraph 7.4 of the Agreement
is amended to read in its entirety as follows:
"7.4 TANGIBLE NET WORTH. To maintain on a
consolidated basis, tangible net worth equal to at
least Six Million Dollars ($6,000,000)."
2.5 The first paragraph in Paragraph 7.5 of the Agreement
is amended to read in its entirety as follows:
"7.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH. To
maintain on a consolidated basis, a ratio of total liabilities to tangible net
worth not exceeding 1.50:1.00. This ratio will be calculated on the last day
of each fiscal quarter of the Borrowers."
3. CONDITIONS. This Amendment will not be effective until
the Bank has received the following:
Page 19 of 44
<PAGE> 2
(a) A copy of this Amendment, duly executed by each
Borrower; and
(b) A written consent to the terms of this Amendment,
duly executed by Union Bank of California, N.A.
successor to The Bank of California, N.A.
4. EFFECT OF AMENDMENT. Except as provided in this
Amendment, all of the terms and conditions of the Agreement shall remain in
full force and effect.
This Amendment is executed as of the date stated at the
beginning of this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION CALNETICS CORPORATION
/s/ Susan C. Howard /s/ Steven L. Strawn
---------------------------------- ----------------------------------
By: Susan C. Howard, Assistant By: Steven L Strawn, Vice President
Vice President
/s/ Thomas W. Vent /s/ Clinton G. Gerlach
---------------------------------- ----------------------------------
By: Thomas W. Vent, Vice President By: Clinton G. Gerlach, Chairman
of the Board and President
MANCHESTER PLASTICS CO., INC.
/s/ Steven L. Strawn
----------------------------------
By: Steven L. Strawn, President
/s/ Clinton G. Gerlach
----------------------------------
By: Clinton G. Gerlach, Chairman
of the Board
NY-GLASS PLASTICS, INC.
/s/ Michael A. Hornak
-----------------------------------
By: Michael A. Hornak, President
/s/ Clinton G. Gerlach
-----------------------------------
By: Clinton G. Gerlach, Chairman
of the Board
AGRICULTURAL PRODUCTS, INC.
/s/ Lon Schultz
-----------------------------------
By: Lon Schultz, President
/s/ Clinton G. Gerlach
-----------------------------------
By: Clinton G. Gerlach, Chairman
of the Board
Page 20 of 44
<PAGE> 1
Exhibit 10.32
UNION BANK OF CALIFORNIA, N.A.
AMENDMENT TO BUSINESS LOAN AGREEMENT
THIS THIRD AMENDMENT ("Amendment") is made effective as of the 19th day of
December, 1996, by and between Calnetics Corporation, a California corporation;
Manchester Plastics, Co., Inc., a California corporation, NY-Glass Plastics,
Inc., a California corporation and Agricultural Products, Inc., a California
corporation ("Borrower") and The Bank of California, a division of Union Bank
of California, N.A. ("Bank").
RECITALS
A. Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Business Loan agreement dated June 20, 1994 as
amended January 2, 1996 and June 24, 1996 (the "Agreement");
B. Borrower and Bank have agreed to amend the Agreement to reflect
certain changes in the terms and conditions set forth therein.
NOW, THEREFORE, the parties hereto agree as follows:
1. The names The Bank of California, N.A. and/or The Bank of California,
a division of Union Bank of California, N.A. as stated throughout the Agreement
and Amendments is deleted and the name Union Bank of California, N.A. is
substituted therefor.
2. Section 1.3(a) of the Agreement, INTEREST RATE, is hereby amended by
deleting Bank's Prime Rate plus three quarters (.75) percentage point and by
substituting Bank's Reference Rate plus one quarter (.25) percentage point
therefor.
3. Section 7.4 TANGIBLE NET WORTH, the first paragraph of this section is
hereby amended in its entirety to read as follows:
7.4 TANGIBLE NET WORTH. To maintain on a consolidated basis tangible
net worth equal to at least Six Million Dollars ($6,000,000), as calculated on
the last day of each such quarter.
4. Section 7.5 of the Agreement, TOTAL LIABILITIES TO TANGIBLE NET WORTH,
is hereby amended by deleting the ratio 2.00:1.00 and substituting the ratio of
1.50:1.00 therefor.
Page 21 of 44
<PAGE> 2
GENERAL AMENDMENT PROVISIONS
A. Except as specifically provided herein, all terms and
conditions of the Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Agreement shall have the same meaning
when used in this Amendment, and this Amendment and the Agreement and previous
Amendments shall be read together as one document. Where any provisions of the
Agreement amended by this Amendment appear in a promissory note tied to the
Agreement, the same provisions in said promissory note shall be deemed likewise
amended.
B. Borrower hereby confirms all representations and warranties
contained in the Agreement and reaffirms all covenants set forth therein.
Further, Borrower certifies that, as of the date of this Amendment, there exist
no Event of Default as defined in the Agreement, nor any condition, act or
event which with the giving of notice or the passage of time or both would
constitute an Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to become
effective as of the date and year first written above.
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Robert Dalton By: /s/ Greg Adamson
------------------------- -------------------------
Robert Dalton, Greg Adamson,
Vice President & Portfolio Mgr. Vice President & Sr. Portfolio Mgr.
Calnetics Corporation, a California Corporation Date: 12/31/96
----------------
By: /s/ Clinton G. Gerlach
-------------------------
Clinton G. Gerlach,
Chairman of the Board and President
By: /s/ Steven L. Strawn
-------------------------
Steven L. Strawn,
Vice President
Page 22 of 44
<PAGE> 3
Manchester Plastics Co., Inc., a California Corporation
By: /s/ Steven L. Strawn
-------------------------
Steven L. Strawn,
President
By: /s/ Clinton G. Gerlach
-------------------------
Clinton G. Gerlach,
Chairman of the Board
NY-Glass Plastics, Inc., a California Corporation
By: /s/ Michael A. Hornak
-------------------------
Michael A. Hornak,
President
By: /s/ Clinton G. Gerlach
-------------------------
Clinton G. Gerlach,
Chairman of the Board
Agricultural Products, Inc., a California Corporation
By: /s/ Lon Schultz
-------------------------
Lon Schultz,
President
Page 23 of 44
<PAGE> 1
Exhibit 10.33
FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT
THIS FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT ("First Amendment") is
made effective as of November 8, 1996, by and between AGRICULTURAL PRODUCTS,
INC., a California corporation ("Borrower"), and UNION BANK OF CALIFORNIA,
N.A., a national banking association ("Bank").
RECITALS
A. Borrower is currently indebted to Bank pursuant to the terns
and conditions of that certain Reimbursement Agreement dated as of December l,
1991 ("Agreement"). Unless otherwise indicated, all capitalized terms
contained herein shall have the same meanings as set forth in the Agreement.
B. Earlier this year Union Bank ("UB") and The Bank of
California, N.A. ("BOC") engaged in a corporate reorganization and Bank is the
entity resulting therefrom.
C. Pursuant to the Agreement and in connection with the issuance
by the California Statewide Communities Development Authority of its Weekly
Adjustable/Fixed Rate Revenue Bonds, Series 1991 (Agricultural Products, Inc.
Project) in the original principal amount of $1,500,000 (which issuance was
part of a composite issuance), on December 12,1991, UB issued its irrevocable
direct-pay Letter of Credit No. 276/171394 ("Letter of Credit") for the account
of Borrower and other account parties in favor of Trustee, supporting in part
the obligations of Borrower under its Loan Agreement with Issuer (pursuant to
which Bond proceeds were loaned to Borrower). The Letter of Credit is
scheduled to expire on December 12, 1996.
D. As a condition precedent to issuing its Letter of Credit, UB
required that Borrower cause a financial institution satisfactory to UB to
issue in favor of UB a standby letter of credit supporting Borrower's
obligations under the Agreement. In order to satisfy this condition, Borrower
caused BOC to issue its Irrevocable Standby Letter of Credit No. I-20487 in
favor of UB on December 12, 1991 ("Standby Letter of Credit"). In connection
with the issuance of the Standby Letter of Credit, Borrower and BOC entered
into a Standby Reimbursement Agreement dated December 1, 1991 (as amended from
time to time, the "Standby Agreement"). The obligations of Borrower under the
Standby Agreement are secured by that certain Deed of Trust (And Assignment of
Leases and Rents, Assignment for Security Purposes of Construction Contract and
Plans and Specifications, Security Agreement and Fixture Filing) by Borrower,
as Trustor, to The Sansome Corporation, as Trustee, for the benefit of BOC, as
Beneficiary, dated December 6, 1991 and recorded on December 11, 1991 as
Instrument No. 466769 in the Official Records of San Bernardino County,
California ("Deed of Trust"), covering the property described therein
("Property").
E. Subject to the satisfaction of the conditions precedent set
forth herein, Bank has agreed to extend the expiration date of the Letter of
Credit. In addition, because of the corporate reorganization of UB and BOC,
the parties have agreed that the Standby Letter of Credit is no
Page 24 of 44
<PAGE> 2
longer required, that the Deed of Trust shall secure directly Borrower's
obligations under the Agreement, as amended hereby, and that the Agreement be
amended to include various terms, conditions and covenants previously included
in the Standby Agreement.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. RECITALS. The parties hereby confirm the accuracy of the
foregoing Recitals.
2. TERMINATION OF STANDBY LETTER OF CREDIT. Subject to the terms
and conditions hereof, the Standby Letter of Credit shall be terminated and all
references to the "Standby Letter of Credit" and the "Standby Bank" contained
in the Agreement, including without limitation the provisions of Section 4,
subsections 7(i), (l) and (m), subsection 8(a)(ix) and the last sentence of
subsection 8(b) of the Agreement, are hereby deleted in their entirety.
3. MODIFICATION OF DEED OF TRUST. Borrower hereby agrees that
concurrently herewith, Borrower shall deliver to Bank a Modification to Deed of
Trust ("D/T Modification") in recordable form and substance satisfactory to
Bank, which D/T Modification shall provide, in part, that the Deed of Trust is
modified to secure all of Borrower's obligations to Bank under the Agreement,
as amended by this First Amendment and as may be further amended, modified,
supplemented or restated from time to time.
4. SINKING FUND ACCOUNT AND PAYMENTS. On or before the first day
of each calendar month after the date hereof to and including November l, 1999,
Borrower shall deposit into an interest-bearing deposit account at the Bank
(the "Sinking Fund Account") the sum of $1,667 per month, and, thereafter, on
the first day of each calendar month beginning December l, 1999, until the
expiration or cancellation of the Letter of Credit, Borrower shall deposit into
the Sinking Fund Account the sum of $2,083 per month. All sums deposited in
the Sinking Fund Account, together with all interest earned thereon, are hereby
pledged and assigned to Bank pursuant to the Deed of Trust as additional
security for Borrower's performance of its obligations under the Agreement, as
amended by this First Amendment and as may be further amended, modified,
supplemented or restated from time to time, and shall not be available to
Borrower during the term of the Agreement for any other purpose. Upon Bank's
honoring of a "B Drawing" under Annex B to the Letter of Credit with respect to
any scheduled Sinking Fund Installment (as defined in and pursuant to Item 9 of
Annex A to the Indenture), Bank shall at Borrower's request use funds in the
Sinking Fund Account (to the extent sufficient funds are available) to remit to
Bank a sum equal to the amount of such Sinking Fund Installment so paid. In
addition, funds in the Sinking Fund Account may be applied at Borrower's
request to any Bank fees due and payable in accordance herewith. The balance
of funds in the Sinking Fund Account shall remain on deposit therein until the
termination of the Agreement, subject to the terms and conditions hereof.
5. FEES. In addition to any other fees payable under the
Agreement, Borrower agrees that it shall pay to Bank a renewal fee, payable
concurrently herewith, in an amount equal to three-eighths of one percent
(.375%) of Borrower's share of the Stated Amount of the Letter of
2
Page 25 of 44
<PAGE> 3
Credit as of the date hereof. Furthermore, from and after the date that the
conditions precedent set forth in subsection 7(e) below have been satisfied,
"Borrower's Fee Percentage", as set forth as Item 8 of Schedule A to the
Agreement and referenced in subsection 2(b)(i) of the Agreement, shall be equal
to one and one-eighth percent (1.125%) rather than one-quarter of one percent
(.25%) and Schedule A is hereby amended accordingly. Subsection 2(b)(ii) of
the Agreement is hereby deleted.
6. ADDITIONAL PROVISIONS TO AGREEMENT.
a. Additional Definitions. The following additional
definitions are hereby added to Section 17 of the Agreement:
"Affiliate" means any Person which directly or
indirectly controls, is controlled by, or is under common
control with, Borrower, including, but not limited to, any
Subsidiary. "Control" "controlled by" and "under common
control with" means possession, directly or indirectly, of
power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by
contract or otherwise); provided that, in any event, any
Person or affiliated group which owns directly or indirectly
five percent or more of the securities having ordinary voting
power for the election of directors of a corporation shall be
conclusively presumed to control such corporation
"Current Long-Term Debt" means the current portion of
any long-term debt and long-term capital lease obligations
owing to Bank under this Agreement or to any Person under any
other debt incurred by Borrower, including, without
limitation, scheduled principal payments becoming due and
payable during the next twelve (12) full calendar months.
"Debt Coverage Ratio" means the quotient obtained by
dividing Net Cash Income by Current Long-Term Debt.
"Deed of Trust" and "Property" have the meanings
assigned to them in Recital D above.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"GAAP" means generally accepted accounting principles
and practices consistently applied.
"Governmental Authority" means any governmental or
regulatory body having jurisdiction over Borrower, the Project
or the Property.
"Hazardous Material" means any hazardous or toxic
substance, material or waste which is or becomes regulated by
any local Governmental Authority, the State of California or
the United States Government. The term "Hazardous Material"
includes, without limitation, any material or substance which
is
3
Page 26 of 44
<PAGE> 4
(i) defined as a "hazardous waste" under Sections 25115, 25117
or 25122.7, or listed pursuant to Section 25140 of the
California Health and Safety Code, Division 20, Chapter 6.5
(Hazardous Waste Control Law), (ii) defined as a "hazardous
substance" under Section 25316 of the California Health and
Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner
Hazardous Substance Account Act), (iii) defined as a "hazardous
material," "hazardous substance," or "hazardous waste" under
Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.95 (Hazardous Materials Release Response
Plans and Inventory, (iv) defined as a "hazardous substance"
under Section 25281 of the California Health and Safety Code,
Division 20, Chapter 6.7 (Underground Storage of Hazardous
Substances), (v) petroleum or any volatile derivative of
petroleum, (vi) asbestos, (vii) listed under Article Nine or
defined as hazardous or extremely hazardous pursuant to Article
11 of Title 22 of the California Administrative Code, Division
4, Chapter 20, (viii) designated as a "hazardous substance"
pursuant to Section 311 of the Federal Water Pollution Control
Act (33 U.S.C. Section 1317), (ix) defined as "hazardous waste"
pursuant to Section 1004 of the Federal Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, et seq. (42 U.S.C.
Section 6903), or (x) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section
9601, et seq. (42 U.S.C. Section 9601).
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale
or other title retention agreement, any lease in the nature
thereof, and the filing of or any agreement to give any
financing agreement under the Uniform Commercial Code of any
jurisdiction).
"Net Cash Income" means Borrower's Net Profit for the
four (4) preceding full fiscal quarters of Borrower, plus the
amount of any depreciation and other non-cash items deducted
to determine such Net Profit in accordance with GAAP, less the
amount of any dividends and distributions paid by Borrower to
any Person during such period.
"Net Profit" means the net income of Borrower after
taxes for any financial reporting period determined in
accordance with GAAP.
"PBGC" means the Pension Benefit Guaranty Corporation
or any successor thereto.
"Plan" means any employee benefit pension plan subject
to Title IV of ERISA and maintained by Borrower or any such
plan to which Borrower is required to contribute on behalf of
any of its employees.
"Related Documents" means this Agreement, the Letter
of Credit, the Deed of Trust, the Bonds, the Indenture, the
Loan Agreement and any other agreements
4
Page 27 of 44
<PAGE> 5
or instruments relating to or executed pursuant to or in
connection with any of the foregoing instruments and
agreements. This definition supersedes the definition of
"Related Documents" contained in the Agreement.
"Related Person" means any officer, employee,
director, shareholder and Affiliate of Borrower and any
officer, employee, director and shareholder of any Affiliate,
or a relative of any of them.
"Reportable Event" means a reportable event as
defined in Title IV of ERISA, except actions of general
applicability by the Secretary of Labor under Section 110 of
ERISA.
"Tangible Net Worth" means the net book value of (a)
all Borrower's assets, exclusive of intangibles, and loans to
and notes receivable from Related Persons, minus (b) all
Borrower's liabilities determined in accordance with GAAP.
"Termination Event" means (i) a Reportable Event
described in Section 4043 of ERISA and the regulations issued
thereunder (other than a Reportable Event not subject to the
provision for 30-day notice to the PBGC under such
regulations), or (ii) the withdrawal of Borrower or any of its
Affiliates from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of
ERISA, or (iii) the filing of a notice of intent to terminate
a Plan or the treatment of a Plan amendment as a termination
under Section 4041 of ERISA, or (iv) the institution of
proceedings to terminate a Plan by the PBGC, or (v) any other
event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan.
b. Additional Representations and Warranties. All
representations and warranties contained in the Agreement are
continuing and shall be true and correct as of each draw under the
Letter of Credit. The following new subsections (l) through (p) are
hereby added to Section 6 of the Agreement:
"(l) It is the intention of Borrower that the
interest on the Bonds be excluded from the gross income of the
holders thereof (other than "substantial users," or "Related
persons" of substantial users, as such terms are defined in
Section 144(a)(3) of the Internal Revenue Code of 1986, as
amended from time to time) for Federal income tax purposes.
To that end, Borrower represents to the Bank that it has not
taken any action, and knows of no action that any other person
has taken, which would cause interest on the Bonds to be
included in the gross income of the recipients thereof.
Borrower warrants that it will not take any action or omit to
take any action which, if taken or omitted, would cause
interest on the Bonds to be included in the gross income of
the holders thereof (other than "substantial users," or
"Related persons" of substantial users, as such terms are
defined in Section 144(a)(3) of the Internal Revenue Code of
1986, as amended from time to time) for Federal income tax
purposes;
5
Page 28 of 44
<PAGE> 6
(m) No Reportable Event has occurred and is
continuing with respect to any Plan, and no Termination Event
has occurred and is continuing with respect to any Plan
Schedule B (Actuarial Information) to the 1987 annual report
(Form 5500 Series) with respect to each Plan, copies of which
have been filed with the Internal Revenue Service and
furnished to the Bank, is complete and accurate and fairly
presents the funding status of such Plan, and since the date
of such Schedule B there has been no material adverse change
in such funding status. Neither Borrower nor any of its
Affiliates has incurred nor reasonably expects to incur any
withdrawal liability under ERISA to any Multiemployer Plan;
(n) Borrower has filed or caused to be filed all
tax returns which to the knowledge of Borrower are required to
be filed, and has paid all taxes shown to be due and payable
on said returns or on any assessments made against it, except
for returns which have been appropriately extended, and all
other taxes, fees or other charges imposed on it by any
governmental authority, agency or instrumentality which have
become due and payable (other than those the amount or
validity of which is currently being contested in good faith
by appropriate proceedings and with respect to which reserves
in conformity with generally accepted accounting principles
have been provided on the books of Borrower, and no tax liens
have been filed;
(o) Borrower enjoys peaceful and undisturbed
possession under all leases under which it operates, subject
to subleases in the ordinary course of business, and all of
such leases are valid and subsisting and are in full force and
effect. There is no default on the part of Borrower existing
under any of such leases, and none of such leases contains any
unusually or burdensome provision which materially adversely
affects or in the future may (so far as Borrower can now
foresee) materially adversely affect Borrower's right of
occupancy and to continue its operations under such lease; and
(p) No "Event of Default" or "Default" as defined
in this Agreement or any Related Document has occurred and is
continuing."
c. Additional Covenants. Subsections 7(a)(i) and (ii)
of the Agreement are hereby deleted and the following new subsections
(o) through (dd) are hereby added to Section 7 of the Agreement:
"(o) Borrower will deliver to the Bank, in form
and detail satisfactory to the Bank, the following
information, which Borrower represents will be accurate and
complete in all respects:
(i) Within 90 days of Borrower's fiscal
year-end, the annual financial statements of
Calnetics Corporation, a California corporation and
the corporate parent of Borrower ("Calnetics") and
its subsidiaries. These financial statements must be
audited (with an unqualified opinion) by a Certified
Public Accountant ("CPA") reasonably acceptable to
the Bank.
6
Page 29 of 44
<PAGE> 7
The statements shall be prepared on a consolidated basis.
Neither Calnetics nor Borrower shall change their current
fiscal year-ends without the prior written consent of the
Bank, except that Borrower may alter its fiscal year- end to
conform with the fiscal year-end of Calnetics.
(ii) Within 45 days after the end of each
fiscal quarter, the unaudited quarterly financial
statements of Calnetics and its subsidiaries prepared
by Calnetics and attested to by a responsible officer
of Calnetics as being complete and correct and fairly
presenting the financial condition and results of
operations of such entities. These statements shall
be prepared on a consolidated and consolidating
basis.
(p) Borrower shall:
(i) Maintain at all times a ratio of
cash and cash equivalents plus trade receivables to
current liabilities of not less than 1.0 to 1.0;
(ii) Maintain a Debt Coverage Ratio of
1.05, monitored on an annual basis; and
(iii) Achieve Net Profits of greater than
zero for each financial reporting year.
(q) Borrower will pay and discharge all
indebtedness, liens, charges, taxes, assessments and
governmental charges or levies imposed upon it or upon its
income or profits, or upon any assets and properties belonging
to it, prior to the date on which penalties attach thereto,
and all lawful claims which, if unpaid, would become a Lien
upon any of its properties, including the Project; provided
that Borrower shall not be required to pay any such tax,
assessment, charge, levy or claim, which is being contested in
good faith and by appropriate proceedings, if it makes
adequate provision for payment thereof, satisfactory to the
Bank, in the event it should lose such contest.
(r) Borrower will preserve and maintain its
existence, rights, franchises and privileges necessary or
desirable in the normal conduct of its business as
contemplated and as presently conducted.
(s) Borrower will comply with the requirements of
all applicable laws, rules, regulations and orders of any
governmental authority having jurisdiction, the terms of any
indenture, contract or other instrument to which it is a party
or under which it or its properties may be bound,
non-compliance with which could materially adversely affect
(a) Borrower's business, properties, condition (financial or
otherwise) or operations, (b) Borrower's ability to perform
its obligations under this Agreement or any of the Related
Documents to which it is or is to be a party, or (c)
Borrower's ability to construct, own or operate the Project,
unless the same is being contested in good faith and by
appropriate proceedings and Borrower
7
Page 30 of 44
<PAGE> 8
makes adequate provision for payment thereof, satisfactory to
the Bank, in the event it should lose such contest
(t) Borrower shall not amend, modify or
terminate, or agree to amend, modify or terminate any Bond or
any Related Document.
(u) Except as otherwise provided herein, Borrower
shall not be indebted or suffer for borrowed money, the
deferred purchase price of property, or leases which would be
capitalized in accordance with GAAP; or become liable as a
surety, guarantor, accommodation party or otherwise for or
upon the obligation of any other person, except:
(i) The acquisition of supplies or
inventory on normal trade credit;
(ii) The endorsement of negotiable
instruments for deposit or collection in the ordinary
course of Borrower's business;
(iii) The indebtedness of Borrower under
this Agreement;
(iv) Indebtedness which has been
disclosed to Bank in writing prior to the date of the
First Amendment to this Agreement and which has not
been disapproved by Bank, including without
limitation the promissory notes and mortgages in
favor of First Union Bank of Florida with respect to
that certain real property known as 3855 and 3857 W.
Lake Hamilton Drive, Winter Haven, Florida, which, in
the aggregate shall not exceed $350,000; and
(v) Indebtedness to Bank of America
National Trust & Savings Association ("Bank of
America") as described in that certain Intercreditor
Agreement between the Bank and Bank of America dated
June 20, 1994 ("Intercreditor Agreement"), regarding
collateral provided to Bank and Bank of America by
Borrower and its Affiliates.
(v) Borrower shall not create, incur, assume or
permit to exist any Lien, or grant any other Person a negative
pledge, on any of Borrower's property, except:
(i) Involuntary Liens which, in the
aggregate, would not have a material adverse effect
on Borrower's financial condition or business;
(ii) Liens for current taxes or other
governmental assessments which are not delinquent, or
which are contested in good faith by the appropriate
procedures and for which appropriate reserves are
maintained;
(iii) Liens in favor of Bank;
8
Page 31 of 44
<PAGE> 9
(iv) The security interests created by
any Related Document;
(v) Exceptions referred to in the Title
Policy as approved by the Bank;
(vi) Liens which have been disclosed to
Bank in writing prior to the date of the First
Amendment to this Agreement and have not been
disapproved by Bank, including without limitation the
mortgages referred to in subsection (u)(iv) above;
and
(vii) Liens in favor of Bank of America as
described in the Intercreditor Agreement.
(w) Without the prior written consent of Bank:
Borrower shall not change its name; liquidate or dissolve, or
enter into any consolidation, merger, partnership, joint
venture or other combination; issue, redeem, purchase, retire
or otherwise acquire any shares of any class of capital stock
of Borrower or grant or issue any warrant, right or option
pertaining thereto or other security convertible into any of
the foregoing; reorganize, reclassify or recapitalize its
capital stock.
(x) Borrower shall not sell its accounts,
contract rights or receivables pertaining to its business, or
sell, lease, abandon or otherwise dispose of, directly or
indirectly, its assets or properties except in the ordinary
course of business.
(y) Borrower shall not directly or indirectly:
pay any dividends or make any other distributions on account
of any ownership interest in Borrower or set apart any sum for
such purpose; or redeem, retire, purchase or otherwise acquire
beneficially any ownership interest or subordinated
Indebtedness of Borrower now or hereafter outstanding, or set
apart any sum for any such purpose.
(z) Borrower shall not make or suffer to exist
any loans, advances or investments, except:
(i) Bank accounts in the ordinary course
of Borrower's business;
(ii) Accounts receivable in the ordinary
course of Borrower's business;
(iii) Investments in domestic certificates
of deposit issued by, and other deposit investments
with, financial institutions organized under the laws
of the United States or a state thereof, maintaining
capital of at least $100 million and a rating of at
least Aa by Moody's or any successor rating agency;
9
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<PAGE> 10
(iv) Investments in short-term marketable
obligations of the United States of America and in
open market commercial paper given the highest credit
rating by a national credit agency and maturing not
more than one year from the creation thereof;
(v) Securities of the United States
Government; and
(vi) Temporary advances to cover
incidental expenses to be incurred in the ordinary
course of business.
(aa) Borrower shall net prepay, or permit the
prepayment of, any debt subordinated to Borrower's
indebtedness to Bank except as expressly provided in any
subordination agreements executed by the Bank and Borrower's
creditor.
(bb) Borrower shall not take any of the following
actions without the Bank's prior written consent, which
consent the Bank may grant or withhold in its sole and
subjective discretion:
(i) make any prepayment of amounts due
to the Trustee under the Loan Agreement for optional
redemption of Bonds pursuant to Sections 4.01(2) or
4.01(6) of the Indenture; provided, that such
prepayment shall be permitted so long as Borrower
shall not be in violation of any covenants contained
in this Agreement after making such prepayment; or
(ii) use or allow the use of excess net
insurance or condemnation proceeds remaining after
the completion of any restoration or repair work to
be applied to the payment of principal of or interest
on the Bonds pursuant to Section 6.2(a) of the Loan
Agreement.
(cc) Borrower shall not directly or indirectly
enter into any transaction with or for the benefit of a
Related Person on terms more favorable to the Related Persons
than would have been obtainable in "arms' length" dealings.
(dd) Borrower shall not conduct any business other
than the business Borrower conducts as of the Date of
Issuance."
d. Additional Events of Default. The following new
subsections (x) through (xvi) are hereby added to subsection 8(a) of
the Agreement:
"(x) Any governmental or regulatory authority
shall take any action, or any other event shall occur, which,
in the reasonable judgment of Bank, would have a material
adverse effect on the financial condition or business of
Borrower; or
10
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<PAGE> 11
(xi) Any sale, transfer or other disposition of
all or a substantial or material part of the assets of
Borrower shall occur (including, without limitation, to any
trust or similar entity); or
(xii) Any final judgment(s) shall be entered
against Borrows, or any involuntary Lien(s) of any kind or
character shall attach to any assets or property of Borrower,
any of which, in the judgment of Bank, will have a material
adverse effect on the financial condition or business of
Borrower; or
(xiii) Without the prior written consent of Bank,
which consent shall not be unreasonably withheld, any change
shall occur in the corporate or legal structure of Borrower;
or
(xiv) Any Plan shall be terminated pursuant to
ERISA, a trustee shall be appointed by the appropriate United
State District Court to administer any Plan, the PBGC shall
institute proceedings to terminate any Plan, or any Plan shall
fail to satisfy the minimum funding standard for such Plan for
a plan year as established by the Internal Revenue Code, as
amended from time to time; or.
(xv) The Deed of Trust shall cease to be in full
force and effect as a first lien upon the Property; or
(xvi) The occurrence of any "Event of Default" as
defined in any note, credit agreement or other loan document
evidencing credit extended by Bank to any Affiliate of
Borrower, including without limitation Calnetics."
8. CONDITIONS PRECEDENT. Bank's agreement to the terms and
conditions of this First Amendment is subject to the satisfaction of the
following conditions precedent:
(a) The issuance by Commonwealth Title Insurance Company
of CLTA endorsement nos. 110.5, each issued without exception, for
attachment to Policy of Title Insurance No. 512352-95, issued December
11,1991, insuring the validity and priority of the Deed of Trust, as
modified, subject only to such exceptions as have been approved by the
Bank in writing;
(b) The recordation of the fully executed and
acknowledged Modification of Deed of Trust in the Official Records of
San Bernardino County, California;
(c) Borrower's execution and delivery to the Bank of a
Hazardous Materials and Environmental Indemnity Agreement of or about
even date herewith in form and substance satisfactory to the Bank
covering the Property;
(d) Borrower shall have executed and delivered to Bank an
application for amendment of the Letter of Credit in form and
substance satisfactory to Bank and Trustee shall have accepted the
amendment to the Letter of Credit issued by Bank;
11
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<PAGE> 12
(e) The Custody, Pledge and Security Agreement dated
December l, 1991 originally executed by BOC, Borrower and Bankers
Trust Company shall have been modified if and as required by Bank;
(f) Borrower's reimbursement to the Bank of all of its
costs and expenses in connection with the transactions evidenced
hereby, including, without limitation, the costs of appraisals and
environmental reports and the Bank's legal fees and expenses; provided
that Borrower's reimbursement obligation shall not exceed $8,000; and
(g) No event of Default shall have occurred and no event
shall have occurred which, with notice or passage of time or both,
would constitute an Event of Default.
9. NOTICES. Notices to Bank or Borrower under the Agreement
shall be addressed (and the Agreement is hereby amended accordingly):
If to Bank: Union Bank of California, N.A.
3880 Lemon Street, Ste. 400
Riverside, CA 92501
Attn: Robert Dalton
FAX No. (909) 788-1416
If to Borrower: Agricultural Products, Inc.
5001 E. Philadelphia
Ontario, CA 91761
Attn: Lon Schultz
FAX No. (909) 790-1889
with a copy to: Calnetics Corporation
20401 Prairie Street
Chatsworth, CA 91311
Attn: Clinton G. Gerlach
FAX No. (818) 886-9702
10. GENERAL PROVISIONS. Except as specifically provided herein,
all terms and conditions of the Agreement remain in full force and effect,
without waiver or modification. This First Amendment and the Agreement shall
be read together as one document. Borrower hereby confirms all representations
and warranties contained in the Agreement and reaffirms all covenants set forth
therein (as amended hereby). Further, Borrower certifies that, as of the date
of this First Amendment, there exists no Event of Default as defined in the
Agreement, as amended hereby, nor, to Borrower's knowledge, any condition, act
or event which with the giving of notice or the passage of time or both would
constitute an Event of Default. This First Amendment may he executed in
counterparts.
12
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to become effective as of the date and year first written above.
BORROWER: AGRICULTURAL PRODUCTS, INC.
a California corporation
By: /s/Lon Schultz
-------------------------
Its: President
-------------------------
BANK: UNION BANK OF CALIFORNIA, N.A.
By: /s/Robert Dalton
-------------------------
Its: Vice President
-------------------------
13
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<PAGE> 1
Exhibit 10.34
HAZARDOUS MATERIALS AND
ENVIRONMENTAL INDEMNITY AGREEMENT
THIS HAZARDOUS MATERIALS AND ENVIRONMENTAL INDEMNITY AGREEMENT
("Agreement"), dated as of November 8,1996, is entered into by AGRICULTURAL
PRODUCTS, INC., a California corporation ("Indemnitor"), and UNION BANK OF
CALIFORNIA, N.A., a national banking association ("Bank").
RECITALS
A. Indemnitor is executing this Agreement to induce Bank to enter
into that certain First Amendment to Reimbursement Agreement of even date
herewith ("Amendment"), modifying that certain Reimbursement Agreement between
Indemnitor and Bank originally dated December 1, 1991 (the "Reimbursement
Agreement"), pursuant to which, among other things, Bank has agreed to extend
the expiration date of the Letter of Credit, as defined therein. Indemnitor's
obligations under the Reimbursement Agreement currently are secured, in part,
by a Deed of Trust (and Assignment of Leases and Rents, Assignment for Security
Purposes of Construction Contract and Plans and Specifications, Security
Agreement and Fixture Filing) on the property described in attached Exhibit A
("Property"), dated December 6, 1991, and recorded in the Official Records of
San Bernardino County, California on December 11, 1991 as Instrument No.
466769, executed by Indemnitor as "Trustor" and naming The California- Sansome
Corporation as "Trustee" and Bank as "Beneficiary," as modified from time to
time (the "Deed of Trust").
B. Because of the Deed of Trust, Bank may potentially become
subject to certain costs, risks and liabilities. Among other things, Bank may
become subject to liabilities or alleged liabilities relating to environmental
conditions as an "owner or "operator" of the Property under applicable
environmental law. Because these costs and liabilities, if they occur, will be
the result of Bank's agreement to further extend credit to Indemnitor, and in
consideration of that agreement, Bank and Indemnitor have agreed as set forth
below.
AGREEMENT
NOW, THEREFORE, Bank and Indemnitor agree as follows:
1. CERTAIN DEFINITIONS. The following terms shall be applicable
to both the singular and plural forms of the defined terms:
"APPROVED ENVIRONMENTAL ASSESSOR" means an environmental
assessor selected by Indemnitor and acceptable to Bank.
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which Bank is closed.
Page 37 of 44
<PAGE> 2
"ENVIRONMENTAL LAWS" means any law, statute, ordinance, or
regulation pertaining to health, industrial hygiene, or the
environment, including, without limitation, those identified in the
definition of "Hazardous Material" below. The term includes any
licenses, permits, orders, plans or approvals generated pursuant to or
is a result of such Environmental Law.
"GOVERNMENTAL AUTHORITY" means any court or governmental or
regulatory body having jurisdiction over Indemnitor or the Property.
"HAZARDOUS MATERIAL" means any hazardous or toxic substance,
material or waste regulated by any local Governmental Authority, the
State where the Property is located or the United States Government.
The term "Hazardous Material" includes, without limitation, any
substance, material or waste which is: (i) petroleum or any volatile
derivative of petroleum; (ii) asbestos; (iii) designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water
Pollution Control Act (33 U.S.C. Section 1317); (iv) defined as
"hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. Sections 6901
et seq. (42 U.S.C. Section 6903); (v) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), 42 U.S.C. Sections 9601 et seq. and the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"); (vi) regulated by
the Hazardous Materials Transportation Act, as amended, 49 U.S.C.
Sections 1801 et seq.; or (vii) any hazardous or toxic substance,
material or waste regulated by any local Governmental Authority, the
State where the Property is located or the United States Government;
and any material or substance which is: (A) defined as a "hazardous
waste" under Sections 25115, 25117 or 25122.7, or listed pursuant to
Section 25140 of the California Health and Safety Code, Division 20,
Chapter 6.5 (Hazardous Waste Control Law); (B) defined as a "hazardous
substance" under Section 25316 of the California Health and Safety
Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous
Substance Account Act); (C) defined as a "hazardous material,"
"hazardous substance," or "hazardous waste" under Section 25501 of the
California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous
Materials Release Response Plans and Inventory) or Section 13050 of the
California Water Code; (D) defined as a "hazardous substance" under
Section 25281 of the California Health and Safety Code, Division 20,
Chapter 6.7 (Underground Storage of Hazardous Substances); or (E)
listed under Article 9 or defined as hazardous or extremely hazardous
pursuant to Article 11 of Title 22 of the California Administrative
Code, Division 4, Chapter 20.
"HAZARDOUS MATERIAL ACTIVITIES" means: the storage, holding,
existence, release, emission, discharge, generation, manufacture,
treatment, processing, handling, abatement, decontamination, removal,
clean-up, disposal, and/or transportation of Hazardous Materials into,
on, under, or from the Property.
"INDEMNIFIED COSTS" means those so defined in Paragraph 6 of
this Agreement.
2
Page 38 of 44
<PAGE> 3
"LOAN DOCUMENTS" means all documents executed in connection
with the Reimbursement Agreement.
"PERSON" means any individual or entity.
"PHASE I ENVIRONMENTAL ASSESSMENT" means an environmental
assessment acceptable to Bank which includes, without limitation, a
review and verification of records of environmental regulatory
agencies, an on-site inspection and report by an Approved
Environmental Assessor, which report contains conclusions and
recommendations.
"PHASE II ENVIRONMENTAL ASSESSMENT" means field testing
(sampling and analysis) for contamination suspected or identified as a
result of Phase I Environmental Assessment, conducted by an Approved
Environmental Assessor, and a report acceptable to Bank including,
without limitation, a remediation plan.
"SECURITY DOCUMENTS" means all documents, if any, creating any
security interest in any property, real or personal, as collateral
security for Indemnitor's obligations under the Reimbursement
Agreement.
2. REPRESENTATIONS AND WARRANTIES. Indemnitor represents and
warrants to Bank that:
2.1 COMPLIANCE WITH LAW. As of the date hereof,
Indemnitor is in compliance in all material respects with all applicable
Environmental Laws and all authorizations, judgments, decrees and other
governmental restrictions and requirements relating to Hazardous Materials
Activities;
2.2 NO KNOWN RELEASE OF HAZARDOUS MATERIAL EXCEPT AS
DISCLOSED. To Indemnitor's knowledge, there are no Hazardous Materials located
on, under or adjacent to any of the Property, except those stored or used in
compliance with all applicable Environmental Laws, and neither Indemnitor nor
any other Person has engaged in Hazardous Materials Activities except in
compliance with all applicable Environmental Laws;
2.3 UNDERGROUND STORAGE TANKS. No underground storage
tanks are presently located on or under the property;
2.4 NO GOVERNMENT ACTIONS. No investigations, inquiries,
orders, hearings, actions or other proceedings by or before any Governmental
Authority are pending or, to the knowledge of Indemnitor, threatened in
connection with any Hazardous Materials on the Property or Hazardous Materials
Activities;
2.5 ADJACENT PROPERTY. Since acquiring the Property,
Indemnitor has not received any form of written notice or inquiry from or by
any Governmental Authority or any tenant, subtenant, licensee or occupant of
the Property or any property adjacent to or within the immediate vicinity of
the Property regarding Hazardous Materials Activities in connection with the
Property or such other property.
3
Page 39 of 44
<PAGE> 4
3. HAZARDOUS MATERIALS DISCLOSURES. Indemnitor has no knowledge
of any current or past presence on, under or about the Property since its
ownership by Indemnitor, of any Hazardous Materials, or of any Hazardous
Materials Activities, other than those that comply with all applicable
Environmental Laws, and Indemnitor has made no written or oral disclosures to
Bank regarding any of the foregoing. Indemnitor acknowledges that this
Agreement constitutes a "written request for information" by Bank under
California Code of Civil Procedure Section 726.5(d)(2).
4. USE OF HAZARDOUS MATERIALS; REMEDIAL ACTIONS. Indemnitor
shall not cause or permit the violation of any applicable Environmental Law on
or with respect to the Property. Indemnitor shall not engage in any Hazardous
Materials Activities except in full compliance with law. Indemnitor agrees to
give Bank prior written notice before: (i) remediating any Hazardous Materials
located on, under or about the Property, or (ii) entering into any settlement
agreement, consent decree or other compromise or agreement (collectively,
"Hazardous Materials Settlement Agreement") relating to, any such Hazardous
Materials. Within Fifteen (15) Business Days after any Hazardous Materials
Settlement Agreement has been fully executed, Indemnitor shall deliver a copy
to Bank.
5. NOTICE OF HAZARDOUS MATERIALS. Indemnitor shall give written
notice to Bank, promptly, and in any event within five (5) days after any
officer or director of Indemnitor learns of any of the following:
(A) the presence of any Hazardous Materials on, under or
about the Property not legally used by Indemnitor in the conduct of its
business in compliance with all applicable Environmental Laws,
(B) any enforcement, clean-up, removal or other action or
requirement of any Governmental Authority relating to any such Hazardous
Materials,
(C) the existence of any occurrence or condition on any
property in the vicinity of the Property that could cause any portion of the
Property to be classified as "border-zone property" under the provisions of the
California Health and Safety Code or any related regulations, or
(D) any other condition that could cause the Property to
be otherwise subject to any restrictions relating to Hazardous Materials.
6. ENVIRONMENTAL ASSESSMENTS. From time to time, upon Bank's
reasonable belief that there are actual, potential, or threatened Hazardous
Materials Activities on the Property not in compliance with all applicable
Environmental Laws, and upon Bank's request, unless Indemnitor has no
obligations, including contingent obligations, outstanding to Bank and Bank has
no credit outstanding or committed to Indemnitor, Indemnitor shall (i) order,
at Indemnitor's expense, a Phase I and/or Phase II Environmental Site
Assessment of the Property (as specified by Bank) from an Approved
Environmental Assessor, and (ii) obtain a remediation plan for any Hazardous
Materials then found, and (iii) within ninety (90) days (or such shorter period
required by applicable Environmental Law) of receipt of such remediation plan,
promptly undertake and
4
Page 40 of 44
<PAGE> 5
complete all such remediations, using contractors and appropriate professionals
selected by Indemnitor but satisfactory to Bank.
7. INDEMNITY. Indemnitor agrees to indemnify, defend and hold
harmless Bank, and any corporation controlling Bank and their respective
directors, officers, agents and employees from the following, referred to as
"Indemnified Costs": all claims, demands, causes of action, liabilities,
losses, costs and expenses (including costs of suit and reasonable attorneys'
fees) arising from or incurred in connection with (i) the failure of Indemnitor
to comply with all applicable Environmental Laws and authorizations, judgments,
decrees and other governmental restrictions and requirements relating to any
Hazardous Materials on the Property or Hazardous Materials Activities; (ii) the
existence of any Hazardous Materials Activities or the presence on or under the
Property of any Hazardous Materials; or (iii) any activity on the Property,
whether prior to or during the term of the Reimbursement Agreement, and whether
by Indemnitor or any predecessor in title or any employees, agents, contractors
or subcontractors of Indemnitor or any predecessor in title, or any third
persons at any time occupying or present on the Property, in connection with
Hazardous Materials Activities. Notwithstanding the foregoing, Indemnified
Costs shall not include claims, demands, causes of action, liabilities, losses,
costs or expenses that (A) do not in any manner arise out of the actions or
omissions of Indemnitor and (B) solely arise out of actions or omissions
occurring after foreclosure under the Deed of Trust or a conveyance of the
Property by deed in lieu of foreclosure.
8. INDEMNITOR'S COVENANT TO RESTORE PROPERTY. Promptly, at
Indemnitor's sole expense and without limiting the foregoing, Indemnitor shall
take all necessary actions to return the Property to the condition existing
prior to the introduction of any Hazardous Material on the Property (i) caused
or permitted by Indemnitor and not in compliance with all applicable
Environmental Laws, or (ii) which Indemnitor is legally obligated to remove and
which results in any contamination of the Property. Indemnitor must first
obtain Bank's approval of such actions unless Indemnitor has no obligations,
including contingent obligations, outstanding to Bank and Bank has no credit
outstanding or committed to Indemnitor. Bank shall not unreasonably withhold
such approval so long as such actions would not potentially have any material
adverse effect on the Property.
9. UNSECURED OBLIGATIONS. Indemnitor acknowledges and agrees
that, regardless of any other Loan Document to the contrary, the obligations of
Indemnitor under this Agreement shall be personal obligations of Indemnitor and
shall not be secured by the Deed of Trust or any other real property now or
hereafter assigned to Bank as security for any Loan Document. Indemnitor
acknowledges that Bank would not enter into this Agreement with Indemnitor but
for the personal liability undertaken by Indemnitor for such obligations.
10. INTEREST; SURVIVAL. All payment obligations of Indemnitor to
Bank hereunder shall be payable immediately upon demand and shall bear interest
following demand at the rate set forth in subsection 2(a)(iv) of the
Reimbursement Agreement. In no event shall Indemnitor be obligated to pay
interest at a rate in excess of the highest rate permitted by applicable law
from time to time in effect. Indemnitor's obligations hereunder shall survive
the foreclosure of the Deed of Trust, the acceptance by Bank of a deed or deeds
in lieu of foreclosure of the Deed of
5
Page 41 of 44
<PAGE> 6
Trust, the repayment of the Loan and the release and reconveyance of one or
more of the Security Documents.
11. NOTICES. Any notice or demand from one party to another shall
be given or made in writing (a "Notice") delivered or mailed, in the manner
provided in the Reimbursement Agreement.
12. FURTHER ASSURANCES. Each party shall execute, acknowledge and
deliver to each other party all documents, and shall take all actions,
reasonably required by such other party from time to time to confirm or effect
the matters set forth in, or otherwise to carry out the purposes of, this
Agreement.
13. ATTORNEYS' FEES. Indemnitor will upon demand pay to Bank the
amount of any and all properly documented and reasonable expenses, including
the reasonable fees and disbursements of its outside and staff counsel and of
any experts and agents (including fees of law clerks, paralegals, investigators
and others not admitted to the bar but performing services under the
supervision of an attorney), which Bank may incur in connection with (i) the
successful exercise or enforcement of any of the rights of Bank under this
Agreement or (ii) the failure by the Indemnitor to perform or observe any of
the provisions of this Agreement. The term reasonable counsel fees includes
such fees incurred in the successful exercise of any remedy (with or without
litigation), in any proceeding for the successful enforcement of Indemnitor's
obligations under this Agreement, or in any litigation or controversy arising
from or connected with such obligations, including any bankruptcy,
receivership, injunction or other proceeding, or any appeal from or petition
for review of any of the foregoing. Reasonable counsel fees shall include fees
incurred not only in successfully enforcing the debt in any bankruptcy or
receivership proceeding, but also any fees incurred in participating in the
bankruptcy or receivership proceedings generally. If any litigation is
commenced by any party concerning this Agreement, the party prevailing in such
litigation shall be entitled to recover, in addition to such other relief as
may be granted, its reasonable costs and expenses, including without limitation
reasonable attorneys' fees and court costs, whether or not taxable, as awarded
by a court of competent jurisdiction.
14. DISPUTE RESOLUTION.
14.1 MANDATORY MEDIATION OR ARBITRATION. Any controversy
or claim between or among the parties, their agents, employees and Affiliates,
including but not limited to those arising out of or relating to this Agreement
or any other Loan Document, including without limitation any claim based on or
arising from an alleged tort, shall, at the option of any party, and at that
party's expense, be submitted to mediation, using either the American
Arbitration Association ("AAA") or Judicial Arbitration and Mediation Services,
Inc. ("JAMS"). If mediation is not used, or if it is used and it fails to
resolve the dispute within 30 days from the date AAA or JAMS is engaged, then
the dispute shall be determined by arbitration in accordance with the rules or
either JAMS or AAA (at the option of the party initiating the arbitration) and
Title 9 of the U.S. Code, notwithstanding any other choice of law provision in
the Loan Documents. All statutes of limitations or any waivers contained
herein which would otherwise be applicable shall apply to any arbitration
proceeding under this subparagraph 14.1. The parties agree that related
arbitration proceedings may be consolidated. The arbitrator shall prepare
written reasons for the
6
Page 42 of 44
<PAGE> 7
award. Judgment upon the award rendered may be entered in any court having
jurisdiction. This subparagraph 14.1 shall apply only if, at the time of the
proposed submission to AAA or JAMS, (1) none of the obligations to Bank
described in or covered by any of the Loan Documents are secured by real
property collateral or, (2) if so secured, all parties consent to such
submission.
14.2 JURY WAIVER/JUDICIAL REFERENCE. If the controversy
or claim is not one required to be submitted to arbitration as provided and
limited in subparagraph 14.1, but becomes the subject of a judicial action,
each party hereby waives its respective right to trial by jury of the
controversy or claim. In addition, any party may elect to have all decisions
of fact and law determined by a referee appointed by the court in accordance
with applicable state reference procedures. The party requesting the reference
procedure shall ask AAA or JAMS to provide a panel of retired judges and the
court shall select the referee from the designated panel. The referee shall
prepare written findings of fact and conclusions of law. Judgment upon the
award rendered shall be entered in the court in which such proceeding was
commenced.
14.3 PROVISIONAL REMEDIES, SELF HELP, AND FORECLOSURE. No
provision of, or the exercise of any rights under, subparagraph 14.1, (a) shall
limit the right of any party to exercise self help remedies such as setoff, to
foreclose against any real or personal property collateral, or to obtain
provisional or ancillary remedies such as injunctive relief or the appointment
of a receiver from a court having jurisdiction before, during or after any
mediation or arbitration. At Bank's option, foreclosure under a deed of trust
or mortgage may be accomplished either by exercise of power of sale under the
deed of trust or mortgage, or by judicial foreclosure. The institution and
maintenance of an action for judicial relief or pursuit of provisional or
ancillary remedies or exercise of self help remedies shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the
controversy or claim to mediation or arbitration.
14.4 CONFLICT. To the extent any provision of this
dispute resolution clause is different than the terms of any Loan Document, the
terms of this dispute resolution clause shall prevail.
15. JOINT AND SEVERAL LIABILITY OF INDEMNITOR. If more than one
Person is identified in this Agreement as Indemnitor, their liability shall be
joint and several.
16. MISCELLANEOUS. The parties confirm the accuracy of the
Recitals set forth above. This Agreement shall bind, and shall inure to the
benefit of, the successors and assigns of Bank and Indemnitor; provided,
however, that Indemnitor may not assign or otherwise transfer this Agreement or
any of its rights or obligations under this Agreement and any attempt and
assignment or other transfer without Bank's prior written consent shall be null
and void; provided, however, that a merger of Indemnitor or its parent with
another entity will not require Bank's prior written consent hereunder so long
as the surviving entity assumes, or is legally deemed to have assumed, the
obligations of Indemnitor hereunder. No provision of this Agreement that is
held to be inoperative, unenforceable or invalid shall affect the remaining
provisions. Time is of the essence of this Agreement. This Agreement shall be
governed by the laws of the State of California. This Agreement may be
executed in counterparts.
7
Page 43 of 44
<PAGE> 8
17. TERMINATION OF PRIOR AGREEMENT. The Parties hereto agree that
the Environmental Agreement ("Springing") dated December 1, 1991, between
Indemnitor and Bank (formerly known as The Bank of California, N.A.) is hereby
superseded in its entirety by this Agreement and shall be of no further force
or effect after the date hereof.
IN WITNESS WHEREOF, Bank and Indemnitor have caused this Agreement to
be duly executed as of the date first written above.
BANK: UNION BANK OF CALIFORNIA, N.A.,
a national banking association
By: /s/ Lon Schultz
---------------------------------
Its: President
------------------------
INDEMNITOR: AGRICULTURAL PRODUCTS, INC.,
a California corporation
By: /s/ Robert Dalton
---------------------------------
Its: Vice President
-------------------------
8
Page 44 of 44
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,215,305
<SECURITIES> 0
<RECEIVABLES> 5,090,713
<ALLOWANCES> 316,000
<INVENTORY> 5,808,606
<CURRENT-ASSETS> 12,462,040
<PP&E> 8,125,059
<DEPRECIATION> 3,745,571
<TOTAL-ASSETS> 18,379,707
<CURRENT-LIABILITIES> 4,385,509
<BONDS> 4,344,132
0
0
<COMMON> 2,476,725
<OTHER-SE> 6,410,427
<TOTAL-LIABILITY-AND-EQUITY> 18,379,707
<SALES> 8,586,411
<TOTAL-REVENUES> 8,586,411
<CGS> 6,461,118
<TOTAL-COSTS> 1,420,870
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</TABLE>
