As filed with the Securities and Exchange Commission on November 8, 1996
Registration No. 333-
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ECO SOIL SYSTEMS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEBRASKA
(State or other jurisdiction of
incorporation or organization)
0711
(Primary Standard Industrial
Classification Code Number)
47-0709577
(I.R.S. Employer
Identification No.)
10890 THORNMINT ROAD, SUITE 200
SAN DIEGO, CALIFORNIA 92127
(619) 675-1660
(ADDRESS AND TELEPHONE NUMBER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS)
WILLIAM B. ADAMS, CHIEF EXECUTIVE OFFICER
ECO SOIL SYSTEMS, INC.
10890 THORNMINT ROAD, SUITE 200
SAN DIEGO, CALIFORNIA 92127
(619) 675-1660
(NAME, ADDRESS AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
Copies to:
KENNETH L. CUTLER, ESQ. MICHELE D. VAILLANCOURT, ESQ.
DORSEY & WHITNEY LLP WINTHROP & WEINSTINE, P.A.
PILLSBURY CENTER SOUTH 3000 DAIN BOSWORTH PLAZA
220 SOUTH SIXTH STREET 60 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402-1498 MINNEAPOLIS, MINNESOTA 55402
TELEPHONE: (612) 340-2740 TELEPHONE: (612) 347-0700
FACSIMILE: (612) 340-8738 FACSIMILE: (612) 347-0600
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
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
TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock,
$.005 par value 3,450,000 shares $4.50 $15,525,000 $4,705
</TABLE>
(1) Includes the Underwriters' over-allotment option to purchase up to
450,000 shares.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933, as amended.
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.
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 NOVEMBER 8, 1996
3,000,000 SHARES
[LOGO] ECO SOIL SYSTEMS
COMMON STOCK
All of the shares of Common Stock offered hereby (the "Shares") are being sold
by Eco Soil Systems, Inc. (the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company (the "Common Stock").
It is currently anticipated that the initial public offering price per share
will be in the range of $4.00 to $4.50. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price. Application has been made to have the Common Stock approved for trading
on The Nasdaq SmallCap Market under the symbol "ESSI" upon completion of this
offering.
THE COMMON STOCK OFFERED BY THIS PROSPECTUS IS SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 AND "DILUTION" ON PAGE 15.
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.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
Per Share $ $ $
Total (3) $ $ $
(1) The Company has agreed to pay to R. J. Steichen & Company, as the
representative of the Underwriters (the "Representative"), a
nonaccountable expense allowance equal to 2.0% of the total Price to
Public. The Company has also agreed to sell to the Representative, for a
nominal purchase price, a five-year warrant (the "Representative's
Warrant") to purchase up to 300,000 shares of Common Stock exercisable at
a per share price equal to 120% of the per share Price to Public. In
addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $
(including the Representative's nonaccountable expense allowance of
2.0% of the gross proceeds referenced in Note 1 above).
(3) The Company has granted the Underwriters a 45-day option to purchase up
to 450,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See
"Underwriting."
The Shares are being offered by the Underwriters on a "firm commitment" basis,
subject to prior sale, when, as and if delivered to and accepted by them, and
subject to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject any order in whole or in
part. It is expected that delivery of the certificates for the Shares will be
made on or about , 1996 in Minneapolis, Minnesota.
[LOGO] R J STEICHEN & COMPANY
The date of this Prospectus is , 1996.
[Diagram of BioJect System]
Eco Soil Systems, Inc. (the "Company") has developed two patented distribution
systems that enable the Company to market and support a proprietary line of
microbial products which control and manage a wide variety of soil, crop and
water problems. The Company believes that these biological products, when
introduced through its BioJect and ClearLake delivery systems, will
cost-effectively replace or complement the use of chemical pesticides or
fertilizers in the turf maintenance, agricultural crop, soil remediation and
water quality management industries.
The following trademarks of the Company are used in this Prospectus:
BioJect(tm), ClearLake(tm) and CleanRack(tm). This Prospectus also includes
trade names, trademarks and registered trademarks of companies other than Eco
Soil Systems, Inc.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MAY BE EFFECTED ON THE NASDAQ
SMALLCAP MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE COMMON STOCK BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH COMMON STOCK MAY BE SOLD ONLY TO (1) "ACCREDITED INVESTORS"
WITHIN THE MEANING OF REGULATION D UNDER THE SECURITIES ACT OF 1933, (2) BANKS,
SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT
COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND
PROFIT SHARING TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE
CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED
BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS
(WHICH SHALL HAVE BEEN REVIEWED, BUT NOT NECESSARILY AUDITED, BY OUTSIDE
ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES OF THE FOREGOING, (3)
ANY CORPORATION, PARTNERSHIP OR ORGANIZATION (OTHER THAN A CORPORATION,
PARTNERSHIP OR ORGANIZATION FORMED FOR THE SOLE PURPOSE OF PURCHASING THE
SECURITIES OFFERED HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF
THE SECURITIES OFFERED HEREBY, (4) ANY NATURAL PERSON WHO (A) HAS INCOME OF
$65,000 AND A NET WORTH OF $250,000, OR (B) HAS A NET WORTH OF $500,000 (IN EACH
CASE, EXCLUDING HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), OR (5) ANY
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED UNDER RULE 144A OF THE SECURITIES
ACT.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, ALL INFORMATION HEREIN ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED. SEE "UNDERWRITING." THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS.
THE COMPANY
Eco Soil Systems, Inc. (the "Company") has developed two patented distribution
systems that enable the Company to market and support a proprietary line of
microbial products which control and manage a wide variety of soil, crop and
water problems. The Company believes that these biological products, when
introduced through its Bioject and ClearLake delivery systems, will
cost-effectively replace or complement the use of chemical pesticides or
fertilizers in the turf maintenance, agricultural crop, soil remediation and
water quality management industries. Use of the Company's systems can contribute
to a reduction in the negative cumulative environmental effect of chemical use
with no increase in cost or crop damage. The Company's goals are to increase the
market share for biocontrol products and to make its delivery systems the
principal methods for distributing biotechnology products in its targeted
industries.
The Company's delivery systems ferment environmentally-safe microorganisms at
the site of application and automatically dispense the appropriate amount and
type of cultured product at the desired frequency directly into the customer's
irrigation system, pond or lake. By fermenting its biological products at the
customer's site, the Company is able to preserve and protect the potency of the
microorganisms, significantly reduce shipping costs and control the frequency of
application and concentration of product. The Company believes that its
microbial products, delivery systems and bioaugmentation expertise have
positioned it as a leader in the introduction, marketing and management of
biological complements or alternatives to many chemical pesticide and fertilizer
products.
To date, the Company has marketed its products and services primarily to golf
courses and currently has approximately 300 BioJect or ClearLake systems in
operation throughout the world. The Company intends to leverage this experience
in the turf maintenance industry into irrigation-dependent agricultural crops
and the soil remediation and water quality management industries. The Company is
pursuing applications of its bioaugmentation technology in agricultural markets
that suffer from chronic problems such as plant diseases and insects that attack
crops, in soil remediation markets that involve hazardous chemicals such as PCBs
and Atrazine, and in water quality management markets that involve problems with
algae, sediment and oxygen levels.
The Company has entered into technology transfer agreements for certain
microorganisms through the University of California, Michigan State University
and Cornell University, and is pursuing the licensing of microbial discoveries
from other major biotechnological centers around the world. The Company
currently has the exclusive rights through licenses or marketing agreements to
twelve microbial products that: (i) suppress plant diseases, (ii) improve soil
porosity, (iii) break down thatch, (iv) fix atmospheric nitrogen, (v) inhibit
the growth of certain insect pests and (vi) bioremediate certain hazardous
chemicals.
Distribution and sales of the Company's products have historically occurred
through direct sales efforts and independent dealers and distributors. The
Company has initiated a strategy of acquiring selected independent dealers and
distributors of turf maintenance products throughout the United States. The
Company acquired two independent dealers as of May 31, 1996 and intends to
continue its acquisition strategy to build a nationwide distribution system to
market its proprietary products. The Company believes that its products can be
more effectively marketed by leveraging the customer relationships developed by
these dealers and distributors, particularly in the golf course industry, and by
significantly increasing the size of the Company's own sales force through the
acquisition of an established network of salespersons.
The Company's principal proprietary products are sold or distributed in regions
where approximately 30% of all United States golf courses are located. Although
international sales to date have represented less than 20% of the Company's
sales, the Company has established formal distribution relationships in Japan,
South America, Mexico, Canada, Spain and Korea.
The Company was incorporated under the laws of the State of Nebraska in 1987.
The Company's principal executive offices are located at 10890 Thornmint Road,
Suite 200, San Diego, California 92127, and its telephone number is (619)
675-1660.
THE OFFERING
Common Stock offered...................... 3,000,000 shares
Common Stock outstanding(1):
Before the offering .................... 6,564,166 shares
After the offering ....................... 9,564,166 shares
Use of proceeds .......................... Acquisitions of dealers and
distributors, repayment of Bridge
Notes, repayment of certain
short-term debt and working capital
purposes. See "Use of Proceeds."
Proposed Nasdaq SmallCap Market symbol ... ESSI
(1) The foregoing calculations do not include (i) 1,086,765 shares of
Common Stock issuable upon conversion of $3,695,000 in promissory notes
issued by the Company in July 1996 (the "Bridge Notes") (assuming all
of the Bridge Notes are converted and assuming an initial public
offering price of $4.25 per share), (ii) 739,000 shares of Common Stock
subject to warrants (the "Bridge Warrants") at an exercise price of 80%
of the initial public offering price, (iii) 2,406,568 shares of Common
Stock subject to outstanding options at a weighted average exercise
price of $2.13 per share, (iv) 1,667,465 shares of Common Stock subject
to other outstanding warrants at a weighted average exercise price of
$2.69 per share, and (v) 300,000 shares of Common Stock subject to the
Representative's Warrant at an exercise price of 120% of the initial
public offering price. See "Dilution," "Description of Securities" and
"Underwriting."
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30, NINE MONTHS ENDED SEPTEMBER 30,
1994 1995 1995 1996 1995 1996 1996(1)
(AUDITED) (UNAUDITED) (AUDITED) (UNAUDITED) (PRO FORMA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 2,688 $ 3,757 $1,940 $ 4,139 $ 2,783 $ 9,229 $15,749
Cost of sales 1,998 1,980 844 2,329 1,615 5,705 10,421
Gross profit 690 1,777 1,096 1,810 1,168 3,524 5,328
Selling, general and
administrative 2,996 2,938 1,373 2,961 1,929 5,079 7,099
Research and development 286 413 160 275 264 353 353
Loss from operations (2,592) (1,574) (437) (1,426) (1,025) (1,908) (2,124)
Interest expense (224) (262) (131) (192) (172) (523) (652)
Net loss $(2,816) $(1,836) $ (568) $(1,618) $(1,197) $(2,431) $(2,776)
Net loss per share(2) $ (.62) $ (.35) $ (.11) $ (.27) $ (.23) $ (.40) $ (.44)
Shares used in calculation of
net loss per share(2) 4,557 5,207 5,184 5,980 5,304 6,050 6,359
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
ACTUAL AS ADJUSTED(3)
(UNAUDITED)
<S> <C> <C>
Cash $ 437 $ 5,842
Working capital (deficit) (3,875) 6,969
Total assets 13,979 19,384
Long-term debt and other obligations, net of current
portion 2,020 2,020
Common stock/paid in capital 12,717 23,672
Accumulated deficit (11,125) (11,236)
Total shareholders' equity 1,759 12,603
</TABLE>
(1) The pro forma consolidated statement of operations data give effect to
the acquisition of Turf Specialty, Inc. and Turf Products, Ltd., as if
they were acquired on January 1, 1996. The pro forma consolidated
statement of operations data are presented for illustrative purposes only
and not necessarily indicative of what actual results of operations would
have been for the period presented had the transactions occurred on that
date. See "Unaudited Pro Forma Condensed Consolidated Statements of
Operations."
(2) Computed on the basis described in Note 1 to the Consolidated Financial
Statements.
(3) Adjusted to give effect to the sale of the 3,000,000 Shares offered hereby
at an assumed initial public offering price of $4.25 per Share and the
application of net proceeds therefrom (including repayment of indebtedness
under the Bridge Notes and the write off of $111,000 of related debt
issuance costs). The foregoing calculations do not include (i) 1,086,765
shares of Common Stock issuable upon conversion of the Bridge Notes
(assuming all of the Bridge Notes are converted and assuming an initial
public offering price of $4.25 per share), (ii) 739,000 shares of Common
Stock subject to the Bridge Warrants at an exercise price of 80% of the
initial public offering price, (iii) 2,406,568 shares of Common Stock
subject to outstanding options at a weighted average exercise price of $2.13
per share, (iv) 1,667,465 shares of Common Stock subject to other
outstanding warrants at a weighted average exercise price of $2.69 per
share, and (v) 300,000 shares of Common Stock subject to the
Representative's Warrant at an exercise price of 120% of the initial public
offering price. See "Dilution," "Description of Securities" and
"Underwriting."
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL INVESTORS IN EVALUATING
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
ACCUMULATED DEFICIT; CONTINUING OPERATING LOSSES; GOING CONCERN
CONSIDERATIONS
At September 30, 1996, the Company had an accumulated deficit of $11,125,000.
The Company has never generated net income and continues to sustain operating
losses. To date, the Company has been principally engaged in organizational
activities, research and development, licensing activities, product
introductions and the establishment of a sales and marketing organization. Due
to increased expenditures for product development, U.S. patent protection and
sales and marketing expenses, including the costs of the Company's recent dealer
acquisitions, the Company expects to continue generating losses at least through
the first six months of 1997. The Company is dependent upon improvements in the
profitability of its operations, the availability of additional financing,
revenue growth from acquisitions, the successful integration of dealers and
distributors, and obtaining rights to additional microbial products to increase
revenues to a level necessary to achieve profitability. The report of the
independent auditors on the Company's consolidated financial statements for the
years ended December 31, 1994 and 1995 and the six months ended June 30, 1996
includes an explanatory paragraph stating that the Company's recurring losses
from operations raise substantial doubt about its ability to continue as a going
concern. There can be no assurance that the Company will ever achieve successful
or profitable operations. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON FUTURE GROWTH; RISKS OF NEW PRODUCT CONCEPTS
In order to expand its business and achieve significant growth in sales, the
Company must continue to broaden its sales and marketing capability and increase
the size of its customer base, in part through the acquisition of independent
dealers and distributors. Although sales of certain of the Company's products
are growing, the Company's products and operations remain in the early stages of
market introduction and are subject to the risks inherent in the
commercialization of new product concepts. These risks include unforeseen
problems, delays, expenses and complications frequently encountered in the early
phases of research, development and commercialization of products, and expenses
associated with hiring and training additional sales, marketing and customer
service personnel. Many of these events may be beyond the Company's control. The
Company is also attempting to market its products into several new industries,
including the agricultural crop and soil remediation markets. There can be no
assurance that such efforts will prove to be successful or that the Company's
intended customers will purchase the Company's systems and products instead of
competing products. Failure to obtain significant customer satisfaction or
market share would have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
RISKS ASSOCIATED WITH DEALER ACQUISITION STRATEGY
Distribution and sales of the Company's products have historically occurred
through direct sales efforts and independent dealers and distributors. The
Company has initiated a strategy of attempting to establish a nationwide
distribution system for its products through the acquisition of various
independent dealers and distributors. Such acquisitions will require significant
capital outlays and, due to the generally lower margins associated with those
dealers' existing products, may have the effect of lowering the Company's gross
profit margins. Achieving the anticipated benefits of such acquisitions will
depend on a variety of factors, including whether the integration of such
dealers and distributors with the Company's organization can be accomplished in
an efficient and effective manner and whether or not the acquired sales force
can effectively sell the Company's proprietary products. Any failure to identify
acquisition candidates properly, any large expenditures on acquisitions that
prove to be unprofitable, or any inability to sell the Company's proprietary
products through the acquired distribution system could have a material adverse
effect on the Company's business, financial position and results of operations.
See "Use of Proceeds" and "Business -- Strategy."
FUTURE ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE
AVAILABLE
The commercialization of the Company's products requires the commitment of
significant capital expenditures. Although the Company believes that existing
capital resources, including the proceeds of this offering and interest earned
thereon, will allow it to maintain its current and planned operations
and finance any potential acquisitions for at least 18 months following this
offering, no assurance can be given in that regard. Furthermore, the Company
will require additional funds to support its development activities through the
rigorous testing and marketing phases of development. The Company will seek to
obtain additional funds through public or private equity or debt financing,
collaborative or other arrangements with corporate partners or from other
sources. There can be no assurance that such additional financing can be
obtained on desirable terms or at all. If additional funds are not available,
the Company may be required to curtail its operations significantly or eliminate
one or more of its research, discovery or development programs or otherwise
curtail marketing efforts in certain territories for one or more of its product
lines. While the Company has established a line of credit with Imperial Bank of
San Diego ("Imperial Bank"), if additional financing is required, there can be
no assurance that the Company will be able to renew or increase its line of
credit on acceptable terms, if at all. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and "Certain Transactions."
POTENTIAL CREDIT RISKS
Historically, the Company has experienced longer collection cycles for its
proprietary products and systems compared to its distributed products. As of
September 30, 1996, approximately 17% of the Company's total accounts receivable
were over 90 days past due. The Company generally does not require a pledge of
collateral securing these accounts receivable and provides for estimated losses
on uncollectible accounts at the time of sale. Although losses on uncollectible
accounts have been minimal and within management's expectations, the failure of
the Company to maintain adequate procedures relative to the issuance of credit
or establish adequate allowances for uncollectible accounts receivable could
have a material adverse effect upon the Company's business, financial position
and results of operations. See Note 1 of Notes to Consolidated Financial
Statements.
CUSTOMER CONCENTRATION
For the years ended December 31, 1994 and 1995, the Company recognized revenues
from Wilbur-Ellis Company representing approximately 45% and 13% of the
Company's net sales for such periods, respectively. The Company does not have
any long-term purchase agreements with Wilbur-Ellis Company. No customer
accounted for more than 10% of net sales during the six months ended June 30,
1996 or the nine months ended September 30, 1996. The loss of or a significant
reduction in orders from major customers could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, the timing of orders from major customers could cause fluctuations in
the Company's quarterly financial results. See "-- Quarterly Fluctuations in the
Company's Results of Operations" and Note 1 of Notes to Consolidated Financial
Statements.
PATENTS, PROPRIETARY TECHNOLOGY AND LICENSES
The Company's success will be dependent in large measure upon its ability to
obtain and enforce patent protection for its products, maintain confidentiality
of its trade secrets and know-how and operate without infringing upon the
proprietary rights of third parties. The Company has been granted two U.S.
patents for the technology relating to the BioJect system and has filed two
other applications covering modifications to the BioJect system, one of which
has been approved. The Company has also obtained U.S. patent protection for its
ClearLake system and may apply for foreign patent protection in selected
countries. The Company does not have foreign patent rights with respect to the
claims covered by the two initial BioJect patents, and the Company is precluded
from obtaining such foreign rights due to the expiration of the period for
filing such claims. However, in connection with the two subsequent BioJect
patent applications, the Company expects to be permitted to apply for foreign
patent protection with respect to these inventions and may apply for such
protection in selected countries. The Company has registered or applied for
registration of a number of trademarks used in its business and also relies on
trade secrets and proprietary know-how. The Company occasionally has elected to
disclose its trade secrets and proprietary know-how to employees, consultants,
potential corporate partners and contract manufacturers.
Despite the precautions described above, it may be possible for a third party to
copy or otherwise obtain or use the Company's products or technology without
authorization, or to develop similar products or technology independently. There
can be no assurance that the Company's patent or trademark applications will be
granted, that its means of protecting its proprietary rights will be adequate or
that the Company's competitors will not independently develop similar products.
Furthermore, if any of the Company's patents are infringed upon, it may not have
sufficient resources to prosecute a patent suit to defend its patents. In
addition, an adverse determination in any litigation would subject the Company
to significant liabilities to third parties, require the Company to seek
licenses from or pay royalties to third parties, or prevent the Company from
manufacturing, selling or using its products, any of which could have a material
adverse effect on the Company's business and prospects. See "Business -- Patents
and Proprietary Rights."
DEPENDENCE ON OTHERS FOR PRODUCT MANUFACTURING
The Company currently does not have any manufacturing capability and must rely
on third parties to manufacture its products and components. The Company has
more than one supplier for the manufacture of most of its products and
components; however, some are being obtained from only one source. Although the
Company believes that it will be able to contract production with a number of
suppliers, there can be no assurance that this will be the case or that the need
to contract with additional suppliers will not delay the Company's ability to
have its products and components manufactured. There can be no assurance that
these manufacturers will meet the Company's requirements for quality, quantity
and timeliness, or that the Company will be able to find substitute
manufacturers for its products and components in the future. In the first six
months of 1996, the Company experienced a problem with a circuit board in its
BioJect system which required the Company to incur expenses in making circuit
board repairs in its installed BioJect systems and resulted in a delay in
certain installations of new BioJect systems. Although the Company believes that
it has solved this problem by contracting with a different manufacturer for its
circuit boards, there can be no assurance that similar unforeseen problems will
not develop in the future, any of which could have a material adverse effect on
the Company's operations. In addition, if the Company is unable to obtain or
retain contract manufacturers, or to obtain manufacturing on commercially
acceptable terms, it may not be able to commercialize its products as planned.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations" and "Business."
NO ASSURANCE THAT ADDITIONAL MICROBIAL PRODUCTS WILL BE ACQUIRED
The Company plans to acquire the rights to additional microbial products. The
Company does not engage in its own research and development with respect to
microbial products. Although the Company is actively seeking to obtain licenses
for additional microbial products, there can be no assurance that the Company
will be successful in obtaining any such licenses on terms acceptable to the
Company, if at all. The failure of the Company to acquire rights to additional
products could have a material adverse effect on the Company, its results of
operations and prospects. See "Business -- Business Strategy."
PRODUCT LIABILITY CLAIMS AND UNINSURED RISKS
The Company may be exposed to liability resulting from the commercial use of its
products. Such liability might result from claims made directly by consumers or
others manufacturing such products on behalf of the Company. The Company
currently carries a product liability insurance policy with an aggregate limit
of $2,000,000. There can be no assurance, however, that such product liability
insurance will adequately protect the Company against any product liability
claim. A product liability or other claim with respect to uninsured liabilities
or in excess of insured liabilities could have a material adverse effect on the
business and prospects of the Company.
The Company has obtained insurance of such types and in such amounts as it
believes to be adequate and customary for similarly situated firms in its
business, including casualty insurance and workers' compensation insurance.
However, there are risks not normally covered by insurance over which the
Company has no control but which could result in the Company incurring losses
not covered by insurance. Losses incurred as the result of the improper
application of fertilizers or other compounds, or which result from the
violation of environmental or other governmental regulations, are generally not
covered by insurance and could result in losses being incurred by the Company.
There can be no assurance that any losses covered by insurance will be
adequately covered or that any claim by the Company will be approved for payment
by the insurer. See "Business."
ENVIRONMENTAL LIABILITY
Some states have laws imposing liability on certain parties for the release of
fertilizers and other agents into the environment in certain manners or
concentrations. Such liability could include, among other things, responsibility
for cleaning up the damage resulting from such a release. In addition, the
federal Comprehensive Environment Response, Compensation and Liability Act
(CERCLA), commonly known as the "Superfund" law, and other applicable laws
impose liability on certain parties for the release into the environment of
hazardous substances, which might include fertilizers and water treatment
chemicals. The Company is also subject to certain other environmental laws,
including the Environmental Protection Act, the Toxic Substance Control Act, the
Resource Conservation and Recovery Act, the Clean
Air Act and the Clean Water Act and may be subject to other present and
potential future federal, state or local regulations. The Company does not
currently maintain insurance for any environmental claims which might result
from the release of its products into the environment in a manner or in
concentrations not permitted by law. Thus, a claim for environmental liability
could have a material adverse effect on the Company. See "Business -- Government
Regulation."
COMPETITION AND RAPID TECHNOLOGICAL CHANGE
The Company competes for market share with a number of companies that
manufacture and market chemical compounds. In addition, a number of companies
are developing biological and organic products for turf maintenance. Many of
these competitors have substantially greater capital resources, research and
development staffs and facilities than the Company, and many of these
competitors have extensive experience in turf maintenance. The Company's
competitors may develop and introduce products and processes competitive with or
superior to those of the Company. For certain of the Company's potential
products, an important factor in competition may be the timing of market
introduction of its products compared to those of potential competitors. Such
timing will be based on the effectiveness with which the Company or the
competition can complete product testing and approval processes and supply
quantities of these products to market. Competition among products approved for
sale will be based on, among other things, product efficacy, safety,
reliability, price, market capability and patent protection.
The fields of biotechnology and related technologies in which the Company is
engaged have undergone rapid and significant technological changes. The Company
expects that the technologies associated with its research and development will
continue to develop rapidly. There can be no assurance that the Company will be
able to establish itself in such fields or, if established, that it will be able
to maintain a competitive position. Further, there can be no assurance that the
development by others of new or improved processes or products will not make the
Company's products and processes less competitive or obsolete. See "Business --
Competition."
GOVERNMENT REGULATION
The Company is subject to laws and regulations administered by federal, state
and foreign governments, including those requiring registration or approval of
fertilizers, soil additives and amendments, water treatment products and product
labeling. The Company's current products are subject to regulation by the
Environmental Protection Agency (the "EPA"), the Food and Drug Administration
(the "FDA") and by certain state agricultural departments. Compliance with laws
and regulations will increase the costs and time necessary to allow the Company
to operate successfully and may affect the Company in other respects not
currently foreseeable. More stringent requirements for regulation or
environmental controls may be imposed, which could have a material adverse
effect on the Company. See "Business -- Government Regulation."
LIMITED SALES AND MARKETING CAPABILITY
The Company has limited experience in sales, marketing and distribution. To
market any of its products directly, the Company must develop or acquire a
marketing and sales force with technical expertise and sufficient distribution
capability, and a customer service capability necessary to effectively market
and service its proprietary products and systems. Although the Company has begun
to develop sales, marketing and distribution service capabilities through the
acquisition of selected independent dealers and distributors, there can be no
assurance that additional acquisition candidates will continue to be available
or that any acquisition efforts will be successful. There can be no assurance
that the Company will be able to establish sales, distribution and customer
service capabilities or be successful in gaining market acceptance for its
products. See "Business."
QUARTERLY FLUCTUATIONS IN THE COMPANY'S RESULTS OF OPERATIONS
The Company's operating results vary from quarter to quarter as a result of
various factors, including the fact that customers who purchase the Company's
ClearLake and CleanRack systems generally purchase such systems out of their
available capital expenditure budget, the amount of which is typically approved
on a yearly basis due to the capital expenditure nature of the product. As a
result, sales of ClearLake and CleanRack systems are generally higher in the
first three quarters than in the fourth quarter since many customers have
already spent their full capital budgets by the fourth quarter. To date, sales
of the Company's BioJect systems have not varied materially due to seasonal
factors. Because the Company's business is directly related to the capital
expenditure budget of its customers, the Company expects that quarterly
fluctuations in its operating results will continue. Therefore, results for any
quarter are not necessarily indicative of results for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Fluctuations."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the active participation of William B. Adams,
its Chairman of the Board and Chief Executive Officer, Jeffrey A. Johnson,
its President and Chief Operating Officer, and Douglas M. Gloff, its
Executive Vice President. The loss of the services of any of these
individuals could have a material adverse effect upon the Company's future
operations. Messrs. Adams, Johnson and Gloff have each entered into an
employment agreement with the Company which provides for their continued
employment with the Company through September 1998. The Company does not have
key person life insurance on any of its key employees. See "Management."
NEED FOR TECHNICAL PERSONNEL
The Company's success depends in large part on its ability to attract and retain
qualified scientific and management personnel. The Company faces competition for
such persons from other companies, academic institutions, government entities
and other organizations. There can be no assurance that the Company will be
successful in recruiting or retaining personnel of the requisite caliber or in
adequate numbers to enable it to conduct its business as proposed. Furthermore,
the Company's expected expansion into activities requiring additional expertise
will place increased demands on its resources and management skills. The
Company's Scientific Advisory Board members and consultants are employed by or
consult with others, and they are expected to devote only a small portion of
their time to the Company. In addition, the Company's Scientific Advisory Board
members and consultants may have consulting or other advisory arrangements with
other entities which may conflict or compete with their obligations to the
Company. See "Management."
CONTROL BY PRINCIPAL SHAREHOLDERS
The current principal shareholders and management of the Company own
approximately 56% of the outstanding shares of Common Stock of the Company
before the offering and will own approximately 42% after the offering, assuming
the exercise of all outstanding options and the conversion of debt held by them
and no exercise of options or warrants or the conversion of debt held by others.
Accordingly, since the Company does not have cumulative voting, the current
principal shareholders and management, if voting in concert, may have the
ability to effectively control the election of a majority of the directors of
the Company or any other major decisions involving the Company or its assets.
See "Principal Shareholders" and "Description of Securities."
LACK OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public market for the Company's Common
Stock, and there can be no assurance that an active public market will develop
or be sustained after this offering. The initial public offering price will be
determined by negotiations between the Company and the Representative. See
"Underwriting" for a discussion of the determination of the initial public
offering price. If a public market does develop, the market price of the
Company's Common Stock may be significantly affected by factors such as
announcements of the introduction of new microbial products by the Company or
its competitors and quarterly variations in the Company's operating results.
Further, the stock market occasionally experiences extreme volatility in stock
prices. Such volatility may particularly affect the market prices of many
biotechnology companies in ways that are unrelated or disproportionate to the
operating performance of such companies. Fluctuations in the general market for
biotechnology stocks may adversely affect the price of the Company's Common
Stock. See "Underwriting."
OUTSTANDING WARRANTS AND OPTIONS
As of September 30, 1996, there were 4,074,033 shares of Common Stock subject to
issuance pursuant to options and warrants issued by the Company. In addition, in
connection with this offering, the Representative will receive the
Representative's Warrant to purchase up to 300,000 shares of Common Stock.
Holders of warrants and options are likely to exercise them when, in all
likelihood, the Company could obtain additional capital on terms more favorable
than those provided by the warrants and options. While the warrants and options
are outstanding, they may adversely affect the terms on which the Company can
obtain additional capital. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of significant amounts of Common Stock in the public market or the
perception that such sales will occur could adversely affect the market price of
the Common Stock or the future ability of the Company to raise capital through
an offering of its equity securities. Of the 9,564,166 shares of Common Stock to
be outstanding upon completion of this offering, the 3,000,000 Shares offered
hereby will be eligible for immediate sale in the public market without
restriction, with the exception of any shares purchased in the offering by
"affiliates" of the Company within the meaning of Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"). The remaining 6,564,166 shares
of Common Stock held by existing shareholders upon completion of this offering
will be "restricted securities," as that term is defined in Rule 144 under the
Securities Act. Of these shares, shares will be eligible for resale in the open
market pursuant to Rule 144 beginning 90 days after the date of this Prospectus.
An additional shares will become eligible for resale under Rule 144
between__________, 1996 and ____________, 1997. Directors and executive officers
of the Company (representing 4,939,053 of such restricted shares) have agreed
that they will not sell, directly or indirectly, any Common Stock without the
prior written consent of the Underwriter for a period of 180 days from the date
of this Prospectus. In addition, certain shareholders have the right, subject to
certain conditions, to participate in future Company registrations and to cause
the Company to register certain shares of Common Stock owned by them. See
"Shares Eligible for Future Sale."
UNDESIGNATED PREFERRED STOCK; ANTITAKEOVER PROVISIONS
The Board of Directors is authorized, without any action by the Company's
shareholders, to issue up to 5,000,000 shares of authorized but undesignated
Preferred Stock and to fix the powers, preferences, rights and limitations of
any such Preferred Stock or any class or series thereof. Persons acquiring
Preferred Stock could have preferential rights with respect to voting,
liquidation, dissolution or dividends over existing shareholders, including
purchasers of Shares in this offering. This ability of the Board would permit
the Company to adopt a shareholders' rights plan or to take other action that
could deter a hostile takeover of the Company, entrench the Board of Directors
or deter an unsolicited tender offer. In addition, certain provisions of the
Company's Bylaws, as amended, including provisions creating a staggered board of
directors, and certain provisions of Nebraska law, including the Nebraska
Shareholders Protection Act, could have the effect of deterring or delaying a
takeover or other change in control of the Company, could deny shareholders the
receipt of a premium on their Common Stock and could have a depressive effect on
the market price of the Company's Common Stock. See "Description of Securities."
DILUTION
Purchasers of the Shares offered hereby will experience immediate and
substantial dilution in net tangible book value of the Common Stock. Such
investors will incur additional dilution to the extent that options or
warrants outstanding prior to this offering are exercised. See "Dilution."
NO DIVIDENDS
The Company has never paid a cash dividend on its Common Stock, and the Company
is currently prohibited from paying dividends by the terms of a loan agreement
between the Company and Imperial Bank. For the foreseeable future, it is
anticipated that any earnings that may be generated from the Company's
operations will be used to finance its growth and that cash dividends will not
be paid to holders of Common Stock. See "Dividend Policy."
USE OF PROCEEDS
The net proceeds to the Company from the sale of Shares offered hereby are
estimated to be $10,955,000 ($12,629,000 if the Underwriters' over-allotment
option is exercised in full) after deducting the underwriting discount and
estimated offering expenses payable by the Company and assuming an initial
public offering price of $4.25 per share. The Company intends to apply such net
proceeds substantially as follows:
Acquisitions $ 4,000,000
Repayment of Bridge Notes 3,787,000
Repayment of short-term debt 1,763,000
Working capital 1,405,000
Total $10,955,000
ACQUISITIONS. The Company currently intends to use up to $1,500,000 of the net
proceeds to make the final payments due in connection with one of the Company's
recent acquisitions and to use up to an additional $2,500,000 of the net
proceeds for future acquisitions of independent dealers and distributors of turf
maintenance products. The Company is currently evaluating additional acquisition
opportunities throughout the United States but currently does not have any
formal agreements to acquire other companies. See "Certain Transactions."
REPAYMENT OF BRIDGE NOTES. Approximately $3,787,000 of the net proceeds will be
used to pay principal and accrued interest on the Bridge Notes, assuming none of
the Bridge Notes are converted into Common Stock. If some or all of the Bridge
Notes are converted, the net proceeds that would have been used to repay
indebtedness under such Bridge Notes will be used for general working capital
purposes. The outstanding principal and accrued interest on the Bridge Notes
will be due and payable within 30 days after the date of this Prospectus and
bear interest at the rate of 10% per annum. Up to 100% of the principal amount
of the Bridge Notes is convertible for a period of 20 days after the date of
this Prospectus, at the option of the holder thereof, into the Company's Common
Stock at a conversion price of 80% of the initial public offering price. The
proceeds from the Bridge Notes were used to finance the Company's acquisitions,
to repay $100,000 of short-term debt and for general working capital purposes.
See "Description of Securities -- Bridge Financing."
REPAYMENT OF SHORT-TERM DEBT. The Company currently maintains a line of credit
of $1,000,000 with Imperial Bank for working capital purposes. This line
consists of a $500,000 revolving line of credit from the California Export
Financing Office that bears interest at the prime rate plus 1.5% and is payable
in April 1997 and a $500,000 revolving line of credit that bears interest at an
annual rate equal to the prime rate plus 2% and is payable in April 1997. As of
September 30, 1996, the outstanding balance of this loan was $500,000. This line
of credit requires an annual short-term repayment before it can be renewed. The
Company plans to use $1,000,000 of the proceeds of this offering to repay the
line of credit, and to renew the line of credit for use in the future. See
"Certain Transactions."
As of September 30, 1996, the Company owed Peninsula Bank $263,000 under a loan
payable in January 1997. This loan is collateralized with assets pledged by
William S. Potter, a director of the Company. The Company plans to use $263,000
of the proceeds of the offering to repay this loan and to cause the release of
this director's collateral. The Company also plans to repay $500,000 of
unsecured demand notes bearing interest at the rate of 8% per annum from
directors William B. Adams and Douglas M. Gloff, and from Heartland Capital
Fund, Ltd. ("Heartland Capital"), a limited partnership of which Bradley K.
Edwards, a director of the Company, is a general partner. See "Certain
Transactions." All of the proceeds from this short-term debt were used for
working capital purposes.
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES. The remainder of the net
proceeds, approximately $1,405,000, will be allocated to working capital and
will be used to (i) add customer service and installation personnel necessary to
support expansion of the Company's customer base in existing territories and in
new markets (such as the agricultural crop, soil remediation and water quality
management industries), (ii) finance the growth of receivables and inventory as
revenues expand, thereby reducing dependence on the Company's bank line of
credit, (iii) finance the growth in capital expenditures that occurs as the
installed base of BioJect systems increases without being dependent on obtaining
outside financing, and (iv) provide working capital to expand into potential new
geographical territories.
Pending the use of the net proceeds, the Company intends to invest such funds in
interest-bearing money market funds, short-term certificates of deposit and
United States governmental obligations. The described use of proceeds is based
upon management's assumptions concerning marketing, selling, development,
financial and other matters which may affect the Company. If the development of
the Company's business varies materially from these assumptions, the Company may
reallocate the use of proceeds in such a manner as it deems appropriate under
the circumstances.
CAPITALIZATION
The following table sets forth, at September 30, 1996, the actual capitalization
of the Company and the capitalization as adjusted to give effect to the sale by
the Company of the 3,000,000 Shares offered hereby at an assumed public offering
price of $4.25 per share (after deduction of the underwriting discount and
estimated offering expenses) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." The information set forth below should be read
in conjunction with the financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
ACTUAL(1) AS ADJUSTED(2)
<S> <C> <C>
Long-term debt and other obligations, net of current
portion $ 2,020 $ 2,020
Shareholders' equity (deficit):
Preferred Stock, no par value; 5,000,000 shares
authorized; none issued and outstanding, actual and as
adjusted -- --
Common Stock, $.005 par value; 20,000,000 shares
authorized; 6,564,166 shares issued and outstanding,
9,564,166 shares as adjusted(3) 33 48
Additional paid-in capital 12,684 23,624
Warrants 239 239
Note receivable from shareholder (72) (72)
Accumulated deficit (11,125) (11,236)
Total shareholders' equity 1,759 12,603
Total capitalization $ 3,779 $ 14,623
</TABLE>
(1) Derived from the Company's audited consolidated financial statements
included elsewhere in this Prospectus. See "Consolidated Financial
Statements."
(2) Adjusted to give effect to the sale of the 3,000,000 Shares offered hereby
at an assumed initial public offering price of $4.25 per Share and the
application of net proceeds therefrom (including repayment of indebtedness
under the Bridge Notes and the write off of $111,000 of debt issuance
costs).
(3) Excludes (i) 1,086,750 shares of Common Stock issuable upon conversion of
the Bridge Notes (assuming all of the Bridge Notes are converted and
assuming an initial public offering price of $4.25 per Share), (ii) 739,000
shares of Common Stock subject to the Bridge Warrants at an exercise price
of 80% of the initial public offering price, (iii) 2,406,568 shares of
Common Stock subject to outstanding options at a weighted average exercise
price of $2.13 per share, (iv) 1,667,465 shares of Common Stock subject to
other outstanding warrants at a weighted average exercise price of $2.69 per
share and (v) 300,000 shares of Common Stock subject to the Representative's
Warrant at an exercise price of 120% of the initial public offering price.
See "Description of Securities" and "Underwriting."
DILUTION
The Company's net tangible book value (deficit) at September 30, 1996 was
approximately $(3,608,000), or $(.55) per share. "Net tangible book value per
share" represents the Company's total tangible assets less its total
liabilities, divided by the number of shares of Common Stock outstanding.
Without giving effect to changes in net tangible book value after September 30,
1996, except for the sale of the Shares offered hereby (assuming a public
offering price of $4.25 per share and after deducting the underwriting discount
and estimated offering expenses payable by the Company), the Company's net
tangible book value at September 30, 1996 would have been approximately
$7,347,000, or $.77 per share. This amount represents an immediate increase in
net tangible book value per share of $1.32 to existing shareholders and an
immediate dilution of $3.48 per share to the investors purchasing the Shares
offered hereby. The following table illustrates this per share dilution in net
tangible book value to new investors:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share $4.25
Net tangible book value (deficit) per share at September 30,
1996 $(.55)
Increase per share attributable to new investors 1.32
Net tangible book value per share after this offering .77
Dilution per share to new investors $3.48
</TABLE>
If the Underwriter's over-allotment option is exercised in full, and assuming an
initial public offering price of $4.25 per share, the net tangible book value of
the Company as of September 30, 1996 would have been $9,021,000, or $.90 per
share, representing an immediate increase in net tangible book value of $1.45
per share to existing shareholders and an immediate dilution of $3.35 per share
to the investors purchasing the Shares offered hereby.
The following summarizes, on a pro forma basis, the differences between existing
shareholders and purchasers of the Shares offered hereby, with respect to their
ownership of Common Stock upon the closing of this offering, the total
consideration paid and the average consideration paid per share:
<TABLE>
<CAPTION>
AVERAGE
SHARES OWNED TOTAL CONSIDERATION PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing
shareholders 6,564,166 68.6% $14,243,000 52.8% $2.17
New investors 3,000,000 31.4% 12,750,000 47.2% $4.25
Total 9,564,166 100.0% $26,993,000 100.0%
</TABLE>
The foregoing calculations do not include (i) 1,086,765 shares of Common Stock
issuable upon conversion of the Bridge Notes (assuming all of the Bridge Notes
are converted and assuming an initial public offering price of $4.25 per share),
(ii) 739,000 shares of Common Stock subject to the Bridge Warrants at an
exercise price of 80% of the initial public offering price, (iii) 2,406,568
shares of Common Stock subject to other outstanding options at a weighted
average exercise price of $2.13 per share, (iv) 1,667,465 shares of Common Stock
subject to other outstanding warrants at a weighted average exercise price of
$2.69 per share, and (v) 300,000 shares of Common Stock subject to the
Representative's Warrant at an exercise price of 120% of the initial public
offering price. To the extent such securities are converted or exercised, there
may be further dilution to new investors. See "Description of Securities" and
"Underwriting."
DIVIDEND POLICY
The Company has never paid or declared any cash dividends on its Common Stock
and does not intend to pay dividends on its Common Stock in the foreseeable
future. The Company is currently prohibited from paying dividends by the terms
of a loan agreement between the Company and Imperial Bank. The Company intends
to retain any earnings for use in the operation and expansion of its business.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The selected consolidated financial data set forth below, with respect to the
Company's consolidated statement of operations data for the years ended December
31, 1994 and 1995 and the six months ended June 30, 1996, and the consolidated
balance sheet data set forth below as of December 31, 1995, have been derived
from the consolidated financial statements of the Company which have been
audited by Ernst & Young LLP, independent auditors (except for the financial
statements of Turf Specialty, Inc., a consolidated subsidiary, which were
audited by Bigelow & Company Certified Public Accountants, P.C.), as set forth
in their report, which includes an explanatory paragraph that indicates there is
substantial doubt about the Company's ability to continue as a going concern,
included elsewhere in this Prospectus. The consolidated statement of operations
data set forth below for the six months ended June 30, 1995 and the nine months
ended September 30, 1995 and 1996 and the consolidated balance sheet data as of
September 30, 1996 have not been audited but, in the opinion of management,
reflect all adjustments (consisting of only normal recurring adjustments) that
the Company considers necessary to present fairly the financial data for such
period. Results of the interim periods are not necessarily indicative of the
results that may be expected for the entire year or other interim periods. The
information presented below should be read in conjunction with the consolidated
financial statements and notes thereto presented elsewhere in this Prospectus
and in "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30, NINE MONTHS ENDED SEPTEMBER 30,
1994 1995 1995 1996 1995 1996 1996(1)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 2,688 $ 3,757 $ 1,940 $ 4,139 $ 2,783 $ 9,229 $15,749
Cost of sales 1,998 1,980 844 2,329 1,615 5,705 10,421
Gross profit 690 1,777 1,096 1,810 1,168 3,524 5,328
Selling, general and
administrative 2,996 2,938 1,373 2,961 1,929 5,079 7,099
Research and development 286 413 160 275 264 353 353
Loss from operations (2,592) (1,574) (437) (1,426) (1,025) (1,908) (2,124)
Interest expense (224) (262) (131) (192) (172) (523) (652)
Net loss $(2,816) $(1,836) $ (568) $(1,618) $(1,197) $(2,431) $(2,776)
Net loss per share(2) $ (.62) $ (.35) $ (.11) $ (.27) $ (.23) $ (.40) $ (.44)
Shares used in calculation of net
loss per share(2) 4,557 5,207 5,184 5,980 5,304 6,050 6,359
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
1995 ACTUAL AS ADJUSTED(3)
<S> <C> <C> <C>
Cash $ -- $ 437 $ 5,842
Working capital (deficit) (1,324) (3,875) 6.969
Total assets 3,981 13,979 19,384
Long-term debt and other obligations, net of current
portion 941 2,020 2,020
Common stock/paid in capital 8,535 12,717 23,672
Accumulated deficit (8,694) (11,125) (11,236)
Total shareholders' equity (deficit) (159) 1,759 12,603
</TABLE>
(1) Pro forma to give effect to the acquisition of Turf Specialty, Inc. and
Turf Products, Ltd. as if they were acquired on January 1, 1996. The pro
forma consolidated statement of operations data are unaudited, presented
for illustrative purposes only and not necessarily indicative of what
actual results of operations would have been for the period presented had
the transactions occurred on that date. See "Unaudited Pro Forma
Condensed Consolidated Statements of Operations."
(2) See Note 1 to Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in calculating net
loss per share.
(3) Adjusted to give effect to the sale of the 3,000,000 Shares offered hereby
at an assumed initial public offering price of $4.25 per Share and the
application of net proceeds therefrom (including repayment of indebtedness
under the Bridge Notes and the write off of $111,000 of related debt
issuance costs). The foregoing calculations do not include (i) 1,086,765
shares of Common Stock issuable upon conversion of the Bridge Notes
(assuming all of the Bridge Notes are converted and assuming an initial
public offering price of $4.25 per share), (ii) 739,000 shares of Common
Stock subject to the Bridge Warrants at an exercise price of 80% of the
initial public offering price, (iii) 2,406,568 shares of Common Stock
subject to outstanding options at a weighted average exercise price of $2.13
per share, (iv) 1,667,465 shares of Common Stock subject to other
outstanding warrants at a weighted average exercise price of $2.69 per
share, and (v) 300,000 shares of Common Stock subject to the
Representative's Warrant at an exercise price of 120% of the initial public
offering price. See "Dilution," "Description of Securities" and
"Underwriting."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Eco Soil Systems, Inc. (the "Company") has developed two patented distribution
systems that enable the Company to market and support a proprietary line of
microbial products which control and manage a wide variety of soil, crop and
water problems. The Company believes that these biological products, when
introduced through its BioJect and ClearLake delivery systems, will
cost-effectively replace or complement the use of chemical pesticides or
fertilizers in the turf maintenance, agricultural crop, soil remediation and
water quality management industries. Use of the Company's systems can contribute
to a reduction in the negative cumulative environmental effect of chemical use
with no increase in cost or crop damage. The Company's goals are to increase the
market share for biocontrol products and to make its delivery systems the
principal methods for distributing biotechnology products in its targeted
industries.
The Company's delivery systems ferment environmentally-safe microorganisms at
the site of application and automatically dispense the appropriate amount and
type of cultured product at the desired frequency directly into the customer's
irrigation system, pond or lake. By fermenting its biological products at the
customer's site, the Company is able to preserve and protect the potency of the
microorganisms, significantly reduce shipping costs and control the frequency of
application and concentration of product. The Company believes that its
microbial products, delivery systems and bioaugmentation expertise have
positioned it as a leader in the introduction, marketing and management of
biological complements or alternatives to many chemical pesticide and fertilizer
products.
The Company has financed its operations since inception by generating cumulative
revenues through September 30, 1996 of approximately $17,000,000 and by raising
approximately $15,600,000 in equity and debt financing.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
The Company generated revenues of $9,229,000 for the nine months ended September
30, 1996, compared to $2,783,000 for the nine months ended September 30, 1995.
On May 31, 1996, the Company acquired Turf Products, Ltd. ("Turf Products") and
Turf Specialty, Inc. ("Turf Specialty"), and the acquisition of each of these
companies has been accounted for as a purchase. The results for the first nine
months of 1996 contain four months of revenues from Turf Products, $2,508,000,
and Turf Specialty, $2,884,000. Revenues generated by sources other than Turf
Products and Turf Specialty increased by approximately 38% to $3,848,000 during
the first nine months of 1996, compared to $2,783,000 during the first nine
months of 1995. In September 1995, the Company acquired Aspen Consulting, Inc.
("Aspen"), an irrigation design and planning firm, and Aspen added $795,000 of
revenues for the first nine months of 1996. In addition, in February 1996 the
Company acquired Direct Products and Machinery Pty. Ltd. and Golf and Turf CC
("Direct Products"), a distributor of the Company's products in South Africa.
From February 1996 through September 30, 1996, Direct Products contributed
$502,000 to the Company's revenues.
In the first nine months of 1996, the Company's lease and service revenues on
its BioJect system increased 47% to $652,000, compared to $445,000 during the
first nine months of 1995. The Company's revenues from its BioJect menu items,
primarily microbes, increased to $1,040,000 during the first nine months of
1996, up 48%, compared to $703,000 during the first nine months of 1995. The
primary cause of the increase in lease, installation and menu items was the
increase in the number of BioJect systems installed. At September 30, 1996, the
Company had 238 BioJect systems installed, up 49% compared to 160 installed at
September 30, 1995. In addition, the Company increased the number of menu items
available to customers in 1996 compared to 1995.
Revenues from sales of CleanRack systems increased 17% during the first nine
months of 1996 to $224,000, compared to $191,000 during the first nine months of
1995. The increase in CleanRack revenues was due to an increase in the installed
base of CleanRack units from nine units at September 30, 1995 to 15 units at
September 30, 1996. Revenues from sales of ClearLake systems during the first
nine months of 1996 declined 65% to $147,000, compared to $425,000 during the
first nine months of 1995. The decline in the sales of ClearLake systems during
the first nine months of 1996 was due to a decline in unit sales as the Company
redesigned its ClearLake product. As a result, the Company did not actively
market its ClearLake system during that time period.
Other revenues, which consisted primarily of non-proprietary fertilizer,
nutrient and seed sales, declined to $718,000 during the first nine months of
1996, compared to $963,000 during the first nine months of 1995. This decrease
resulted from the Company's decision to focus on the marketing of its BioJect
system and its other proprietary products.
The Company's gross profit during the first nine months of 1996 increased to
$3,696,000, compared to $1,168,000 during the first nine months of 1995. The
Company's gross profit margin declined to 38% during the first nine months of
1996, compared to 42% during the first nine months of 1995, primarily due to a
problem with circuit boards for its BioJect system.
During the first and second quarters of 1996, the Company purchased a
significant number of faulty circuit boards from an outside vendor. These
circuit boards caused the Company to incur in excess of $800,000 of expenses,
which decreased the Company's gross profit and increased its selling, general
and administrative expenses. The additional expenses were due to (i) the costs
of diagnosing the problem, (ii) the costs of designing, producing and installing
new circuit boards, (iii) excess product usage of menu items and (iv)
significant customer service expenses. In addition, given the circuit board
problem, the Company chose to stop marketing its BioJect system to additional
customers in May 1996 until the problem was rectified. The Company has
redesigned the circuit board and resumed marketing the BioJect system in August
1996.
Selling, general and administrative expenses increased to $5,079,000 during the
first nine months of 1996, compared to $1,929,000 during the first nine months
of 1995. The increase in selling, general and administrative expenses was the
result of the costs associated with the integration of the Company's
acquisitions, an increase in the number of personnel at the Company and the
previously discussed circuit board problem.
Research and development expenses increased to $353,000 during the first nine
months of 1996, compared to $264,000 during the first nine months of 1995. The
increase in research and development expenses was due to increased expenditures
on the BioJect and ClearLake systems.
Interest expense for the first nine months of 1996 was $523,000, compared to
$172,000 for the first nine months of 1995. The increase in interest expense was
primarily due to the amount of debt outstanding. The amount of short-and
long-term debt increased to $8,635,000 at September 30, 1996, compared to
$2,933,000 at September 30, 1995.
The Company incurred $145,000 of expenses associated with the amortization of
goodwill during the first nine months of 1996, compared to $1,500 during the
first nine months of 1995. The increase in expenses associated with the
amortization of goodwill was due to the acquisition of Turf Products and Turf
Specialty in May 1996 as well as nine months of amortization of the goodwill
associated with the acquisition of Aspen. The amount of goodwill associated with
these acquisitions as of September 30, 1996 was $5,317,000 and is currently
being amortized over a period of 15 years.
The Company reported a net loss of $2,431,000 during the first nine months of
1996, compared to a net loss of $1,197,000 during the first nine months of 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
The Company generated revenues of $4,139,000 in the six months ended June 30,
1996, compared to $1,940,000 for the six months ended June 30, 1995. On May 31,
1996 the Company acquired Turf Products and Turf Specialty. The acquisition of
each of these companies has been accounted for as a purchase. Accordingly, the
Company's results for the first six months of 1996 included 30 days of revenues
from Turf Products, $876,000, and Turf Specialty, $538,000. Revenues from
sources other than Turf Products and Turf Specialty increased by approximately
40% to $2,725,000 during the first six months of 1996, compared to $1,940,000
during the first six months of 1995. In September 1995 the Company acquired
Aspen, which added $541,000 to the Company's revenues for the first six months
of 1996. In addition, in February 1996 the Company acquired Direct Products, and
from February 1996 through June 30, 1996, Direct Products generated $295,000 of
revenues. In the first six months of 1996, the Company's lease and installation
revenues from its BioJect system increased 37% to $556,000, compared to $405,000
during the first six months of 1995. The Company's sale of BioJect menu items,
primarily microbes, increased to $565,000 during the first six months of 1996,
up 72% compared to $328,000 during the first six months of 1995. The primary
cause of the increase in lease, installation and menu items was the increase in
the number of BioJect systems installed. At June 30, 1996 the Company had 235
BioJect systems installed, up 53% compared to 154 installed at June 30, 1995. In
addition, the Company increased the number of menu items available to customers
in 1996 compared to 1995, which partially accounted for the significant increase
in menu item sales.
Revenues from CleanRack sales increased 34% during the first six months of 1996
to $188,000, compared to $140,000 during the six months ended June 30, 1995. The
increase in CleanRack revenues was due primarily to an increase in the installed
base of CleanRack units from seven units at June 30, 1995 to 12 units at June
30, 1996. Revenues from sales of ClearLake systems during the six months ended
June 30, 1996 declined to $135,000, compared to $422,000 during the first six
months of 1995. The decline in the sales of ClearLake systems during the first
six months of 1996 was due to a decline in unit sales as the Company improved
the design of its ClearLake system. As a result, the Company did not actively
market its ClearLake system during that time period.
Other revenues, which consisted primarily of non-proprietary fertilizer,
nutrient and seed sales, declined to $445,000 during the first six months of
1996, compared to $645,000 during the first six months of 1995. This decline
resulted from the Company's decision to focus on the marketing of its BioJect
system and its other proprietary products.
The Company's gross profit during the first six months of 1996 increased to
$1,810,000, compared to $1,096,000 during the first six months of 1995. The
Company's gross profit margin declined to 44% during the first six months of
1996 compared to 56% during the first six months of 1995, primarily due to the
previously discussed circuit board problem.
Selling, general and administrative expenses increased to $2,961,000 during the
first six months of 1996, compared to $1,373,000 during the first six months of
1995. The increase in selling, general and administrative expenses was the
result of the costs associated with the integration of the Company's
acquisitions, an increase in the number of personnel at the Company and the
previously discussed circuit board problem.
Research and development expenses increased to $275,000 for the six months ended
June 30, 1996, compared to $160,000 during the first six months ended June 30,
1995. The increase in research and development expenses was due primarily to
increased expenditures on the BioJect and ClearLake systems.
Interest expense for the first six months of 1996 increased to $192,000,
compared to $131,000 for the first six months of 1995. The increase in interest
expense was due to an increase in the amount of debt outstanding and capital
lease obligations at June 30, 1996, which was $5,563,000, compared to $1,999,000
at June 30, 1995, as well as an increase in the interest rates on the Company's
debt.
The Company reported a net loss of $1,618,000 during the first six months of
1996, compared to a net loss of $568,000 during the first six months of 1995.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1994
The Company generated revenues of $3,757,000 for the year ended December 31,
1995, compared to $2,688,000 for the year ended December 31, 1994, an increase
of $1,069,000, or 40%. The major reason for the increase in revenues was a
growth in revenues on its BioJect system from $719,000 in 1994 to $1,503,000 in
1995, an increase of $784,000, or 109%. At December 31, 1995, the Company had
171 BioJect systems installed, up 116% compared to 79 installed at December 31,
1994. The average revenue per BioJect account also increased in 1995, from
approximately $10,000 per BioJect account in 1994 to more than $11,000 in 1995,
as the Company restructured its BioJect system to sell a number of biological
programs, each of which utilizes distinct bacteria or other biological products.
Sales of ClearLake systems also increased in 1995 and contributed significantly
to the Company's overall sales growth. ClearLake system revenues increased from
$105,000 in 1994 to $436,000 in 1995, an increase of approximately $331,000.
Sales of ClearLake systems increased from 13 systems in 1994 to 30 systems in
1995. The other principal changes in revenue generated by the Company in 1995
were the inclusion of $353,000 of revenue from Aspen and a decrease in seed
sales of approximately the same magnitude, as the Company made the decision at
the end of the first quarter in 1995 to discontinue carrying this product line
due to inconsistent product quality. The Company's international revenues, which
are included in these amounts, also showed significant growth during 1995.
International revenues increased by $68,000 to $598,000 in 1995, compared to
$530,000 in 1994.
The growth of higher margin BioJect and ClearLake sales, as well as the
inclusion of Aspen in the Company's results, produced a significant change in
product mix in 1995 that led to a substantial improvement in the gross profit
generated by the Company. In 1995 more than 56% of sales were generated by the
BioJect, ClearLake, and CleanRack product lines. In 1994 these product lines
contributed approximately 40% of sales. The gross profit on each of these
products is significantly higher than the gross profit from sales of the
Company's non-proprietary product lines, such as fertilizer, seed and third
party product sales. As a result of this favorable improvement in product mix,
the gross profit from sales generated by the Company improved from $690,000 in
1994, or 26% of sales, to $1,777,000 in 1995, or 47% of sales, an increase of
$1,087,000.
Selling, general and administrative expenses decreased by $58,000 to $2,938,000
in 1995, compared to $2,996,000 in 1994. In addition to the total amount of
these expenses decreasing by 2%, the composition of these expenses changed
significantly as the Company reduced spending on its mobile laboratory program
to support nutrient (granular and liquid fertilizer) sales in the latter half of
1994 and into 1995, and reallocated resources to field and scientific support of
its BioJect and ClearLake systems.
Research and development expenses increased by $127,000, from $286,000 in 1994
to $413,000 in 1995. The increase in research an development expenses in 1995
reflects the increased costs associated with a new generation of the BioJect
system that was developed in 1995 and introduced to the market in 1996.
Net interest expense increased by $38,000 to $262,000 in 1995, compared to
$224,000 in 1994, as the Company's total borrowing increased from $2,375,000 at
the end of 1994 to $2,933,000 at the end of 1995.
The improvements in gross profit from the growth in revenues, improved product
mix and control of operating expenses led to a $980,000 reduction in the net
loss generated by the Company in 1995 compared to 1994. The Company lost
$1,836,000, or $.35 per share, in 1995, compared to $2,816,000, or $.62 per
share, in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has incurred net losses and negative cash flows
from operations, and at September 30, 1996, the Company had a working capital
deficit of $3,875,000. Since its inception, the Company has financed its
operations from private placements of Common Stock, borrowing from its principal
shareholders, bank financing and the sale of the Bridge Notes and Bridge
Warrants. Until 1991, the Company funded its operations and product development
activities through approximately $600,000 in loans, equity investments and loan
guarantees by the Nebraska Research and Development Authority ("NRDA"), the
predecessor of Heartland Capital Fund, Ltd. ("Heartland Capital"), and through
approximately $100,000 in loans from one of the founders. Since 1991, the
Company has funded its operations primarily by (i) completing a private
placement of Common Stock in February 1992, in which $1,091,502 in capital was
raised at $1.50 per share, (ii) completing a private placement of Common Stock
in February 1993, in which $1,327,000 was raised at $2.00 per share, (iii)
completing a private placement of Common Stock in December 1993, in which
$1,060,000 was raised at $2.50 per share, (iv) completing a private placement of
Common Stock in July 1994, in which $1,574,000 was raised at $2.50 per share,
(v) obtaining a bank line of credit for $1,013,000 in September 1994, (vi)
converting $1,200,000 of shareholder advances and a promissory note from Mr.
William B. Adams, the Company's Chief Executive Officer, into 400,000 shares of
Common Stock at $3.00 per share during the period between December 1994 and
February 1995, (vii) issuing $750,000 of subordinated debentures to certain
principal shareholders in March 1995, (viii) completing a private placement of
Common Stock in November 1995, in which $1,888,000 was raised at $3.00 per
share, (ix) issuing $700,000 of subordinated debentures to certain principal
shareholders in November 1995, (x) issuing $100,000 of unsecured, subordinated
promissory notes to a principal shareholder in March 1996, (xi) obtaining a
$1,000,000 line of credit from Imperial Bank in March 1996, (xii) issuing
$250,000 of promissory notes to certain principal shareholders in March and
April 1996, (xiii) completing its financing of Bridge Notes and Bridge Warrants
in July 1996, in which approximately $3,695,000 was raised and (xiv) converting
$99,000 of outstanding convertible debentures into 66,000 shares of Common Stock
at $1.50 per share in July 1996.
Holders of the Bridge Notes will have the option of being repaid from the
proceeds of this offering or converting up to 100% of the principal amount of
the Bridge Notes into shares of Common Stock at a conversion price equal to 80%
of the initial public offering price. See "Description of Securities -- Bridge
Financing."
The consolidated financial statements of the Company included elsewhere herein
were prepared on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities and commitments in the normal course of
business. The Company incurred net losses of $2,816,000 and $1,836,000 for the
years ended December 31, 1994 and December 31, 1995, respectively, and had an
accumulated deficit of $11,125,000 at September 30, 1996. The commercialization
of the Company's products requires the commitment of significant capital
expenditures. Although the Company believes that existing capital resources,
including the proceeds of this offering and interest earned thereon, will allow
it to maintain its current and planned operations for at least 18 months
following this offering, no assurance can be given in that regard. Furthermore,
the Company will require additional funds to support its development activities
through the rigorous testing and marketing phases of development. The Company
will seek to obtain additional funds through public or private equity or debt
financing, collaborative or other arrangements with corporate partners or from
other sources. There can be no assurance that such additional financing can be
obtained on desirable terms or at all. If additional funds are not available,
the Company may be required to reduce or eliminate one or more of its research,
discovery or development programs or otherwise curtail its marketing efforts in
certain territories of one or more of its product lines. While the Company has
established a line of credit with Imperial Bank, if additional financing is
required, there can be no assurance that the Company will be able to renew or
increase its line of credit on acceptable terms, if at all. See "Risk Factors --
Future Additional Capital Requirements; No Assurance Future Capital Will Be
Available."
The Company's independent auditors have included an explanatory paragraph in
their report on the Company's financial statements for the six months ended June
30, 1996, which indicates there is substantial doubt about the Company's ability
to continue as a going concern due to the Company's need to generate cash from
operations and obtain additional financing. See "Report of Ernst & Young LLP,
Independent Auditors" on the Company's Consolidated Financial Statements
appearing at page F-2 of this Prospectus.
QUARTERLY FLUCTUATIONS
The Company's operating results vary from quarter to quarter as a result of
various factors, including the fact that customers who purchase the Company's
ClearLake and CleanRack systems and other capital items generally purchase such
systems out of their available capital expenditure budget, the amount of which
is typically approved on a yearly basis. As a result, sales of ClearLake and
CleanRack systems and other capital items are generally higher in the first
three quarters than in the fourth quarter since many customers have already
spent their full capital budgets by the fourth quarter. To date, sales of the
Company's BioJect systems have not varied materially due to seasonal factors.
Because the Company's business is directly related to the capital expenditure
budgets of its customers, the Company expects that quarterly fluctuations in its
operating results will continue. Therefore, results for any quarter are not
necessarily indicative of results for any future period. See "Risk Factors --
Quarterly Fluctuations in the Company's Results of Operations."
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 121 requires recognition of impairment of long-lived assets if
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. The Company adopted the provisions of SFAS No.
121 effective January 1, 1996. There was no effect of such adoption on the
Company's financial position or results of operations. See Note 1 of Notes to
Consolidated Financial Statements.
In addition, the FASB has issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a fair value-based method of
accounting for stock-based compensation plans and encourages, but does not
rquire, entities to adopt that method in place of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." APB No.
125 and related Interpretations use an intrinsic value-based accounting
method. The Company does not intend to adopt SFAS No. 123 in measuring
expenses. However, the Company must present pro forma net income (loss) and
related per share amounts as if SFAS No. 123 had been adopted, and such pro
forma amounts reflect higher amounts of expenses than the amounts reported in
the financial statements. See Note 1 of Notes to Consolidated Financial
Statements.
BUSINESS
GENERAL
The Company has developed two patented distribution systems that enable the
Company to market and support a proprietary line of microbial products which
control and manage a wide variety of soil, crop and water problems. The Company
believes that these biological products, when introduced through its BioJect and
ClearLake delivery systems, will cost-effectively replace or complement the use
of chemical pesticides or fertilizers in the turf maintenance, agricultural
crop, soil remediation and water quality management industries. Use of the
Company's systems can contribute to a reduction in the negative cumulative
environmental effect of chemical use with no increase in cost or crop damage.
The Company's goals are to increase the market share for biocontrol products and
to make its delivery systems the principal methods for distributing
biotechnology products in its targeted industries.
The Company's delivery systems ferment environmentally-safe microorganisms at
the site of application and automatically dispense the appropriate amount and
type of cultured product at the desired frequency directly into the customer's
irrigation system, pond or lake. By fermenting its biological products at the
customer's site, the Company is able to preserve and protect the potency of the
microorganisms, significantly reduce shipping costs and control the frequency of
application and concentration of product. The Company believes that its
microbial products, delivery systems and bioaugmentation expertise have
positioned it as a leader in the introduction, marketing and management of
biological complements or alternatives to many chemical pesticide and fertilizer
products.
HISTORY
The Company was incorporated under Nebraska law in November 1987. The Company
initially marketed a program that developed blended fertilizers and soil
amendments to golf courses and to other residential and commercial customers in
the Lincoln, Nebraska area. In 1991, the Company decided that it needed a
broader strategic vision and, consequently, concentrated on the development of
biological inoculation service and nutrient programs. In the next several years,
the Company developed its BioJect, ClearLake and CleanRack systems for
distribution to the turf maintenance industry.
As the Company evolved from a product development and market introduction
oriented business to a more sales-driven organization, the Company decided to
de-emphasize its non-proprietary nutrient and seed business and instead
concentrate its resources on the proprietary BioJect, ClearLake and CleanRack
systems. The Company also established new distributor relationships and expanded
its international marketing activities.
MARKET OVERVIEW
In 1995, an estimated $30 billion was spent on fertilizers and pesticides in the
turf maintenance and agricultural crop markets. Most biological and chemical
products are applied by manual means by tank mixing the products in water and
then manually spraying the products on the areas that need to be treated. Due to
the need for manual application, this process is time consuming and labor
intensive, especially when performed on large acreages. In the case of
biocontrol products, where more frequent applications are required compared to
their chemical counterparts, the need for frequent manual applications has made
these biocontrol products economically uncompetitive.
Despite the potential environmental benefits of biological pesticides compared
to their chemical counterparts, the agricultural and turf markets have been slow
to accept the use of biological products due to the poor shelf life
characteristics of biological products using traditional transportation and
distribution systems. Pesticide and fertilizer products have typically been
shipped over land and stored for long periods before application, practices
which create an inhospitable environment for biological products that
deteriorate rapidly when exposed to light, high temperatures or long storage
periods. In 1995, according to the Organization for Economic Cooperation and
Development, biological products comprised only 0.5% of the overall market for
fertilizers and pesticides in the turf maintenance and agricultural crop
industries, or approximately $150 million per year.
To address these problems, the Company developed a patented process and designed
proprietary equipment to automatically ferment microbial products on-site to
high population levels and then inject the microorganisms during the irrigation
cycles into the customer's irrigation or sprinkler system. A major advantage of
the Company's BioJect system is that it uses the irrigation water as the
distribution medium, thereby eliminating the substantial labor costs incurred in
traditional methods and making the BioJect system the most cost-effective means
of distributing biological products over large acreages. The BioJect system also
allows customers to choose from a "menu" of biological control products, thereby
enabling the Company to address a variety of turf and crop problems and to
customize its products to the needs of individual customers and markets.
The Company has initially targeted its biological products, delivery systems and
support services to the golf course industry. A survey performed by the National
Golf Foundation indicates that in 1995 there were over 15,000 golf courses in
the United States that purchased annually in excess of $500 million of
fertilizer and chemicals. Although the Company has focused initially on the turf
maintenance and water quality management industries, the Company believes that
it can leverage its experience in these industries into the agricultural crop
and soil remediation markets.
BUSINESS STRATEGY
The Company's goals are to increase the market share of biological products in
the turf maintenance, agricultural crop, soil remediation and water quality
management industries and to make the BioJect system the preferred delivery
mechanism for all biological products in these industries. The Company intends
to accomplish these goals by developing and controlling a distribution system
through the acquisition of selected independent regional dealers and
distributors, commercializing new biotechnology innovations, and expanding the
use of these new products in additional markets.
Over the past five years, the Company has focused primarily on its core delivery
technology and the licensing of microbial products that can be delivered through
the Company's BioJect and ClearLake delivery systems. During this period, only a
minimal amount of capital and personnel resources were devoted to manufacturing
and distribution, and the Company's sales and marketing efforts were limited to
the efforts of its executive officers, a small number of salespersons and
relationships with a few regional distributors. In order to expand its customer
base, the Company determined that it would have to make substantial capital and
personnel commitments, and the Company believes that the most efficient method
of accomplishing this objective is to pursue a strategy of acquiring and
consolidating independent dealers and distributors. In May 1996, the Company
launched its strategy of acquiring selected dealers and distributors in an
attempt to integrate and consolidate them into a single sales organization,
thereby improving the Company's ability to market and sell its proprietary
products, increasing its penetration into the turf maintenance industry, and
enhancing its visibility within its target markets.
ACQUISITION AND PRODUCT DISTRIBUTION CONSOLIDATION STRATEGY
In general, major golf course markets are dominated by a single sales
organization that controls all new product introductions and their subsequent
penetrations into golf courses in their regions. Prior to the Company's initial
dealer acquisitions in May 1996, the Company sold its proprietary products
primarily through direct sales efforts and relationships with certain regional
dealers. Although this strategy enabled the Company to introduce its proprietary
products into selected golf course markets, these markets represented regions
where only approximately 30% of all United States golf courses are located. The
Company also discovered that many of these dealers were accustomed to selling
traditional fertilizers and pesticides and therefore lacked the technical
expertise necessary to market and service the Company's
technologically-advanced, proprietary products.
The Company believes that a significant strategic and financial opportunity
currently exists to acquire a number of small independent dealers and
distributors. At the present time, there are a group of approximately 35 such
dealers and, to date, no group-buying opportunities have been pursued among
these dealers. The Company believes that if it is able to acquire a number of
these small independent dealers, it will be able to develop coordinated
marketing strategies and improve its purchasing terms through group-buying
opportunities. The Company believes that this acquisition strategy will also
enable it to leverage its products into new markets at higher sales penetration
rates than would otherwise be possible and enhance the performance of these
dealers by providing higher margin, proprietary products for these dealers to
sell.
In May 1996, the Company initiated its dealer acquisition and consolidation
strategy by acquiring two regional turf distributors -- Turf Products, a
Chicago-based dealer that markets turf products throughout the greater Chicago
area, and Turf Specialty, a New Hampshire-based dealer that markets turf
products throughout the New England region. These two dealers have traditionally
offered a wide variety of turf maintenance products, including fertilizers and
pesticides, and the Company anticipates that these traditional turf products
will contribute approximately 60% of the Company's total revenues for the year
ending December 31, 1997. The Company expects that the percentage of
non-proprietary turf products sold by these dealers will decline as the Company
uses these dealers to leverage its technologically-advanced, proprietary
products into their respective regions.
Turf Products and Turf Specialty are recognized in the turf maintenance industry
as leaders in the golf course market in the greater Chicago area and New England
region, respectively. While other dealers in these markets compete for market
share through aggressive pricing, the Company's acquired dealers have adopted a
value-added, customer service focus, an approach which is essential for
introducing technologically-advanced, proprietary products such as the BioJect
and ClearLake systems. In reviewing other potential acquisition candidates, the
Company will continue to seek dealers and distributors with a similar
value-added, customer service approach.
The Company is currently evaluating additional acquisition opportunities
throughout the United States. The Company intends to commit substantial time and
resources to create the necessary organizational framework and acquisition
structure (including pricing, employment contracts, reporting and
accountability) necessary to explore and analyze these acquisition opportunities
so that the Company can create an integrated marketing and distribution system
for its products.
The Company believes that its dealer acquisition and consolidation strategy will
offer several benefits to the Company as well as its acquired dealers, including
the following:
* improved profitability due to increased sales of proprietary products;
* improved overall financial results due to consolidated operations;
* increased margins to consolidated dealers due to group-buying opportunities;
and
* increased visibility in turf maintenance markets and greater credibility in
larger markets such as the agricultural crop and soil remediation
industries.
The direct acquisition of dealers also can provide these dealers with an equity
interest in the Company, thereby creating a financial incentive for such dealers
to introduce the Company's higher margin, proprietary products into their
respective regions. Dealers also can benefit from these acquisitions because
their relationship with the Company should provide these dealers with access to
greater financial resources.
Because new product introduction requires higher sales skills and advanced
marketing strategy, the Company believes that a consolidated group of dealers
possessing the necessary technical expertise could have a major impact on the
industry. Planning is underway to integrate fully the Company's products into
these newly acquired organizations and to begin building more important and
profitable relationships with other key suppliers in this industry. The Company
believes that proceeds from this offering, among other things, will allow the
dealer consolidations to continue and, through the acquisition and training of
an integrated sales force, will enable the Company to establish a nationwide
distribution channel in the turf maintenance and water quality management
industries and to expand into other related markets, including the agricultural
crop and soil remediation industries. Due to the increased visibility created by
the Company's recent dealer acquisitions, certain large agricultural companies
have already contacted the Company about exploring possible relationships for
the introduction of the Company's products into the agricultural crop industry.
OTHER STRATEGIC ACQUISITIONS
In September 1995, the Company acquired Aspen, which designs and plans complete
irrigation systems for golf courses, residential housing projects and large
commercial developments, in order to bring additional irrigation system design
and expertise in-house. The Company believes that the acquisition of Aspen will
enhance the distribution of the BioJect and ClearLake systems in the new
construction and large residential housing development markets and will provide
increased exposure in the golf course architectural community, where Aspen has
conducted business for years. The Company also believes that Aspen will play an
integral role in enhancing the design of both the BioJect and ClearLake systems
due to its knowledge and expertise in the design and operation of all phases of
irrigation systems.
In February 1996, the Company acquired Direct Products. Direct Products, which
had served as the Company's distributor in South Africa since June 1994,
distributes a wide range of turf maintenance products, including fertilizers,
seed and chemicals, and has also established relationships with citrus and
avocado growers in South Africa. The acquisition of Direct Products will form
the basis for the Company's international business unit.
PRODUCT AND MARKET STRATEGIES
In addition to its strategy of acquiring selected dealers and distributors in
key geographic markets, the Company also plans to develop and commercialize new
innovations in biotechnology and expand the use of its products in additional
markets and industries. The BioJect system is the Company's principal product
for achieving these goals, and the Company intends to continue to position the
BioJect system as the most efficient and cost-effective means of distributing
biological products into irrigation-dependent markets.
The Company believes that the introduction of naturally-occurring biologicals
through its patented delivery systems will enable customers to overcome many of
the environmental problems inherent in large-scale chemical applications while
offering significant cost savings over traditional chemical applications. Some
of the environmental advantages and potential cost savings include the
following:
ENVIRONMENTAL ADVANTAGES
* lower toxicity to humans and other non-target animals and plants;
* fewer residual pesticide contaminants in plants and their byproducts;
* rapid access to treated areas after application; and
* reduced soil and groundwater pollution.
POTENTIAL COST SAVINGS
* the use of well or effluent water as an alternative to more costly city
water for irrigation purposes;
* a reduction in water consumption of up to 40% due to improved soil porosity
and increased toxin remediation;
* a reduction in the rates and frequency of use of chemical fungicides,
herbicides, insecticides and other pesticides; and
* an increase in seed germination rates.
In addition to expanding the marketing and sale of its patented delivery systems
in the turf maintenance and water quality management industries, the Company
intends to leverage its experience in these industries into the agricultural
crop and soil remediation markets. The Company has recently expanded its
marketing efforts to encompass these additional markets and, in the long term,
expects to establish partnerships or other formal relationships with large
agricultural or chemical companies that service these markets.
PRODUCTS
The Company's principal products and services for accomplishing its goals can be
divided into two categories -- proprietary products and distributed products.
The Company's proprietary products include its patented BioJect, ClearLake and
CleanRack systems. The Company's distributed products consist of other
traditional fertilizers and pesticides that are distributed through the
Company's wholly owned dealers and distributors. Each of these product
categories is summarized below:
PROPRIETARY PRODUCTS
The Company's principal proprietary products consist of (i) the BioJect system,
which automatically cultures and distributes biological products through
irrigation water, (ii) the ClearLake system, a pond and lake restoration system,
and (iii) the CleanRack system, an equipment wash rack and water treatment
system that decontaminates equipment wash water so that it is suitable for
recycling or discharge. The Company intends to devote the majority of its
marketing and sales resources to its BioJect and ClearLake systems in the
immediate future. Each of these products is described below.
BIOJECT SYSTEM
The BioJect system is the Company's primary product, and the Company intends to
focus most of its efforts on enhancing the capabilities of and selling the
BioJect system to the turf maintenance industry and exploring potential
expansion of its BioJect system into the agricultural crop, soil remediation and
water quality management industries. The Company's BioJect system includes
fermentation chambers, pumps, injectors and computer controls that coordinate
the scale-up of microbial products and their injection into the customer's
irrigation system and a "menu" of microbial products that can be delivered
through its BioJect system.
[DIAGRAM OF BIOJECT SYSTEM]
The BioJect system has evolved over the past four years from delivering only
bacteria of the BACILLUS family to delivering a variety of microbial products.
These products appear on the Company's BioJect menu as replacements for or
complements to fungicides, insecticides or soil amendments. The consumable
product in each menu item is generally a microbe, and each microbe is cultured
in the BioJect device under a proprietary formula. Different microbes are used
for different applications because their mode of action and performance varies.
As a result, these microbes are targeted to very specific problems.
The microbial products delivered by the BioJect system are proprietary
formulations, consisting of a variety of different strains. Different microbes
are used for different applications because their function and performance
varies. The Company currently has under license or under control microbial
products that: (i) produce toxins harmful to plant diseases (PSEUDOMONAS
AUREOFACIENS), (ii) improve soil porosity (BACILLUS SPP.), (iii) break down
thatch (CELLULOMONAS), (iv) fix atmospheric nitrogen (AZOSPIRILLUM BRASILENSE),
(v) inhibit the growth of certain insect pests (BACILLUS THURINGIENSIS), and
(vi) bioremediate certain hazardous chemicals (PSEUDOMONAS FLOURESCENS,
CYTOPHAGA MICHIGANESE, CYTOPHAGA HEPARINA AND PSEUDOMONAS SPP.).
Because microorganisms are subject to degradation upon exposure to high
temperatures, ultraviolet light or long storage periods, the introduction of
these microbials into the soil on a regular basis had not been feasible prior to
the development of the BioJect system. The BioJect system permits, for the first
time, the introduction of microorganisms into the soil at the required frequency
and in a cost-effective and environmentally safe manner. The BioJect system
overcomes the traditional problems associated with the introduction of
microorganisms into the soil by culturing and growing the microbial colonies
during the day and then dispensing the microbial colonies into the customer's
irrigation system automatically at night. The current BioJect system has been
designed to pump large amounts of oxygen to the fermentation chamber, maintain a
specific temperature range, and keep the pH at a neutral level. By doing so, the
BioJect system creates an environment that optimizes the fermentation process,
thereby allowing the scale-up of microbial populations from a starter culture.
The Company believes that its BioJect system will become the preferred
distribution vehicle for many biocontrol products because it is able to overcome
the poor shelf life characteristics that have previously prevented biological
products from being practical alternatives or complements to chemical control
products. Consequently, the Company's primary strategy is to expand sales of the
BioJect system and continue to position the BioJect system as the most efficient
and cost-effective means of distributing biological products into
irrigation-dependent markets.
Compared to traditional applications of chemical fertilizers and pesticides, the
Company's BioJect system offers several advantages. Among other factors, the
BioJect system:
* introduces naturally occurring microorganisms that are environmentally safe;
* permits increased frequency of applications at high doses and at night,
which minimizes degradation due to heat and ultraviolet light exposure and
long storage periods;
* eliminates the substantial labor costs associated with mixing and spraying;
* reduces freight expenses associated with shipping the product; and
* provides a user-friendly system that is managed and serviced by Company
personnel.
To increase the menu of items for use in its BioJect system, the Company intends
to enter into additional exclusive licensing agreements with various
universities or owners once new microbial products have been proven effective.
To meet the technical challenges associated with the task of optimizing the
scale-up of these distinct microorganisms within the BioJect system and
distributing them within the irrigation cycle, the Company has entered into
research and development agreements with fermentation specialists. The Company
also intends to bring more technical expertise in-house in order to evaluate new
microbial products, maximize the value of its programs, and gain more expertise
in the area of registration and labeling requirements.
The Company generates revenues from its BioJect system by renting or selling it
to customers, collecting service and maintenance fees, and selling the microbial
products delivered through the BioJect system. The BioJect system is generally
rented to customers on a yearly basis, and the microbial products are sold on a
seasonal basis, with the cost of such microbials depending on the type of
microbials and the desired frequency of application. The Company is the sole
supplier of all of the consumables (biologicals and media) that are required in
its BioJect system, as well as hardware maintenance services.
The Company's installed base of BioJect systems has experienced rapid growth in
recent years, as evidenced by the following table:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Cumulative number of
installed BioJect systems 0 1 13 46 79 171 238
</TABLE>
CLEARLAKE SYSTEM
The ClearLake system is a patented system that is designed to improve the
aesthetics and water quality of water used for both irrigation and ornamental
ponds and lakes. The ClearLake system utilizes an injector to introduce
microbial products in small lakes and a BioJect system for larger lakes and
those that are more difficult to treat.
[DIAGRAM OF CLEARLAKE SYSTEM]
The ClearLake system has been designed for lakes which are particularly
difficult to keep clean because the constant inflow of contaminants and
nutrients into the lake is too high for the lake's ecosystem to stay in balance.
The ClearLake system treats ponds and lakes by (i) injecting large amounts of
oxygen into the water through venturi intakes, (ii) creating circulation and
water movement around the perimeter of the pond or lake, (iii) redistributing
water from the deepest part of the pond or lake to the other parts through a
submersible pump, and (iv) distributing biological products throughout the lake
through an injection system. The biological products introduced through the
ClearLake system help to counteract excessive algae bloom. By significantly
reducing the amount of algae and increasing the dissolved oxygen levels in ponds
and lakes, the ClearLake system can dramatically improve the quality of water
used for irrigation and of water in ornamental ponds and lakes and can,
therefore, greatly reduce the quantity of water consumed in irrigation and
reduce the need for chemical algaecides.
The ClearLake system, which integrates a computer control center with a
proprietary oxygen diffusion system and a water delivery apparatus as described
above, is customized according to the specific dimensions of the pond or lake.
The ClearLake system can simultaneously utilize four methods of improving water
quality. These methods:
* increase the dissolved oxygen content of the water;
* eliminate water stagnation by introducing a current that travels around the
perimeter of the pond into the irregularly shaped fingers and inlets;
* eliminate the cold anaerobic zone in the lake or pond by pumping the coldest
water from the deepest parts to the shallow, warmer edges; and
* introduce biologicals that out-compete the algae for food and, in some
cases, attack the algae directly.
Four different models of ClearLake systems are available depending on the size
of the pond or lake. ClearLake systems vary in price depending on the size and
shape of the pond or lake. Consumable biological products and a maintenance and
service contract are sold separately to the customer.
The Company generates revenues from its ClearLake system by selling the hardware
and consumables and collecting maintenance and service fees. The number of
ClearLake systems sold by the Company has experienced rapid growth in recent
years, as evidenced by the following table:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Cumulative number of installed
ClearLake systems 0 13 30 48
</TABLE>
CLEANRACK SYSTEM
The Company's CleanRack system cleans the water that is typically used to wash
golf course equipment and recycles it for use. If the water is reused without
treatment, it often contributes to serious mechanical breakdowns and can pose
serious health risks to those with whom it comes into contact. The CleanRack
system is designed to decontaminate wash water so that it complies with
applicable state and federal environmental and safety regulations and is
suitable for discharge or can be safely recycled. As of September 30, 1996, the
Company had sold 15 CleanRack systems.
DISTRIBUTED PRODUCTS
In addition to the proprietary products described above, the Company also sells
a complete line of traditional chemical fertilizers and pesticides and other
turf maintenance products through Turf Products and Turf Specialty, its recently
acquired dealers and distributors. Besides the Company's proprietary products,
these distributors keep in stock an inventory of branded pesticides,
fertilizers, seed, and other necessary products from many agricultural
manufacturers.
In addition to expanding the Company's product line, the acquisition of these
dealers provides the Company with an established sales and marketing force and a
presence in many new geographic markets. Although the Company estimates that
traditional chemical and turf products sold by these dealers will represent
approximately 60% of the Company's overall revenues in the year ending December
31, 1997 if no additional dealers are acquired, the Company expects this
percentage will decline as the Company uses these new dealers to leverage its
technologically-advanced, proprietary products into additional regional markets.
A brief description of these acquired dealers and the products sold by such
dealers is set forth below.
TURF PRODUCTS, LTD.
On May 31, 1996, the Company acquired Turf Products, a Chicago-based company
that markets and sells fertilizers, pesticides, grass seed, soil amendments and
golf accessories to golf courses throughout the greater Chicago metropolitan
area. Turf Products does not sell hardware such as irrigation equipment or
lawnmowers, but instead focuses on various fertilizers, pesticides and other
turf maintenance products. Turf Products currently sells fertilizers from
Lebanon Chemical Corporation, The Anderson's, Vicksburg Chemical Company, IMC
Vigoro, and the Company's own brand of fertilizer. Turf Products also sells
pesticides from many producers, including Bayer Corporation, Ciba-Geigy
Corporation, ISK Biotech Corporation, PBI Gordon Corporation, Rhone-Poulenc AG
Company, O.M. Scotts & Sons, Inc., and Rohm Haas Co.
As of September 30, 1996, Turf Products had ten employees, including four
general salespersons and a fifth salesperson who focuses exclusively on
servicing the BioJect system. Prior to acquiring Turf Products, the Company
distributed its BioJect system through Turf Products from May 1995 through May
1996. Because Turf Products has experience selling the BioJect and has
relationships with many golf course personnel in the greater Chicago
metropolitan area, a region containing over 500 golf courses, the Company
believes that this acquisition represents a significant market opportunity for
the Company.
TURF SPECIALTY, INC.
On May 31, 1996, the Company also acquired Turf Specialty, a New Hampshire-based
company that markets and sells fertilizers, pesticides, grass seed, soil
amendments and golf accessories to golf courses and municipalities throughout
the New England region. Turf Specialty, like Turf Products, does not sell
hardware such as irrigation equipment or lawnmowers, but instead focuses on
various fertilizers, pesticides and other turf maintenance products that meet
the needs of golf courses and municipalities in the New England area. Turf
Specialty currently sells fertilizers from The Anderson's, The Doggett
Corporation, Growth Products, Milwaukee Metropolitan Sewerage District
(Milorganite), Plant Marvel Lab, Inc., Ringer Corporation, Roots Inc., O.M.
Scotts & Sons, Inc., and the Company's own brand of fertilizer. Turf Products
also sells pesticides from many producers, including Bayer Corporation,
Ciba-Geigy Corporation, ISK Biotech Corporation, Kincaid Enterprises, PBI Gordon
Corporation, Rhone-Poulenc AG Company, O.M. Scotts & Sons, Inc. and Rohm Haas
Co.
As of September 30, 1996, Turf Specialty had 11 employees, including five
salespersons. Although Turf Specialty did not have any experience selling the
BioJect system prior to its acquisition by the Company in May 1996, the Company
believes that Turf Specialty has the technical expertise necessary to market and
service the BioJect system and also provides an inroad for the Company into golf
courses and municipalities in the New England region, which represents a new
geographic market for the Company.
PRODUCT DEVELOPMENT
In addition to the Company's existing proprietary and distributed products
described above, the Company is in the process of investigating and developing
other products which may provide long-term benefits to the turf maintenance,
agricultural crop, soil remediation, and water quality management industries.
The Company's Aspen subsidiary currently performs several services related to
product development. These services include water source evaluation, water
supply planning, computer analysis of distribution, and evaluation of applicable
products. Currently, Aspen is working with engineers at the Company to develop a
complete turn-key system for turf managers at major sports stadiums. This system
will be an improvement on the current state-of-the-art system because it will
bring together current technologies in heating and cooling, drainage, and
biological injection to sports fields.
The Company has completed a number of trials for water and soil remediation and
continues to test technologies in these markets. Two technologies appear to show
promise in these industries, and the Company intends to invest further in their
development. The first technology is the BioJect system, which ferments new
organisms at the contamination site at a high frequency and dosage in a manner
that the Company believes could make bioremediation cost effective. The second
technology encompasses the use of new microorganisms. The Company is currently
evaluating two new microbial products that have shown favorable laboratory
results. One product speeds up the breakdown of Atrazine, a widely used
herbicide and recently discovered deep water (aquifer) contaminant. University
trials have shown that the other product breaks up PCB molecules into harmless
gasses and liquids. Although the Company believes that there may be significant
markets for these products, extensive testing and governmental approvals will be
required before the Company can begin to market these products.
CUSTOMERS
The Company has sold its BioJect system to some of the most famous and notable
golf courses in the world, including the following:
<TABLE>
<CAPTION>
<S> <C>
* Atlantic Golf Club (NY) * Monterey Peninsula Country Club (CA)
* Aviara Golf Club (CA) * North Shore Country Club (IL)
* Baltimore Country Club (MD) * Oakland Hills Country Club (MI)
* Bighorn Country Club (CA) * Pelican Hills - Links Ocean (CA)
* Caledonian Golf Club (Japan) * Point-O-Woods Country Club (MI)
* Congressional Country Club (MD) * Royal Brunei Golf Club (Brunei)
* Estancia Country Club (AZ) * San Francisco Country Club (CA)
* John's Island (N,W&S) (FL) * Skokie Country Club (IL)
* Jupiter Hills (FL) * Spyglass Hill Golf Club (CA)
* Kyowe Country Club (Japan) * Sun City Resorts - Gary Player (S. Africa)
* Legacy Golf Club (NV) * Sun City Resorts - Lost City (S.Africa)
* Leopard Creek Golf Course (Zimbabwe) * Tres Vidas Golf Course (Mexico)
* Merion Golf Club (PA)
</TABLE>
Customers for the ClearLake system include the following:
* Del Mar Country Club (CA) * Somas Aguas Golf Club (Spain)
* The Lakes Country Club (CA) * Sunrise Golf Club (NV)
RESEARCH AND DEVELOPMENT
The Company does not conduct basic research. Instead, the Company licenses
microbial products that have test data suggesting beneficial uses in the turf
maintenance, agricultural crop, soil remediation and water quality management
industries. The Company spent approximately $286,000 and $413,000 on research
and development for the years ended December 31, 1994 and 1995, respectively,
and spent approximately $353,000 on research and development during the nine
months ended September 30, 1996. The Company believes its strategic objectives
can best be met by combining its in-house product development efforts with the
licensing of technology and the establishment of research collaborations with
scientists at academic institutions and at companies working in related fields.
Much of the in-house research and development effort is targeted at the
engineering of the fermentation and product delivery features of its BioJect
system. System adaptation by modification of the physical design allows
flexibility to accept a variety of microbial agents. System design also
considers the Company's service component and simplifies maintenance procedures
and the duration of the service visit.
GOVERNMENT REGULATION
Various state laws and regulations require the Company to register all of its
nutrient products with the Department of Agriculture in each state in which the
Company sells its products. Fertilizer products are also subject to periodic
monitoring by each state's Department of Agriculture. In each of the last two
fiscal years, the Company estimates that it has spent less than $100,000
complying with the registration and labeling requirements imposed by
environmental laws and regulations. The Company does not expect that continued
regulatory compliance will have a significant effect on its results of
operations. However, the Company can be subject to fines and loss of its
fertilizer license in any state where its products fail to comply substantially
with the Company's approved labels or registration. The Company is currently
subject to the Occupational Safety and Health Act, the Environmental Protection
Act, the Toxic Substance Control Act, the Resource Conservation and Recovery
Act, the Clean Air Act and the Clean Water Act and may be subject to other
present and potential future federal, state or local regulations. For marketing
and use of its products outside the United States, the Company will be subject
to foreign regulatory requirements. Such requirements vary widely from country
to country. In addition, as the Company expands, it may decide to register
certain of its microbial products as pesticides with the EPA, which involves a
complex approval process. Failure to achieve such registration could limit the
market potential of such microbial products. See "Risk Factors -- Government
Regulation."
PATENTS AND PROPRIETARY RIGHTS
The Company's success is dependent in large measure upon its ability to obtain
patent protection for its products and to maintain confidentiality and operate
without infringing upon the proprietary rights of third parties. The Company has
obtained and is seeking U.S. and foreign patents regarding the technology
relating to the automatic inoculation of irrigation water with biological
products to improve soil quality. Specifically, the Company was granted two U.S.
patents in July 1993 that cover both the process of automatically inoculating
irrigation water with biological products and the equipment (the BioJect system)
that the Company uses to inoculate irrigation water automatically. In May 1994,
the Company was granted a patent on its ClearLake system for the improvement of
water quality in a pond or similar body of water. The Company also has six
additional U.S. patents pending with respect to its ClearLake system.
The Company filed a new patent application in 1994 relating to the automatic
inoculation of irrigation water with biological products that incorporates a
BioJect system that is able to grow, culture and dispense into the irrigation
system distinct microorganisms or combinations of microorganisms on a frequent
(daily) basis. The type of microorganism or combination of microorganisms can be
changed frequently as the tank is "cleansed" on a regular basis. This
application also expanded the scope of the invention to include irrigation
systems covering all types of vegetation, in addition to turf. This application
was approved by the Patent Examiners office in January 1995, and the Company was
issued a formal patent on September 5, 1995.
In August 1995, the Company submitted another patent application that covers a
further modification to the BioJect system. This application also covers a
system that is designed to grow and inject distinct microorganisms or
combinations of microorganisms that are selected on a preprogrammed basis.
However, this application incorporates biological and food sources being stored
and added to the BioJect system in a liquid state. The application also expands
the scope of the invention to cover the application of biological products to
all types of vegetation in addition to turf and expands the way these
microorganisms can be distributed onto vegetation to include utilizing a system
to fill up a spray tank for manual application to turf or vegetation in addition
to the utilization of the irrigation system.
This application is still pending.
In addition to the patent applications described above, the Company has
registered or applied for registration of a number of trademarks used in its
business. The Company also relies on trade secrets and proprietary know-how. The
Company occasionally has elected to disclose its trade secrets and proprietary
know-how to employees, consultants, potential corporate partners, and contract
manufacturers.
COMPETITION
The Company's systems ferment and distribute environmentally-safe alternatives
to chemicals for the treatment of various soil and water problems. The Company's
proprietary products and services compete against traditional means of plant and
water maintenance that require heavy use of chemical products, with an emphasis
on treating problem areas as they develop. These traditional technologies
include chemical insecticides and fungicides, chemical soil penetrants, acid
injection systems, and the direct, manual application of cultured microbial
products. The Company competes against these traditional technologies on the
basis of its delivery mechanism and bioaugmentation expertise.
PROPRIETARY PRODUCTS
The Company's principal competitors with respect to its various proprietary
systems are described below:
BIOJECT SYSTEM
The BioJect system competes against a number of companies that have developed
biological products for plant maintenance. The BioJect system also competes
against a number of technologies that are designed to reduce the incidence and
severity of turf and plant disease and sodium build-up in the water, soil and
tissue of the grass. These technologies include traditional chemical
insecticides and fungicides, chemical soil penetrants, acid injection systems,
and the direct, manual application of cultured microbial products. Although the
Company believes that none of its competitors offers an automated means of
regularly applying products to turf and crops in an effective manner, many of
these competitors have substantially greater access to financial, technical and
personnel resources than the Company and include such well-established companies
as Ciba Geigy Corporation, Rhone-Poulenc AG Company, the Dow Chemical Company,
O.M. Scotts & Sons, Inc., Lesco, Inc., and The Toro Company, as well as a number
of smaller local and regional competitors.
CLEARLAKE SYSTEM
There are a number of companies that have developed conventional pond and lake
aeration equipment, including The Toro Company, Otterbine Barebo, Inc., Dennis
Manufacturing Co., Fresh-Flo Corp., Ziegler Bros., Inc. and Spraying Systems Co.
However, these systems use only one or two methods to improve water quality, as
compared to the four methods utilized in the ClearLake system.
CLEANRACK SYSTEM
Competitive equipment wash and water treatment systems are sold by RGF
Environmental and Llanda, Inc. RGF Environmental is the industry leader with
over 2,000 installations worldwide, while Llanda is estimated to have over 800
installations. Both companies have designed systems for heavy industrial
applications and have not, to date, focused on developing systems specifically
for the golf industry. The Company competes with RGF Environmental and Llanda on
the basis of the features and benefits of its product line in relation to cost.
DISTRIBUTED PRODUCTS
The Company's distributed products and services compete against manufacturers
and distributors of traditional technologies, including chemical insecticides
and fungicides, chemical soil penetrants, acid injection systems and the direct,
manual application of fertilizers and pesticides. Many of these competitors have
substantially greater access to financial, technical and personnel resources
than the Company and include such well-established companies as Lesco, Inc.,
Terra Companies, Inc., Con-Agra, Inc. and Wilbur-Ellis Company.
PERSONNEL
As of September 30, 1996, the Company had 72 full-time employees, consisting of
six in general management, 17 in sales and marketing, 29 in customer service,
six in research and development, and 14 in finance and general administrative
activities. None of the Company's employees is represented by a labor union or
is covered by a collective bargaining agreement. The Company has not experienced
work stoppages and believes that it maintains good relations with its employees.
FACILITIES
The Company's headquarters consist of 22,000 square feet located in San Diego,
California. The Company currently leases this building for warehouse, sales and
marketing, product development and administrative purposes. The Company's lease
for such space provides for base lease payments of $13,200 per month, plus
operating expenses, and expires in December 1999. The Company does not own any
real property.
The sales organizations recently acquired, Turf Products and Turf Specialty,
both have office and warehouse space. Turf Products leases 6,500 square feet in
Chicago at a base rent of $3,750 a month plus operating expenses. Turf Specialty
leases 8,000 square feet in northern New Hampshire at a base rent of $4,500 per
month plus operating expenses.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings and is not
aware of any material proceedings that are contemplated by any third party or
governmental authority.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company and their
ages as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
William B. Adams 50 Chairman of the Board, Chief Executive Officer, and
Director
Jeffrey A. Johnson 40 President, Chief Operating Officer, Secretary and
Director
Douglas M. Gloff 50 Executive Vice President and Director
L. Jean Dunn, Jr. 41 Chief Financial Officer
Dr. Thomas C. Quick 41 Vice President, Agriculture
John M. Doyle 37 Vice President of Product Development
Larry K. Runyon 58 Director of New Products
Kevin P. Lyons 40 Senior Vice President and Co-General Manager, Turf
Specialty
David W. Schermerhorn 37 Senior Vice President and Co-General Manager, Turf
Specialty
Wally Fuchs 56 Vice President and General Manager, Turf Products
Michael R. Scott 40 President of Aspen Consulting, Inc.
Bradley K. Edwards 37 Director
S. Bartley Osborn 54 Director
William S. Potter 51 Director
</TABLE>
The Company's Bylaws authorize the Board of Directors to fix the number of
directors from time to time, and the number is currently set at six directors.
All directors hold office until the next annual meeting of the shareholders or
until their successors have been elected and qualified. Officers serve at the
discretion of the Board of Directors. There are no family relationships between
any of the directors or executive officers of the Company.
WILLIAM B. ADAMS has served as Chairman of the Board, Chief Executive Officer
and as a director of the Company since March 1991. Mr. Adams is also currently
Chairman of Orphan Medical, Inc., a publicly traded spinoff of Chronimed, Inc.,
a publicly held medical products company. From 1985 to 1994, Mr. Adams was
Chairman of the Board of Chronimed. Prior to his involvement with the Company,
Mr. Adams founded WBA Consultants, Ltd., a management consulting firm, in 1980
and acted as an independent management consultant until 1994. From August 1989
to February 1991, Mr. Adams was Executive Chairman of Printrak, Inc., a
developer of specialized computer systems for the law enforcement community.
From April 1986 to April 1988, Mr. Adams was President and Chief Executive
Officer of Check Technology Corporation, a manufacturer of electronic printing
equipment.
JEFFREY A. JOHNSON has served as President, Chief Operating Officer and a
director of the Company since March 1991. Prior to his involvement with the
Company, Mr. Johnson was a partner and employee of WBA Consultants from 1986
until March 1991. Mr. Johnson was also a Vice President of Printrak, Inc.
from 1989 to 1991 and Vice President of Corporate Development of Check
Technology Corporation from 1986 to 1988. From 1983 to 1986, Mr. Johnson was
Vice President of Corporate Finance for Craig Hallum, Inc., an investment
banking firm based in Minneapolis, Minnesota.
DOUGLAS M. GLOFF joined the Company as Executive Vice President in January
1994 and became a director of the Company in August 1995. Mr. Gloff shares
many of the executive management duties of the Company with Mr. Adams. Prior
to joining the Company, Mr. Gloff acted as a consultant from 1992 until
January 1994. From 1978 to 1992, he served in various capacities with U.S.
Surgical, Inc., a publicly held supplier of medical instruments used in
surgery, culminating in the position of Director of Sales for the western
area.
L. JEAN DUNN, JR. joined the Company as Corporate Financial Officer/Corporate
Operations Officer in May 1996. From 1992 to 1996, Mr. Dunn had been a
partner in Capital Advisors LLC, an investment banking firm. Prior to that,
Mr. Dunn was a Vice President at Mitsubishi Bank in New York from 1989 to
1992, and a Vice President at Banque Paribas in Los Angeles and New York from
1982 to 1989.
DR. THOMAS C. QUICK has served as the Vice President, Agriculture of the
Company since September 1996. From October 1994 to August 1996, he served as
an International Product Manager, Biopesticides, for Abbott Laboratories.
Prior to that, he served in various capacities with Mycogen Corporation from May
1987 until March 1994, culminating in the position of Technical Sales
Representative.
JOHN M. DOYLE joined the Company in May 1994 as the Company's Vice President of
Product Development. Mr. Doyle is responsible for product and technology
acquisition, regulatory issues, production, marketing and communication
materials, product testing, and sales support for the BioJect system. Prior
to joining the Company, Mr. Doyle spent seven years in various positions with
Ringer Corporation, a supplier of natural turf maintenance products based in
Minneapolis, Minnesota, culminating in the position of Vice President of
Product Development.
LARRY K. RUNYON served as a Vice President of the Company from August 1991 until
October 1996 and is currently employed by the Company on a part-time basis. Mr.
Runyon, who is the inventor of the Company's patented BioJect system, assigned
his rights to the BioJect system to the Company in October 1991. From February
1990 to August 1991, he supervised the restoration of the Rancho Santa Fe Golf
Club in San Diego, California. In 1990, Mr. Runyon was also the architect and
designer of the golf course at the San Francisco Golf Club in Mexico. From
September 1988 to September 1989, he was superintendent of the Mission Country
Club in Odessa, Texas. Mr. Runyon has also acted as a consultant to fertilizer,
turf additive and water treatment companies and to other companies in the golf
industry.
KEVIN P. LYONS has served in various capacities with Turf Specialty since
October 1985, culminating in his current position of Senior Vice President
and Co-General Manager. Prior to joining Turf Specialty, he was a Senior
Technical Representative for O.M. Scott & Sons, Inc. from February 1980 until
October 1985.
DAVID W. SCHERMERHORN has served in various capacities with Turf Specialty
since October 1987, culminating in his current position of Senior Vice
President and Co-General Manager. Prior to joining Turf Specialty, he was a
Technical Representative for O.M. Scott & Sons, Inc. from October 1985 until
October 1987.
WALLY FUCHS founded Turf Products in February 1969 and currently serves as the
Vice President and General Manager of Turf Products. He was an original member
of the Independent Turf and Ornamental Distributors Association (ITODA), the
principal association of golf course and nursery product distributors.
MICHAEL R. SCOTT is the Founder and President of Aspen Consulting, Inc., the
Company's wholly owned subsidiary that plans and designs complete irrigation
systems for golf courses, residential housing projects and large commercial
developments. Mr. Scott founded Aspen in 1981. Mr. Scott is a Certified
Irrigation Designer for golf courses by the American Irrigation Association,
a Certified Irrigation Designer for large commercial projects by the American
Irrigation Association, a member of the American Society of Irrigation
Consultants, and a member of the Center for Irrigation Technology.
BRADLEY K. EDWARDS has served as a director of the Company since July 1991.
Since January 1993, Mr. Edwards has been the general partner of Heartland
Capital. Heartland Capital is the successor to the NRDA, a state-sponsored
venture capital entity that was an original investor in the Company. From
November 1989 to January 1993, Mr. Edwards was employed by the NRDA,
initially as a fund manager and later as its President.
S. BARTLEY OSBORN has served as a director of the Company since November
1991. Mr. Osborn is currently Chairman of the Board of Directors of the
Fairway Foundation, a nonprofit foundation dedicated to teaching and exposing
the game of golf to inner-city children in Minneapolis, Minnesota. From
October 1965 through May 1982, Mr. Osborn was Executive Vice President of
Ecolab, Inc., a Fortune 500 specialty chemical manufacturer based in
Minneapolis, Minnesota. Mr. Osborn is a trustee of the IC Koran foundation,
which assists employees of EcoLab through scholarships for its children and
through financial hardship assistance.
WILLIAM S. POTTER has served as a director of the Company since August 1992.
Since 1988, Mr. Potter has also been President of Rugged Rigger, Inc., a
personal services corporation. From 1970 to 1988, Mr. Potter worked in
various capacities for H.S. Stevens Incorporated, a national food service and
catering company specializing in sporting events, culminating in the position
of Operational Vice President. Mr. Potter is a founding member of Fairbanks
Ranch Country Club in San Diego.
COMMITTEES OF THE BOARD OF DIRECTORS
COMPENSATION COMMITTEE
The Company has a Compensation Committee consisting of Messrs. Adams,
Edwards, and Potter. The Compensation Committee provides recommendations
concerning salaries and incentive compensation for the Company's officers and
administers the Company's benefit plans, other than the 1992 Stock Option Plan.
AUDIT COMMITTEE
The Company has an Audit Committee consisting of Messrs. Johnson, Edwards and
Osborn. The Audit Committee recommends to the Board of Directors the engagement
of the Company's independent public accountants and reviews the scope and
results of their audits and other services. The Audit Committee meets with
management and with the independent public accountants to review matters
relating to the quality of the Company's financial reporting and internal
accounting control, including the nature, extent and results of the audits,
proposed changes to the Company's accounting principles and otherwise maintains
communications between the independent public accountants and the Board of
Directors.
SCIENTIFIC ADVISORY BOARD, SPORTS FIELD CONSULTANT AND SUPERINTENDENT'S
ADVISORY BOARD
SCIENTIFIC ADVISORY BOARD
The Company maintains a Scientific Advisory Board (the "SAB") that advises the
Company from time to time with respect to its scientific research and
development programs. These individuals are compensated through the grant of
stock options. They will also receive fees for attending scientific advisory
meetings and reimbursement of out-of-pocket expenses. The SAB met in August 1995
and September 1996.
Members of the SAB may be employed by or have consulting agreements with
entities other than the Company, some of which may conflict or compete with
their obligations to the Company and which may limit their availability to the
Company. Most are not expected to participate actively in the Company's
development. Certain of the institutions with which SAB members are affiliated
may have regulations or policies which are unclear with respect to the ability
of such personnel to act as part-time consultants or in other capacities for a
commercial enterprise. Regulations or policies now in effect or adopted in the
future might limit the ability of the SAB members to consult with the Company.
The loss of the services of certain of the SAB members could adversely affect
the Company.
The current members of the SAB are as follows:
DR. DAVID E. CROWLEY is an Assistant Professor of Soil-Plant Relations at the
University of California, Riverside, where he has concentrated his efforts on
rhizosphere biology, the physiological basis for microbial competition in
soils and the activity of microorganisms that degrade soil contaminants. Dr.
Crowley received his Ph.D. from Colorado State University in 1986 and has
been associated with the University of California, Riverside since 1990.
DR. PETER H. DERNOEDEN is a Professor of Agronomy at the University of
Maryland, where he has focused on the impact of mowing, irrigation and
fertility on disease severity and weed encroachment in turf. He has also
concentrated on disease etiology, the effects of fungicides on non-target
diseases, plant parasitic nematodes, molecular techniques for identifying
root pathogens, and the chemical control of diseases and weeds. Dr. Dernoeden
received his Ph.D. in Plant Pathology from the University of Rhode Island in
1980.
DR. ERIC B. NELSON is currently an Associate Professor of Plant Pathology at
Cornell University, where he has focused on spermosphere and rhizosphere
ecology, plant-microbe and microbe-microbe interactions and biological
control of plant pathogens. Dr. Nelson received his Ph.D. from Ohio State
University and has been associated with Cornell University since 1987.
DR. FREDERICK J. SCHENDEL is the Vice President of Research and Development
for Encore Technologies, Inc. ("Encore"). In this capacity, Dr. Schendel is
in charge of all of Encore's research and development activities. Dr.
Schendel received his Ph.D. from the University of Wisconsin in 1986.
DR. JOSEPH M. VARGAS is a Professor of Botany and Plant Pathology at Michigan
State University, where he has concentrated his efforts on disease management
programs for turf. Dr. Vargas received his Ph.D. from the University of
Minnesota in 1968 and has been associated with Michigan State University
since that time. He has served in various capacities in the International
Turfgrass Society, the Turf and Ornamental Disease Committee of the American
Phytopathological Society and the Michigan Turfgrass Foundation Board.
DR. DANIEL I.C. WANG is a Professor of Chemical Engineering and Director of
the Biotechnology Process Engineering Center at the Massachusetts Institute
of Technology ("MIT"), where he has focused on fermentation processes, enzyme
technology and engineering, biopolymer production and protein purification
and refolding. Dr. Wang received his Ph.D. from the University of
Pennsylvania in 1963 and has been associated with MIT since 1965. Dr. Wang
has served in various capacities on numerous biotechnology editorial boards,
advisory boards and professional society memberships.
SPORTS FIELD CONSULTANT
The Company has established a relationship with a sports field consultant to
establish contacts between various professional sports teams and the Company
regarding potential sales of the Company's products to these teams and to their
sports stadiums. The sports consultant may, however, be employed by and have
consulting relationships with entities other than the Company, some of which may
conflict or compete with certain obligations to the Company and which may limit
such consultant's availability to the Company.
EDWARD H. (WHITEY) FORD currently serves as the Company's sports field
consultant. Mr. Ford is a private investor and nationally known sports
spokesperson. He was a starting pitcher for the New York Yankees in the 1950's
and 1960's and has been inducted into the Baseball Hall of Fame. He continues to
maintain contacts in the professional sports industry and is involved in many
sports charities and other charitable activities.
SUPERINTENDENT'S ADVISORY BOARD
The Company has also recently established an advisory board that consists of a
rotating committee of five golf course superintendents. This board suggests
improvements to the Company's current products and services and reviews and
critiques the Company's product development strategy. The Superintendent's
Advisory Board meets once each year, and the Company consults with its
individual members on an ad hoc basis.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The Company has not paid any cash compensation to a director in his capacity
solely as a director and has no present plan to pay directors' fees. It is the
Company's current policy to award non-employee directors an option to purchase
10,000 shares of Common Stock at the then-current market price, vesting over
three years, for each year of service as a director. All directors are
reimbursed for travel and other out-of-pocket expenses incurred in connection
with attendance at meetings of the Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal year ending December 31, 1995,
compensation awarded, paid to, or earned by the Company's Chief Executive
Officer and to the only executive officer whose salary and bonus exceeded
$100,000 for that year (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND PRINCIPAL COMMISSIONS OTHER ANNUAL
POSITION YEAR SALARY AND BONUS COMPENSATION
<S> <C> <C> <C> <C>
William B. Adams
Chief Executive Officer 1995 $ 75,000 $ 0 $ 0
Larry K. Runyon(1) 1995 110,000 5,000 6,000
</TABLE>
(1) Mr. Runyon, the inventor of the BioJect system, served as a Vice
President of the Company from August 1991 until October 1996, when he
became a part-time employee. Mr. Runyon currently serves as the Director
of New Products for the Company.
The following information is furnished as of December 31, 1995 with respect to
stock options then held by the Company's Named Executive Officers.
AGGREGATED OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1995 DECEMBER 31, 1995(1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
William B.
Adams 719,823 -- $1,880,521 --
Larry K. Runyon 150,000 -- 633,000 --
</TABLE>
(1) The amounts set forth represent the difference between the estimated
Price to Public of $4.25 per Share and the exercise price of the options,
multiplied by the applicable number of shares underlying the options.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of the Named
Executive Officers and certain other executive officers. A summary of the
principal terms of such agreements is set forth below.
On May 21, 1991, the Company entered into an employment agreements with each of
William B. Adams, Jeffrey A. Johnson and Douglas M. Gloff, setting forth each
officer's duties, compensation, employee benefits and other terms of employment.
Each agreement, as amended, provides for an initial minimum annual salary of
$75,000 for each officer and terminates in September 1998. The Company or each
officer may terminate the agreement earlier, in which case such officer will be
entitled to severance pay equal to six months' base salary. Within six months of
the occurrence of certain change in control events, each officer may voluntarily
terminate his employment and be entitled to severance pay equal to six months'
base salary.
On October 1, 1995, Aspen entered into an employment agreement with Michael R.
Scott setting forth Mr. Scott's duties, compensation, employee benefits and
other terms of employment. Such agreement provides for a minimum annual salary
of $96,000 and terminates on September 30, 1999, unless earlier terminated by
the Company or Mr. Scott. The employment agreement also provides that Mr. Scott
is eligible to receive certain cash bonuses if Aspen's pre-tax net income
exceeds specified levels. The performance objective was met in 1995, and Mr.
Scott is currently being paid a bonus of $50,000 in equal monthly installments.
In addition, Mr. Scott received a non-qualified option to purchase up to 50,000
shares of the Company's Common Stock at $3.00 per share, vesting in equal annual
installments over the next four years, as long as he continues to be employed by
the Company at the end of each anniversary date of the agreement, and an option
to purchase up to 150,000 shares of Common Stock if Aspen's pre-tax net income
exceeds certain levels from 1996 through 1999. In 1995, Mr. Scott received a
total of $96,000 in salary, $28,000 of which was paid by the Company after the
merger of the Company with Aspen in September 1995.
On June 1, 1996, the Company entered into an employment agreement with L. Jean
Dunn, Jr. setting forth Mr. Dunn's duties, compensation, employee benefits and
other terms of employment. Such agreement provides for a minimum annual salary
of $90,000 and terminates on December 1, 1998. The agreement also granted Mr.
Dunn an option to purchase up to 75,000 shares of the Company's Common Stock at
$3.00 per share, with such options vesting in three equal annual installments
beginning on December 1, 1996.
On July 8, 1996, the Company entered in employment agreements with Kevin P.
Lyons and David W. Schermerhorn in connection with the Company's acquisition
of Turf Specialty. Each employment agreement provides for a minimum annual
salary of $85,000 and terminates on July 9, 1999. See "Certain Transactions."
On July 10, 1996, the Company entered into an employment agreement with Wally
Fuchs in connection with Company's acquisition of Turf Products. The employment
agreement provides for a minimum annual salary of $155,000 and terminates on
July 10, 1998.
On September 1, 1996, the Company entered into an employment agreement with Dr.
Thomas C. Quick setting forth Dr. Quick's duties, compensation, employee
benefits and other terms of employment. Such agreement provides for a minimum
annual salary of $80,000 and terminates on March 1, 1999. The agreement also
grants Dr. Quick an option to purchase up to 30,000 shares of Common Stock at
$3.00 per share, with such options vesting in three equal annual installments
beginning on March 1, 1997.
STOCK OPTION PLANS
1992 STOCK OPTION PLAN
In 1992, the Company adopted a Stock Option Plan (the "Option Plan"), under
which 125,000 shares of Common Stock were initially reserved for issuance upon
exercise of options granted to officers, employees and directors of, and
advisors and consultants to, the Company. The Option Plan provides for the grant
of both stock options intended to qualify as incentive stock options as defined
in the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options. The Option Plan will terminate on February 5, 2002, unless sooner
terminated by the Board of Directors. The Company's shareholders approved an
increase in the number of shares reserved for issuance under the Option Plan to
250,000 shares in August 1993, to 350,000 shares in April 1995, to 450,000
shares in May 1996 and to 900,000 shares in November 1996.
Subject to the limitations set forth in the Option Plan, the Board of Directors
or a committee, if administration of the plan is delegated to a committee of the
Board comprised of at least two disinterested directors, has the authority to
select the persons to whom grants are to be made, to designate the number of
shares to be covered by each option, to determine whether an option is to be an
incentive stock option or a nonqualified stock option, to establish vesting
schedules and, subject to certain restrictions, to specify other terms of the
options. The maximum term of options granted under the Option Plan is ten years.
Options granted under the Option Plan generally are nontransferable and expire
three months after the termination of an optionee's employment or consultancy
with the Company. In general, if an optionee dies, such person's options may be
exercised up to one year after his or her death.
The exercise price of options granted under the Option Plan is determined by the
Board of Directors (or its committee) at the time of grant. The exercise price
of incentive stock options must equal at least the fair market value of the
Common Stock on the date of grant. The exercise price of incentive stock options
granted to any person who at the time of grant owns stock possessing more than
10% of the total combined voting power of all classes of stock must be at least
110% of the fair market value of such stock on the date of grant, and the term
of these options cannot exceed five years. The exercise price of nonqualified
stock options may be determined by the Board of Directors but must be at least
85% of the fair market value of the stock on the date of grant. As of September
30, 1996, the Company had outstanding options to purchase an aggregate of
555,668 shares (all of which were nonqualified stock options) held by 60 persons
at a weighted average exercise price of $2.93 per share. As of September 30,
1996, no options granted pursuant to the Option Plan had yet been exercised.
1996 DIRECTORS' OPTION PLAN
The 1996 Directors' Stock Option Plan (the "Directors' Plan") provides for the
automatic grant of nonstatutory stock options to purchase 10,000 shares of
Common Stock to nonemployee directors at the time of their election as director,
and an option to purchase 3,000 shares of Common Stock on the date of each
subsequent annual shareholder meeting, subject to certain limitations. Options
granted on the date an individual is elected as a director of the Company shall
become vested and thereby exercisable with respect to 33-1/3% on the date of
such election, with respect to 33-1/3% on the twelve month anniversary date
after such election and with respect to 33-1/3% on the date of the second twelve
month anniversary date after such election; provided, however, that an unvested
portion of such option grant shall only vest so long as the nonemployee director
remains a director on the date such portion vests, and that vested options shall
terminate two years after the date a director ceases to be a director of the
Company. Options granted on the date of each annual meeting of shareholders
become exercisable six months after the date of grant. The option price for
nonemployee directors is equal to the fair market value of a share of Common
Stock as of the date of grant. The Company has reserved a total of 60,000 shares
of Common Stock for issuance under the Directors' Plan, all of which are
currently available for future grants.
INDEMNIFICATION
Pursuant to the Company's charter documents and Nebraska law, the Company's
directors, officers and employees may be entitled to indemnification and
advancement of expenses for certain acts or actions made by or on behalf of the
Company. In addition, the Underwriting Agreement entered into between the
Company and the Underwriters in connection with this offering provides that the
Company will indemnify the Underwriters against certain liabilities, including
civil liabilities under the Securities Act, or will contribute to payments the
Underwriters may be required to make in respect thereof. Insofar as
indemnification for liabilities arising under the 1933 Act may be permitted to
directors, officers and controlling persons of the issuer, the issuer has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable.
CERTAIN TRANSACTIONS
In July 1994, the Company entered into a $1,013,000 line of credit with
Peninsula Bank. The line of credit was secured by all of the Company's accounts
receivable and contract rights, as well as a pledge of personal assets by
William B. Adams, Rugged Rigger, Inc. (a company controlled by William S.
Potter), Douglas M. Gloff and Heartland Capital (a company controlled by Bradley
K. Edwards).
During the period from December 1994 to February 1995, Mr. Adams converted $1.2
million of subordinated notes and shareholder advances into 400,000 shares of
Common Stock.
On March 24, 1995, S. Bartley Osborn loaned the Company $100,000 at a 10% annual
interest rate. In connection with this unsecured note, warrants were issued to
purchase 15,000 shares of Common Stock at an exercise price of $3.00 per share.
These warrants expire in March 2001. This loan was repaid in full with the
proceeds of the Bridge Notes and the Bridge Warrants.
On November 15, 1995, Mr. Gloff and Heartland Capital each purchased $200,000
and Mr. Adams purchased $300,000 of collateralized subordinated debentures
from the Company. The debentures are secured by the assets of the Company but
are subordinated to any senior indebtedness of the Company. The debentures
bear interest at an 8% annual rate, payable on a quarterly basis, and the
entire principal balance is due on November 15, 1998.
On February 1, 1996, Mr. Adams loaned the Company $250,000 under the terms of an
8% unsecured subordinated promissory note, with principal and interest due upon
demand.
On January 22 and 23, 1996, Mr. Adams purchased a total of $300,000 of
collateralized subordinated debentures from the Company. The debentures are
secured by the assets of the Company but are subordinated to any senior
indebtedness of the Company. The debentures bear interest at an 8% annual rate,
payable on a quarterly basis, and the entire principal balance is due on
November 15, 1998. In connection with these debentures, warrants were issued to
Mr. Adams to purchase 200,000 shares of Common Stock at an exercise price of
$3.00 per share. These warrants expire on the earlier of January 2003 or one
year after the closing date of the Company's initial public offering of Common
Stock.
On March 1, 1996, Rugged Rigger, Inc. loaned the Company $100,000. The loan had
an annual interest rate of 8%, payable monthly, and the entire principal balance
was due on November 15, 1998. In connection with this subordinated unsecured
note, warrants were issued to Mr. Potter to purchase 15,000 shares of Common
Stock at an exercise price of $3.00 per share. These warrants expire in March 1,
2001. The loan was repaid in full with the proceeds from the sale of the Bridge
Notes and the Bridge Warrants.
On March 15, 1996, Mr. Adams converted $300,000 of collateral that was pledged
to secure the Company's bank loan at Peninsula Bank into cash and used the cash
to reduce the Company's $1,013,000 principal loan at Peninsula Bank by this
amount. The Company in turn issued Mr. Adams a total of $300,000 of unsecured
subordinated debentures, which bear interest at an 8% annual rate, payable on a
quarterly basis, and the entire principal amount is due on March 15, 1998. In
connection with the debentures, Mr. Adams was granted warrants to purchase up to
100,000 shares of Common Stock at an exercise price of $3.00 per share for a
period of five years.
On March 15, 1996, Mr. Gloff and Heartland Capital converted $250,000 and
$200,000, respectively, of collateral that was pledged to secure the Company's
bank loan at Peninsula Bank into cash and used the cash to reduce the Company's
$1,013,000 principal loan at Peninsula Bank by this amount. The Company in turn
issued a $250,000 secured subordinated promissory note to Mr. Gloff and a
$200,000 secured subordinated promissory note to Heartland Capital, each bearing
interest at an 8% annual rate, payable on a quarterly basis, and the principal
amount of each note is due on March 15, 1998. In connection with the debentures,
warrants were issued to Mr. Gloff and Heartland Capital to purchase up to 83,333
shares and 66,667 shares, respectively, of Common Stock at an exercise price of
$3.00 per share. These warrants expire upon the earlier of seven years from the
date of issuance or one year after the closing date of the Company's initial
public offering of Common Stock.
On March 26, 1996, the Company entered into a $1,000,000 line of credit
agreement with Imperial Bank, $500,000 of which is a revolving line of credit
that expires on April 1, 1997 and $500,000 of which is a revolving credit line
extended to finance exports based on a guarantee extended the Company by the
California Export Finance Organization ("CEFO"). The entire line of credit has
been personally guaranteed by Mr. Adams. The term loan portion of the line of
credit bears interest at a rate of prime plus 2%. The CEFO portion of the credit
line bears interest at prime plus 1.5%. CEFO's obligations are in turn
guaranteed by Mr. Adams. In connection with the revolving line of credit,
warrants were issued to Mr. Adams to purchase 20,833 shares of Common Stock at
an exercise price of $3.00 per share. These warrants expire in March 2001.
Between March and July 1996, the Company loaned $72,000 to Rugged Rigger,
Inc. to enable it to exercise options to purchase Common Stock. The loan
bears interest at an annual rate of 5%, compounded annually, and is payable
at the earlier of two years from the date of the loan or upon the sale of the
underlying Common Stock.
On April 1, 1996, Mr. S. Bartley Osborn loaned the Company $100,000. The loan
had an annual interest rate of 10%, payable upon demand, and the entire
principal balance was due on July 1, 1996. In connection with this unsecured
note, warrants were issued to Mr. Osborn to purchase 15,000 shares of Common
Stock at an exercise price of $3.00 per share. These warrants expire in April
2001. The loan was repaid in full with the proceeds from the sale of the Bridge
Notes and the Bridge Warrants.
On May 15, 1996, Mr. Gloff converted the entire principal balance of his
$100,000 unsecured promissory note into 100,000 shares of Common Stock.
On May 24, 1996, the Company issued three convertible unsecured $50,000
promissory notes for the purpose of providing short-term financing until the
proceeds of this initial public offering can be received, one from each of Mr.
Adams, Mr. Gloff and Heartland Capital. Each note is payable upon demand and
bears interest at an annual rate of 8%. In connection with these promissory
notes, warrants were issued to each of Messrs. Adams and Gloff and Heartland
Capital to purchase 7,500 shares of Common Stock at an exercise price of $3.00
per share. These warrants expire in May 2001.
In May 1996, the Company acquired from Kevin P. Lyons and David W. Schermerhorn,
the only shareholders of Turf Specialty, all of the stock of Turf Specialty for
a total of $500,000 in cash and 647,650 shares of Common Stock. In addition, the
Company agreed to pay to Messrs. Lyons and Schermerhorn a total of $1,000,000 if
Turf Specialty earns a pre-tax profit for the year ending December 31, 1996 of
at least $900,000, with lesser payments due if Turf Specialty earns less than
$900,000 in pre-tax profit for the year ending December 31, 1996. The Company
currently expects Turf Specialty to achieve $900,000 in pre-tax profits for the
year ending December 31, 1996.
In connection with the acquisition of Turf Specialty, effective July 8, 1996,
the Company entered into employment agreements with each of Messrs. Lyons and
Schermerhorn providing for minimum annual salary levels of $85,000 and the right
to participate in any incentive compensation plans sponsored by Turf Specialty.
These employment agreements expire on July 9, 1999. Pursuant to these
agreements, the Company has agreed to loan $250,000 to each of these individuals
on or about December 15, 1996. These loans do not have to be repaid and will be
forgiven on July 1, 1999 if these officers are employed by the Company at that
time. If either officer's employment is terminated by the Company before that
date, such officer will be obligated to repay a portion of the loan prorated to
the number of days worked from July 2, 1996 to the effective date of the
termination of his employment. Compensation expense will be recorded by the
Company over the period of forgiveness.
The Company leases its headquarters facility from Mr. Arthur Arnes, who owns
10,000 shares of Common Stock. The Company's lease for this facility provides
for base lease payments of $13,200 per month, plus operating expenses, and
expires in December 1999.
Management of the Company believes that the terms of the transactions described
above were no less favorable to the Company than would have been obtained from
an unaffiliated third party. Any future material transactions and loans with
officers, directors or 5% beneficial shareholders of the Company's Common Stock,
or affiliates of such persons, will be on terms no less favorable to the Company
that could be obtained from unaffiliated third parties and will be approved by a
majority of the outside members of the Company's Board of Directors who do not
have an interest in the transactions.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to beneficial
ownership of the Company's Common Stock as of September 30, 1996 and as adjusted
to reflect the sale of Shares offered hereby (assuming no exercise of the
Underwriters' over-allotment option) by: (i) each director of the Company, (ii)
each Named Executive Officer of the Company, (iii) each person or entity known
by the Company to own beneficially more than five percent of the Company's
Common Stock and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
SHARES
BENEFICALLY PERCENT OF OUTSTANDING SHARES(1)
NAME AND ADDRESS OWNED BEFORE OFFERING AFTER OFFERING
<S> <C> <C> <C>
William B. Adams(2) 1,541,763 20.50% 14.65%
Bradley K. Edwards(3)
Heartland Capital Fund, Ltd.
11930 Arbor Street, Suite 201
Omaha, NE 68144 800,600 11.77% 8.16%
Douglas M. Gloff(4) 518,566 7.45% 5.21%
Wally Fuchs(5) 400,000 6.09% 4.18%
William S. Potter(6)
13875 Old El Camino Real
San Diego, CA 92130 363,132 5.34% 3.71%
Jeffrey A. Johnson(7) 301,176 4.44% 3.08%
Larry K. Runyon(8) 110,000 1.65% 1.14%
S. Bartley Osborn(9)
360 Orono Orchard Road
Wayzata, MN 55391 74,166 1.12% *
All executive officers and directors
as a group (14 persons)(10) 4,939,053 56.10% 41.84%
</TABLE>
*Less than 1%.
(1) Shares of Common Stock subject to options, warrants or convertible debt
securities currently exercisable or exercisable within 60 days after
September 30, 1996, are deemed to be outstanding for purposes of computing
the percentage of shares beneficially owned by the person holding such
options, warrants or convertible debt securities, but are not deemed to be
outstanding for purposes of computing such percentage for any other person.
Except as indicated by footnote, each person or group identified has sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Except as otherwise indicated, the
address of each of the above persons is c/o Eco Soil Systems, Inc., 10890
Thornmint Road, Suite 200, San Diego, California 92127.
(2) Includes 619,823 shares of Common Stock subject to currently exercisable
options and 337,500 shares of Common Stock subject to currently exercisable
warrants.
(3) All shares are owned by Heartland Capital; beneficial ownership of such
shares is attributed to Mr. Edwards because he is the President of
Heartland Capital and is therefore deemed to exercise voting power and
investment authority with respect to the shares. Shares listed include
53,333 shares of Common Stock subject to currently exercisable options and
180,834 shares of Common Stock subject to currently exercisable warrants.
(4) Includes 163,556 shares of Common Stock subject to currently exercisable
options and 230,000 shares of Common Stock subject to currently exercisable
warrants.
(5) Includes 20,000 shares of Common Stock held by Mr. Fuchs as Trustee for
the Fuchs Family Charitable Remainder Trust.
(6) Includes 22,000 shares of Common Stock subject to convertible debt
securities, 140,132 shares of Common Stock subject to currently exercisable
options and 90,000 shares of Common Stock subject to currently exercisable
warrants. Also includes shares owned by Rugged Rigger, Inc., a California
corporation that is wholly owned by Mr.
Potter.
(7) Includes 225,909 shares of Common Stock subject to currently exercisable
options.
(8) Includes 110,000 shares of Common Stock subject to currently exercisable
options.
(9) Includes 15,000 shares of Common Stock subject to convertible debt
securities, 3,333 shares of Common Stock subject to currently exercisable
options and 15,000 shares of Common Stock subject to currently exercisable
warrants.
(10) See notes 1-9 above. Also includes 48,333 shares of Common Stock subject
to currently exercisable options held by John M. Doyle.
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 20,000,000 shares of Common
Stock and 5,000,000 shares of Preferred Stock. As of September 30, 1996, there
were issued and outstanding 6,564,166 shares of Common Stock, which were held by
276 shareholders of record, and 4,074,033 shares of Common Stock were reserved
for issuance upon exercise of outstanding options, warrants and convertible
debt. No shares of Preferred Stock were outstanding as of that date.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. There is no
cumulative voting for the election of directors, which means that the holders of
more than 50% of the outstanding Common Stock voting for the election of
directors can elect all of the directors of the Company to be elected, if they
so choose. Subject to preferences that may be applicable to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor and are entitled to share ratably in all assets of the
Company available for distribution to holders of the Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company. Holders of
Common Stock have no preemptive, subscription or conversion rights, and there
are no redemption or sinking fund provisions applicable thereto. The outstanding
shares of Common Stock are, and the Shares of Common Stock offered hereby will
be, fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the Company's Board of
Directors, without further shareholder action, to issue up to 5,000,000 shares
of Preferred Stock in one or more series and to fix the voting rights,
liquidation preferences, dividend rights, repurchase rights, conversion rights,
redemption rights and terms, including sinking fund provisions, and certain
other rights and preferences, of the Preferred Stock. Although there is no
current intention to do so, the Board of Directors of the Company may, without
shareholder approval, issue shares of a class or series of Preferred Stock with
voting and conversion rights which could adversely affect the voting power or
dividend rights of the holders of Common Stock and may have the effect of
delaying, deferring or preventing a change in control of the Company.
BRIDGE FINANCING
In July 1996, the Company completed a bridge financing (the "Bridge Financing")
consisting of the issuance of approximately 74 Units (the "Bridge Units"). Each
Bridge Unit consisted of a $50,000 Bridge Note and Bridge Warrants to purchase
10,000 shares of the Company's Common Stock. The Bridge Financing resulted in
$3,695,000 of principal amount of Bridge Notes outstanding and the issuance of
Bridge Warrants to purchase 739,000 shares of Common Stock.
BRIDGE NOTES
The Bridge Notes were not issued pursuant to an indenture, and no trustee was
retained to enforce any of the obligations represented by the Bridge Notes. The
Bridge Notes bear interest from the date of issuance at 10% annually, payable at
maturity. The Bridge Notes will be payable in full within 30 days after the date
of this Prospectus. Up to 100% of the principal amount of the Bridge Notes will
be convertible, at the option of the holder thereof, into the Company's Common
Stock for a period of 20 days after the date of this Prospectus at a conversion
price equal to 80% of the initial public offering price.
The Bridge Notes are unsecured debt obligations of the Company. Principal and
interest payments on the Bridge Notes are subordinated to the prior payment of
any obligations of the Company to financial institutions representing
indebtedness for borrowed money.
BRIDGE WARRANTS
Each Bridge Warrant entitles the holders thereof to purchase one share of Common
Stock after December 31, 1996. The Bridge Warrants expire on July 5, 2001. The
exercise price of the Bridge Warrants will be equal to 80% of the initial public
offering price.
The Bridge Warrants provide for the automatic adjustment of the number of shares
issuable upon exercise of the Bridge Warrants, and of the exercise price, in
certain events, including stock dividends, stock splits, distributions of Common
Stock, reorganizations, reclassification, subdivisions and combinations of the
Common Stock, and the merger, consolidation or sale of all or substantially all
of the assets of the Company.
REGISTRATION RIGHTS
The Company has agreed to register the stock issued upon exercise of the Bridge
Warrants and conversion of the Bridge Notes under federal and state securities
laws at such time as it becomes eligible to use the Registration Statement on
Form S-3 or 12 months after an initial public offering (whichever is earlier)
upon written request from holders of a majority of the shares of Common Stock
purchasable or purchased at the time of the request upon exercise of the Bridge
Warrants or conversion of the Bridge Notes. The Company is required to maintain
the effectiveness of such registration until the earlier of 12 months after the
effective date or until all shares subject to such registration have been
resold. Holders of shares of stock purchased upon exercise of the Bridge
Warrants or conversion of the Bridge Notes will also be entitled to certain
incidental or "piggyback" registration rights. Holders must convert Bridge Notes
and exercise Bridge Warrants prior to any registration of the sale of the Common
Stock subject thereto.
OTHER WARRANTS
As of September 30, 1996, in addition to the Bridge Warrants to acquire 739,000
shares of Common Stock, the Company had outstanding warrants to purchase a total
of 1,667,465 shares of Common Stock of the Company with a weighted exercise
price of $2.69 per share. Such warrants were issued in connection with prior
financing transactions by the Company. The holders of such warrants, as such,
are not entitled to vote, receive dividends or exercise any of the rights of
holders of shares of Common Stock for any purpose until such warrants have been
duly exercised and payment of the purchase price has been made.
NEBRASKA SHAREHOLDERS PROTECTION ACT
The Company is a Nebraska corporation and is therefore subject to the provisions
of the Nebraska Shareholders Protection Act. The Nebraska Shareholders
Protection Act, subject to certain exemptions, prohibits a Nebraska corporation
from engaging in any of a broad range of "business combinations" involving an
"interested" shareholder, or any affiliate or associate of such interested
shareholder, for a period of five years following the date that such shareholder
became an interested shareholder, unless prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction that resulted in the shareholder becoming an interested shareholder.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the shareholder. The Nebraska Shareholders
Protection Act also provides that shares acquired in a control-share acquisition
have no voting rights with respect to matters other than the elections of
directors unless approved by a vote of shareholders of the corporation, and that
any such control share acquisition is effective only if approved by a majority
of the corporation's voting shares that are "not interested" shares. A
control-share "acquisition" is an acquisition of voting stock in a corporation
that, when added to the shares the shareholder had prior to the acquisition,
would elevate the shareholder's voting power into one the three following
ranges: (i) between 20% and 33-1/3%, (ii) between 33-1/3% and 50% and (iii) over
50%. For purposes of the Nebraska Shareholders Protection Act, an "interested
shareholder" is a person who owns 10% or more of a corporation's outstanding
voting stock, or an affiliate or associate of the corporation that owns, or
within five years prior, did own, 10% or more of the corporation's outstanding
voting stock. These provisions may have the effect of discouraging, delaying,
deferring or preventing a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, National Association, has been appointed as the transfer
agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock.
Upon closing of this offering, assuming no conversion of Bridge Notes or the
exercise of Bridge Warrants, the Company will have outstanding an aggregate of
9,564,166 shares of Common Stock. Of these shares, the 3,000,000 Shares sold in
this offering will be freely tradeable without restriction or further
registration under the Securities Act, except for such Shares, if any, which are
purchased by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act (whose sales would be subject to certain volume
limitations and other restrictions described below). The remaining 6,564,166
shares were issued and sold by the Company in private transactions in reliance
upon exemptions from registration under the Securities Act and are, therefore,
restricted securities (the "Restricted Shares") that may not be sold publicly
unless the Restricted Shares are registered under the Securities Act or sold
under Rule 144 or 144A under the Securities Act or under similar exemptions. Of
these Restricted Shares, _______ will be eligible for resale on the effective
date of this offering, _______ will be eligible for resale 90 days following the
effective date of this offering subject to the restrictions imposed by Rule 144,
and the remaining _______ will be eligible for resale under Rule 144 after the
expiration of the two-year holding periods from the dates of acquisition, which
end in August 1998. Holders of _______ of such Restricted Shares have entered
into lock-up agreements under which they have agreed not to offer, sell or
otherwise dispose, or directly or indirectly cause or permit the offer, sale or
other disposition, of any Common Stock owned of record or beneficially and of
which such shareholder has the power to control the disposition for a period of
180 days after the date of this Prospectus without the prior written consent of
the Representative.
In general, under Rule 144, a person (or persons whose sales are aggregated) who
beneficially owns shares last acquired privately from the Company or an
affiliate of the Company at least two years previously, and affiliates of the
Company who beneficially own shares last acquired (whether or not such shares
were acquired privately) from the Company or an affiliate of the Company at
least two years previously, are entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the Company's Common Stock or the average weekly reported volume of
trading in the Company's Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and the availability of current public
information about the Company. A person who has not been an affiliate of the
Company at any time during the three months preceding a sale, and who
beneficially owns shares last acquired from the Company or an affiliate of the
Company at least three years previously, is entitled to sell all such shares
under Rule 144 without regard to any of the limitations of Rule 144.
The Securities and Exchange Commission has proposed reducing the initial Rule
144 holding period to one year and the Rule 144(k) holding period to two years.
There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modifications may have a material effect on the time
when shares of the Company's Common Stock become eligible for resale.
In addition, Rule 144A under the Securities Act generally permits unlimited
resales of certain restricted securities of any issuer provided that the
purchaser is an institution that owns and invests on a discretionary basis at
least $100 million in securities or is a registered broker-dealer that owns and
invests $10 million in securities. Rule 144A allows the existing shareholders of
the Company to sell their shares to such institutions and registered
broker-dealers without regard to any volume or other restrictions. Unlike under
Rule 144, restricted securities sold under Rule 144A to nonaffiliates do not
lose their status as restricted securities.
The Company intends to file a Form S-8 Registration Statement under the
Securities Act to register all shares of Common Stock issuable under the Option
Plan and the Directors' Plan. That registration statement is expected to become
effective immediately upon filing. Shares covered by that registration statement
will be eligible for sale in the public market after the effective date of that
registration statement, subject to Rule 144 limitations applicable to affiliates
and to the lock-up agreements described below.
The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of Common Stock for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public markets or the perception
that such sales could occur could adversely affect the market price or the
future ability of the Company to raise capital through an offering of its equity
securities.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, each
Underwriter named below has severally agreed to purchase from the Company, and
the Company has agreed to sell to such Underwriters, the number of shares of
Common Stock set forth opposite the name of such Underwriter below, at the Price
to Public set forth on the cover page of this Prospectus, less the underwriting
discount.
NUMBER
UNDERWRITERS OF SHARES
R. J. Steichen & Company
Total
The Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters will purchase
all of the shares of the Common Stock offered hereby if any are purchased.
The Company has been advised by the Representative that the Underwriters propose
to offer the Shares to the public at the Price to Public set forth on the cover
page of this Prospectus and to certain selected dealers at such Price to Public
less usual and customary concessions not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other securities dealers. Each of the concessions
allowed will be to members of the National Association of Securities Dealers,
Inc. After the initial public offering, the Price to Public, concessions and
reallowance may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 45 days after the date of this Prospectus, to purchase up to an additional
450,000 shares of Common Stock from the Company at the Price to Public less the
underwriting discount set forth on the cover page of this Prospectus solely to
cover over-allotments. To the extent the Underwriters exercise the
over-allotment option, they will have a firm commitment to purchase the number
of Shares to be purchased by them, and the Company will be obligated, pursuant
to the option, to sell such Shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with
thesale of Common Stock offered hereby. If purchased, the Underwriters will
offer such additional shares on the same terms as those on which the 3,000,000
Shares are being offered hereby.
The Company has agreed to pay to the Representative a nonaccountable expense
allowance equal to 2.0% of the aggregate offering price of the shares offered
hereby, or $________ ($________ if the over-allotment option is exercised in
full), of which $10,000 has been paid. Such allowance is included in the
expenses of the offering set forth on the cover page of this Prospectus.
The Company has agreed to sell to the Representative upon the closing of this
offering, for nominal consideration, the Representative's Warrant to purchase
300,000 shares of Common Stock at an exercise price per share equal to 120% of
the Price to Public. The Representative's Warrant contains anti-dilution
provisions providing for appropriate adjustments upon the occurrence of certain
events and contains a one-time demand and certain "piggyback" registration
rights with respect to the shares of Common Stock issuable upon the exercise of
the Representative's Warrant. The Representative's Warrant will have a "cashless
exercise" feature allowing the holder of the Representative's Warrant to apply
the difference between the exercise price of the Representative's Warrant and
the higher fair market value of the Common Stock underlying the Representative's
Warrant to the payment of the exercise price. The Representative's Warrant will
be exercisable commencing twelve months from the date of this Prospectus until
five years after such date. The Representative's Warrant is not transferable for
a period of one year after the effective date of the offering, except for
transfers by operation of law, by will or pursuant to the laws of descent and
distribution or to officers of the Representative. Furthermore, the
Representative's Warrant will not be transferable absent an exemption from
applicable state and federal securities laws. Any profits realized upon the sale
of the Representative's Warrant or the Common Stock issuable upon exercise
thereof may be deemed to constitute additional underwriting compensation.
The Company and the Underwriters have agreed in the Underwriting Agreement to
indemnify each other or provide contribution with respect to certain
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable.
Shareholders of the Company (including its executive officers and directors) who
hold in the aggregate ____ shares outstanding Common Stock and holders of
options and warrants to purchase an additional ____ shares have agreed not to
offer, sell or otherwise dispose, or directly or indirectly cause or permit the
offer, sale or other disposition, of any Common Stock of the Company owned of
record or beneficially and of which such shareholder has the power to control
the disposition for a period of 180 days after the date of this Prospectus
without the prior consent of the Representative. See "Shares Eligible for Future
Sale."
The Underwriters have advised the Company that they do not intend to confirm
sales to any account over which any of them exercises discretionary authority.
Prior to this offering, there has been no public market for the Common Stock of
the Company. The initial public offering price for the Shares was determined by
negotiation between the Company and the Representative, bears no relation to the
Company's current earnings, book value, net worth or financial criteria of
value, and should not be considered as an indication of the actual value of the
Shares offered hereby. After completion of this offering, the market price of
the Shares is subject to change as a result of market conditions and other
factors.
The foregoing is a summary of the provisions of the Underwriting Agreement, the
Representative's Warrant and related documents and does not purport to be a
complete statement of their terms and conditions. The Underwriting Agreement and
the Representative's Warrant have been filed as an exhibit to the Registration
Statement, of which this Prospectus is a part.
EXPERTS
The consolidated financial statements of Eco Soil Systems, Inc. at December 31,
1995 and for the two years in the period then ended and at June 30, 1996 and for
the six months then ended, appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and in the Registration
Statement which, as of June 30, 1996 and the six months then ended are based in
part on the report of Bigelow & Company, independent auditors, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Turf Specialty, Inc. for the years
ended December 31, 1994 and 1995 included in this Prospectus and Registration
Statement and the financial statements as of and for the one month ended June
30, 1996 of Turf Specialty, Inc., as a consolidated subsidiary of the Company,
not included herein, have been audited by Bigelow & Company, Certified Public
Accountants, P.C., as set forth in their reports thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Turf Products, Ltd. for the years ended December 31,
1994 and 1995 included in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The Company has also received an opinion of its patent counsel, Brown, Martin,
Haller & McClain LLP, regarding certain patent and other intellectual property
matters contained in this Prospectus and Registration Statement.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be passed
upon for the Company by Dorsey & Whitney LLP, Minneapolis, Minnesota. Certain
legal matters will be passed upon for the Underwriters by Winthrop & Weinstine,
P.A., Minneapolis, Minnesota.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
with respect to the Common Stock offered hereby. For further information with
respect to the Company and the Common Stock, reference is made to such
Registration Statement and exhibits filed as a part thereof. Statements
contained in this Prospectus as to the contents of any contract, agreement or
other documents referred to are not necessarily complete. With respect to each
such contract, agreement or document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement and exhibits may be inspected
without charge and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Northwestern Atrium Center, 500 West Madison,
Suite 1400, Chicago, Illinois 60661 and 75 Park Place, 14th Floor, New York, New
York 10048. Copies of such material may be obtained at prescribed rates from the
Commission's Public Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549. The Commission also maintains a World Wide Web site which provides
on-line access to registration statements, reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission at the address "http://www.sec.gov."
The Company will become a reporting company under the Securities Exchange Act of
1934, as amended, upon completion of this offering, and intends to furnish to
its shareholders annual reports containing financial statements audited by
independent accountants and quarterly reports containing unaudited financial
information for each of the first three quarters of each year.
ECO SOIL SYSTEMS, INC.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
<S> <C>
ECO SOIL SYSTEMS, INC.
Report of Ernst & Young LLP, Independent Auditors F-2
Report of Bigelow & Company, Independent Auditors F-3
Consolidated Balance Sheets as of December 31, 1995, June 30, 1996 and
September 30, 1996 (unaudited) F-4
Consolidated Statements of Operations for the years ended December 31, 1994 and
1995, the six months ended June 30, 1995 (unaudited) and 1996 and the nine
months ended September 30, 1995 (unaudited) and 1996 (unaudited) F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1994 and 1995, the six months ended June 30, 1996 and the three
months ended September 30, 1996 (unaudited) F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and
1995, the six months ended June 30, 1995 (unaudited) and 1996 and the nine
months ended September 30, 1995 (unaudited) and 1996 (unaudited) F-7
Notes to Consolidated Financial Statements F-8
TURF SPECIALTY, INC.
Report of Bigelow & Company, Independent Auditors F-21
Consolidated Statements of Income and Retained Earnings for the years ended
December 31, 1994 and 1995 F-22
Consolidated Statements of Cash Flows for the years ended December 31, 1994
and 1995 F-23
Notes to Consolidated Financial Statements F-24
TURF PRODUCTS, LTD.
Report of Ernst & Young LLP, Independent Auditors F-27
Statements of Income and Retained Earnings for the years ended
December 31, 1994 and 1995 F-28
Statements of Cash Flows for the years ended December 31, 1994 and 1995 F-29
Notes to Financial Statements F-30
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited Pro Forma Condensed Consolidated Statements of Operations F-33
Notes to Pro Forma Condensed Consolidated Statements of Operations F-34
</TABLE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Eco Soil Systems, Inc.
We have audited the accompanying consolidated balance sheets of Eco Soil
Systems, Inc. as of December 31, 1995 and June 30, 1996, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Turf Specialty, Inc., a wholly-owned subsidiary, which statements
reflect total assets of $3,775,000 as of June 30, 1996, and total revenues,
since its acquisition on May 31, 1996, of $538,000 included in the consolidated
results of operations for the six months ended June 30, 1996. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for Turf Specialty, Inc., is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Eco Soil Systems, Inc. at December 31,
1995 and June 30, 1996, and the consolidated results of its operations and its
cash flows for the years ended December 31, 1994 and 1995 and the six months
ended June 30, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company's
recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
San Diego, California
August 14, 1996
except for Note 10, as to which the date is
September 25, 1996
REPORT OF BIGELOW & COMPANY, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Turf Specialty, Inc.
Londonderry, New Hampshire
We have audited the consolidated balance sheet of Turf Specialty, Inc. (a
wholly-owned subsidiary of Eco Soil Systems, Inc.) as of June 30, 1996 and the
related consolidated statements of income, retained earnings and cash flows for
the one month then ended (not included herein). 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and consolidated 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of
Turf Specialty, Inc. at June 30, 1996, and the results of its operations and its
cash flows for the one month then ended in conformity with generally accepted
accounting principles.
BIGELOW & COMPANY
Certified Public Accountants, P.C.
By:
/s/ MARIE C. MCKAY
Marie C. McKay
Certified Public Accountant
Manchester, New Hampshire
July 30, 1996
ECO SOIL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ -- $ 1,159 $ 437
Accounts receivable, net of allowance for
doubtful accounts of $24 at December 31,
1995 and $83 at June 30 and September 30,
1996, respectively 1,231 4,130 3,191
Inventories 592 2,229 2,059
Prepaid expenses and other current assets 52 468 638
Total current assets 1,875 7,986 6,325
Property and equipment, net 1,334 2,170 2,060
Intangible assets, net 751 5,318 5,367
Other assets 21 100 227
Total assets $ 3,981 $ 15,574 $ 13,979
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,111 $ 5,353 $ 3,070
Payments due related to acquired businesses -- 1,810 --
Accrued expenses 96 700 515
Advances from shareholder 190 289 239
Current portion of long-term debt 1,703 3,086 6,324
Current portion of capital lease obligations 99 74 52
Total current liabilities 3,199 11,312 10,200
Long-term debt, net of current portion 911 2,086 1,994
Capital lease obligations, net of current
portion 30 7 --
Advances from shareholder -- 21 26
Commitments
Shareholders' equity (deficit)
Common stock
$.005 par value; 15,000,000 shares authorized, 4,968,935, 6,365,166 and
6,564,166 shares issued and outstanding at December 31, 1995 and June 30
and
September 30, 1996, respectively 25 32 33
Additional paid-in capital 8,510 12,409 12,684
Warrants -- 91 239
Note receivable from shareholder -- (72) (72)
Accumulated deficit (8,694) (10,312) (11,125)
Total shareholders' equity (deficit) (159) 2,148 1,759
Total liabilities and shareholders' equity
(deficit) $ 3,981 $ 15,574 $ 13,979
</TABLE>
SEE ACCOMPANYING NOTES.
ECO SOIL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1994 1995 1995 1996 1995 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales $ 1,979 $ 2,425 $1,303 $ 3,145 $ 1,743 $ 7,682
Services 709 1,332 637 994 1,040 1,547
Total revenues 2,688 3,757 1,940 4,139 2,783 9,229
Cost of revenues:
Product sales 1,716 1,604 666 2,085 1,324 5,143
Services 282 376 178 244 291 562
Total cost of revenues 1,998 1,980 844 2,329 1,615 5,705
Gross profit 690 1,777 1,096 1,810 1,168 3,524
Operating expenses:
Selling, general and
administrative 2,996 2,938 1,373 2,961 1,929 5,079
Research and development 286 413 160 275 264 353
Total operating
expenses 3,282 3,351 1,533 3,236 2,193 5,432
Loss from operations (2,592) (1,574) (437) (1,426) (1,025) (1,908)
Interest expense (224) (262) (131) (192) (172) (523)
Net loss $(2,816) $(1,836) $ (568) $(1,618) $(1,197) $(2,431)
Net loss per share $ (.62) $ (.35) $ (.11) $ (.27) $ (.23) $ (.40)
Shares used in
calculating net loss per
share 4,557 5,207 5,184 5,980 5,304 6,050
</TABLE>
SEE ACCOMPANYING NOTES.
ECO SOIL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL WARRANTS
<S> <C> <C> <C> <C>
Balance at December 31, 1993 3,225,268 $16 $ 4,075 $ --
Issuance of common stock, net of issuance
costs of $336 629,500 3 1,235 --
Conversion of debenture 20,000 -- 50 --
Conversion of advances from shareholder 166,667 1 499 --
Exercise of employee stock options 2,500 -- 4 --
Repurchase of common stock under rescission
offer (75,833) -- (120) --
Net loss -- -- -- --
Balance at December 31, 1994 3,968,102 20 5,743 --
Issuance of common stock, net of issuance
costs of $256 606,333 3 1,629 --
Conversion of promissory note 233,333 1 699 --
Issuance of common stock for purchase of
Aspen Consulting, Inc. 133,667 1 400 --
Exercise of stock options 27,500 -- 39 --
Net loss -- -- -- --
Balance at December 31, 1995 4,968,935 25 8,510 --
Issuance of common stock 130,583 1 387 --
Conversion of debt and shareholder advances 171,998 1 282 --
Exercise of stock options 46,000 -- 92 --
Issuance of common stock for purchase of
Turf Specialty, Inc. 647,650 3 1,940 --
Issuance of common stock for purchase of
Turf Products, Ltd. 400,000 2 1,198 --
Issuance of warrants in connection with debt -- -- -- 91
Net loss -- -- -- --
Balance at June 30, 1996 6,365,166 32 12,409 91
Exercise of stock options (unaudited) 133,000 1 176 --
Conversion of debt (unaudited) 66,000 -- 99 --
Issuance of warrants in connection with
bridge financing (unaudited) -- -- -- 148
Net loss (unaudited) -- -- -- --
Balance at September 30, 1996 (unaudited) 6,564,166 $33 $12,684 $239
</TABLE>
(WIDE TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOTE
RECEIVABLE
FROM ACCUMULATED
SHAREHOLDER DEFICIT TOTAL
<S> <C> <C> <C>
Balance at December 31, 1993 $ -- $ (4,042) $ 49
Issuance of common stock, net of issuance
costs of $336 -- -- 1,238
Conversion of debenture -- -- 50
Conversion of advances from shareholder -- -- 500
Exercise of employee stock options -- -- 4
Repurchase of common stock under rescission
offer -- -- (120)
Net loss -- (2,816) (2,816)
Balance at December 31, 1994 -- (6,858) (1,095)
Issuance of common stock, net of issuance
costs of $256 -- -- 1,632
Conversion of promissory note -- -- 700
Issuance of common stock for purchase of
Aspen Consulting, Inc. -- -- 401
Exercise of stock options -- -- 39
Net loss -- (1,836) (1,836)
Balance at December 31, 1995 -- (8,694) (159)
Issuance of common stock -- -- 388
Conversion of debt and shareholder advances -- -- 283
Exercise of stock options (72) -- 20
Issuance of common stock for purchase of
Turf Specialty, Inc. -- -- 1,943
Issuance of common stock for purchase of
Turf Products, Ltd. -- -- 1,200
Issuance of warrants in connection with debt -- -- 91
Net loss -- (1,618) (1,618)
Balance at June 30, 1996 (72) (10,312) 2,148
Exercise of stock options (unaudited) -- -- 177
Conversion of debt (unaudited) -- -- 99
Issuance of warrants in connection with
bridge financing (unaudited) -- -- 148
Net loss (unaudited) -- (813) (813)
Balance at September 30, 1996 (unaudited) $(72) $(11,125) $ 1,759
</TABLE>
SEE ACCOMPANYING NOTES.
ECO SOIL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,816) $(1,836) $(568) $(1,618)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 306 354 158 290
Changes in operating assets and liabilities,
net of effect of acquired businesses:
Accounts receivable (50) (652) (612) 21
Inventories (225) (35) 161 (67)
Prepaid expenses and other assets 71 2 (17) (176)
Accounts payable 367 139 158 (497)
Accrued liabilities 75 (3) (63) (326)
Net cash used in operating activities (2,272) (2,031) (783) (2,373)
INVESTING ACTIVITIES
Cash received in acquisitions -- -- -- 1,656
Payments related to acquired businesses -- -- -- --
Purchase of property and equipment (507) (569) (216) (714)
Proceeds from note receivable -- -- -- 595
Net cash (used in) provided by
investing activities (507) (569) (216) 1,537
FINANCING ACTIVITIES
Advances from shareholder 1,435 1,000 390 120
Repayment of advances from shareholder (807) (80) -- --
Proceeds from long-term debt 1,613 858 550 1,717
Repayments of long-term debt (973) (751) (414) (202)
Proceeds from capital lease obligations 49 -- -- --
Payments on capital lease obligations (67) (98) (50) (48)
Repurchase of common stock (120) -- -- --
Net proceeds from issuance of common stock 1,242 1,671 523 408
Net cash provided by financing activities 2,372 2,600 999 1,995
Net (decrease) increase in cash (407) -- -- 1,159
Cash at beginning of period 407 -- -- --
Cash at end of period $ -- $ -- $ -- $ 1,159
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Subordinated debentures issued upon conversion
of shareholder advances $ -- $ 300 $ -- $ --
Common stock issued upon conversion of debt and
shareholder advances $ 550 $ 700 $ 700 $ 283
Long-term debt issued for marketing rights $ 264 $ -- $ -- $ --
Long-term debt issued for purchase of furniture
and equipment $ 45 $ -- $ -- $ --
Payments due related to acquired businesses $ -- $ -- $ -- $ 1,810
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 224 $ 262 $ 131 $ 168
</TABLE>
(WIDE TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,197) $(2,431)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 266 538
Changes in operating assets and liabilities,
net of effect of acquired businesses:
Accounts receivable (545) 961
Inventories 277 103
Prepaid expenses and other assets (68) (634)
Accounts payable (203) (2,780)
Accrued liabilities (68) (511)
Net cash used in operating activities (1,538) (4,754)
INVESTING ACTIVITIES
Cash received in acquisitions -- 1,656
Payments related to acquired businesses -- (1,810)
Purchase of property and equipment (385) (741)
Proceeds from note receivable -- 595
Net cash (used in) provided by
investing activities (385) (300)
FINANCING ACTIVITIES
Advances from shareholder 390 74
Repayment of advances from shareholder -- --
Proceeds from long-term debt 550 5,416
Repayments of long-term debt (267) (507)
Proceeds from capital lease obligations -- --
Payments on capital lease obligations (74) (76)
Repurchase of common stock -- --
Net proceeds from issuance of common stock 1,563 585
Net cash provided by financing activities 2,162 5,491
Net (decrease) increase in cash 239 437
Cash at beginning of period -- --
Cash at end of period $ 239 $ 437
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Subordinated debentures issued upon conversion
of shareholder advances $ -- $ --
Common stock issued upon conversion of debt and
shareholder advances $ 700 $ 382
Long-term debt issued for marketing rights $ -- $ --
Long-term debt issued for purchase of furniture
and equipment $ -- $ --
Payments due related to acquired businesses $ -- $ --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 172 $ 243
</TABLE>
SEE ACCOMPANYING NOTES.
ECO SOIL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND AS OF
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Eco Soil Systems, Inc. (the "Company") develops, markets, sells and supports a
proprietary line of biologically-produced, environmentally-safe products
designed to address a variety of problems in the turf maintenance, agricultural
crop, soil redemption and water quality management industries. The Company has
developed two patented delivery systems that enable the Company to ferment
microorganisms at the customer's site and then dispense the appropriate amount
of cultured product directly into the customer's irrigation system, pond or
lake. The Company operates primarily in California, Florida, and South Africa.
ECO Turf Products, Inc. (d.b.a. Turf Products, Ltd. ("TPL")) and Turf
Specialty, Inc. ("TSI"), wholly-owned subsidiaries of the Company, are
wholesalers/distributors of golf course supplies and turfgrass supplies and
operate in the Greater Chicago area and New England, respectively.
BASIS OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the early stages of
introducing its products into the marketplace and has incurred and sustained
significant losses from operations. The Company's growth and investments for
additional anticipated growth have required more cash than operations have
generated. In response to the need for additional cash, the Company has taken
several steps. In July 1996, the Company obtained approximately $3.7 million by
issuing term debt to investors. The Company is also actively seeking additional
equity financing, including the offering contemplated by this Prospectus, to
finance operations beyond this point. The Company is dependent upon improvements
in the profitability of its operations and the availability of additional
financing; management's plans are to obtain such financing until operations
begin generating cash. However, there can be no assurance that the required
improvements in profitability can be attained or that additional financing will
be available in levels to allow the Company to continue as a going concern.
These issues discussed above raise substantial doubt about the Company's ability
to continue as a going concern.
The accompanying financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
possible inability of the Company to attain profitability, obtain additional
financing or continue as a going concern.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The accompanying financial statements and related notes at September 30, 1996,
for the six months ended June 30, 1995 and the nine months ended September 30,
1995 and 1996 are unaudited but include all adjustments (consisting only of
normal recurring adjustments) which, in the opinion of management, are necessary
for a fair statement of the financial position and the operating results and
cash flows for the interim date and periods presented. Results for the interim
periods are not necessarily indicative of results for the entire year or future
periods.
USE 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, including the allocation
of the purchase price relating to acquired businesses, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from the estimates.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMER AND SUPPLIER
Financial instruments which potentially expose the Company to concentrations of
credit risk are primarily cash and accounts receivable. The Company deposits its
cash in financial institutions. At times, such investments may be in excess of
insured limits. To date, the Company has not experienced any losses on its cash
investments. A substantial portion of the Company's accounts receivable are from
distributors and country clubs. The Company generally does not require
collateral and provides for estimated losses on uncollectible accounts at the
time of the sale. Such losses have historically been minimal and within
management's expectations.
During 1994 and 1995, the Company sold a substantial portion of its product to
one customer. Sales to this customer were approximately $1,200,000, $507,000,
$349,000 and $369,000, representing 45%, 13%, 18% and 13% of net sales in 1994
and 1995, in the six months ended June 30, 1995, and in the nine months ended
September 30, 1995, respectively. No customer accounted for more than 10% of net
sales during the six months ended June 30, 1996 or the nine months ended
September 30, 1996.
Accounts receivable from this customer were $118,000 and $99,000, representing
26% and 8% of total accounts receivable, at December 31, 1994 and 1995,
respectively.
In 1994, TSI entered into a distributor agreement with a major supplier. At June
30, 1996 and September 30, 1996, amounts due to that supplier included in
accounts payable were $825,000 and $935,000, respectively. This agreement has
been terminated effective December 31, 1996.
INVENTORIES
Inventories consist primarily of finished goods and are stated at the lower
of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the
straight-line and accelerated methods over the estimated service lives of
depreciable property and equipment ranging from 3 to 7 years. Equipment under
capital leases is amortized over the shorter of the estimated useful life of the
assets or the lease term and such amortization is included in depreciation in
the accompanying financial statements.
INTANGIBLE ASSETS
Intangible assets represent acquired marketing rights and the excess of the
purchase price over the fair market value of the assets acquired. Intangible
assets are being amortized over a period of 3 years for acquired marketing
rights and 15 years for the excess of the purchase price over the fair market
value of the assets acquired. Amortization of intangible assets amounted to
$37,000, $45,000, $16,000, $65,000, $29,000 and $173,000 in 1994, 1995, in the
six months ended June 30, 1995 and 1996, and in the nine months ended September
30, 1995 and 1996, respectively.
IMPAIRMENT OF ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the estimated
undiscounted cash flows to be generated by those assets are less than the
assets' carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted the
provisions of SFAS No. 121 effective January 1, 1996. There was no effect of
such adoption on the Company's financial position or results of operations.
REVENUE AND EXPORT SALES
Revenue from product sales is recognized upon shipment of the product. Service
revenues are derived from month to month agreements that provide for the use of
certain equipment and related monthly services and are recognized when the
services are performed. Cost of services includes depreciation on such equipment
and the cost of the related monthly service. The Company's export sales totaled
$530,000, $598,000, $129,000, $179,000, $253,000 and $201,000 in 1994, 1995, in
the six months ended June 30, 1995 and 1996 and in the nine months ended
September 30, 1995 and 1996, respectively.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares of
common stock outstanding during each period. Common stock equivalents were not
included in computing net loss per share since the effect would have been
antidilutive. Pursuant to the requirements of the Securities and Exchange
Commission, shares of common stock issued during the twelve months immediately
preceding the initial filing of the registration statement relating to the
Company's initial public offering, plus the number of common equivalent shares
under stock options granted or warrants issued during such period, have been
included in the calculation of the shares used in computing net loss per share
as if they were outstanding for all periods presented (using the treasury stock
method and the estimated public offering price).
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No. 25
("APB 25") and related Interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under SFAS No. 123, "Accounting for Stock-Based Compensation,"
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net loss and net loss per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method prescribed by that Statement.
The fair value for these options was estimated at the date of grant using a
minimum value pricing model with the following weighted-average assumptions for
December 31, 1995 and June 30, 1996, respectively: risk-free interest rates of
7%; no dividend yields expected; and an expected life of the option of 3 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The effect of
amortization on adjusted pro forma disclosures for the year ended December 31,
1995 and the six months ended June 30, 1996 are not indicative of the effects to
be disclosed in subsequent periods. The Company's adjusted pro forma information
follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
<S> <C> <C>
Pro forma net loss (IN THOUSANDS) $(1,853) $(1,632)
Pro forma net loss per share $ (.37) $ (.28)
</TABLE>
GOVERNMENT REGULATIONS
Substantially all of the Company's facilities are subject to federal, state and
local regulations relating to the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have, any material effect upon the operations, financial
condition, capital expenditures, or competitive position of the Company;
however, there can be no assurance that compliance with such regulations would
not have a material effect upon the Company's results of operations or financial
condition. Management believes that its current practices and procedures for the
control and disposition of such materials comply with applicable federal and
state requirements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current year
classifications.
2. ACQUISITIONS
In September 1995, the Company acquired all of the outstanding stock of Aspen
Consulting, Inc. ("Aspen") for 133,667 shares of the Company's common stock
valued at $3.00 per share.
Effective May 31, 1996, the Company acquired all of the outstanding stock of
Turf Specialty, Inc. for $500,000 cash, two promissory notes totalling
$1,000,000 (See Note 3) and 647,650 shares of the Company's common stock valued
at $3.00 per share. The $500,000 cash payment was paid subsequent to June 30,
1996 and is included in the account "payments due related to acquired
businesses" in the accompanying balance sheet. The acquisition consideration may
be reduced or increased based upon the pre-tax profits of TSI for the year
ending December 31, 1996.
Effective May 31, 1996, the Company acquired all of the outstanding stock of
Turf Products, Ltd. for $1,310,000 cash and 400,000 shares of the Company's
common stock valued at $3.00 per share. The $1,310,000 cash payment was paid
subsequent to June 30, 1996 and is included in the account "payments due related
to acquired businesses" in the accompanying balance sheet.
The results of operations of Aspen, TSI and TPL from the respective dates of
acquisition are included in the consolidated financial statements.
Each of the acquisitions was accounted for as a purchase and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on the estimated fair market values at the date of the acquisition
(IN THOUSANDS).
<TABLE>
<CAPTION>
ASPEN TURF TURF
CONSULTING, SPECIALTY, PRODUCTS,
INC. INC. LTD.
<S> <C> <C> <C>
Assets acquired:
Cash $ -- $1,471 $ 185
Accounts receivable 134 1,900 1,021
Inventories -- 675 894
Prepaid expenses and other current assets 7 31 336
Property and equipment 31 164 182
Note receivable from stockholders -- 595 --
Excess of purchase price over net tangible
assets acquired 553 2,764 1,859
Total assets acquired $725 $7,600 $4,477
Liabilities assumed:
Accounts payable $ 35 $3,261 $1,492
Accrued expenses 31 895 35
Notes payable 258 -- 440
Total liabilities assumed 324 4,156 1,967
Net assets acquired $401 $3,444 $2,510
</TABLE>
The following unaudited pro forma results assume the TSI and TPL acquisitions
discussed above occurred on January 1, 1995. The results of operations of Aspen
were not material prior to its acquisition and are not included in the following
unaudited pro forma results. The unaudited pro forma results have been prepared
utilizing the historical financial statements of the Company and the acquired
businesses.
PRO FORMA RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
(UNAUDITED)
<S> <C> <C>
Net sales $17,557 $15,749
Net loss (1,596) (2,776)
Net loss per share $ (.29) $ (.44)
</TABLE>
The unaudited pro forma results above give effect to pro forma adjustments
related to the amortization of the excess of the purchase price over the fair
market value of the assets acquired, the increase in interest expense to reflect
the notes payable issued to effect the acquisitions, and related income tax
adjustments.
This pro forma information is not necessarily indicative of the actual results
that would have been achieved had the above businesses been acquired on January
1, 1995, nor is it necessarily indicative of future results.
3. BALANCE SHEET INFORMATION
Property and equipment consist of the following (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1995 1996 1996
<S> <C> <C> <C>
Machinery and equipment $2,130 $ 3,007 $ 3,045
Furniture and fixtures 109 293 295
2,239 3,300 3,340
Less accumulated depreciation and
amortization (905) (1,130) (1,280)
$1,334 $ 2,170 $ 2,060
</TABLE>
Intangible assets consist of the following (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1995 1996 1996
<S> <C> <C> <C>
Excess of purchase price over fair market
value of assets acquired (NOTE 2) $524 $5,156 $5,317
Marketing rights 310 310 310
Accumulated amortization (83) (148) (260)
$751 $ 5,318 $5,367
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1995 1996 1996
<S> <C> <C> <C>
8% secured promissory notes issued in
connection with the acquisition of Turf Specialty, Inc., to its officers;
interest payable monthly, principal due the earlier of February 1997 or 10 days
after the effective date of an initial public offering; collateralized by the
capital stock of Turf Specialty, Inc. $ -- $1,000 $1,000
8% secured subordinated notes to an officer and shareholders, net of unamortized
discount of $60; interest payable quarterly, principal due $706 in
March 1998 and $284 in November 1998 -- 990 990
8% secured subordinated debentures; interest
payable quarterly, principal due November 1998 700 700 700
Revolving line of credit with bank for $500; interest payable monthly at the
bank's prime rate plus 2% (10.25% at June 30, 1996) per annum, expiring April
1997; secured by personal assets of an officer/shareholder and substantially
all assets of the Company -- 500 500
9.5% promissory note; interest payable annually,
principal due December 1996 -- 300 300
8% note payable to a bank; interest payable monthly, principal due July 1996;
secured by personal assets of a shareholder and substantially
all assets of the Company 1,013 263 263
8% unsecured subordinated promissory note to an
officer; interest and principal due upon demand -- 250 350
8% convertible unsecured promissory notes to shareholders; interest and
principal due upon demand; convertible into common stock at the
option of the holders at $1.00 per share -- 150 150
California Export Financing Office (CEFO) revolving line of credit with bank for
$500, interest payable monthly at the bank's prime rate plus 1.5% per annum
(9.75% at June 30, 1996), expiring April 1997; secured by personal assets of an
officer/shareholder and substantially all assets of the Company -- 129 --
10% convertible subordinated promissory notes, net of unamortized discount of
$111; interest and principal due at the earlier of December 31, 1996 or within
30 days after the effective date of an initial public offering (IPO) -- -- 3,584
Non-interest bearing unsecured note payable net of imputed interest of $21; due
in monthly installments of $7 through February 1998 with a
final payment of $9 due March 1998 180 128 112
10% unsecured subordinated notes; interest payable quarterly, principal due upon
demand; convertible, at the option of the note holder, into common stock at 80%
of an IPO price if the IPO is completed prior to July 1997 at the option of the
holder -- 120 120
8% unsecured subordinated note to a shareholder;
interest payable monthly, principal due November 1998 -- 100 --
10% unsecured note payable to a shareholder; principal and interest due upon
demand; convertible into common stock at the option of the
holder at $1.00 per share -- 100 --
9.5% promissory notes to a former shareholder of
TPL; interest payable annually, principal due March 1997 -- 100 100
10% convertible unsecured subordinated debentures issued to shareholders;
interest payable monthly, principal due July 1996; convertible into common
stock at the option of the holders at $1.50 per share 132 99 --
10% unsecured subordinated debentures; interest
payable monthly, principal due July 1998 290 90 90
9.5% promissory note; interest payable annually,
principal due March 1997 -- 40 40
Non-interest bearing note payable to purchase
marketing rights; due in monthly installments of
$9 through October 1996 86 32 6
8% unsecured note payable to a shareholder,
converted into common stock in 1996 100 -- --
Other 113 81 13
2,614 5,172 8,318
Less amount due within one year 1,703 3,086 6,324
Long-term debt due after one year $ 911 $2,086 $1,994
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Three months ending December 31,
1996 $4,393
<S> <C>
Year ending December 31, 1997 2,010
Year ending December 31, 1998 1,911
Year ending December 31, 1999 4
$8,318
</TABLE>
Substantially all of the assets of the Company are pledged as collateral as a
result of the debt agreements described above.
In July 1996, several debt transactions occurred. The Company converted $99,000
in 10% unsecured subordinated convertible debentures issued to shareholders in
June 1992 to common stock at $1.50 per share. The Company repaid $100,000 of 10%
unsecured notes to shareholders and $100,000 of 8% unsecured notes to
shareholders. The Company also issued a $100,000 10% subordinated demand note to
an officer of the Company. In addition, $45,000 of the CEFO guaranteed line of
credit was repaid in July 1996. In September 1996, the outstanding balance of
$84,000 in the CEFO line of credit was repaid.
In August 1996, a $30,000, three-year, non-interest-bearing loan was made to
an employee of the Company. Also in August 1996, the Company repaid a $50,000
shareholder advance.
The Company's revolving line of credit agreements ("Agreements") contain certain
restrictions and limitations on the Company's operations, including restrictions
on capital expenditures, sale of assets, lease liabilities, mergers, or other
forms of business combinations, as well as the prohibition on the payments of
cash dividends. The Agreements also contain certain covenants which require the
Company to maintain minimum levels of net worth, working capital, and other
financial ratios, as defined therein.
In connection with the acquisition of TSI, the Company acquired a line of credit
with a bank for $900,000 at the bank's prime rate plus 1.5% (9.75% at June 30,
1996 and September 30, 1996) that expires December 31, 1996. The line of credit
is unsecured and is personally guaranteed by two officers of TSI. At the
acquisition date, June 30, 1996 and September 30, 1996, there were no
outstanding borrowings under this line of credit.
5. SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Board of Directors is authorized, without any action by the Company's
shareholders, to issue up to 5,000,000 shares of authorized but undesignated
preferred stock and to fix the powers, preferences, rights and limitations of
any such preferred shares or any class or series thereof. Persons acquiring
preferred stock could have preferential rights with respect to voting,
liquidation, dissolution or dividends over existing shareholders.
STOCK OPTION PLAN
In February 1992, the Company established a Qualified Stock Option Plan (the
"Plan") for employees and consultants which, as amended, provides for the grant
of options to purchase up to 450,000 shares of common stock, which was increased
to 900,000 shares in November 1996. Options granted under the Plan have a
five-year term and vest ratably over a three-year period. At June 30, 1996,
options exercisable and available for future grants totaled 245,403 and 75,832,
respectively.
Information with respect to the Company's Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTION PRICE PER
SHARES SHARE
<S> <C> <C>
Outstanding at December 31, 1993 162,500 $2.00
Granted 50,000 $2.50
Exercised (2,500) $1.50
Outstanding at December 31, 1994 210,000 $2.00
Granted 126,668 $3.00
Exercised (2,500) $3.00
Outstanding at December 31, 1995 334,168 $2.25
Granted 35,000 $3.00
Canceled (10,000) $2.00
Outstanding at June 30, 1996 359,168 $2.25
Granted (unaudited) 196,500 $4.00
Outstanding at September 30, 1996
(unaudited) 555,668
</TABLE>
OPTIONS AND WARRANTS
Under separate non-qualified stock option agreements in 1992 and 1993, the
Company granted options to purchase 270,000 shares of common stock at prices
ranging from $1.50 to $2.00 per share to several consultants and employees which
have vesting and exercise provisions consistent with those issued pursuant to
the Plan and expire on various dates through March 1998. In 1995, 25,000 options
were exercised at $1.50 per share. In 1996, 26,000 options were exercised at
$2.00 per share. As of June 30, 1996 all remaining options were exercisable.
In 1991 and 1992, the Company also granted to four individuals options to
purchase 812,458 shares of the Company's common stock at prices ranging from
$.34 to $2.00 per share. As of June 30, 1996, all of these options were
exercisable and expire on various dates through May 2001.
In connection with the issuance of the 10% subordinated debentures in 1992 and
1993, the Company issued to the holders of the debentures options to purchase
88,000 shares at $1.50 per share and warrants to purchase 78,000 shares at $3.00
per share. All options and warrants were outstanding and exercisable at December
31, 1995 and expire on various dates through February 1998. In 1996, 22,000
options were exercised at $1.50 per share and related debt of $33,000 was
canceled.
In connection with the 1994 repurchase of exclusive marketing rights for certain
products, the Company issued warrants to purchase 30,000 shares of common stock
at $2.50 per share. All warrants were outstanding and exercisable as of June 30,
1996 and expire in June 1999.
During 1994, warrants to purchase 350,000 shares at $2.50 per share were issued
to an officer of the Company. Warrants for the purchase of 100,000 shares of
common stock vested ratably through January 1996 and warrants for the purchase
of 250,000 shares of common stock may not be exercised until the issuance price
of common stock exceeds certain prices. Compensation expense relating to the
contingent shares will be recorded when the options vest based upon the
difference between the then fair market value and the exercise price. At June
30, 1996, 100,000 of these warrants were exercisable.
In accordance with the Company's purchase of Aspen, the previous owner of Aspen
was granted an option to purchase 50,000 shares of the Company's common stock at
$3.00 per share. The option vests over four years if the previous owner
continues employment with the Company and will expire in December 2001. An
additional 150,000 options to purchase the Company's common stock at $3.00 per
share will be granted in equal amounts over the next four years provided
employment continues and contingent upon the level of the pre-tax contribution
margin of Aspen over the next four years. Compensation expense relating to this
option will be recorded when the shares vest based upon the difference between
the then fair market value and the exercise price.
In connection with a new stock option compensation plan for the board of
directors, 30,000 options were granted January 1996 at $3.00 per share. As of
June 30, 1996, 10,000 options were exercisable with the remaining options
vesting over the next two years. These options expire in January 2001.
In connection with various long-term debt financing transactions, the Company
has issued warrants to purchase 1,036,815 shares of common stock at $3.00 per
share. The warrants are generally exercisable through 2001. All warrants were
outstanding and exercisable at June 30, 1996.
Options have also been issued to various investment banking firms, debenture
holders and shareholders to purchase 1,015,798 shares of common stock. These
warrants are exercisable through February 2001 at prices between $1.50 and $3.00
per share. In 1996, warrants were exercised for the purchase of 10,000 shares of
common stock and options were exercised for the purchase of 10,000 shares of
common stock.
In connection with the bridge financing in July 1996, warrants were issued to
purchase 739,000 shares of the Company's common stock at $3.00 per share or 80%
of the IPO price if an IPO occurs on or before December 31, 1996. The warrants
are exercisable on the earlier of the completion of an IPO or December 31, 1996
and expire five years after the date of issuance.
As of June 30, 1996, an aggregate of 5,000,000 shares of common stock are
reserved for issuance under options and warrants, exclusive of options granted
under the Plan.
6. EMPLOYEE BENEFIT PLANS
TPL DEFINED CONTRIBUTION PLAN
Substantially all employees of TPL are covered by a defined contribution plan
sponsored by TPL. TPL makes discretionary contributions up to 15% of eligible
employee compensation on an annual basis. No contributions are made by the
participants. No contributions have been made for the nine months ended
September 30, 1996. Costs of administering the plan are paid by the Company.
TSI PROFIT SHARING PLAN
TSI has a noncontributory profit sharing plan covering substantially all of its
employees. Annual employer contributions to the plan are set by the Board of
Directors. No contributions have been made for the nine months ended September
30, 1996. This plan will be terminated by May 31, 1998.
7. INCOME TAXES
At December 31, 1995, the Company had federal and California tax net operating
loss carryforwards of approximately $8.3 million and $3.0 million, respectively.
The difference between the federal and California tax loss carryforwards is
primarily attributable to the fifty percent limitation on California loss
carryforwards. The federal and California tax loss carryforwards begin expiring
in 2003 and 1998, respectively, unless previously utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company's net
operating loss carryforwards may be limited if a cumulative change in ownership
of more than 50% occurs within any three-year period. The Company's use of a
portion of its income tax net operating loss carryforwards will be limited since
the Company has undergone ownership changes of greater than 50%.
Significant components of the Company's deferred tax assets as of December 31,
1995 are shown below. A valuation allowance of $3,153 has been recognized to
offset the deferred tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
1995
(IN THOUSANDS)
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,093
Other 60
Total deferred tax assets 3,153
Valuation allowance for deferred tax assets (3,153)
Net deferred tax assets $ --
</TABLE>
8. COMMITMENTS
In 1995, the Company entered into a thirty-year consulting/licensing agreement
for BioJect Product (as defined therein). The license calls for royalties of 12%
on all product which was evaluated, developed, supplied, or improved by the
licensor. The license calls for minimum royalty payments of $100,000 in each of
1996 and 1997. The Company granted the licensor a fully exercisable warrant to
purchase 50,000 shares of the Company's common stock of $3.00 per share which
expires in January 2002. Royalty expense for the year ended December 31, 1995,
the six months ended June 30, 1995 and 1996 and the nine months ended September
30, 1995 and 1996 was $100,000, $50,000, $79,000 $75,000 and $127,000,
respectively.
Annual future minimum lease payments, including equipment under capital leases
as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
Six months ending December 31, 1996 $63 $ 198
Year ending December 31, 1997 22 366
Year ending December 31, 1998 -- 337
Year ending December 31, 1999 -- 247
Year ending December 31, 2000 -- 83
Year ending December 31, 2001 -- 74
Total minimum lease payments 85 $1,305
Less amount representing interest (4)
Present value of remaining capital lease payments
(including current portion of $74) $81
</TABLE>
Rental expense for the years ended December 31, 1994, 1995, the six months ended
June 30, 1995 and 1996, and the nine months ended September 30, 1995 and 1996
was approximately $102,000, $107,000, $55,000, $70,000, $96,000 and $185,000,
respectively, including $89,000, $78,000, $42,000, $46,000, $65,000 and $65,000
respectively, to a shareholder. The lease with the shareholder expires in
November 1999.
TSI has entered into employment agreements expiring July 9, 1999 with two
executive officers. The agreements provide for minimum salary levels, adjusted
annually for cost-of-living changes, as well as participation in any incentive
compensation plans sponsored by TSI. It also offers each officer a non-interest
bearing loan of $250,000 to be issued on or about December 15, 1996. This loan
need not be repaid and will be forgiven on July 1, 1999 if the officers continue
to be employed by TSI. If employment is terminated by the Company prior to that
date, the officers will be obligated to repay a portion of the loan pro-rated to
the number of days worked from July 2, 1996 to the effective date of the
termination of employment. Compensation expense will be recorded ratably over
the period of forgiveness. The agreement contains other provisions including
some intended to prevent the employee from entering into any form of competition
with TSI.
The merger agreement related to the acquisition of TSI provides for contingent
payments to the former owners of TSI if actual income, as defined in the merger
agreement, exceeds targeted net income. If the actual net income is below
targeted net income, the purchase price may be reduced.
9. RELATED PARTY TRANSACTIONS
As more fully described in Note 8, the Company leases its facility under an
operating lease which it assumed from two officers of the Company.
10. BRIDGE FINANCING
In July 1996, the Company issued approximately $3.7 million of 10% convertible
promissory notes under a private placement memorandum. Repayment of the
promissory notes is due at the earlier of December 31, 1996 or within 30 days
after the effective date of an IPO. If an IPO does not occur prior to December
31, 1996, the Company may extend the due date until June 30, 1997. The
promissory notes are convertible at the option of the holder for a period of 20
days after the effective date of an IPO at a price equal to 80% of the IPO
price. In connection with this financing, warrants were issued to purchase
739,000 shares of common stock at $3.00 per share or 80% of the IPO price if an
IPO occurs on or before December 31, 1996. The warrants are exercisable on the
earlier of the completion of an IPO or December 31, 1996 and expire five years
after the date of issuance. Additionally, the holder will have the right to
convert to common stock up to 100% of the principal amount of the notes, at a
price equal to 80% of the IPO price.
REPORT OF BIGELOW & COMPANY, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Turf Specialty, Inc.
Londonderry, New Hampshire
We have audited the accompanying consolidated statements of income and retained
earnings and cash flows of Turf Specialty, Inc. for the years ended December 31,
1994 and 1995. 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 audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and consolidated 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 in the first
paragraph present fairly, in all material respects, the results of operations
and cash flows of Turf Specialty, Inc. for the years ended December 31, 1994 and
1995, in conformity with generally accepted accounting principles.
BIGELOW & COMPANY
Certified Public Accountants, P.C.
By:
/s/ MARIE C. MCKAY
Marie C. McKay
Certified Public Accountant
Manchester, New Hampshire
July 19, 1996
TURF SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1994 1995
<S> <C> <C>
Net sales $4,557 $6,886
Cost of sales 3,101 4,929
Gross profit 1,456 1,957
Operating expenses 1,463 1,347
Income (loss) from operations (7) 610
Other income 43 4
Income before provision for income taxes 36 614
Provision for income taxes 9 240
Net income 27 374
Retained earnings at beginning of year 573 600
Retained earnings at end of year $ 600 $ 974
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
TURF SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
<S> <C> <C>
1994 1995
OPERATING ACTIVITIES:
Net income $ 27 $ 374
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 31 51
Loss on sale of property and equipment 8 4
Change in operating assets and liabilities:
Accounts receivable (109) (940)
Inventory 32 (652)
Income taxes (7) 240
Prepaid expenses (3) --
Accounts payable 63 1,530
Accrued expenses 7 (8)
Customer deposits 29 11
Net cash provided by operating activities 78 610
INVESTING ACTIVITIES:
Purchase of property and equipment (69) (78)
Advances (repayments) on notes receivable from
stockholders 75 (90)
Proceeds from sale of property and equipment 19 6
Net cash provided by (used in) investing activities 25 (162)
FINANCING ACTIVITIES:
Principal payments on notes payable (29) (35)
Repurchase of common stock (75) (75)
Proceeds (repayments) of note payable to stockholder 79 (78)
Net cash used in financing activities (25) (188)
Net increase in cash 78 260
Cash at beginning of year 49 128
Cash at end of year $ 127 $ 388
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 16 $ 2
Cash paid for interest $ 13 $ 9
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
TURF SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Substantially all gross revenues are derived from the purchase and resale of
turfgrass supplies. Most of the Company's business activity is with golf courses
located in New England.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Turf Specialty,
Inc. (the Company) and its wholly-owned subsidiary, 3MT, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company considers its accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is provided.
INVENTORIES
Inventories consist primarily of finished goods and are valued at the lower of
cost (first-in, first-out) or market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using
accelerated methods based on the estimated useful lives of the assets.
Maintenance and repairs are charged to expense when incurred.
ADVERTISING COSTS
Advertising costs are charged to the expense as incurred. Advertising costs were
$8,683 and $9,191 for the years ended December 31, 1994 and 1995, respectively.
GOVERNMENTAL REGULATIONS
Substantially all of the Company's facilities are subject to federal, state and
local regulations relating to the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have, any material effect upon the net income, financial
condition, capital expenditures, or competitive position of the Company.
Management believes that its current practices and procedures for the control
and disposition of such wastes comply with applicable federal and state
requirements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations of
credit risk are primarily cash and accounts receivable. The Company deposits its
cash in financial institutions. At times, such investments may be in excess of
insured limits. To date, the Company has not experienced any losses on its cash
investments. A substantial portion of the Company's accounts receivable are from
distributors and country clubs. The Company generally does not require
collateral and provides for estimated losses on uncollectible accounts at the
time of the sale. Such losses have historically been minimal and within
management's expectations.
3. MAJOR SUPPLIER
Beginning in 1994, the Company has a distributor agreement with a major
supplier. At December 31, 1995, amounts due to that supplier included in
accounts payable were $1,745,381. This agreement has been terminated effective
December 31, 1996.
4. LINE OF CREDIT
The Company has available a $900,000 line of credit at the bank's prime rate
plus 1.5% (10% at December 31, 1995). The line is unsecured and is personally
guaranteed by the stockholders. There were no borrowings outstanding under this
agreement at December 31, 1994 and 1995.
5. RELATED PARTY TRANSACTIONS
The stockholders have personally guaranteed all of the bank debt of the Company
(SEE NOTE 4).
As more fully described in Note 6, the Company leases its facility under an
operating lease which it assumed from its stockholders.
6. OPERATING LEASES
The Company leases its facility under a five-year operating lease which expires
February 1997. The lease agreement was entered into by the stockholders of the
Company. The Company utilizes the premises and has assumed the obligation and
liability under the lease. The lease payment is $3,467 per month and includes
property tax and common area charges which are subject to change. The Company is
also party to a number of operating leases for office equipment. Rental expense
under these leases for the years ended December 31, 1994 and 1995 was $44,789
and $57,688, respectively.
The following is a schedule of minimum future rental payments to be made under
these leases as of December 31, 1995 (IN THOUSANDS):
Year ending December 31, 1996 $ 51
Year ending December 31, 1997 5
$ 56
7. REPURCHASED STOCK
The Company has repurchased shares of the Company's common stock, as follows:
<TABLE>
<CAPTION>
NUMBER OF COST OF
SHARES REPURCHASED
REPURCHASED SHARES
(IN THOUSANDS)
<S> <C> <C>
Year ended December 31, 1994 23.82 $ 75
Year ended December 31, 1995 23.84 75
47.66 $150
</TABLE>
8. INCOME TAXES
A reconciliation of federal and state income taxes computed at current rates to
the amounts provided in the financial statements is as follows (IN THOUSANDS):
YEARS ENDED
DECEMBER 31,
1994 1995
Federal $6 $196
State 3 44
$9 $240
9. PROFIT SHARING PLAN
The Company has a non-contributory profit sharing plan covering substantially
all of its employees. Annual employer contributions to the plan are set by the
Board of Directors. Contributions for the years ended December 31, 1994 and 1995
amounted to $103,275 and $109,155, respectively.
10. SUBSEQUENT EVENT
Effective May 31, 1996, the Company was merged into Eco Specialty, Inc., a
Delaware corporation. Eco Specialty, Inc. was the surviving corporation which
changed its name to Turf Specialty, Inc.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholder
Turf Products, Ltd.
We have audited the accompanying statements of income and retained earnings and
cash flows of Turf Products, Ltd. for each of the two years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 audit 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 financial statements referred to above present fairly, in
all material respects, the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
San Diego, California
October 3, 1996
TURF PRODUCTS, LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1994 1995
<S> <C> <C>
Net sales $5,219 $6,914
Cost of sales 3,584 4,946
Gross profit 1,635 1,968
Operating expenses:
Selling expenses 442 523
General and administrative expenses 1,031 1,224
1,473 1,747
Operating income 162 221
Other income (expense):
Interest expense (23) (28)
Interest income 1 1
Other, net (1) --
(23) (27)
Income before income taxes 139 194
Provision for income taxes 71 94
Net income 68 100
Cash dividends (50) (25)
Retained earnings at beginning of year 543 561
Retained earnings at end of year $ 561 $ 636
</TABLE>
SEE ACCOMPANYING NOTES.
TURF PRODUCTS, LTD.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1994 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 68 $ 100
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 52 65
Provision for doubtful accounts -- 11
Deferred income taxes 6 (27)
Changes in operating assets and liabilities:
Accounts receivable (24) 85
Inventories (165) (185)
Prepaids and other assets (5) 89
Accounts payable and accrued expenses 102 57
Income taxes payable 50 31
Net cash provided by operating activities 84 226
INVESTING ACTIVITIES
Purchase of property and equipment (45) (133)
Premium receivable (21) (30)
Net cash used by investing activities (66) (163)
FINANCING ACTIVITIES
Advances from stockholder 50 --
Cash dividends paid (50) (25)
Net cash used by financing activities -- (25)
Increase in cash 18 38
Cash at beginning of year 77 95
Cash at end of year $ 95 $ 133
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 20 $ 91
Interest $ 17 $ 28
</TABLE>
SEE ACCOMPANYING NOTES.
TURF PRODUCTS, LTD.
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Turf Products, Ltd. is a wholesaler/distributor of golf course and turfgrass
supplies. The Company is privately owned and operates in the Greater Chicago
area.
CONCENTRATION OF CREDIT RISK
No single customer is large enough to pose a significant financial risk to the
Company. To the extent the Company's customers become delinquent, collection
activities commence. The Company maintains an allowance for losses based on the
expected collectability of accounts receivable. Credit losses historically have
been insignificant and within management's expectations.
INVENTORIES
Inventories consist primarily of finished goods and are stated at the lower of
cost (principally first in, first out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed by applying
an accelerated method for transportation equipment and a straight-line method
for all other property and equipment based on the estimated useful lives of the
assets. Repairs and maintenance costs are expensed as incurred.
GOODWILL
Goodwill resulted from the buyout of certain partners of the original
partnership (the Company was incorporated from a partnership in 1971). The
goodwill is being amortized over 40 years. Amortization of goodwill amounted to
approximately $1,000 for each of the years ended December 31, 1994 and 1995.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs were
$18,938 and $22,690 for the years ended December 31, 1994 and 1995,
respectively.
GOVERNMENT REGULATIONS
Substantially all of the Company's facilities are subject to federal, state and
local regulations relating to the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have, any material effect upon the net income, financial
condition, capital expenditures, or competitive position of the Company.
Management believes that its current practices and procedures for the control
and disposition of such wastes comply with applicable federal and state
requirements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. RELATED PARTY TRANSACTIONS
The Company pays life insurance premiums on behalf of the stockholder. For the
years ended December 31, 1994 and 1995, the Company paid $37,696 and $37,336 in
life insurance premiums. In the event of the death of the stockholder or
termination of a related collateral assignment agreement, the Company is
entitled to reimbursement of these premiums or ownership of the policies. The
premium receivable recorded in the balance sheet reflects the cash surrender
value of the policies which represents the collateralized portion of the
premiums. Premiums paid since inception of the policies in excess of the cash
surrender values totaled $52,192 at December 31, 1995.
The Company sells Eco Soil Systems, Inc. products to their customers. The
effect on cost of sales, net of commissions, of these transactions for the
years ended December 31, 1994 and 1995 was $0 and $9,500, respectively.
In addition to facilities leased as noted above, the Company occupies a
building owned by a stockholder on which no rent is charged.
3. INCOME TAXES
The components of income tax expense were as follows for the years ended
December 31 (IN THOUSANDS):
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Current income tax expense:
Federal $51 $ 98
State 14 23
Deferred income tax expense (benefit):
Federal 7 (24)
State (1) (3)
Total income tax expense $71 $ 94
</TABLE>
A reconciliation from the U.S. federal statutory income tax rate (34 percent) to
the effective income tax rate (income tax expense divided by income before
income taxes) is as follows for the years ended December 31 (IN THOUSANDS):
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Income tax expense at the statutory rate $47 $66
Effect of:
State income tax expense, net of federal income tax effect 9 12
Non-deductible expenses 15 16
Change in tax rates on deferred taxes 7 1
Change in tax due to graduated tax rates (8) (1)
Other, net 1 --
Income tax expense $71 $94
Effective income tax rate 51% 48%
</TABLE>
For the years ended December 31, 1994 and 1995, income tax expense was affected
by the difference between the statutory tax rate of 34% and the graduated tax
rate based on the Company's level of taxable income.
Deferred income taxes are provided for temporary differences between the
carrying amounts of the Company's assets and liabilities for financial statement
purposes and their tax bases. The sources of the differences that gave rise to
the deferred income tax assets and liabilities as of December 31, 1995, along
with the income tax effect of each, were as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
1995 DEFERRED
INCOME TAX
ASSETS LIABILITIES
<S> <C> <C>
Property and equipment $-- $ 5
Bad debts 4 --
Contributions 9 --
Differences in revenue and expense recognition 28 --
Life insurance -- 25
$41 $30
</TABLE>
4. COMMITMENTS
Annual future payments under the Company's operating leases as of December 31,
1995 are as follows (IN THOUSANDS):
Year ending December 31, 1996 $54
Year ending December 31, 1997 23
Year ending December 31, 1998 3
Year ending December 31, 1999 2
$82
Rental expense for the years ended December 31, 1994 and 1995 was approximately
$200 and $28,500, respectively.
5. DEFINED CONTRIBUTION PLAN
Substantially all employees of the Company were covered by a defined
contribution plan sponsored by Turf Products, Ltd. No contributions are made by
the participants. The Company's contributions aggregated $62,000 for each of the
years ended December 31, 1994 and 1995 and were determined at the Company's
discretion. Costs of administrating the Plan are paid by the Company.
6. SUBSEQUENT EVENT
Effective May 31, 1996, the Company merged with ECO Turf Products, Inc., a
subsidiary of Eco Soil Systems, Inc. The subsidiary is the surviving
corporation. Prior to the closing of this merger, the Company terminated the
defined contribution plan (See Note 5).
ECO SOIL SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
The following unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1995 and the nine months ended
September 30, 1996 give effect to the acquisitions of Turf Specialty, Inc. (TSI)
and Turf Products, Ltd. (TPL) as if they were acquired on January 1, 1995.
The pro forma condensed consolidated statements of operations are based on
historical financial statements of Eco Soil Systems, Inc., TSI and TPL, giving
effect to the acquisitions applying the purchase method of accounting and the
assumptions and adjustments as discussed in the accompanying notes to the pro
forma condensed consolidated statements of operations. The unaudited pro forma
condensed consolidated statements of operations should be read in conjunction
with the historical financial statements and notes thereto of Eco Soil Systems,
Inc., TSI and TPL, and narrative sections included elsewhere herein. The pro
forma condensed consolidated statements of operations are presented for
illustrative purposes and are not necessarily indicative of what actual results
of operations would have been for the periods presented had the transactions
occurred on the date indicated and do not purport to indicate the results of
future operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
HISTORICAL
TURF PRO FORMA PRO FORMA
ECO SOIL SPECIALTY, TURF ADJUSTMENTS REFLECTING
SYSTEMS, INC. INC. PRODUCTS, LTD. (NOTE 2) ACQUISITIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales $ 3,757 $6,886 $6,914 $ -- $17,557
Operating expenses 5,331 6,263 6,692 307 (a) 18,593
Operating income (loss) (1,574) 623 222 (307) (1,036)
Interest expense, net (262) (9) (28) (261)(b) (560)
Income (loss) before income taxes (1,836) 614 194 (568) (1,596)
Provision for income taxes -- 240 94 (334)(c) --
Net income (loss) $(1,836) $ 374 $ 100 $(234) $(1,596)
Net loss per share $ (0.29)
Shares used in computing net loss
per share 5,516,000
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
HISTORICAL
TURF PRO FORMA PRO FORMA
ECO SOIL SPECIALTY, TURF ADJUSTMENTS REFLECTING
SYSTEMS, INC. INC. PRODUCTS, LTD. (NOTE 2) ACQUISITION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales $ 9,229 $3,837 $2,683 $ -- $15,749
Operating expenses 11,137 3,911 2,698 127 (a) 17,873
Operating loss (1,908) (74) (15) (127) (2,124)
Interest expense, net (523) -- (20) (109)(b) (652)
Loss before income taxes (2,431) (74) (35) (236) (2,776)
Provision for income taxes -- -- 20 (20)(c) --
Net loss $(2,431) $ (74) $ (55) $(216) $(2,776)
Net loss per share $ (0.44)
Shares used in computing net loss
per share 6,359,000
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS.
ECO SOIL SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
NOTE 1.
On May 31, 1996, Eco Soil Systems, Inc. (the "Company") acquired all of the
outstanding common stock of Turf Specialty, Inc. ("TSI") and Turf Products,
Inc. ("TPL") in separate transactions. Each transaction was accounted for as
a purchase.
The purchase price has been allocated to the tangible and intangible assets
acquired and liabilities assumed based on their respective fair values on the
date of acquisition as follows:
<TABLE>
<CAPTION>
TURF TURF
SPECIALTY, INC. PRODUCTS, LTD.
(IN THOUSANDS)
<S> <C> <C>
Assets acquired:
Cash $1,471 $ 185
Accounts receivable 1,900 1,021
Inventories 675 894
Prepaid expenses and other current assets 31 336
Property and equipment 164 182
Note receivable from stockholders 595 --
Excess of purchase price over net tangible assets
acquired 2,764 1,859
Total assets acquired $7,600 $4,477
Liabilities assumed:
Accounts payable $3,261 $1,492
Accrued expenses 895 35
Notes payable -- 440
Total liabilities assumed 4,156 1,967
Net assets acquired $3,444 $2,510
</TABLE>
NOTE 2.
The accompanying unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1995 and the nine months ended
September 30, 1996 gives effect to the acquisitions of TSI and TPL as if they
had occurred as of January 1, 1995. For the periods presented, transactions
between these entities were not material.
The pro forma adjustments are summarized as follows:
(a) Increased amortization expense of intangibles for goodwill related to the
acquisitions using a 15 year life.
(b) Increased interest expense on the debt incurred to complete the
acquisitions.
(c) Adjust the provision for income taxes based on the consolidated
operations for the periods presented.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE UNDERWRITERS OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY A SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
Page
Prospectus Summary 3
The Company 3
Risk Factors 6
Use of Proceeds 13
Capitalization 14
Dilution 15
Dividend Policy 15
Selected Financial Data 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 17
Business 23
Management 36
Certain Transactions 43
Principal Shareholders 46
Description of Securities 47
Shares Eligible for Future Sale 49
Underwriting 50
Experts 52
Legal Matters 52
Additional Information 53
Index to Consolidated Financial Statements F-1
UNTIL _________, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS TO
SUBSCRIPTIONS.
3,000,000 SHARES
[LOGO] ECO SOIL SYSTEMS
COMMON STOCK
PROSPECTUS
[LOGO]
R J
STEICHEN
& COMPANY
____________, 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 21-2004(15) of the Nebraska Business Corporation Act provides, in
summary, that the directors and officers of the Company may, under certain
circumstances, be indemnified by the Company against all expenses incurred by or
imposed upon them as a result of actions, suits or proceedings brought against
them as such directors and officers, or as directors or officers of any other
organization at the request of the Company, if they act in good faith and in a
manner they reasonably believe to be in or not opposed to the best interests of
the Company, and with respect to any criminal action or proceeding, have no
reasonable cause to believe their conduct was unlawful, except that no
indemnification shall be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the Company
unless and only to the extent that 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, they are fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper. Section 21-2004(15) of the Nebraska Business Corporation Act also
provides that directors and officers of the Company are entitled to such
indemnification by the Company to the extent that such persons are successful on
the merits or otherwise in defending any such action, suit or proceeding.
Pursuant to the terms of the Underwriting Agreement filed as Exhibit 1.1 hereto,
the directors and officers of the Company are indemnified against certain civil
liabilities that they may incur under the Securities Act of 1933, as amended, in
connection with this Registration Statement and the related Prospectus.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses incurred by the Company in
connection with the sale and distribution of the Common Stock being offered
hereby, other than the underwriting discount. All amounts shown are estimates
except the Securities and Exchange Commission registration fee, the NASD filing
fee, and the Nasdaq application fee.
SEC registration fee $ 4,705
NASD filing fee 2,053
Nasdaq application fee 10,000
Printing expenses 40,000
Fees and expenses of Company counsel 150,000
Fees and expenses of Company accountants 160,000
Underwriters' expense allowance 255,000
Fees and expenses of Underwriters'
counsel 40,000
Transfer agent and registrar fees 2,500
Blue Sky fees and expenses 40,000
Miscellaneous 6,742
Total $711,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 30, 1993, the Company has issued and sold the following
securities, which were not registered under the Securities Act of 1933, as
amended (the "Securities Act"):
1. From October 11, 1993 to December 22, 1993, the Company issued and sold
404,000 shares of Common Stock at $2.50 per share to various accredited
investors for a total consideration of $1,010,000. The Company paid $101,000
to the Representative of the Underwriters, R.J. Steichen & Company (
"Steichen"), in connection with this offering.
2. From May 17, 1994 to July 26, 1994, the Company issued and sold 583,500
shares of Common Stock at $2.50 per share to various accredited investors in
a private placement for a total consideration of $1,458,750. The Company paid
$145,875 to Steichen in connection with this offering.
3. During the period from December 1994 to February 1995, Mr. Adams converted
$1,200,000 of subordinated notes and shareholder advances into 400,000 shares
of Common Stock.
4. In March 1995, Mr. Adams, Mr. Gloff and Heartland Capital, in conjunction
with a credit facility the Company obtained from Imperial Bank, used
collateral they had pledged against the Company's bank loan at Peninsula
Bank to repay the outstanding indebtedness under this credit line, and in
turn the Company issued $750,000 of unsecured subordinated debentures to
Mr. Adams, Mr. Gloff and Heartland Capital. These debentures have a
two-year term, include a warrant to purchase up to 250,000 shares of
Common Stock at $3.00 per share and bear interest at the rate of 8%
annually.
5. In March and April 1995, the Company secured $400,000 of bridge loan
financing from certain shareholders. Investors in the bridge loan financing
also received warrants to purchase an aggregate of 60,000 shares of Common
Stock, exercisable at $3.00 per share.
6. In July 1995 and in connection with the entering into of a
consulting/licensing agreement, the Company granted to Encore Technologies,
Inc. a fully exercisable warrant to purchase 50,000 shares of Common Stock at
$3.00 per share, which expires in January 2002.
7. During the period from August 1995 to December 1995, the Company sold 720,666
shares of Common Stock at $3.00 per share to various accredited investors for
a total consideration of $2,161,998. The Company paid $216,199 to Steichen in
connection with this offering.
8. On November 15, 1995, Mr. Gloff and Heartland Capital each purchased $200,000
of collateralized subordinated debentures from the Company. The debentures
are secured by the assets of the Company but are subordinated to any senior
indebtedness of the Company. The debentures bear interest at an 8% annual
rate, payable on a quarterly basis, and the entire principal balance is due
on November 15, 1998. On May 15, 1996, Mr. Gloff converted the entire
principal balance of his $200,000 of subordinated debentures into 100,000
shares of Common Stock.
9. On March 1, 1996, Rugged Rigger, Inc. loaned the Company $100,000. The loan
had an annual interest rate of 8%, payable monthly, and the entire principal
balance was due on March 1, 1997. In connection with this subordinated
unsecured note, warrants were issued to Mr. Potter to purchase 15,000 shares
of Common Stock at an exercise price of $3.00 per share. These warrants
expire in March 1, 2001. The loan was prepaid in full with the proceeds from
the sale of the Bridge Notes and the Bridge Warrants.
10. On March 15, 1996, Mr. Adams converted $300,000 of collateral that was
pledged to secure the Company's bank loan at Peninsula Bank into cash and
used the cash to reduce the Company's $1,013,000 principal loan at Peninsula
Bank by this amount. The Company in turn issued Mr. Adams a total of
$300,000 of unsecured debentures, which bear interest at an 8% annual rate,
payable on a quarterly basis, and the entire principal amount is due on
March 15, 1998. In connection with the debentures, Mr. Adams was granted
options to purchase up to 100,000 shares of Common Stock at an exercise
price of $3.00 per share for a period of five years.
11. On March 15, 1996, Mr. Gloff and Heartland Capital converted $250,000 and
$200,000, respectively, of collateral that was pledged to secure the
Company's bank loan at Peninsula Bank into cash and used the cash to reduce
the Company's $1,013,000 principal loan at Peninsula Bank by this amount.
The Company in turn issued a $250,000 unsecured debenture to Mr. Gloff and a
$200,000 unsecured debenture to Heartland Capital, each bearing interest at
an 10% annual rate, payable on a quarterly basis, and the principal amount
of each note is due on March 15, 1998. In connection with the debentures,
warrants were issued to Mr. Gloff and Heartland Capital to purchase up to
83,333 shares and 66,667 shares, respectively, of Common Stock at an
exercise price of $3.00 per share. These warrants expire upon the earlier of
seven years from the date of issuance or one year after the closing date of
this initial public offering.
12. On March 26, 1996, the Company entered into a $1,000,000 line of credit
agreement with Imperial Bank, $500,000 of which is a revolving line of
credit that expires on April 1, 1997 and $500,000 of which is a revolving
credit line extended to finance exports based on a guarantee extended the
Company by the California Export Finance Organization ( "CEFO"). The entire
line of credit has been personally guaranteed by Mr. Adams. The term loan
portion of the line of credit bears interest at a rate of prime plus 2%. The
CEFO portion of the credit line bears interest at prime plus 1.5%. CEFO's
obligations are in turn guaranteed by Mr. Adams. In connection with the
revolving line of credit, warrants were issued to Mr. Adams to purchase
20,833 shares of Common Stock at an exercise price of $3.00 per share. These
warrants expire in March 2001.
13. Between March and July 1996, the Company loaned $72,000 to Rugged Rigger,
Inc. to enable it to exercise options to purchase Common Stock. The loan
bears interest at an annual rate of 5%, compounded annually, and is
payable at the earlier of two years or the sale of the underlying Common
Stock.
14. On April 1, 1996, Mr. S. Bartley Osborn loaned the Company $100,000. The
loan had an annual interest rate of 8%, payable monthly, and the entire
principal balance was due on July 1, 1996. In connection with this note,
warrants were issued to Mr. Osborn to purchase 15,000 shares of Common
Stock at an exercise price of $3.00 per share. These warrants expire in
April 2001. The loan was prepaid in full with the proceeds from the sale of
the Bridge Notes and the Bridge Warrants.
15. On May 24, 1996, the Company issued three $50,000 promissory notes for the
purpose of providing short-term financing until the proceeds of this initial
public offering can be received, one from each of Mr. Adams, Mr. Gloff and
Heartland Capital. Each note is payable upon demand and bears interest at an
annual rate of 8%. In connection with these promissory notes, warrants were
issued to each of Messrs. Adams and Gloff and Heartland Capital to purchase
7,500 shares of Common Stock at an exercise price of $3.00 per share. These
warrants expire in May 2001.
16. In July 1996, the Company secured $3,695,000 in bridge loan financing
through a private placement to accredited investors of the Bridge Notes and
the Bridge Warrants. The Bridge Notes and Bridge Warrants were offered in
Units, each Unit consisting of $50,000 principal amount of Bridge Notes with
Bridge Warrants to purchase 10,000 shares of Common Stock. The Company
issued 739,000 Bridge Warrants in connection with the bridge loan financing.
The Bridge Notes bear interest at 10% per annum and will be repayable, with
interest, at the earlier of December 31, 1996, or 30 days after completion
of this offering. The Bridge Warrants may be exercised to purchase Common
Stock at the earlier of the completion of this offering or December 31,
1996, at 80% of the Price to Public obtained by the Company if this offering
is effective on or before December 31, 1996, or at $3.00 per share if such
an offering is not effective on or before December 31, 1996. The Company
paid $225,700 to Steichen in connection with the bridge loan financing.
The sales of securities above were made in reliance upon Section 4(2) and
Regulation D of the Securities Act, which provide exemption for transactions not
involving a public offering. The purchasers of securities described above
represented that they acquired them for their own account and not with a view to
any distribution thereof to the public. The Company made inquiries of purchasers
of securities in these transactions and obtained representations from such
purchasers to establish that such issuances qualified for an exemption from the
registration requirements. The certificates evidencing the securities bear
legend stating that the shares are not to be offered, sold or transferred other
than pursuant to an effective registration statement under the Securities Act,
or an exemption from such registration requirements.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Representative's Warrant
1.3 Selected Dealers' Agreement
1.4 Agreement Among Underwriters
3.1 Articles of Incorporation (to be filed by amendment)
3.2 Bylaws, as amended
4.1 Specimen Form of the Common Stock Certificate
5.1 Opinion of Dorsey & Whitney LLP (to be filed by amendment)
10.1 1992 Stock Option Plan
10.2 1996 Directors' Stock Option Plan
10.3 Agreement and Plan of Merger, dated as of May 31, 1996, as
amended on October 28, 1996, by and among the Company, a
wholly owned subsidiary of the Company and Turf Specialty,
Inc.
10.4 Agreement and Plan of Merger, dated as of May 31, 1996, by and
among the Company, a wholly owned subsidiary of the Company
and Turf Products, Ltd.
10.5 Employment Agreement, dated May 21, 1991, between the Company and William B.
Adams
10.6 Employment Agreement, dated May 21, 1991, between the Company and Jeffrey A.
Johnson
10.7 Employment Agreement, dated May 21, 1991, between the Company and Douglas M.
Gloff
10.8 Employment Agreement, dated October 1, 1995, between Aspen Consulting, Inc.
and Michael R. Scott
10.9 Employment Agreement, dated June 1, 1996, between the Company and
L. Jean Dunn, Jr.
10.10 Employment Agreement, dated July 8, 1996, between the Company and
Kevin P. Lyons
10.11 Employment Agreement, dated July 8, 1996, between the Company and
David W. Schermerhorn
10.12 Employment Agreement, dated July 10, 1996, between the Company and Wally
Fuchs
10.13 Employment Agreement, dated September 1, 1996, between the Company and Dr.
Thomas C. Quick
10.14 Distribution Agreement, dated August 2, 1996, between the Company and Abbott
Laboratories, Chemical and Agricultural Products Division
10.15 Supply Agreement, dated October 7, 1996, between the Company and CCT
Corporation
10.16 Exclusive Consulting Agreement, dated January 1, 1995, between the Company
and Encore Technologies, Inc.
10.17 License Agreement, dated April 20, 1992, between the Company and Westbridge
Agricultural Products
10.18 Product Supply Agreement, dated November 2, 1993, between the Company and
V.I.T. Products, Inc.
10.19 Marketing Agreement, dated July 26, 1995, between the Company and
Wilbur-Ellis Company/Western Division
10.20 Credit Agreement, dated March 6, 1996, between the Company and Imperial Bank
of San Diego
11.1 Statement Regarding Computation of Per Share Earnings (Losses)
23.1 Consent of Dorsey & Whitney LLP (included in Exhibit 5)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Bigelow & Company Certified Public Accountants, P.C.
23.4 Consent of Ernst & Young LLP, Independent Auditors
23.5 Consent of Bigelow & Company Certified Public Accountants, P.C.
23.6 Consent of Brown, Martin, Haller & McClain LLP
24 Powers of Attorney (set forth on the Signature Page hereof)
27 Financial Data Schedule
</TABLE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) To provide to the Underwriter at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the Underwriter to permit prompt delivery to each purchaser.
(b) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
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 Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
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 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 and will be governed by the final adjudication of such issue.
(c) That (1) for determining any liability under the Securities Act, the
Registrant will treat the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective, and (2) for determining any liability
under the Securities Act, the Registrant will treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in such registration statement, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
In accordance with 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 of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on November 8, 1996.
ECO SOIL SYSTEMS, INC.
By /s/ WILLIAM B. ADAMS
William B. Adams
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature to this registration statement appears below hereby
constitutes and appoints William B. Adams and L. Jean Dunn, Jr., and each of
them, as his or her true and lawful attorney-in-fact and agent, with full power
of substitution, to sign on his behalf individually and in the capacity stated
below and to perform any acts necessary to be done in order to file all
amendments and post-effective amendments to this registration statement, and any
and all instruments or documents filed as part of or in connection with this
registration statement or the amendments thereto and each of the undersigned
does hereby ratify and confirm that said attorney-in-fact and agent, or his
substitutes, shall do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
indicated on November 8, 1996.
SIGNATURE TITLE
/S/ WILLIAM B. ADAMS Chairman of the Board and Chief Executive Officer
William B. Adams (principal executive officer)
/S/ L. JEAN DUNN, JR. Chief Financial Officer (principal financial and
L. Jean Dunn, Jr. accounting officer)
/S/ JEFFREY A. JOHNSON President, Chief Operating Officer, Secretary and
Jeffrey A. Johnson Director
/S/ DOUGLAS M. GLOFF Executive Vice President and Director
Douglas M. Gloff
/S/ BRADLEY K. EDWARDS Director
Bradley K. Edwards
/S/ S. BARTLEY OSBORN Director
S. Bartley Osborn
/S/ WILLIAM S. POTTER Director
William S. Potter
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<S> <C> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Representative's Warrant
1.3 Selected Dealers' Agreement
1.4 Agreement Among Underwriters
3.1 Articles of Incorporation (to be filed by amendment)
3.2 Bylaws, as amended
4.1 Specimen Form of the Common Stock Certificate
5.1 Opinion of Dorsey & Whitney LLP (to be filed by amendment)
10.1 1992 Stock Option Plan
10.2 1996 Directors' Stock Option Plan
10.3 Agreement and Plan of Merger, dated as of May 31, 1996, as
amended on October 28, 1996, by and among the Company, a
wholly owned subsidiary of the Company and Turf Specialty,
Inc.
10.4 Agreement and Plan of Merger, dated as of May 31, 1996, by and
among the Company, a wholly owned subsidiary of the Company
and Turf Products, Ltd.
10.5 Employment Agreement, dated May 21, 1991, between the Company and
William B. Adams
10.6 Employment Agreement, dated May 21, 1991, between the Company and
Jeffrey A. Johnson
10.7 Employment Agreement, dated May 21, 1991, between the Company and
Douglas M. Gloff
10.8 Employment Agreement, dated October 1, 1995, between Aspen
Consulting, Inc. and Michael R. Scott
10.9 Employment Agreement, dated June 1, 1996, between the Company and
L. Jean Dunn, Jr.
10.10 Employment Agreement, dated July 8, 1996, between the Company and
Kevin P. Lyons
10.11 Employment Agreement, dated July 8, 1996, between the Company and
David W. Schermerhorn
10.12 Employment Agreement, dated July 10, 1996, between the Company and
Wally Fuchs
10.13 Employment Agreement, dated September 1, 1996, between the Company
and Dr. Thomas C. Quick
10.14 Distribution Agreement, dated August 2, 1996, between the Company
and Abbott Laboratories, Chemical and Agricultural Products
Division
10.15 Supply Agreement, dated October 7, 1996, between the Company and
CCT Corporation
10.16 Exclusive Consulting Agreement, dated January 1, 1995, between the
Company and Encore Technologies, Inc.
10.17 License Agreement, dated April 20, 1992, between the Company and
Westbridge Agricultural Products
10.18 Product Supply Agreement, dated November 2, 1993, between the
Company and V.I.T. Products, Inc.
10.19 Marketing Agreement, dated July 26, 1995, between the Company and
Wilbur-Ellis Company/Western Division
10.20 Credit Agreement, dated March 6, 1996, between the Company and
Imperial Bank of San Diego
11.1 Statement Regarding Computation of Per Share Earnings (Losses)
23.1 Consent of Dorsey & Whitney LLP (included in Exhibit 5)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Bigelow & Company Certified Public Accountants, P.C.
23.4 Consent of Ernst & Young LLP, Independent Auditors
23.5 Consent of Bigelow & Company Certified Public Accountants, P.C.
23.6 Consent of Brown, Martin, Haller & McClain LLP
24 Powers of Attorney (set forth on the Signature Page hereof)
27 Financial Data Schedule
</TABLE>
ECO SOIL SYSTEMS, INC.
______________ SHARES OF COMMON STOCK(1)
UNDERWRITING AGREEMENT
____________, 1996
R. J. Steichen & Company
Midwest Plaza
Suite 1100
801 Nicollet Mall
Minneapolis, MN 55402
Ladies/Gentlemen:
Eco Soil Systems, Inc., a Nebraska corporation (the "Company"),
addressing you as the representative (the "Representative") of each of the
underwriters, including the Representative, named in Schedule I hereto (the
"Underwriters"), hereby confirms its agreement to sell to the Underwriters an
aggregate of __________ authorized and unissued shares (the "Firm Shares") of
common stock, 0.005 par value ("Common Stock"), of the Company. The Company also
hereby confirms its agreement to grant to the Underwriters an option to purchase
up to __________ additional authorized and unissued shares of Common Stock (the
"Option Shares") on the terms and for the purposes set forth in Section 2(b)
hereof. As used in this Agreement, the term "Shares" shall consist of the Firm
Shares and the Option Shares. The Company also hereby confirms its agreement to
issue to the Representative warrants for the purchase of a total of __________
shares of Common Stock as described in Section 6 hereof (the "Representative's
Warrants"), assuming purchase by the Underwriters of the Firm Shares. The shares
issuable upon exercise of the Representative's Warrants are referred to in this
Agreement as the "Warrant Shares."
1. Representations, Warranties and Agreements of the Company.
(a) The Company represents and warrants to and agrees with each of the
Underwriters as follows:
(i) A registration statement on Form _____ (File No.
333-______) with respect to the Shares, including a prospectus
subject to completion, has been prepared by the Company in
conformity with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and
regulations (the
- --------
(1) Plus an option to purchase up to _______ additional shares to cover
over-allotments.
"Rules and Regulations") of the Securities and Exchange
Commission (the "SEC") thereunder and has been filed with the
SEC under the Securities Act; one or more amendments to such
registration statement have also been so prepared and have
been, or will be, so filed. Copies of the registration
statement and amendments and each related preliminary
prospectus to date have been delivered by the Company to the
Underwriters, and, to the extent applicable, were identical to
the electronically transmitted copies thereof filed with the
SEC pursuant to the SEC's Electronic Data Gathering Analysis
and Retrieval System ("EDGAR"), except to the extent permitted
by Regulation S-T under the Securities Act. If the Company has
elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file
an amendment to the registration statement and an amended
prospectus. If the Company has elected to rely upon Rule 430A
of the Rules and Regulations, it will prepare and file a
prospectus pursuant to Rule 424(b) that discloses the
information previously omitted from the prospectus in reliance
upon Rule 430A. Such registration statement as amended at the
time it is or was declared effective by the SEC and, in the
event of any amendment thereto after the effective date and
prior to the First Closing Date (as hereinafter defined), such
registration statement as so amended (but only from and after
the effectiveness of such amendment), including the
information deemed to be part of the registration statement at
the time of effectiveness pursuant to Rule 430A(b), if
applicable, is hereinafter called the "Registration
Statement." The prospectus included in the Registration
Statement at the time it is or was declared effective by the
SEC is hereinafter called the "Prospectus," except that if any
prospectus filed by the Company with the SEC pursuant to Rule
424(b) of the Rules and Regulations or any other prospectus
provided to the Underwriters by the Company for use in
connection with the offering of the Shares (whether or not
required to be filed by the Company with the SEC pursuant to
Rule 424(b) of the Rules and Regulations) differs from the
prospectus on file at the time the Registration Statement is
or was declared effective by the SEC, the term "Prospectus"
shall refer to such differing prospectus from and after the
time such prospectus is filed with the SEC or transmitted to
the SEC for filing pursuant to such Rule 424(b) or from and
after the time it is first provided to the Underwriters by the
Company for such use. The term "Preliminary Prospectus" as
used herein means any preliminary prospectus included in the
Registration Statement prior to the time it becomes or became
effective under the Securities Act and any prospectus subject
to completion as described in Rule 430A of the Rules and
Regulations. For purposes of this Agreement, all references to
the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement to any of the
foregoing, shall be deemed to include the respective copies
thereof filed with the SEC pursuant to EDGAR.
(ii) At the time the Registration Statement is or was declared
effective by the SEC and at all times subsequent thereto up to
the "First Closing Date" and the "Second Closing Date" (as
such terms are hereinafter defined), the Registration
Statement and Prospectus, and all amendments thereof and
supplements thereto, will comply or complied with the
provisions and requirements of the Securities Act and the
Rules and Regulations. Neither the SEC nor any state
securities authority has issued any order preventing or
suspending the use of any Preliminary Prospectus or requiring
the recirculation of a Preliminary Prospectus, or issued a
stop order with respect to the offering of the Shares (if the
Registration Statement has been declared effective), or
instituted or, to the Company's knowledge, threatened the
institution of, proceedings for any of such purposes. When the
Registration Statement shall become effective and when any
post-effective amendment thereto shall become effective, the
Registration Statement (as amended, if the Company shall have
filed with the SEC any post-effective amendments thereto) will
not or did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. When
the Registration Statement is or was declared effective by the
SEC and at all times subsequent thereto up to the First
Closing Date and the Second Closing Date, the Prospectus (as
amended or supplemented, if the Company shall have filed with
the SEC any amendment thereof or supplement thereto) will not
or did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
When any Preliminary Prospectus was first filed with the SEC
and when any amendment thereof or supplement thereto was first
filed with the SEC, such Preliminary Prospectus and any
amendment thereof and supplement thereto complied in all
material respects with the applicable provisions of the
Securities Act and the Rules and Regulations and did not
contain an untrue statement of a material fact and did not
omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not
misleading. None of the representations and warranties in this
Subsection 1(a) shall apply to statements in, or omissions
from, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, which are based upon
and conform to written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for
use in the preparation of the Registration Statement or the
Prospectus, or any such amendment or supplement.
(iii) The Company has no subsidiaries other than
_________________________ (each one a "Subsidiary" and
collectively the "Subsidiaries") and is not affiliated with
any other company or business entity, except as disclosed in
the Prospectus. The Company and each Subsidiary has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and
other) to own, lease and operate its properties and conduct
its business as described in the Registration Statement and
Prospectus; the Company owns all of the outstanding capital
stock of each of the Subsidiaries free and clear of any
pledge, lien, security interest, incumbrance, claim or
equitable interest; the Company and each Subsidiary is duly
qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or
lease of its properties or the conduct of its business
requires such qualification and in which the failure to be
qualified or in good standing would have a material adverse
effect on the condition (financial or otherwise), earnings,
operations or business of the Company; and no proceeding has
been instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power
and authority or qualification.
(iv) The Company and each Subsidiary has and is operating in
material compliance with all authorizations, licenses,
certificates, consents, permits, approvals and orders of and
from all state, federal and other governmental regulatory
officials and bodies necessary to own its properties and to
conduct its business as described in the Registration
Statement and Prospectus, all of which are, to the Company's
knowledge, valid and in full force and effect; the Company and
each Subsidiary is conducting its business in substantial
compliance with all applicable laws, rules and regulations of
the jurisdictions in which it is conducting business; and
neither the Company nor any Subsidiary is in material
violation of any applicable law, order, rule, regulation,
writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or over their
respective properties. Except as set forth in the Registration
Statement and Prospectus, (A) the Company is in material
compliance with all material rules, laws and regulations
relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment (the
"Environmental Laws") which are applicable to its business,
(B) the Company has received no notice from any governmental
authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in
the Registration Statement and the Prospectus, (C) the Company
will not be required to make any future material capital
expenditures to comply with Environmental Laws, and (D) no
property which is owned, leased or occupied by the Company has
been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. ss. 9601, et seq.), or otherwise
designated as a contaminated site under applicable state or
local law.
(v) Neither the Company nor any Subsidiary is in violation of
its respective articles of incorporation or bylaws or in
default in the performance or observance of any obligation,
agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any
contract, lease, indenture, mortgage, loan agreement, joint
venture or other agreement or instrument to which it is a
party or by which it or its respective properties are bound,
which default is material to the business of the Company and
its Subsidiaries.
(vi) The Company has full requisite power and authority to
enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company and is a valid and
binding agreement on the part of the Company, enforceable
against the Company in accordance with its terms, except as
enforceability may be limited by the application of
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the rights of creditors generally and
by judicial limitations on the right of specific performance,
and except as the enforceability of the indemnification or
contribution provisions hereof may be affected by applicable
federal or state securities laws. The performance of this
Agreement and the consummation of the transactions herein
contemplated will not result in a material breach or violation
of any of the terms and provisions of, or constitute a
material default under, (A) any indenture, mortgage, deed of
trust, loan agreement, bond, debenture, note, agreement or
other evidence of indebtedness, any lease, contract,
indenture, mortgage, loan agreement, joint venture or other
agreement or instrument to which the Company or any Subsidiary
is a party or by which the Company or any Subsidiary or their
respective properties may be bound, (B) the respective
articles of incorporation or bylaws of the Company or any
Subsidiary, or (C) any material applicable law, order, rule,
regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any
Subsidiary or over their respective properties. No consent,
approval, authorization or order of or qualification with any
court, governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any Subsidiary or over
their respective properties is required for the execution and
delivery of this Agreement and the consummation by the Company
of the transactions herein contemplated, except such as may be
required under the Securities Act, the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or under state or
other securities or Blue Sky laws, all of which requirements
have been satisfied.
(vii) Except as is otherwise expressly described in the
Registration Statement or Prospectus, there is not any pending
or, to the best of the Company's knowledge, threatened, any
action, suit, claim or proceeding against the Company, any
Subsidiary, or any of their respective officers or any of
their respective properties, assets or rights before any
court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any
Subsidiary or over their respective officers or properties or
otherwise which (i) might result in any material adverse
change in the condition (financial or otherwise), earnings,
operations or business of the Company or a Subsidiary or might
materially and adversely affect their properties, assets or
rights, or (ii) might prevent consummation of the transactions
contemplated hereby.
(viii) The Company has, and at the First Closing Date and
Second Closing Date (collectively, the "Closing Dates") will
have, the duly authorized and outstanding capitalization set
forth in the Prospectus. All outstanding shares of capital
stock of the Company are duly authorized and validly issued,
fully paid and non-assessable, have been issued in compliance
with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company
conforms in all material respects with the statements relating
thereto contained in the Registration Statement and the
Prospectus; the Shares to be sold hereunder by the Company
have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in
accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable and will be
sold free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; and no preemptive
right, co-sale right, registration right, right of first
refusal or other similar right of shareholders exists with
respect to any of the Shares to be sold hereunder by the
Company or the issuance and sale thereof, or the issuance and
sale or exercise of the Representative's Warrants, other than
those that have been expressly waived prior to the date
hereof. Except as disclosed in the Prospectus, the Company has
no outstanding options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock
or any such options, rights, convertible securities or
obligations. The certificates evidencing the Shares comply as
to form with all applicable provisions of the laws of the
State of Nebraska.
(ix) The Representative's Warrants and the Warrant Shares have
been duly authorized. The Representative's Warrants, when
issued and delivered to the Representative, will constitute
valid and binding obligations of the Company in accordance
with their terms, except as enforceability may be limited by
the application of bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of
creditors generally and by judicial limitations on the right
of specific performance. The Warrant Shares, when issued in
accordance with the terms of this Agreement and pursuant to
the Representative's Warrants, will be fully paid and
non-assessable and subject to no preemptive rights or similar
rights on the part of any person or entity. A sufficient
number of shares of Common Stock of the Company has been
reserved for issuance by the Company upon exercise of the
Representative's Warrants.
(x) Ernst & Young LLP, which has expressed its opinion with
respect to the financial statements filed as part of the
Registration Statement and included in the Registration
Statement and Prospectus, are independent accountants within
the meaning of the Securities Act and the Rules and
Regulations. The financial statements of the Company set forth
in the Registration Statement and Prospectus comply in all
material respects with the requirements of the Securities Act
and fairly present the financial position and the results of
operations of the Company and the Subsidiaries at the
respective dates and for the respective periods to which they
apply in accordance with generally accepted accounting
principles consistently applied throughout the periods
involved (subject, in the case of unaudited financial
statements, to normal year-end adjustments which in the
opinion of management of the Company are not material, and
except as otherwise stated therein); and the supporting
schedules included in the Registration Statement present
fairly the information required to be stated therein. The
selected and summary financial and statistical data included
in the Registration Statement present fairly the information
shown therein and have been compiled on a basis consistent
with the audited financial statements presented therein. No
other financial statements or schedules are required by the
Securities Act or the Rules and Regulations to be included in
the Registration Statement.
(xi) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, and at each Closing Date, except as is otherwise
disclosed in the Registration Statement or Prospectus, there
has not been: (A) any change in the capital stock or long-term
debt (including any capitalized lease obligation) or material
increase in the short-term debt of the Company or a
Subsidiary; (B) any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock of
the Company; (C) any material adverse change, or any
development involving a material adverse change, in or
affecting the condition (financial or otherwise), earnings,
operations, business, or business prospects, management,
financial position, stockholders' equity, results of
operations or general condition of the Company; (D) any
material transaction entered into by the Company or a
Subsidiary; (E) any material obligation, direct or contingent,
incurred by the Company or a Subsidiary, except obligations
incurred in the ordinary course of business that, in the
aggregate, are not material; (F) any dividend or distribution
of any kind declared, paid or made on the capital stock of the
Company or a Subsidiary; or (G) any loss or damage (whether or
not insured) to the property of the Company or a Subsidiary
which has been sustained which has a material adverse effect
on the condition (financial or otherwise), earnings,
operations or business of the Company or a Subsidiary.
(xii) Except as is otherwise expressly disclosed in the
Registration Statement or Prospectus, (A) the Company and each
Subsidiary has good and marketable title to all of the
property, real and personal, and assets described in the
Registration Statement or Prospectus as being owned by it,
free and clear of any and all pledges, liens, security
interests, encumbrances, equities, charges or claims, other
than such as would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or
business of the Company, (B) the agreements to which the
Company is a party described in the Registration Statement and
Prospectus are valid agreements, enforceable by the Company
and the Subsidiary (as applicable), except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by judicial
limitations on the right of specific performance, and (C) each
of the Company and the Subsidiaries has valid and enforceable
leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as is
otherwise disclosed in the Registration Statement and
Prospectus and except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting
creditors' rights generally or by judicial limitations on the
right of specific performance. Except as set forth in the
Registration Statement and Prospectus, the Company owns or
leases all such properties as are necessary to its operations
as now conducted.
(xiii) The Company and each Subsidiary has timely filed (or
has timely requested an extension of time to file) all
necessary federal and state income and franchise tax returns
and has paid all taxes shown thereon as due; there is no tax
deficiency that has been or, to the best of the Company's
knowledge, could be asserted against the Company or a
Subsidiary that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations,
business or properties of the Company or a Subsidiary; and all
tax liabilities are adequately provided for in the books of
the Company and each Subsidiary.
(xiv) No labor disturbance by the employees of the Company or
a Subsidiary exists or, to the best of the Company's
knowledge, is imminent. Except as disclosed in the
Registration Statement and the Prospectus, no collective
bargaining agreement exists with any of the employees of the
Company or any Subsidiary and, to the best of the Company's
knowledge, no such agreement is imminent.
(xv) The Company and each Subsidiary owns, or possesses
adequate rights to use, all patents, patent rights,
inventions, trade secrets, know-how, technology, service
marks, trade names, copyrights, trademarks and proprietary
rights or information which are necessary for the conduct of
its present or intended business as described in the
Registration Statement or Prospectus; the expiration of any
patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company or any
Subsidiary; and the Company has not received any notice of,
and has no knowledge of, any infringement of or conflict with
the asserted rights of others with respect to any patent,
patent rights, inventions, trade secrets, know-how,
technology, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, might have a
material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business
prospects of the Company or any Subsidiary. Except as
disclosed in the Registration Statement or Prospectus, the
Company is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to
any owner of, licensor of, or other claimant to, any patent,
patent rights, inventions, trade secrets, know-how,
technology, service marks, trade names, trademark, copyright
or other intangible asset, with respect to the use thereof or
in connection with the conduct of its business or otherwise.
(xvi) The Shares have been approved for quotation on
__________________.
(xvii) The Company has no defined benefit pension plan or
other pension benefit plan which is intended to comply with
the provisions of the Employee Retirement Income Security Act
of 1974 as amended from time to time, except as disclosed in
the Registration Statement.
(xviii) The Company has not taken and will not take, directly
or indirectly, any action (and does not know of any action by
its directors, officers, shareholders or others) which has
constituted or is designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation,
as defined in the Exchange Act or otherwise, of the price of
any security of the Company to facilitate the sale or resale
of the Shares. The Company has not distributed and will not
distribute prior to the later of (A) the First Closing Date or
the Second Closing Date, as the case may be, and (B)
completion of the distribution of the Shares, any offering
material in connection with the offering and sale of the
Shares other than any Preliminary Prospectus, the Prospectus,
the Registration Statement and other materials, if any,
permitted by the Securities Act. Except as is otherwise
disclosed in the Registration Statement or Prospectus, and to
the best of the Company's knowledge, no person is entitled,
directly or indirectly, to compensation from the Company or
the Underwriters for services as a "finder" or otherwise in
connection with the transactions contemplated by this
Agreement.
(xix) The Company and each Subsidiary maintains insurance,
which is in full force and effect, with insurers of recognized
financial responsibility of the types and in the amounts
generally deemed adequate for their respective businesses and,
to the best of the Company's knowledge, in line with the
insurance maintained by similar companies and businesses; and
neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not
materially and adversely affect the condition (financial or
otherwise), earnings, operations, business or business
prospects of the Company.
(xx) Each officer and director of the Company has agreed
pursuant to the form of Lock-up Agreement attached hereto as
Appendix A (the "Lock-up Agreement") that such person will
not, for a period of 180 days from the date (the "Effective
Date") that the Registration Statement is declared effective
by the SEC (the "Lock-up Period"), without the prior written
consent of the Representative, offer to sell, contract to
sell, sell, pledge, hypothecate, transfer or otherwise dispose
of, or grant any rights with respect to (collectively, a
"Disposition"), any shares of Common Stock and options,
warrants and other rights to purchase any shares of Common
Stock or any securities convertible into or exchangeable or
exercisable for shares of Common Stock now owned or hereafter
acquired by such person (collectively, "Securities") or with
respect to which such person has or hereafter acquires the
power of Disposition, other than as permitted by the Lock-Up
Agreement. The Company has provided to counsel for the
Underwriters ("Underwriters' Counsel") true, accurate and
complete copies of all of the Lockup Agreements. The Company
has provided to Underwriters' Counsel a complete and accurate
list of all securityholders of the Company and the number and
type of securities held by each securityholder.
(xxi) Neither the Company nor any Subsidiary has at any time
during the last five (5) years made any unlawful contribution
to any candidate for an office or failed to disclose fully any
contribution in violation of law, or made any payment to any
federal or state governmental officer or official, domestic or
foreign, or other person charged with similar public or
quasi-public duties, other than payments required or permitted
by the laws of the United States or any jurisdiction thereof.
The Company and each Subsidiary maintains a system of internal
accounting controls sufficient to provide reasonable
assurances that transactions are executed in accordance with
management's general or specific authorizations, transactions
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, access
to assets is permitted only in accordance with management's
general or specific authorization, and the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with
respect to any differences.
(xxii) Neither the Company nor any of its affiliates is
presently doing business with the government of Cuba or with
any person or affiliate located in Cuba.
(b) Any certificate signed by any officer of the Company and delivered
to you or to Underwriters' Counsel shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered
thereby.
2. Purchase, Sale, Delivery and Payment.
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the
Company, at a purchase price of $__________ per Share, the Firm Shares.
The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of Firm Shares (to be adjusted by the
Representative to avoid fractional shares) which represents the same
proportion of the number of Firm Shares to be sold by the Company
pursuant to this Agreement as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto represents
to the total number of Firm Shares to be purchased by all Underwriters
pursuant to this Agreement; and except as provided in Section 2(c), the
agreement of each Underwriter is to purchase only the respective number
of Firm Shares specified in Schedule I. The Underwriters will purchase
all of the Firm Shares if any are purchased.
The Firm Shares will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the purchase
price therefor by [THE FOLLOWING ARE ALTERNATIVE PROVISIONS]:
[certified or official bank check or checks or other next-] [wire
transfer of other same-] day funds payable to the order of the Company
at the offices of R. J. Steichen & Company, Midwest Plaza, Suite 1100,
801 Nicollet Mall, Minneapolis, Minnesota 55402 (or at such other place
as may be agreed upon by the Representative and the Company), at 9:00
a.m., Minneapolis, Minnesota time, on (i) the third (3rd) full business
day following the date hereof if the price of the Firm Shares is
determined before 3:30 p.m. Minneapolis, Minnesota time, (ii) the
fourth (4th) full business day following the date hereof if the price
of the Firm Shares hereunder is determined after 3:30 p.m. Minneapolis,
Minnesota time, or (iii) such other time and date as the Representative
and the Company may determine, such time and date of payment and
delivery being herein called the "First Closing Date." The Firm Shares,
in definitive form and in such denominations and registered in such
names as the Representative may request upon at least two (2) business
days' prior notice to the Company, will be made available to the
Representative at the offices of R. J. Steichen & Company, Midwest
Plaza, Suite 1100, 801 Nicollet Mall, Minneapolis, Minnesota 55402 (or
at such other place as may be agreed upon by the Representative and the
Company). If the Representative so elects, delivery of the Firm Shares
may be made by credit to "full fast" transfer to the accounts at The
Depository Trust Company designated by the Representative.
(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters
to purchase an aggregate of up to __________ Option Shares, all at the
same purchase price as the Firm Shares, for use solely in covering any
over-allotments made by the Underwriters in the sale and distribution
of the Firm Shares. The option granted hereunder may be exercised by
the Representative on behalf of the several Underwriters at any time
(but not more than once), in whole or in part, during the period of
forty-five (45) days after the date of this Agreement by giving written
notice to the Company, which notice shall set forth the aggregate
number of Option Shares as to which the Underwriters are exercising the
option, the names and denominations in which the certificates for the
Option Shares are to be registered, and the date and time, as
determined by the Representative, when the Option Shares are to be
delivered, such time and date being herein referred to as the "Second
Closing Date;" provided, however, that the Second Closing Date shall
not be earlier than the First Closing Date nor earlier than the second
business day after the date on which the option shall have been
exercised. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage of the total number of Option
Shares to be purchased by the Underwriters as the number of Firm Shares
to be purchased by such Underwriter bears to the total number of Firm
Shares to be purchased by the Underwriters, as adjusted by the
Representative in its sole discretion in such manner as it shall deem
advisable to avoid fractional shares. No Option Shares shall be sold
and delivered unless the Firm Shares previously have been, or
simultaneously are, sold and delivered.
The Option Shares will be delivered by the Company, as appropriate, to
the Representative for the accounts of the Underwriters against payment
of the purchase price therefor by [THE FOLLOWING ARE ALTERNATIVE
PROVISIONS] [certified or official bank check or other next-] [wire
transfer or other same-] day funds payable to the order of the Company
at the offices of R. J. Steichen & Company, Midwest Plaza, Suite 1100,
801 Nicollet Mall, Minneapolis, Minnesota 55402 (or at such other place
as may be agreed upon by the Representative and the Company) at 9:00
a.m., Minneapolis, Minnesota time, on the Second Closing Date. The
Option Shares, in definitive form and in such denominations and
registered in such names as the Representative has set forth in its
notice of option exercise, will be made available to you at the offices
of R. J. Steichen & Company, Midwest Plaza, Suite 1100, 801 Nicollet
Mall, Minneapolis, Minnesota 55402, or such other place as may be
agreed upon by the Representative and the Company at least one business
day prior to the Second Closing Date. If the Representative so elects,
delivery of the Option Shares may be made by credit to "full fast"
transfer to the accounts at The Depository Trust Company designated by
the Representative.
(c) It is understood that any of the Underwriters, may (but shall not
be obligated to) make payment to the Company, on behalf of any
Underwriter, for the Shares to be purchased by such Underwriter. Any
such payment shall not relieve any such Underwriter of any of its
obligations hereunder. Nothing herein contained shall constitute any of
the Underwriters an unincorporated association or partner with the
Company.
3. Covenants of the Company. The Company hereby covenants and agrees with each
of the Underwriters as follows:
(a) If the Registration Statement has not already been declared
effective by the SEC, the Company will use its best efforts to cause
the Registration Statement and any post-effective amendments thereto to
become effective as promptly as possible; the Company will notify the
Representative promptly of the time when the Registration Statement or
any post-effective amendment to the Registration Statement has become
effective or any supplement to the Prospectus has been filed and of any
request by the SEC for any amendment or supplement to the Registration
Statement or Prospectus or additional information; if the Company has
elected to rely on Rule 430A of the Rules and Regulations, the Company
will file a Prospectus containing the information omitted therefrom
pursuant to such Rule 430A with the SEC within the time period required
by, and otherwise in accordance with the provisions of, Rules 424(b)
and 430A of the Rules and Regulations; the Company will prepare and
file with the SEC, promptly upon your request, any amendments or
supplements to the Registration Statement or Prospectus that, in your
opinion, may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; and the Company will
not file any amendment or supplement to the Registration Statement or
Prospectus to which the Representative shall reasonably object by
notice to the Company after having been furnished a copy a reasonable
time prior to the filing.
(b) The Company will advise the Representative, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the SEC
of any stop order suspending the effectiveness of the Registration
Statement, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, or of the initiation or
threatening of any proceeding for any such purpose; and the Company
will promptly use its best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such a stop order should be
issued.
(c) Within the time during which a prospectus relating to the Shares is
required to be delivered under the Securities Act, the Company will
comply as far as it is able with all requirements imposed upon it by
the Securities Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Shares as
contemplated by the provisions hereof and the Prospectus. If, during
such period, any event occurs as a result of which the Prospectus would
include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances then existing, not misleading, or if, during such
period, it is necessary to amend the Registration Statement or
supplement the Prospectus to comply with the Securities Act, the
Company will promptly notify the Representative and will amend the
Registration Statement or supplement the Prospectus (at the expense of
the Company) so as to correct such statement or omission or effect such
compliance.
(d) The Company will use its best efforts to arrange for the
qualification of the Shares for offering and sale under the securities
laws of such jurisdictions as the Representative may designate and to
continue such qualifications in effect for so long as may be required
for purposes of the distribution of the Shares; provided, however, that
in no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any action
which would subject it to the service of process in suits, other than
those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject. In each jurisdiction in
which the Shares shall have been qualified as herein provided, the
Company will make and file such statements and reports in each year as
are or may be reasonably required by the laws of such jurisdiction.
(e) The Company will furnish to the Underwriters copies of the
Registration Statement (three of which will be signed and will include
all exhibits), each Preliminary Prospectus, the Prospectus, and all
amendments and supplements to such documents, in each case as soon as
available and in such quantities as the Representative may from time to
time reasonably request.
(f) For a period of five years from the Effective Date, the Company
will furnish directly to the Representative as soon as the same shall
be sent to its shareholders generally copies of all annual or interim
shareholder reports of the Company and will, for the same period, also
furnish the Representative with the following:
(i) Two copies of any report, application or document (other
than exhibits, which, however, will be furnished on your
request) filed by the Company with the SEC, Nasdaq, the NASD
or any securities exchange;
(ii) As soon as the same shall be sent to shareholders
generally, copies of each communication sent to shareholders;
and
(iii) From time to time, such other information concerning the
Company as the Representative may reasonably request.
The Company will, for a period of five (5) years from the Effective
Date, and as soon as practicable following the close of each applicable
period, furnish directly to the Representative detailed quarterly and
annual profit and loss statements, reports of the Company's cash flow,
other financial statements, and statements of application of the
proceeds of the offering of the Shares by the Company.
(g) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than the fifteen
(15) months after the end of the Company's current fiscal quarter, an
earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the
Securities Act and Rule 158 of the Rules and Regulations and covering a
twelve (12)- month period beginning after the Effective Date of the
Registration Statement.
(h) The Company will prepare and file with the SEC reports on Form SR
in accordance with the Securities Act and the Rules and Regulations.
(i) After completion of the offering of the Shares, the Company will
make all filings required to maintain the quotation of the Common Stock
on ____________________ or any national stock exchange.
(j) The Company will apply the net proceeds from the sale of the Shares
being sold by it substantially in the manner set forth under the
caption "Use of Proceeds" in the Prospectus.
(k) During the Lock-Up Period, and except for the sale of Shares by the
Company pursuant to this Agreement, the Company will not, without the
prior written consent of the Representative, effect the Disposition of,
directly or indirectly, any Securities including, without limitation,
any Securities that are convertible into or exchangeable or exercisable
for Common Stock, and shall not accelerate the exercisability of any
Securities that are convertible into or exchangeable or exercisable for
Common Stock.
(l) The Company will not take, and will use its best efforts to cause
each of its officers and directors not to take, directly or indirectly,
any action designed to or which might reasonably be expected to cause
or result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(m) The Company will inform the Florida Department of Banking and
Finance at any time prior to the consummation of the distribution of
the Shares by the Underwriters if it commences engaging in business
with the government of Cuba or with any person or affiliate located in
Cuba. Such information shall be provided within 90 days after the
commencement thereof or after a change occurs with respect to
previously reported information.
4. Expenses.
(a) The Company agrees with each Underwriter that:
(i) Whether or not this Agreement becomes effective or is
terminated or cancelled or the sale of the Shares hereunder is
consummated, and regardless of the reason for or cause of any
such termination, cancellation, or failure to consummate, the
Company will pay or cause to be paid the following costs and
expenses (collectively, "Accountable Expenses") (A) all
expenses (including any transfer taxes) incurred in connection
with the delivery to the Underwriters of the Shares, (B) all
expenses and fees (including, without limitation, fees and
expenses of the Company's accountants and of counsel to the
Company, excluding, however, fees of Underwriters' Counsel) in
connection with the preparation, printing, filing, delivery,
and shipping of the Registration Statement (including the
financial statements therein and all amendments, schedules,
and exhibits thereto), each Preliminary Prospectus, the
Prospectus, and any amendment thereof or supplement thereto,
in such quantities as the Representative shall reasonably
request, including filing any such documents on EDGAR, (C) all
fees and reasonable expenses, including all reasonable counsel
fees of counsel to the Company, incurred in connection with
the qualification of the Shares for offering and sale by the
Underwriters or by dealers under the securities or Blue Sky
laws of the states and other jurisdictions which the
Representative may designate in accordance with Section 3(d)
hereof, (D) all costs and expenses incident to qualification
with __________________, (E) postage and express mail charges
and any other expenses in connection with delivery to the
Underwriters of the Preliminary Prospectus and Prospectus, (F)
all travel, lodging and entertainment expenses associated with
investor meetings, marketing "roadshows," and otherwise
marketing and selling the Shares, and (G) all other costs and
expenses incident to the performance of the Company's
obligations hereunder that are not otherwise specifically
described herein. In addition to and not in lieu of the
foregoing, the Company shall pay to the Representative on each
Closing Date for out-of-pocket expenses (including fees of
Underwriters' Counsel) a nonaccountable expense allowance
equal to two percent (2.0%) of the aggregate Price to Public
for all the Shares sold to the Underwriters on each Closing
Date, including Shares sold pursuant to orders received
through the Company. The Representative acknowledges receipt
of a total of $10,000.00 from the Company as an advance (the
"Advance") against such nonaccountable expense allowance. If
the Underwriters withdraw from the sale of the Shares as
herein proposed for any reason beyond their control, or if the
sale of the Shares as herein proposed is abandoned by the
Company, the Company will pay to the Representative an amount
equal to (AA) the lesser of $20,000.00 or the amount of the
Representative's Accountable Expenses, less (BB) the amount of
the Advance; and, upon any such termination of the sale of the
Shares, the Representative shall refund to the Company any
amount of the Advance that exceeds the amount of the
Representative's Accountable Expenses. If the Underwriters
withdraw from the offering for any reason within their
control, including but not limited to an opinion of the NASD
regarding the compensation arrangements of the Underwriters,
the Company shall pay to the Representative $__________. The
provisions of this Section 4(a)(i) are intended to relieve the
Underwriters from the payment of the expenses and costs which
the Company hereby agrees to pay and shall not impair the
obligations of the Company hereunder to the several
Underwriters.
(ii) In addition to its other obligations under Sections 7(a)
and 8 hereof, the Company agrees that, as an interim measure
during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 7(a), it will
reimburse the Underwriters on a monthly basis for all
reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety
and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that
such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment
to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing)
listed from time to time in The Wall Street Journal which
represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments
which are not made to the Underwriters within thirty (30) days
of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request.
(b) It is agreed that any controversy rising out of the operation of
the interim reimbursement arrangements set forth in Section 4(a)(ii)
hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts, and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be
settled by arbitration conducted pursuant to the Code of Arbitration
Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of
intention to arbitrate, therein electing the arbitration tribunal. If
the party demanding arbitration does not make such designation of an
arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim
reimbursement provisions contained in Section 4(a)(ii) hereof and will
not resolve the ultimate propriety or enforceability of the obligation
to indemnify for expenses which is created by the provisions of
Sections 7(a) and 7(b) hereof or the obligation to contribute to
expenses which is created by the provisions of Section 8(a) hereof.
5. Conditions of the Underwriters' Obligations. The obligation of the
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy of the representations and warranties of the Company, in
the case of the Firm Shares, as of the date hereof and the First Closing Date
(as if made on and as of the First Closing Date), and in the case of the Option
Shares, as of the date hereof and the Second Closing Date (as if made on and as
of the Second Closing Date); to the performance by the Company of its
obligations hereunder; and to the satisfaction of the following additional
conditions on or before the First Closing Date in the case of the Firm Shares
and on or before the Second Closing Date in the case of the Option Shares:
(a) The Registration Statement shall have become effective not later
than 4:00 p.m. Minneapolis, Minnesota time on the date of this
Agreement, or such later date or time as shall be consented to in
writing by you (the "Effective Date"); and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for
that purpose shall have been initiated or, to the knowledge of the
Company, or any of the Underwriters, threatened by the SEC or any state
securities commission or similar regulatory body; and any request of
the SEC for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with
to the satisfaction of the Underwriters and Underwriters' Counsel.
(b) The Underwriters shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a fact which is
material or omits to state a fact which is material and is required to
be stated therein or is necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this Section 5(b) shall not apply
to statements in, or omissions from, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, which are
based upon and conform to written information furnished to the Company
by the Underwriters specifically for use in the preparation of the
Registration Statement or the Prospectus, or any such amendment or
supplement.
(c) Subsequent to the Effective Date and prior to each Closing Date,
there shall not have occurred any change, or any development involving
a prospective change, which materially and adversely affects the
Company's condition (financial or otherwise), earnings, operations,
properties, business or business prospects from that set forth in the
Registration Statement or Prospectus, and which, in the
Representative's sole judgment, is material and adverse and that makes
it, in the Representative's sole judgment, impracticable or inadvisable
to proceed with the public offering of the Shares as contemplated by
the Prospectus and this Agreement.
(d) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to
Underwriters' Counsel, and such counsel shall have been furnished with
such papers and information as it may reasonably have requested to
enable it to pass upon the matters referred to in this Section.
(e) On each Closing Date, the Underwriters shall have received the
opinion of Dorsey & Whitney LLP, counsel for the Company, dated as of
such Closing Date, satisfactory in form and substance to the
Underwriters and Underwriters' Counsel, to the effect that:
(i) Each of the Company and the Subsidiaries has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to
own, lease and operate its properties and to conduct its
business as currently being carried on and as described in the
Registration Statement and Prospectus.
(ii) Each of the Company and the Subsidiaries is duly
qualified to do business as a foreign corporation and is in
good standing in each jurisdiction, if any, in which the
ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure
to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the Company
and the Subsidiaries considered as one enterprise. To the best
of such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association
or other entity other than the Subsidiaries.
(iii) The capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus
under the caption "Description of ____________." The issued
and outstanding shares of capital stock of the Company have
been duly and validly issued and are fully paid and
nonassessable, and the holders thereof are not subject to any
personal liability by reason of being such holders.
(iv) The Shares to be issued by the Company pursuant to the
terms of this Agreement have been duly authorized and, upon
issuance and delivery against payment therefor in accordance
with the terms hereof, will be duly and validly issued and
fully paid and nonassessable, and the holders thereof will not
be subject to personal liability by reason of being such
holders. Except as otherwise stated in the Registration
Statement and Prospectus, there are no preemptive rights or
other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company's articles of
incorporation, by-laws or any agreement or other instrument
known to such counsel to which the Company is a party or by
which the Company is bound. To the best of such counsel's
knowledge, except as set forth in the Prospectus, neither the
filing of the Registration Statement nor the offering or sale
of the Shares as contemplated by this Agreement gives rise to
any rights for or relating to the registration of any shares
of Common Stock or other securities of the Company and no such
rights exist, other than those rights that have been waived
prior to the date hereof. To the best of such counsel's
knowledge, except as described in the Registration Statement
and Prospectus, there are no options, warrants, agreements,
contracts or rights in existence to purchase or acquire from
the Company any shares of capital stock of the Company.
(v) The Company has the requisite corporate power and
authority to enter into this Agreement and to issue, sell and
deliver to the Underwriters the Shares to be issued and sold
by it hereunder. This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and
has been duly executed and delivered by the Company and,
assuming due authorization, execution and delivery by the
Representative on behalf of the Underwriters, is a valid,
legal and binding agreement of the Company, enforceable in
accordance with its terms, except insofar as indemnification
and contribution provisions may be limited by applicable law
and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance
or similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(vi) The Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge,
no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
has been instituted or is pending or threatened under the
Securities Act.
(vii) The Registration Statement and the Prospectus, and each
amendment thereof or supplement thereto, (other than the
financial statements, including the notes thereto and the
supporting schedules, and other financial, numerical,
statistical and accounting data derived therefrom, as to which
such counsel need express no opinion), comply as to form in
all material respects with the requirements of the Securities
Act and the Rules and Regulations.
(viii) The form of certificates evidencing the Common Stock
and filed as an exhibit to the Registration Statement complies
with Nebraska law.
(ix) The description in the Registration Statement and the
Prospectus of the Company's articles of incorporation and
bylaws and of statutes, legal and governmental proceedings,
contracts and other documents are accurate in all material
respects and fairly present the information required to be
presented by the Securities Act and the applicable Rules and
Regulations; and such counsel does not know of any statutes or
legal or governmental proceedings required to be described in
the Prospectus that are not described as required, or of any
agreements, contracts, leases or documents of a character
required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which are not described or referred to
therein or filed as required.
(x) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated
do not result in any violation of the Company's articles of
incorporation or bylaws or result in a breach or violation of
any of the terms and provisions of, or constitute a default
under, any bond, debenture, note or other evidence of
indebtedness, or any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or
other material agreement or instrument known to such counsel
to which the Company is a party or by which its properties are
bound, or any applicable statute, rule or regulation known to
such counsel or, to the best of such counsel's knowledge, any
order, writ or decree of any court, government or governmental
agency or body having jurisdiction over the Company or the
Subsidiaries or other any of their material properties or
operations.
(xi) No consent, approval, authorization or order of, or
filing with, or qualification with, any court, government or
governmental agency or body is necessary in connection with
the execution, delivery and performance of this Agreement or
for the execution, delivery and performance of this Agreement
or for the consummation of the transactions herein
contemplated, except such as have been obtained under the
Securities Act or such as may be required under state or other
securities or Blue Sky laws in connection with the purchase
and the distribution of the Shares by the Underwriters.
(xii) To the best of such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened
against the Company or any of the Subsidiaries of a character
required to be disclosed in the Registration Statement or the
Prospectus by the Securities Act or the Rules and Regulations,
other than those described therein.
(xiii) To the best of such counsel's knowledge, neither the
Company nor any of the Subsidiaries is presently (A) in
material violation of its respective articles of incorporation
or bylaws, (B) in breach or violation of any applicable
statute, rule or regulation known to such counsel or any
order, writ or decree of any court or governmental agency or
body, or (C) in breach of or otherwise in default in the
performance of any material obligation, agreement or condition
contained in any bond, debenture, note, loan agreement or any
other material contract, lease or other instrument to which
the Company is subject or by which it may be bound, or to
which any of the material assets or property of the Company is
subject.
(xiv) To the best of such counsel's knowledge, the Company
holds, and is operating in compliance in all material respects
with, all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders of any
government or self-regulatory body required for the conduct of
its business, and all such franchises, grants, authorizations,
licenses, permits, easements, consents, certifications and
orders are valid and in full force and effect.
(xv) On the basis of information obtained as a result of
discussions and meetings with officers and other
representatives of the Company, discussions with
representatives of the independent public accountants for the
Company in connection with the preparation of the Registration
Statement and the Prospectus, and the examination of other
information and documents requested by such counsel, nothing
has come to such counsel's attention that has caused them to
believe that the Registration Statement and any amendment
thereof, at the time it became effective and at all times
subsequent thereto up to and on that Closing Date, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or that
the Prospectus, and any amendment or supplement thereto, at
the first date of its issuance and up to and at all times
subsequent thereto up to and on that Closing Date, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Such
counsel may further state that in making the foregoing
comments, such counsel does not intend them to include or
cover the financial statements and notes thereto and related
schedules and other financial, numerical, statistical and
accounting data contained or omitted from the Registration
Statement and any amendment or supplement thereto and the
Prospectus.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or the States of Minnesota
and Nebraska, upon opinions of local counsel, and, as to questions of
fact, upon representations or certificates of officers of the Company
or its Subsidiaries and of government officials, in which case their
opinion is to state the extent of such reliance. Copies of any opinion,
representation or certificate so relied upon shall be delivered to the
Representative and to Underwriters' Counsel.
(f) The Underwriters shall have received from Winthrop & Weinstine,
P.A., Underwriters' Counsel, such opinion or opinions as the
Underwriters may reasonably require, dated as of the First Closing Date
and the Second Closing Date, which are satisfactory in form and
substance to the Underwriters, with respect to the sufficiency of
corporate proceedings and other legal matters relating to this
Agreement and the transactions contemplated hereby, and the Company
shall have furnished to Underwriters' Counsel such documents as it may
have requested for the purpose of enabling it to pass upon such
matters. In connection with such opinion, as to matters of fact
relevant to conclusions of law, Underwriters' Counsel may rely, to the
extent that it deems proper, upon representations or certificates of
public officials and of responsible officers of the Company.
(g) At the time of execution of this Agreement, the Underwriters shall
have received from Ernst & Young LLP a letter dated the date of such
execution, in form and substance satisfactory to the Representative, to
the effect that they are independent accountants with respect to the
Company within the meaning of the Securities Act and the applicable
published instructions, and the Rules and Regulations thereunder, and
further stating in effect that:
(i) In their opinion, the audited financial statements
included in the Registration Statement and Prospectus covered
by their report included therein comply as to form in all
material respects with the applicable requirements of the
Securities Act, the published instructions and the Rule and
Regulations.
(ii) On the basis of (A) a reading of the minutes of the
shareholders' and directors' meetings of the Company since
_____________, (B) inquiries of certain officials of the
Company responsible for financial and accounting matters, (C)
a reading of the Company's monthly operating statements
subsequent to _____________, and (D) other specified
procedures and inquiries (but not an audit in accordance with
generally accepted accounting principles), nothing came to
their attention causing them to believe that:
(1) the unaudited consolidated financial statements
of the Company and its Subsidiaries contained in the
Prospectus and any amendment thereof or supplement
thereto do not comply as to form, in all material
respects, with the applicable accounting requirements
of the Securities Act and the published Rules and
Regulations or were not prepared in conformity with
generally accepted accounting principles and
practices applied on a basis consistent in all
material respects with those followed in the
preparation of the audited consolidated financial
statements of the Company and its Subsidiaries
included therein; or
(2) the unaudited consolidated amounts of revenues,
income before provision for income taxes, net income
and ratio of earnings to fixed charges of the Company
and its Subsidiaries, if any, contained in the
Prospectus, or any amendment thereof or supplement
thereto, were not derived from consolidated financial
statements prepared in conformity with generally
accepted accounting principles and practices applied
on a basis consistent in all material respects with
those followed in the preparation of the audited
consolidated financial statements of the Company and
its Subsidiaries included therein; or
(3) the unaudited pro forma consolidated financial
statements of the Company and its Subsidiaries and
recently-acquired companies, if any, contained in the
Prospectus or any amendment thereof or supplement
thereto, were not properly compiled in accordance
with generally accepted accounting principles or did
not provide for all adjustments necessary for a fair
presentation of the information purported to be shown
thereby; or
(4) with respect to the period subsequent to
___________, there were, at a specified date, not
more than five (5) business days prior to the date of
the letter, any changes or any material increases or
decreases in capital stock, long-term or short-term
debt or shareholders' equity, decreases in net
assets, net current assets, or net worth or any
material decrease, as compared with the corresponding
period of the prior year, in revenues or net income
of the Company as compared with the amounts shown in
the consolidated balance sheet included in the
Registration Statement, except as disclosed or
referred to in the Prospectus and Registration
Statement.
(iii) Certain information set forth on the cover of the
Prospectus and page ____ of the Prospectus and in the
Prospectus under the headings ___________________ and that are
expressed in dollars (or percentages derived from dollar
amounts) or numbers have been compared to accounting records
of the Company which were subject to the internal accounting
controls of the Company and are in agreement with such records
or computations made therefrom, excluding any questions of
legal interpretation.
(h) The Underwriters shall have received from Ernst & Young LLP a
letter dated as of each Closing Date to the effect that such
accountants reaffirm, as of such Closing Date, and as though made on
such Closing Date, the statements made in the letter furnished by such
accountants pursuant to Section 5(g), except that the specified date
referred to in such letter will be a date not more than five (5)
business days prior to such Closing Date.
(i) The Underwriters shall have received from the Company a
certificate, dated as of the First Closing Date and the Second Closing
Date, of the principal executive officer and the principal financial or
accounting officer of the Company, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of such
Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at, or prior to, such Closing Date;
(ii) No stop order or other order suspending the effectiveness
of the Registration Statement or any amendment thereof or the
qualification of the Shares for offering or sale has been
issued, and no proceedings for that purpose has been
instituted or, to the best of their knowledge, is contemplated
by the SEC or any state or regulatory body; and
(iii) The signers of said certificate have carefully examined
the Registration Statement and the Prospectus and any
amendments thereof or supplements thereto, and (A) such
documents contain all statements and information required to
be included therein; the Registration Statement, or any
amendment thereof, does not contain any 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; and the Prospectus, as amended or
supplemented, does not include any untrue statement of
material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading; (B) since the
Effective Date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; (C)
subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the
Company has not incurred any material liabilities or material
obligations, direct or contingent, or entered into any
material transactions, not in the ordinary course of business
consistent with past practice, or declared or paid any
dividends or made any distribution of any kind with respect to
its capital stock, and except as disclosed in the Prospectus,
there has not been any change in the capital stock (other than
a change in the number of outstanding shares of Common Stock
due to the issuance of shares upon the exercise of outstanding
options or warrants or pursuant to employee benefit plans
described to in the Registration Statement), or any material
increase in the short-term debt or long-term debt, or in the
issuance of options, warrants, convertible securities or other
rights to purchase the capital stock, of the Company, or any
material adverse change or any development involving a
prospective material adverse change (whether or not arising in
the ordinary course of business) in the general affairs,
condition (financial or otherwise), business, key personnel,
property, prospects, net worth or results of operations of the
Company, and (D) except as stated in the Registration
Statement and Prospectus, there is not pending or, to their
knowledge, threatened or contemplated, any action, suit or
proceeding to which the Company is a party before or by any
court or governmental agency, authority or body, or any
arbitrator, which might result in any material adverse change
of the condition, (financial or otherwise), business,
prospects, or results of operations of the Company.
(j) On each Closing Date, there shall have been furnished to you a
certificate of Secretary of the Company, dated as of such Closing Date,
with the documents listed herein attached, and to the effect and
certifying as follows:
(i) Attached thereto are true and correct copies of the
articles of incorporation of the Company, as amended to the
date of the certificate, and stating that there have been no
changes or amendments to the attached articles of
incorporation of the Company, and no resolutions have been
adopted by the Board of Directors or shareholders of the
Company relating to (A) the amendment of said articles of
incorporation, (B) the merger, consolidation or dissolution of
the Company, or (C) the sale of all or substantially all of
the assets or business of the Company, and that the Company is
in good standing in the State of Nebraska and has paid all of
its corporate franchise taxes due as of the date of such
certificate.
(ii) Attached thereto is a true and correct copy of the bylaws
of the Company as in effect as of the date of such certificate
and no resolutions have been adopted by the Board of Directors
or shareholders of the Company relating to changes or
amendments to the attached Bylaws.
(iii) Attached thereto are true and correct copies of the
resolutions of the Board of Directors of the Company relating
to the preparation and signing of the Registration Statement
and this Agreement, the issuance and sale of the Shares and
other related matters, and such resolutions have not been
amended, modified or rescinded and are in full force and
effect as of the date of such certificate and are the only
resolutions adopted by the Board of Directors of the Company
with respect to the offering contemplated by the Registration
Statement.
(iv) Attached thereto are true and correct copies of all
material correspondence with respect to the Registration
Statement and Prospectus and related matters between the
Company, its counsel, and/or Ernst & Young LLP, on the one
hand and the SEC on the other.
(v) This Agreement, as executed and delivered by the Company,
is in the form presented to and approved by officers
authorized to do so by the Board of Directors of the Company.
(vi) Attached thereto is a specimen of the certificate for the
Common Stock in the form authorized and approved for use by
the Board of Directors of the Company.
(vii) The persons who have signed the Registration Statement
and all amendments thereto were duly elected at the respective
times of such signing and duly acting as officers and
directors of the Company or as an attorney-in-fact therefor,
as set forth in the Registration Statement.
(k) The Underwriters shall have received from each of the officers and
directors of the Company a written agreement in the form of Appendix A
hereto whereby each such person agrees that during the Lock-up Period
such person will not, without the Representative's prior written
consent, effect the Disposition of any Securities now owned or
hereafter acquired directly or indirectly by such person other than by
gift to donees who agree to be bound by the same restriction or by will
or the laws of descent.
(l) The Common Stock of the Company shall be included and quoted on
____________________________.
(m) Dorsey & Whitney LLP shall deliver to the Representative a Blue Sky
Memorandum reasonably satisfactory to the Representative confirming
that all requisite actions for the offer and sale of the Shares in all
jurisdictions requested by the Representative have been taken.
(n) The Company shall have furnished to the Representative and to
Underwriters' Counsel such additional certificates, documents and
evidence as the Representative shall reasonably request.
All such opinions, certificates, letters and documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory to the Representative and Underwriters' Counsel. All statements
contained in any certificate, letter or other document delivered pursuant hereto
by, or on behalf of, the Company shall be deemed to constitute representations
and warranties of the Company.
The Representative may waive in writing the performance of any
one or more of the conditions specified in this Section 5 or extend the time for
their performance.
If any of the conditions specified in this Section 5 shall not
have been fulfilled when and as required by this Agreement to be fulfilled and
if the fulfillment of said condition has not been waived by the Representative,
this Agreement and all obligations of the Underwriters hereunder may be canceled
at, or at any time prior to, each Closing Date by the Representative on behalf
of the Underwriters. Any such cancellation shall be without liability of the
Underwriters to the Company and shall not relieve the Company of its obligations
under Section 4(a) hereof. Notice of such cancellation shall be given to the
Company at the address specified in Section 12 hereof in writing, or by
telegraph or telephone confirmed in writing.
6. Representative's Warrants. In consideration of the agreement of the
Representative to act as an Underwriter and as Representative of the
Underwriters, and upon payment of a purchase price of $______, on the First
Closing Date the Company will issue and deliver to the Representative, for its
account, the Representative's Warrants to purchase Shares in an amount equal to
ten percent (10%) of the number of Firm Shares purchased by the Underwriters in
the offering. The Representative's Warrants shall be issued on the First Closing
Date and shall be dated as of the Effective Date. The Representative's Warrants
shall be exercisable commencing one year after the Effective Date and for a
period of five years after the Effective Date at a price equal to 120% of the
Price to Public per Share set forth on the cover page of the Prospectus. As to
other terms, the Representative's Warrants shall be in form and substance
substantially the same as Appendix B hereto. The Company represents and warrants
that the Representative's Warrants have been duly authorized and, when granted
and delivered in accordance with the terms hereof, will be valid, binding and
enforceable obligations of the Company; the securities issuable upon exercise of
the Representative's Warrants have been duly authorized and reserved for
issuance upon exercise; and upon receipt by the Company of the consideration for
such securities in accordance with the terms of the Representative's Warrants,
the Warrant Shares shall have been duly and validly issued, fully paid and
nonassessable.
7. Indemnification.
(a) The Company hereby agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter or each such controlling person may become subject under
the Securities Act, the Exchange Act, the common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of, or are based upon, (i) any breach of any
representation, warranty, agreement or covenant of the Company
contained in this Agreement, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or any amendment thereof or supplement thereto, or the
omission or alleged omission to state in the Registration Statement or
any amendment thereof or supplement thereto a material fact required to
be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; (iii)
any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, if used prior to the Effective
Date of the Registration Statement, or in the Prospectus (as amended or
as supplemented, if the Company shall have filed with the SEC any
amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iv) any
untrue statement or alleged untrue statement of a material fact
contained in any application or other statement executed by the Company
or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Shares under, or exempt the Shares
or the sale thereof from qualification under, the securities laws of
such jurisdiction, or the omission or alleged omission to state in such
application or statement a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
will reimburse each Underwriter and each such controlling person for
any legal or other expenses reasonably incurred by such Underwriter or
controlling person in connection with investigating or defending
against any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity
with written information relating to any Underwriter furnished to the
Company by such Underwriter or through you specifically for use in the
preparation of the Registration Statement or any such post-effective
amendment thereof, any such Preliminary Prospectus, or the Prospectus,
or any such amendment thereof or supplement thereto, or in any
application or other statement executed by the Company or the
Underwriters filed in any jurisdiction in order to qualify the Shares
under, or exempt the Shares or the sale thereof from qualification
under, the securities laws of such jurisdiction; and provided further
that the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any untrue statement, alleged untrue
statement, omission or alleged omission made in any Preliminary
Prospectus but eliminated or remedied in the Prospectus, such indemnity
agreement shall not inure to the benefit of an Underwriter if the
person asserting any loss, claim, damage or liability purchased the
Shares from such Underwriter which is the subject thereof (or to the
benefit of any person who controls such Underwriter), if a copy of the
Prospectus was not sent or given to such person with, or prior to, the
written confirmation of the sale of such Shares to such person. This
indemnity agreement is in addition to any liability which the Company
may otherwise have.
(b) Each Underwriter agrees to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the
Registration Statement, and each person who controls the Company within
the meaning of Section 15 of the Securities Act, against any losses,
claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the
Securities Act, the Exchange Act, the common law or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of, or are based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof or supplement thereto,
or the omission or alleged omission to state in the Registration
Statement or any amendment thereof or supplement thereto, a material
fact required to be stated therein or necessary to make the statements
therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus,
if used prior to the Effective Date of the Registration Statement, or
in the Prospectus (as amended or as supplemented, if the Company shall
have filed with the SEC any amendment thereof or supplement thereto),
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; or (iii) any untrue statement or alleged untrue
statement of a material fact contained in any application or other
statement executed by the Company or by the Underwriters and filed in
any jurisdiction in order to qualify the Shares under, or exempt the
Shares or the sale thereof from qualification under, the securities
laws of such jurisdiction, or the omission or alleged omission to state
in such application or statement a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to
the Company by, or on behalf of, the Underwriters specifically for use
in the preparation of the Registration Statement or any such
post-effective amendment thereof, any such Preliminary Prospectus, or
the Prospectus or any such amendment thereof or supplement thereto, or
in any application or other statement executed by the Company or by the
Underwriters and filed in any jurisdiction; and the Underwriters will
reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, or controlling person in
connection with investigating or defending against any such loss,
claim, damage, liability or action. This indemnity agreement is in
addition to any liability which the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7, notify in writing the
indemnifying party of the commencement thereof. The omission so to
notify the indemnifying party will relieve it from any liability under
this Section 7 as to the particular item for which indemnification is
then being sought, but not from any other liability which it may have
to any indemnified party. In case any such action is brought against
any indemnified party, and the indemnified party notifies an
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel who shall be reasonably
satisfactory to such indemnified party; and after notice from the
indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section 7
for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if the
defendants in any such action include both the indemnified party and
the indemnifying party, and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties, in which event the fees
and expenses of such separate counsel shall be borne by the
indemnifying party. Any such indemnifying party shall not be liable to
any such indemnified party on account of any settlement of any claim or
action effected without the consent of such indemnifying party.
8. Contribution.
(a) In order to provide for just and equitable contribution in any
action in which the Underwriters or the Company (or any person who
controls the Underwriters or the Company within the meaning of Section
15 of the Securities Act) makes claim for indemnification pursuant to
Section 7 hereof, but such indemnification is unavailable or
insufficient to hold harmless and indemnify a party under Section 7,
then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims,
damages or liabilities referred to in Section 7 above (i) in such
proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from
the offering of the Shares hereunder or (ii) if the allocation provided
by the foregoing clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in such clause (i) but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection
with the statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering of the
Shares (before the deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material or the omission or alleged omission to state a material
fact relates to information supplied by the Company or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8 were to be
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable
considerations referred to in the first sentence of this Section 8. The
amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence of this
Section 8 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending against any action or claim which is the
subject of this Section 8. Notwithstanding the provisions of this
Section 8, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter 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 is not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 8 to contribute are several
in proportion to the respective underwriting obligations and not joint.
(b) Promptly after receipt by a party to this Agreement of notice of
the commencement of any action, suit or proceeding, such person will,
if a claim for contribution in respect thereof is to be made against
another party (the "Contributing Party"), notify the Contributing Party
of the commencement thereof; but the omission so to notify the
Contributing Party will not relieve the Contributing Party from any
liability which it may have to any party other than under this Section
8. Any notice given pursuant to Section 7 hereof shall be deemed to be
like notice hereunder. In case any such action, suit or proceeding is
brought against any party, and such person notifies a Contributing
Party of the commencement thereof, the Contributing Party will be
entitled to participate therein with the notifying party and any other
Contributing Party similarly notified.
9. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at immediately after the time
at which the Registration Statement shall become effective under the
Securities Act upon the Effective Date of the Registration Statement.
(b) Until the First Closing Date, this Agreement may be terminated by
the Representative on behalf of the Underwriters, at its option, by
giving notice to the Company, and the option referred to in Section
2(b), if exercised, may be cancelled at any time prior to the Second
Closing Date, if (i) the Company shall have failed, refused, or been
unable, at or prior to such Closing Date, to perform any agreement on
its part to be performed hereunder, (ii) any other condition of the
Underwriters' obligations hereunder is not fulfilled or waived by the
Representative, (iii) trading in securities generally on the New York
Stock Exchange, the American Stock Exchange or in the over-the-counter
market shall have been suspended, (iv) minimum or maximum prices for
trading shall have been fixed, or maximum ranges for prices for
securities shall be required, on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market, by such
Exchange or by Nasdaq or by order of the SEC or any other governmental
authority having jurisdiction, (v) a banking moratorium shall have been
declared by federal, New York, or Minnesota authorities, (vi) there
shall have been such a serious, unusual and material change in general
economic, monetary, political or financial conditions, or the effect of
international conditions on the financial markets in the United States
shall be such as, in the judgment of the Representative, makes it
inadvisable to proceed with the delivery of the Shares, (vii) the
enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of any court or other
governmental authority which, in the judgment of the Representative,
materially and adversely affects or will materially and adversely
affect the business or operations of the Company, or (viii) there shall
be a material outbreak of hostilities or material escalation and
deterioration in the political and military situation between the
United States and any foreign power, or a formal declaration of war by
the United States of America shall have occurred. Any such termination
shall be without liability of any party to any other party, except as
provided in Sections 7 and 8 hereof; provided, however, that the
Company shall remain obligated to pay costs and expenses to the extent
provided in Section 4 hereof.
(c) If the Representative elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 9, it shall notify the Company promptly by telegram or
telephone, confirmed by letter sent to the address specified in Section
12 hereof. If the Company shall elect to prevent this Agreement from
becoming effective, it shall notify the Underwriters promptly by
telegram or telephone, confirmed by letter sent to the addresses
specified in Section 12 hereof.
10. Default by the Company. If the Company shall fail at the First Closing Date
to sell and deliver the number of Shares which it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the part
of any non-defaulting party. No action taken pursuant to this Section shall
relieve the Company from liability, if any, in respect of such default.
11. Survival of Indemnities, Contribution Agreements, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriters contained in Sections 7 and 8; the representations
and warranties of the Company set forth in Section 1 hereof; and the covenants
and agreements of the Company set forth in Section 3 hereof, shall remain
operative and in full force and effect, regardless of any investigation made by,
or on behalf of, the Underwriters, the Company, any of its officers and
directors, or any controlling person referred to in Sections 7 and 8, and shall
survive the delivery of and payment for the Shares. The aforesaid indemnity and
contribution agreements shall also survive any termination or cancellation of
this Agreement. Any successor of any party or of any such controlling person, or
any legal representative of such controlling person, as the case may be, shall
be entitled to the benefit of the respective indemnity and contribution
agreements.
12. Notices. All notices or communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be mailed, delivered or
telegraphed, and confirmed, as follows:
If to the Representative or
the Underwriters, to: R. J. Steichen & Company
Midwest Plaza, Suite 1100
801 Nicollet Mall
Minneapolis, Minnesota 55402
Attention: _______________
with a copy to: Winthrop & Weinstine, P.A.
3000 Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Michele D. Vaillancourt
If to the Company, to: Eco Soil Systems, Inc.
10890 Thornmint Road, Suite 200
San Diego, California 92127
Attention: _______________
with a copy to: Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Kenneth L. Cutler
13. Information Furnished by the Underwriters. The statements relating to the
stabilization activities of the Underwriters and the statements under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitute the written information furnished by, or on behalf of, the
Underwriters specifically for use with reference to the Underwriters referred to
in Section 1(a)(ii) and Section 7(a) hereof.
14. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and the Company and their respective successors
and assigns, and the officers, directors and controlling persons referred to in
Sections 7 and 8. Nothing expressed in this Agreement is intended or shall be
construed to give any person or corporation, other than the parties hereto,
their respective successors and assigns, and the controlling persons, officers
and directors referred to in Sections 7 and 8 any legal or equitable right,
remedy or claim under, or in respect of, this Agreement or any provision herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors, assigns and
such controlling persons, officers and directors, and for the benefit of no
other person or corporation. No purchaser of any Shares from the Underwriters
shall be construed a successor or assign merely by reason of such purchase.
15. Governing Law. This Agreement shall be construed and enforced in accordance
with the laws of the State of Minnesota.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed counterpart of this
Agreement, whereupon it will become a binding agreement among the Company and
the Underwriters in accordance with its terms.
Very truly yours,
ECO SOIL SYSTEMS, INC.
By
Signature
Name Typed or Printed
Its
Title Typed or Printed
ACCEPTANCE
The foregoing Underwriting Agreement is hereby confirmed and accepted by us, on
behalf of ourselves and the other several Underwriters named in Schedule I
hereto, as of the date first above written.
R. J. Steichen & Company
As Representative
By
Signature
Name Type or Printed
Its
Title Typed or Printed
SCHEDULE I
Number of
Underwriters Firm Shares (1)
R. J. Steichen & Company
----------
Total...........................................__________
- ------------------
(1) The Underwriters may purchase up to an additional __________ Option
Shares, to the extent the option described in Section 2(b) of the
Agreement is exercised, in the proportions and in the manner described
in the Agreement.
APPENDIX A
FORM OF "LOCK-UP" AGREEMENT FOR
DIRECTORS AND OFFICERS
R. J. STEICHEN & COMPANY
Midwest Plaza, Suite 1100
801 Nicollet Mall
Minneapolis, MN 55402
Re: Eco Soil Systems, Inc.
Ladies and Gentlemen:
The undersigned, a beneficial owner of common stock (the "Common Stock") of Eco
Soil Systems, Inc. (the "Company"), understands and acknowledges that the
Company is intending to file with the Securities and Exchange Commission a
Registration Statement on Form SB-2 (the "Registration Statement") for the
registration of the offer and sale of shares of Common Stock, including shares
subject to the Underwriters' over-allotment option (collectively, the "Shares").
The undersigned further understands that the Company, as issuer, and R. J.
Steichen & Company, on behalf of the underwriters (collectively, the
"Underwriters") named in Schedule I to that certain proposed underwriting
agreement expected to be entered into in connection with the public offering of
the Shares by the Underwriters (the "Underwriting Agreement"), contemplate
entering into such Underwriting Agreement.
In order to induce the Underwriters to proceed with the public offering, the
undersigned agrees, for the benefit of the Company and the Underwriters, that
should such public offering be effectuated, the undersigned will not, without
the prior written consent of R. J. Steichen & Company, during the 180 days
commencing on the effective date of the Registration Statement:
(i) offer to sell, contract to sell, pledge, hypothecate, transfer
or otherwise dispose of, grant any rights with respect to
(collectively, a "Disposition"), any shares of Common Stock of
the Company, and options, warrants and other rights to
purchase any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for shares of
Common Stock now owned or hereafter acquired by the
undersigned (collectively, "Securities") or with respect to
which the undersigned has or hereafter acquires the power of
Disposition; or
(ii) effect any Disposition of any Securities
other than by gifts to donees who agree in writing to be bound by the same
restriction, or by will or the laws of descent, in which case the Securities
also will be subject to the same restriction.
The undersigned hereby agrees to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities except in
compliance with this Agreement.
Dated:_______________, 1996. Very truly yours,
_______________________________________
Signature
_______________________________________
Name Typed or Printed
APPENDIX B
FORM OF REPRESENTATIVE'S WARRANTS
ECO SOIL SYSTEMS, INC.
COMMON STOCK PURCHASE WARRANT
NO. _____ _______ SHARES
FOR GOOD AND VALUABLE CONSIDERATION, Eco Soil Systems, Inc., a
Minnesota corporation (the "Company"), hereby certifies that R. J. Steichen &
Company, Minneapolis, Minnesota (the "Representative"), or its registered
assigns, is entitled to subscribe for and purchase from the Company at any time
or from time to time after [ONE YEAR FROM EFFECTIVE DATE], to and including
[FIVE YEARS FROM EFFECTIVE DATE], _____________________ (__________) fully paid
and nonassessable shares of the Common Stock of the Company at the purchase
price of $_______ per share [120% OF INITIAL PUBLIC OFFERING PRICE] (the
"Warrant Exercise Price"), subject to adjustment as provided herein. Reference
is made to this Warrant in the Underwriting Agreement dated ___________, 1996 by
and between, among others, the Company and the Representative. As used herein,
(i) this warrant and all warrants hereafter issued in exchange or substitution
for this warrant are referred to as the "Warrants;" (ii) the shares which may be
acquired upon exercise of the Warrants are referred to herein as the "Warrant
Shares;" (iii) the term "Holder" means the Representative, any party who
acquires all or a part of this Warrant as a registered transferee of the
Representative, or any record holder or holders of the Warrant Shares issued
upon exercise, whether in whole or in part, of the Warrant; (iv) the term
"Common Stock" means and includes the Company's presently authorized common
stock, $.005 per share par value, together with any other equity securities
which may be issued by the Company with respect thereto or in substitution
therefor; and (v) the term "Convertible Securities" means any stock or other
securities convertible into, or exchangeable for, Common Stock.
This Warrant is subject to the following provisions, terms and
conditions, to which each Holder hereof consents and agrees:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by
the Holder hereof, in whole or in part (but not as to a fractional share of
Common Stock) by written notice of exercise (in the form attached hereto)
delivered to the Company at the principal office of the Company prior to the
expiration of this Warrant and accompanied or preceded by the surrender of this
Warrant along with a check in payment of the Warrant Exercise Price for the
Warrant Shares being acquired upon such exercise.
(b) Until exercisable, this Warrant may not be sold, assigned,
hypothecated, or otherwise transferred (other than by will, pursuant to the
operation of law, or where directed by a court of competent jurisdiction upon
the dissolution or liquidation of a corporate Holder hereof), except to (i) a
person who is both an officer and a shareholder of the Representative, (ii) a
successor in interest to the business of the Representative, (iii) a person who
is both an officer and a shareholder of a successor, or (iv) a person who is an
employee of the Representative or a successor, but only if such employee is also
an officer of the Representative or successor; such transfer to be by
endorsement (by the Holder hereof executing the form of assignment attached
hereto) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery. Further, this Warrant may
not be sold, transferred, assigned, hypothecated or divided into two or more
Warrants of smaller denominations, nor may any Warrant Shares issued pursuant to
exercise of this Warrant be transferred, except as provided in Section 7 hereof.
2. Exchange and Replacement. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Representative shall be such Holder, an agreement
of indemnity by such Holder shall be sufficient for all purposes of this Section
2. This Warrant shall be promptly canceled by the Company upon the surrender
hereof in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 2.
3. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock
purchased upon exercise of this Warrant shall be and are deemed to be issued to
the Holder as of the close of business on the date on which this Warrant shall
have been surrendered and the payment made for such Warrant Shares as aforesaid.
Subject to the provisions of Section 3(b), the Company shall deliver or cause to
be delivered to the Holder within a reasonable time, not exceeding fifteen (15)
calendar days after the rights represented by this Warrant shall have been so
exercised, certificates for the Warrant Shares so purchased, and, unless this
Warrant has expired, a new Warrant representing the right to purchase the number
of Warrant Shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 9. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either registrations become effective or exemptions are available, and the
Warrant shall then remain exercisable for a period of at least 30 calendar days
from the date the Company delivers to the Holder written notice of the
availability of such registrations or exemptions. The Holder agrees to execute
such documents and make such representations, warranties, and agreements as may
be reasonably required solely to comply with the exemptions relied upon by the
Company, or the registrations made, for the issuance of the Warrant Shares.
4. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
5. Antidilution Adjustments. The provisions of this Warrant are subject
to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to
time such that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the
Company payable in Common Stock or securities convertible into Common
Stock;
(ii) subdivide its then outstanding shares of Common
Stock into a greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (A) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (B) the total number of shares of Common Stock outstanding
immediately after such event (including in each case the maximum number of
shares of Common Stock issuable in respect of any securities convertible into
Common Stock), and the resulting quotient shall be the adjusted Warrant Exercise
Price per share. An adjustment made pursuant to this subsection shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination, reclassification or other event. If, as
a result of an adjustment made pursuant to this subsection, the Holder of any
Warrant thereafter surrendered for exercise shall become entitled to receive
shares of two or more classes of capital stock or shares of Common Stock and
other capital stock of the Company, the Board of Directors (whose determination
shall be conclusive) shall determine the allocation of the adjusted Warrant
Exercise Price between or among shares of such classes of capital stock or
shares of Common Stock and other capital stock. All calculations under this
subsection shall be made to the nearest cent or to the nearest 1/100 of a share,
as the case may be. In the event that at any time as a result of an adjustment
made pursuant to this subsection, the holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive any shares of the
Company other than shares of Common Stock, thereafter the Warrant Exercise Price
of such other shares so receivable upon exercise of any Warrant shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in this
subsection.
(b) Upon each adjustment of the Warrant Exercise Price
pursuant to Section 5(a) above, the Holder of each Warrant shall thereafter
(until another such adjustment) be entitled to purchase at the adjusted Warrant
Exercise Price the number of shares, calculated to the nearest full share,
obtained by multiplying the number of shares specified in such Warrant (as
adjusted as a result of all adjustments in the Warrant Exercise Price in effect
prior to such adjustment) by the Warrant Exercise Price in effect prior to such
adjustment and dividing the product so obtained by the adjusted Warrant Exercise
Price.
(c) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company is
the continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no adjustment under
Subsection (a) of this Section above but the Holder of each Warrant then
outstanding shall have the right thereafter to convert such Warrant into the
kind and amount of shares of stock and other securities and property which he
would have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale, or conveyance had such Warrant
been converted immediately prior to the effective date of such consolidation,
merger, statutory exchange, sale, or conveyance and in any such case, if
necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this subsection with respect to the rights and interests
thereafter of any Holders of the Warrant, to the end that the provisions set
forth in this subsection shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock and other
securities and property thereafter deliverable on the exercise of the Warrant.
The provisions of this subsection shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then
and in each such case, the Company shall (i) give written notice thereof, by
first-class mail, postage prepaid, within ten (10) calendar days after the date
when the circumstances giving rise to the adjustment occurred, addressed to the
Holder as shown on the books of the Company, which notice shall state the
Warrant Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares of Common Stock purchasable at such
price upon the exercise of this Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based; and
(ii) prepare and retain on file a statement describing in reasonable detail the
method used in arriving at the new Warrant Exercise Price.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof, the Holder, by acceptance
hereof, agrees to give written notice to the Company before transferring this
Warrant or transferring any Warrant Shares of such Holder's intention to do so,
describing briefly the manner of any proposed transfer. Promptly upon receiving
such written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If, in the
opinion of each such counsel, the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose of
Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for such Warrant Shares describing restrictions upon transfer
thereof necessary or advisable in the opinion of counsel and satisfactory to the
Company to prevent further transfers which would be in violation of Section 5 of
the Securities Act of 1933, as amended (the "Securities Act") and applicable
state securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.
(b) If, in the opinion of either of the counsel referred to in
this Section 7, the proposed transfer or disposition of this Warrant or such
Warrant Shares described in the written notice given pursuant to this Section 7
may not be effected without registration or qualification of this Warrant or
such Warrant Shares, the Company shall promptly give written notice thereof to
the Holder, and the Holder will limit its activities in respect to such transfer
or disposition as, in the opinion of both such counsel, are permitted by law.
(c) Until this Warrant is duly transferred on the books of the
Company, the Company shall treat the registered Holder of this Warrant as
absolute owner hereof for all purposes without being affected by any notice to
the Company.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the "Fair Market Value" (as defined in Section
10(d) hereof) of such fractional share over the proportional part of the Warrant
Exercise Price represented by such fractional share, plus (b) the proportional
part of the Warrant Exercise Price represented by such fractional share.
9. Registration Rights.
(a) The Company agrees that, if at any time (but on a one-time
basis only) during the period commencing one year from the date of this Warrant
and ending seven (7) years from [DATE OF EFFECTIVENESS], and provided that a
Registration Statement on Form S-3 (or any successor or equivalent form) is then
available to the Company, the Holder of this Warrant and/or the Holders of any
other Warrants and/or Warrant Shares who collectively shall hold not less than
50% of the Warrants and/or Warrant Shares outstanding at such time and not
previously sold pursuant to this Section 9, shall request that the Company file
a registration statement covering all or any part of the Warrant Shares:
(i) the Company will promptly notify the Holder and
all other registered Holders, if any, of other Warrants and/or Warrant
Shares that such registration statement will be filed and that the
Warrant Shares which are then held and/or which may be acquired upon
the exercise of the Warrants by the Holder and such other Holders will
be included in such registration statement at the Holder's and such
Holders' request; and
(ii) the Company will cause such registration
statement to include all Warrant Shares which it has been so requested
to include, will take all necessary steps to register or qualify such
Warrant Shares under the Securities Act and the securities laws of such
states as the holders may reasonably request, and will use its best
efforts to cause such registration statement and qualifications to
become effective as soon as practicable.
The Company shall keep effective and maintain any registration, qualification,
notification, or approval specified in this Section 9(a) for such period as may
be reasonably necessary for such Holder or Holders of such Warrant Shares to
dispose thereof and from time to time shall amend or supplement the prospectus
used in connection therewith to the extent necessary in order to comply with
applicable law; provided, that the Company need not maintain the effectiveness
of any such registration, qualification, notification or approval, whether or
not at the request of the Holders, more than nine (9) months following the
effective date thereof. Notwithstanding the provisions of this Section 9(a), the
Company shall not be required to file a registration statement covering all or
any part of the Warrant Shares as required by this Section 9(a) if the Company's
Board of Directors or other governing body determines in good faith and by at
least the requisite vote required for such matters that such filing of a
Registration Statement would not be in the best interests of the Company and its
shareholders. If a request for registration is submitted pursuant to this
Section 9(a) and either a Registration Statement is not filed, or a Registration
Statement is filed but is not declared effective by the Securities and Exchange
Commission or any state securities authority within ninety (90) days after
filing and such Registration Statement is withdrawn at the request of the
Holders of at least a majority of the Warrant Shares covered by such
Registration Statement, the right of the Holders to again request registration
of the Warrant Shares under this Section 9(a) shall not be prejudiced or
otherwise affected.
(b) The Company agrees that, if at any time and from time to
time during the period commencing one year from the date of this Warrant and
ending seven (7) years from [DATE OF EFFECTIVENESS], the Company proposes to
file a registration statement under the Securities Act (other than a Form S-4 or
Form S-8 Registration Statement or any successor forms thereto) or qualify for a
public distribution under Section 3(b) of the Securities Act, any of its
securities in connection with the proposed offer of such securities by the
Company or any of its shareholders:
(i) the Company will promptly notify the Holder and
all other registered Holders, if any, of other Warrants and/or Warrant
Shares, at least thirty (30) days prior to each such filing, that it
intends to file such registration statement or effect such
qualification, and that the Warrant Shares which are then held and/or
which may be acquired upon the exercise of the Warrants by the Holder
and such other Holders will be included in such registration statement
or qualification at the Holder's and such Holders' request; and
(ii) the Company will use its best efforts to cause
such registration statement or qualification to include all Warrant
Shares which it has been so requested to include; provided, however,
that in an offering that is underwritten, if a greater number of
Warrant Shares is offered for participation in the proposed offering
than in the reasonable opinion of the managing underwriter of the
proposed offering can be accommodated without adversely affecting the
proposed offering, then the amount of Warrant Shares proposed to be
offered by such Holders for registration, as well as the number of
securities of any other selling shareholders participating in the
registration, shall be proportionately reduced to a number deemed
satisfactory by the managing underwriter.
The Holder and such other Holders may request that their Warrant Shares be
included in such registration statement or qualification by making written
request to the Company specifying the number of Warrant Shares to be so
included. Such request shall be made within twenty (20) days after receipt from
the Company of notice of such intended registration or qualification.
(c) With respect to each inclusion of securities in a
registration or qualification pursuant to this Section 9, the Company shall bear
all fees, costs, and expenses thereof, including, without limitation, all filing
fees, fees imposed by the National Association of Securities Dealers, Inc.,
printing expenses, fees and disbursements of counsel and accountants for the
Company, fees and disbursements of counsel for the underwriter or underwriters
of such securities (if the Company is required to bear such fees and
disbursements), all internal expenses, the premiums and other costs of policies
of insurance against liability arising out of the public offering, and legal
fees and disbursements and other expenses of complying with state securities
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified. Notwithstanding the foregoing, fees and disbursements
of special counsel and accountants for the selling Holders, underwriting
discounts and commissions attributable to the Warrant Shares to be sold, and
transfer taxes for selling Holders shall be borne by the selling Holders.
(d) The Company will furnish the Holders whose Warrant Shares
are included in a registration or qualification pursuant to this Section 9 with
a reasonable number of copies of any prospectus and/or other offering materials
included in such filings and will amend or supplement the same as required
during the period of required use thereof. In connection with any registration
filed or qualification made pursuant to this Section 9 in which Warrant Shares
are included, and to the extent permissible under the Securities Act and
controlling precedent thereunder, the Company and each Holder whose Warrant
Shares are so included in such registration or qualification shall provide
cross-indemnification agreements to each other in customary scope covering the
accuracy and completeness of the information furnished by each in connection
therewith.
(e) Each Holder of Warrant Shares included in a registration
or qualification pursuant to this Section 9 agrees to cooperate with the Company
in the preparation and filing of any such registration statement or other
offering materials and in the furnishing of information concerning the Holder
for inclusion therein, or in any efforts by the Company to establish that the
proposed sale is exempt under the Securities Act as to any proposed
distribution.
10. Right to Convert.
(a) The Holder of this Warrant shall have the right to require
the Company to convert this Warrant (the "Conversion Right"), at any time after
one year from the date of this Warrant and prior to its expiration, into shares
of Common Stock as provided for in this Section 10. Upon exercise of the
Conversion Right by the Holder, the Company shall deliver to the Holder (without
payment by the Holder of any exercise price) that number of shares of Common
Stock equal to the quotient obtained by dividing (x) the value of the Warrant at
the time the Conversion Right is exercised (determined by subtracting the
aggregate Warrant Exercise Price for the Warrant Shares in effect immediately
prior to the exercise of the Conversion Right from the aggregate "Fair Market
Value" (as determined below) for the Warrant Shares immediately prior to the
exercise of the Conversion Right) by (y) the Fair Market Value of one share of
Common Stock immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the Holder, at
any time or from time to time, prior to its expiration, on any business day, by
delivering a written notice (the "Conversion Notice") to the Company at the
offices of the Company exercising the Conversion Right an specifying (i) the
total number of shares of Common Stock the Holder will purchase pursuant to such
conversion, and (ii) a place, and a date not less than five (5) nor more than
twenty (20) business days from the date of the Conversion Notice, for the
closing of such purchase.
(c) At any closing under Section 10(b) hereof, (i) the Holder
will surrender the Warrant, (ii) the Company will deliver or cause to be
delivered to the Holder a certificate or certificates for the number of shares
of Common Stock issuable upon such conversion, together with cash, in lieu of
any fraction of a share, and (iii) the Company will deliver to the Holder a new
Warrant representing the number of shares of Common Stock, if any, with respect
to which the Warrant shall not have been converted.
(d) "Fair Market Value" of a share of Common Stock as of a
particular date (the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an
exchange or is quoted on The Nasdaq National Market or Nasdaq SmallCap
Market, then the average closing or last sale prices, respectively,
reported for the ten (10) business days immediately preceding the
Determination Date.
(ii) If the Company's Common Stock is not traded on
an exchange or on The Nasdaq National Market or SmallCap Market but is
traded in the over-the-counter market, then the average of the closing
bid and asked prices as reported by Metro Data Company, Inc. (or a
similar organization) from quotations by market makers in such Common
Stock on the Minneapolis-St. Paul local over-the-counter market for the
ten (10) business days immediately preceding the Determination Date.
11. Miscellaneous. The Company shall not, by amendment of its articles
of incorporation or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act or deed, avoid or seek to avoid
the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Company, but will, at
all times in good faith, assist, insofar as it is able, in the carrying out of
all provisions hereof and in the taking of all other action which may be
necessary in order to protect the rights of the Holders against dilution.
Upon written request of the Holder of this Warrant, the Company will
promptly provide such Holder with a then current written list of the names and
addresses of all Holders of warrants originally issued under the terms of, and
concurrent with, this Warrant.
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. This Warrant shall be interpreted under
the laws of the State of Minnesota.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer and to be dated ___________, 1996.
ECO SOIL SYSTEMS, INC.
By____________________________________
Signature
______________________________________
Name Typed or Printed
Its___________________________________
Title Typed or Printed
NOTICE OF EXERCISE OF WARRANT
(To be signed upon the exercise of the Warrant for cash or by check)
The undersigned hereby irrevocably elects to exercise the attached
Warrant and to purchase thereunder, for cash, ________________ of the shares of
Common Stock of Eco Soil Systems, Inc. issuable upon the exercise of such
Warrant, herewith makes payment of $___________ therefor in cash or by check,
and requests that certificates for such shares (together with a new Warrant to
purchase the number of shares, if any, with respect to which this Warrant is not
exercised) be issued in the name set forth below and be delivered to the address
set forth below.
Dated: ________________
(Signature)
_____________________________________
(Name Typed or Printed)
_____________________________________
(Address)
_____________________________________
(Social Security or Tax Ident. No.)
* The signature on the Notice of Exercise of Warrant must exactly
correspond to the name as written upon the face of the Warrant in every
particular without alteration or any change whatsoever. When signing on
behalf of a corporation, partnership, trust or other entity, PLEASE
indicate your position(s) and title(s) with such entity.
NOTICE OF WARRANT CONVERSION
(To be signed only upon conversion of warrant)
The undersigned hereby irrevocably elects to exercise the conversion
right provided in Section 10 of the attached Warrant and to purchase thereunder
_____________ Shares of the Common Stock of Eco Soil Systems, Inc. to which such
Warrant relates and herewith tenders the Warrant in full payment of the shares
and requests that the certificates for such shares be issued in the name of, and
be delivered to _________________________, whose address is set forth below the
signature of the undersigned.
Dated: ________________
_____________________________________
(Signature)
_____________________________________
(Name Typed or Printed)
_____________________________________
_____________________________________
(Address)
* The signature on the Assignment of Warrant must exactly correspond to
the name as written upon the face of the Warrant in every particular
without alteration or any change whatsoever. When signing on behalf of
a corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
ASSIGNMENT OF WARRANT
(To be signed only upon authorized transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto _________________________________ the right to purchase
_______________ shares of the Common Stock of Eco Soil Systems, Inc. to which
the within Warrant relates and appoints _________________________________, as
attorney-in-fact, to transfer said right on the books of Eco Soil Systems, Inc.
with full power of substitution in the premises.
Dated: ________________
_____________________________________
(Signature)
_____________________________________
(Name Typed or Printed)
_____________________________________
(Address)
_____________________________________
(Social Security or Tax Ident. No.)
* The signature on the Assignment of Warrant must exactly correspond to
the name as written upon the face of the Warrant in every particular
without alteration or any change whatsoever. When signing on behalf of
a corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
RESTRICTION ON TRANSFER
The security evidenced hereby has not been registered under the
Securities Act of 1933 or any state securities laws and may not be sold,
transferred, assigned, offered, pledged or otherwise distributed for value
unless there is an effective registration statement under such act or laws
covering such security or the company receives an opinion of counsel for the
Company stating that such sale, transfer, assignment, pledge or distribution is
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933 and all applicable state securities laws.
____________ Shares(1)
ECO SOIL SYSTEMS, INC.
Common Stock
SELECTED DEALERS' AGREEMENT
Gentlemen:
1. R. J. Steichen & Company and the other Underwriters named in the
Prospectus referred to below (the "Underwriters"), acting through us as
Representative, have severally agreed to purchase, subject to the terms and
conditions set forth in the Underwriting Agreement referred to in the Prospectus
(the "Underwriting Agreement"), from Eco Soil Systems, Inc., a Nebraska
corporation (the "Company"), an aggregate of __________ shares (the "Firm
Shares") of the Company's common stock, $.005 per share par value ("Common
Stock"). In addition, the several Underwriters have been granted an option to
purchase from the Company up to an aggregate of an additional ____________
shares of Common Stock (the "Option Shares") to cover overallotments in
connection with the sale of the Firm Shares. The Firm Shares and the Option
Shares are hereinafter collectively called the "Shares." The Shares and the
terms upon which they are to be offered for sale by the several Underwriters are
more particularly described in the enclosed Prospectus.
2. The Shares are to be offered to the public by the several
Underwriters at a price of $_______ per share (hereinafter called the "Public
Offering Price") and in accordance with the terms of offering set forth in the
Prospectus.
3. Subject to the terms and conditions hereof, some or all of the
several Underwriters are severally offering a portion of the Shares for sale to
(i) certain dealers which are members of the National Association of
Shares Dealers, Inc. (the "NASD") and which agree to comply with all
applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with respect to Free-Riding and Withholding and Rule
2740 of the Rules of the Association, and
(ii) foreign dealers or institutions ineligible for membership in the
NASD which agree
(x) not to resell the Shares
(A) to purchasers in, or to persons who are nationals
or residents of, the United States of America, or
- --------
(1) Plus an option to purchase up to __________ additional shares to cover
over-allotments.
(B) when there is a public demand for the Shares, to
persons specified as those to whom members of the
NASD participating in a distribution may not sell,
and
(y) to comply, as though such foreign dealer or institution
were a member of the NASD, with such Interpretation with
respect to Free-Riding and Withholding and with Rules 2730,
2740, 2420 (as such Section applies to foreign non-members)
and 2750 of such Rules of the Association
(such dealers and institutions agreeing to purchase Shares hereunder being
hereinafter referred to as "Selected Dealers") at the Pubic Offering Price less
a selling concession of $________ per share, payable as hereinafter provided,
out of which concession an amount not exceeding $______ per share may be
reallowed by Selected Dealers to members of the NASD or to foreign dealers or
institutions ineligible for membership therein which agree as aforesaid. This
offering is made subject to delivery of the Shares and their acceptance by us,
to the approval of all legal matters by counsel and to the terms and conditions
herein set forth. Some or all of the Underwriters may be included among the
Selected Dealers. Each of the Underwriters has agreed that, during the term of
this Agreement, it will be governed by the terms and conditions hereof whether
or not such Underwriter is included among the Selected Dealers.
4. We, acting as Representative, and with our consent, any Underwriter,
may buy Shares from, or sell Shares to, any Selected Dealer, or any other
Underwriter, and any Selected Dealer may buy Shares from, or sell Shares to, any
other Selected Dealer or any Underwriter at the Public Offering Price less all
or any part of the concession. We, acting as Representative, after the initial
public offering, may change the concession and the reallowance.
5. If, prior to the termination of this Agreement, we purchase or
contract to purchase, in the open market or otherwise, for the account of any
Underwriter, any Shares purchased by you hereunder, you agree to pay us on
demand for the accounts of the several Underwriters an amount equal to the
concession on such Shares. In addition, we may charge you with any transfer
taxes and broker's commissions or dealer's mark-up paid in connection with such
purchase or contract to purchase.
6. We shall act on behalf of the Underwriters under this Agreement and
shall have full authority to take such action as we may deem advisable in
respect of all matters pertaining to the public offering of the Shares.
7. If you desire to purchase any of the Shares, your subscription
should reach us promptly by telephone by calling Ms. Vicki Anderson at (612)
341-6276 or by telegraph at the offices of R. J. Steichen & Company, 801
Nicollet Mall, Suite 1100, Minneapolis, Minnesota 55402, and we will use our
best efforts to fill the same. We reserve the right to reject all subscriptions,
in whole or in part, to make allotments and to close the subscription books at
any time without notice. The Shares allotted to you will be confirmed, subject
to the terms and conditions of this Agreement.
8. The privilege of purchasing the Shares is extended to you only on
behalf of the several Underwriters, if any, that may lawfully sell the Shares to
dealers in your state.
9. Any of the Shares purchased by you under the terms of this Agreement
may be immediately reoffered to the public in accordance with the terms of the
offering thereof set forth herein and in the Prospectus, subject to the
securities laws of the various states. Neither you nor any other person is or
has been authorized to give any information or to make any representations in
connection with the sale of the Shares other than as contained in the
Prospectus.
10. This Agreement will terminate when we shall have determined that
the public offering of the Shares has been completed and upon telegraphic notice
to you of such termination, but, if not previously terminated, this Agreement
will terminate at the close of business on the thirtieth (30th) full business
day after the date hereof; provided, however, that we shall have the right to
extend this Agreement for an additional period or periods not exceeding thirty
(30) full business days in the aggregate upon telephonic notice to you. Promptly
after the termination of this Agreement, there shall become payable to you the
selling concession on the number of Shares that you shall have purchased
hereunder and that shall not have been purchased or contracted for (including
certificates issued upon transfer) by us, in the open market or otherwise
(except pursuant to Section 12 hereof), during the term of this Agreement for
account of one or more of the several Underwriters.
11. For the purpose of stabilizing the market in the Common Stock of
the Company, we have been authorized to make purchases and sales thereof, in the
open market or otherwise, and, in arranging for sale of the Shares, to
over-allot.
12. You agree to advise us from time to time upon request, prior to the
termination of this Agreement, of the number of Shares purchased by you
hereunder and remaining unsold at the time of such request, and if, in our
opinion, any such Shares shall be needed to make delivery of the Shares sold or
over-allotted for the account of one or more of the Underwriters, you will,
forthwith upon our request, grant to us for the account or accounts of such
Underwriter or Underwriters the right, exercisable promptly after receipt of
notice from you that such right has been granted, to purchase, at the Public
Offering Price less the selling concession or such part thereof as we shall
determine, such number of Shares owned by you as shall have been specified in
our request.
13. On becoming a Selected Dealer, and in offering and selling the
Shares, you agree (which agreement shall also be for the benefit of the Selling
Shareholders and the Company) to comply with all applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). You confirm that you are
familiar with Rule 15c2-8 under the Exchange Act relating to the distribution of
preliminary and final prospectuses for securities of an issuer and confirm that
you have complied and will comply therewith.
14. Upon request, you will be informed as to the jurisdictions in which
we have been advised that the Shares have been qualified for sale under the
respective securities or Blue Sky laws of such jurisdictions, but neither we nor
any of the Underwriters assume any obligation or responsibility as to the right
of any Selected Dealer to sell the Shares in any jurisdiction or as to any sale
therein. You authorize us to file a Further State Notice with respect to the
Shares with the State of New York, if required.
15. Additional copies of the Prospectus will be supplied to you in
reasonable quantities upon request.
16. It is expected that public advertisement of the Shares will be no
sooner than the first day after the effective date of the Registration Statement
or such later date as the initial offering price of the Shares is determined if
the Company elects to rely on Rule 430A under the Act. Twenty-four (24) hours
after such advertisement shall have appeared, but not before, you will be free
to advertise at your own expense, over your own name, subject to any restriction
of local laws, but your advertisement must conform in all respects to the
requirements of the Act, and neither we nor the Underwriters shall be under any
obligation or liability in respect of your advertisement.
17. No Selected Dealer is authorized to act as our agent or as agent
for the Underwriters, or otherwise to act on our behalf or on behalf of the
Underwriters, in offering or selling the Shares to the public or otherwise.
18. We and the several Underwriters shall not be under any liability
for or in respect of the value, validity or form of the Shares, or delivery of
the certificates for the Shares, or the performance by anyone of any agreement
on his part, or the qualification of the Shares for sale under the laws of any
jurisdiction, or for or in respect of any matter connected with this Agreement,
except for lack of good faith and for obligations expressly assumed by use or by
the several Underwriters in this Agreement. The foregoing provisions shall not
be deemed a waiver of any liability imposed under the Act.
19. Payment for the Shares sold to you hereunder is to be made at the
Public Offering Price, on or about ___________________, 1996 or such later date
as we may advise, by certified or official bank check, payable to the order of
R. J. Steichen & Company, in current funds, at such place as we shall specify on
one day's notice to you against delivery of the Shares. Notwithstanding the
foregoing, if actions in the Shares can be settled through the facilities of The
Depository Trust Company, payment for and delivery of Shares purchased by you
hereunder will be made through the facilities of The Depository Trust Company,
if you are a member, unless you have otherwise notified us prior to the date
specified in our telex or telegram to you, or, if you are not a member,
settlement may be made through a correspondent who is a member pursuant to
instructions you may send us prior to such specified date.
20. Notice to us should be addressed to R. J. Steichen & Company,
Midwest Plaza, Suite 1100, 801 Nicollet Mall, Minneapolis, Minnesota 55402.
Notices to you shall be deemed to have been duly given if telegraphed or mailed
to you at the address to which this letter is addressed.
21. If you desire to purchase any of the Shares, please confirm your
subscription by signing and returning to us your confirmation overleaf on the
duplicate copy of this letter enclosed herewith, even though you have previously
advised us thereof by telephone, teletype or telegraph.
Very truly yours,
R. J. STEICHEN & COMPANY
As Representative
By____________________________________
Signature
Its___________________________________
Title
__________________, 1996.
CONFIRMATION
R. J. STEICHEN & COMPANY
As Representative
Midwest Plaza, Suite 1100
801 Nicollet Mall
Minneapolis, Minnesota 55402
Dear Sirs:
We hereby agree to purchase __________________ shares of common stock,
$.01 par value per share, of Eco Soil Systems, Inc., in accordance with all
terms and conditions stated in the foregoing letter. We hereby acknowledge
receipt of the Prospectus referred to in the first paragraph thereof relating to
said Shares. We further state that in purchasing said Shares we have relied upon
said Prospectus and upon no other statement whatsoever, written or oral. We
hereby confirm that we are a dealer actually engaged in the investment banking
or securities business and that we are either (a) a member in good standing of
the National Association of Securities Dealers. Inc. (the "NASD") or (b) a
dealer with its principal place of business located outside the United States,
its territories and its possessions and not registered as a broker or dealer
under the Securities Exchange Act of 1934 who hereby agrees not to make any
sales within the United States, its territories or its possessions or to persons
who are nationals thereof or residents therein. We hereby agree to comply with
all applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with respect to Free-Riding and Withholding and Rule 2740 of the
Rules of the Association and, if we are a foreign dealer and not a member of the
NASD, we also agree to comply with such Interpretation with respect to
Free-Riding and Withholding and to comply, as though we were a member of the
NASD, with Rules 2730, 2740, 2420 (as such Rule applies to foreign non-members)
and 2750 of Article III of such Rules of the Association. We confirm that we
will not sell any of the Shares to discretionary accounts.
______________________________________
By____________________________________
Authorized Representative
______________________________________
(Address)
______________________________________
Dated: ___________________, 1996.
______________ Shares(1)
ECO SOIL SYSTEMS, INC.
Common Stock
AGREEMENT AMONG UNDERWRITERS
R. J. STEICHEN & COMPANY ______________, 1996
As Representative of the several Underwriters
named in Schedule I to the Underwriting
Agreement described herein
Midwest Plaza, Suite 1100
801 Nicollet Mall
Minneapolis, Minnesota 55402
Dear Sirs:
1. Underwriting Agreement. We understand that an underwriting agreement
(the "Underwriting Agreement") substantially in the form furnished
simultaneously herewith with respect to __________ shares (the "Firm Shares") of
common stock, $.005 per share par value ("Common Stock"), of Eco Soil Systems,
Inc., a Nebraska corporation (the "Company"), proposed to be sold by the Company
is to be entered into among the Company, you and other prospective underwriters,
acting severally and not jointly. The parties on whose behalf you are to execute
the Underwriting Agreement to be named in Schedule I thereto and are herein
called the "Underwriters." The Underwriting Agreement also provides for the
grant by the Company to the several Underwriters of an option, on the terms and
conditions set forth therein, to purchase up to an additional __________ shares
of Common Stock (the "Option Shares"). The Firm Shares and any Option Shares
purchased pursuant to the Underwriting Agreement are hereinafter collectively
called the "Shares." It is also understood that changes may be made to those who
are to be Underwriters and to the respective aggregate number of Shares to be
purchased by them, but that the aggregate number of the Shares to be purchased
by us as set forth in the accompanying form of Underwriting Agreement will not
be changed without our consent except as provided herein or in the Underwriting
Agreement.
2. Registration Statement and Prospectus. As used herein, the terms
"Registration Statement," "Preliminary Prospectus" and "Prospectus" shall have
the meanings ascribed to them in the Underwriting Agreement. You will furnish to
us as soon as possible copies of the Prospectus to be used in connection with
the offering of the Shares. We will confirm that, if requested by you as
Representative, that we have furnished a copy of any amended Preliminary
Prospectus to each person to whom we have furnished a copy of any previous
Preliminary Prospectus, and we confirm that we have delivered and agree that we
will deliver all Preliminary
- --------
(1) Plus an option to purchase up to ___________ additional shares to cover
over-allotments.
Prospectuses and Prospectuses and all supplements thereto required for
compliance with the provisions of Rule 15c2-8 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). We consent to being named in the
Prospectus as one of the Underwriters of the Shares.
3. Authority and Compensation. We hereby authorize you, as our
Representative and on our behalf, to enter into the Underwriting Agreement with
the Company substantially in the form furnished simultaneously herewith and to
take such action as you deem advisable in connection with the performance of the
Underwriting Agreement and this Agreement and the purchase, carrying, sale and
distribution of the Shares. You may waive performance or satisfaction by the
Company of other obligations or conditions included in the Underwriting
Agreement if, in your judgment, such waiver will not have a material adverse
effect upon the interests of the Underwriters.
As compensation for your services, we will pay you an amount equal to
$_____ per share with respect to each share of the Shares which we agree to
purchase under the Underwriting Agreement, and you may charge our account
therefor.
4. Public Offering. In connection with the public offering of the
Shares, we authorize you, in your discretion:
(a) To determine the time of the initial public offering, to
change the public offering price and the concessions and discounts to
dealers after the initial public offering, to furnish the Company with
the information to be included in the Registration Statement or
Prospectus with respect to the terms of offering and to determine all
matters relating to advertising and communications with dealers or
others;
(b) To reserve for sale to dealers selected by you ("Selected
Dealers") and to others, all or any part of our Shares, such
reservations for sales to others to be as nearly as practicable in
proportion to the respective underwriting obligations of the
Underwriters unless you agree to a smaller proportion at the request of
any Underwriter and, from time to time, to add to the reserved Shares
any Shares retained by us remaining unsold and to release to us any of
our Shares reserved but not sold;
(c) To sell reserved Shares, as nearly as practicable in
proportion to the respective reservations, to Selected Dealers at the
public offering price less the Selected Dealers' concession and to
others at the public offering price; and
(d) To buy Shares for our account from Selected Dealers at the
public offering price less such amount not in excess of the Selected
Dealers' concession as you determine.
We authorize you to determine the form and manner of any communications
or agreements with Selected Dealers. If there shall be any agreements with
Selected Dealers, you are authorized to act as manager thereunder, and we agree
in such event to be governed by the terms and conditions of such agreements. The
form of Selected Dealers' Agreement furnished simultaneously herewith is
satisfactory to us.
Sales of Shares between Underwriters may be made with your prior
consent, or as you deem advisable for Blue Sky purposes.
After advice from you that the Shares have been released for public
offering, we will offer to the public in conformity with the terms of offering
set forth in the Prospectus such of our Shares as you advise us are not
reserved.
If, prior to the termination of this Agreement, you shall purchase or
contract to purchase, in the open market or otherwise, any Shares sold by us
(otherwise than through you) pursuant to this Agreement, we agree to repurchase
such Shares on demand at a price equal to the total cost of such purchase made
by you as Representative, including commissions, if any, and transfer taxes on
the redelivery. Certificates for the Shares delivered on such repurchase need
not be the identical certificates so purchased by you. In lieu of such action,
you may in your discretion sell for our account the Shares so purchased and
debit or credit our account for the loss or profit resulting from such sale, or
charge our account with an amount not in excess of the Selected Dealers'
concession with respect to such Shares.
5. Payment and Delivery. We authorize you to make payment on our behalf
to the Company of the purchase price of our Shares, to take delivery of our
Shares, registered as you may direct in order to facilitate deliveries, and to
deliver our reserved Shares against sales. At your request, we will pay you an
amount equal to the public offering price, less the selling concession, of
either our Shares or our unreserved Shares as you direct, and such payment will
be directed to our account and applied to the payment of the purchase price.
After you receive payment for reserved Shares sold for our account, you will
remit to us the purchase price (if any) paid by us for such Shares and credit or
debit our account with the difference between the sale price and the purchase
price thereof. You will deliver to us our unreserved Shares promptly, and our
reserved but unsold Shares against payment of the purchase price therefor
(except in the case of Shares for which payment has previously been made), as
soon as practicable after the termination of the provisions referred to in
Section 9 hereof, except that if the aggregate number of reserved but unsold
Shares upon such termination does not exceed 10% of the total number of the
Shares, you may in your discretion sell such reserved but unsold Shares for the
accounts of the several Underwriters as soon as practicable after such
termination, at such prices and in such manner as you determine.
6. Authority to Borrow. In connection with the purchase or carrying of
our Shares, we authorize you, in your discretion, to advance your funds for our
account, charging current interest rates, to arrange loans for our account, and
in connection therewith to execute and deliver any notes or other instruments
and to hold or pledge as security any of our Shares. Any lender may rely upon
your instructions in all matters relating to any such loan. Any Shares held by
you for our account may be delivered to us for carrying purposes and, if so
delivered, will be redelivered to you upon demand.
7. Stabilization and Over-Allotment. We authorize you, in your
discretion, to make purchases and sales of Shares and of the outstanding shares
of Common Stock, in the open market or otherwise, for long or short account, on
such terms as you deem advisable, and to over-allot in arranging sales. Such
purchases and sales and over-allotments will be made for the accounts of the
Underwriters as nearly as practicable in proportion to their respective
underwriting obligations. We authorize you, in your discretion, to cover any
short position incurred pursuant to this Section by purchasing securities on
such terms as you deem advisable. At no time will our net commitment under the
foregoing provisions of this Section exceed 15% of our underwriting obligation.
We will on demand take up at cost any securities so purchased and deliver any
securities so sold or over-allotted for our account, and, if any other
Underwriter defaults in its corresponding obligation, we will assume our
proportionate share of such obligation without relieving the defaulting
Underwriter from liability. Upon request, we will advise you of the Shares
retained by us and unsold and will sell to you for the account of one or more of
the Underwriters such of our unsold Shares at such price, not less than the net
price to Selected Dealers nor more than the public offering price, as you
determine.
If you effect stabilizing purchases pursuant to Section 7 hereof, you
will notify us promptly of the initiation and termination thereof. If
stabilization is effected, we will furnish to you not later than three business
days following the date on which stabilizing was commenced such information as
is required by Rule 17a-2(d) under the Exchange Act.
8. Open Market Transactions. We and you agree not to bid for, purchase,
attempt to induce others to purchase, or sell, directly or indirectly, any
Shares or outstanding shares of Common Stock, except as brokers pursuant to
unsolicited orders and as otherwise provided in this Agreement.
We represent that we have not participated in any transaction
prohibited by the preceding paragraph and that we have at all times complied
with the provisions of Rules l0b-6 and l0b-6A of the Securities and Exchange
Commission as applicable to the offering of the Shares.
9. Termination. The provisions of the last two paragraphs of Section 4,
the first sentence of Section 7, and all of Section 8 hereof, will terminate at
the close of business on the thirtieth (30th) day after the date of the initial
public offering of the Shares, unless sooner terminated as hereinafter provided.
You may terminate such provisions at any time by notice to us to the effect that
the offering provisions of this Agreement are terminated.
10. Expenses and Settlement. You may charge our account with any
transfer taxes on sales made by you of Shares purchased by us under the
Underwriting Agreement and with our proportionate share (based upon our
underwriting obligation) of all other expenses incurred by you under this
Agreement or in connection with the purchase, carrying, sale or distribution of
the Shares. The accounts hereunder will be settled as promptly as practicable
after the termination of the provisions referred to in Section 9 hereof, but you
may reserve such amount as you may deem advisable for additional expenses. Your
determination of the amount to be paid to or by us will be conclusive. You may
at any time make partial distributions of credit balances or call for payment of
debit balances. Any of our funds in your hands may be held with your general
funds without accountability for interest. Notwithstanding any settlement, we
will remain liable for any taxes on transfers for our account, and for our
proportionate share (based upon our underwriting obligation) of all expenses and
liabilities which may be incurred by or for the accounts of the Underwriters.
11. Default by Underwriters. Default by one or more Underwriters
hereunder or under the Underwriting Agreement will not release the other
Underwriters from their obligations or affect the liability of any defaulting
Underwriter to the other Underwriters for damages resulting from such default.
If one or more Underwriters default under the Underwriting Agreement, you may
arrange for the purchase by others, including nondefaulting Underwriters, of
Shares not taken up by the defaulting Underwriter or Underwriters.
12. Position of Representative. You will be under no liability to us
for any act or omission except for obligations expressly assumed by you herein,
and no obligation on your part will be implied hereby or inferred herefrom. The
rights and liabilities of the Underwriters are several and not joint, and
nothing will constitute the Underwriters a partnership, association or separate
entity.
If for federal income tax purposes the Underwriters should be deemed to
constitute a partnership, then each Underwriter elects to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code
of 1986, as amended. You, as Representative of the several Underwriters, are
authorized, in your discretion, to execute on behalf of the Underwriters such
evidence of such election as may be required by the Internal Revenue Service.
13. Indemnification. We will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Securities Act of 1933, as amended (the "Securities
Act"), or Section 20(a) of the Exchange Act, and reimburse your and their
expenses, to the extent and upon the terms upon which each Underwriter agrees to
indemnity the Company in the Underwriting Agreement.
14. Contribution. Each Underwriter (including you) will pay upon your
request, as contribution, its proportionate share, based upon its underwriting
obligation, of any losses, claims, damages or liabilities, joint or several,
paid or incurred by any Underwriter to any person other than an Underwriter,
arising out of or based upon any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any related Preliminary Prospectus, or any
other selling or advertising material approved by you for use by the
Underwriters in connection with the sale of the Shares, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading (other than an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by an Underwriter specifically for use therein); and will pay such
proportionate share of any legal or other expenses reasonably incurred by you or
with your consent in connection with investigating or defending any such loss,
claim, damage or liability, or any action in respect thereof. In determining the
amount of any Underwriter's obligation under this Section, appropriate
adjustment may be made by you to reflect any amounts received by one or more
Underwriters in respect of such claim from the Company pursuant to Section 6 of
the Underwriting Agreement or otherwise. There shall be credited against any
amount paid or payable by us pursuant to this Section any loss, damage,
liability or expense which is incurred by us as a result of any such claim
asserted against us, and if such loss, claim, damage, liability or expense is
incurred by us subsequent to any payment by us pursuant to this Section,
appropriate provisions shall be made to effect such credit, by refund or
otherwise. If any such claim is asserted, you may take such action in connection
therewith as you deem necessary or desirable, including retention of counsel for
the Underwriters, and in your discretion separate counsel for any particular
Underwriter or group of Underwriters, and the fees and disbursements of any
counsel so retained by you shall be included in the amount payable pursuant to
this Section. In determining amounts payable pursuant to this Section, any loss,
claim, damage, liability or expense incurred by any person controlling any
Underwriter within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act which has been incurred by reason of such control
relationship shall be deemed to have been incurred by such Underwriter. Any
Underwriter may elect to retain at its own expense its own counsel. You may
settle or consent to the settlement of any such claim, on advice of counsel
retained by you, with the approval of a majority in interest of the
Underwriters. Whenever you receive notice of the assertion of any claim to which
the provisions of this Section would be applicable, you will give prompt notice
thereof to each Underwriter. You will furnish each Underwriter with periodic
reports, at such times as you deem appropriate, as to the status of such claim
and the action taken by you in connection therewith. If any Underwriter or
Underwriters default in their obligation to make any payments under this
Section, each nondefaulting Underwriter shall be obligated to pay its
proportionate share of all defaulted payments, based upon such Underwriter's
underwriting obligation as related to the underwriting obligations of all
nondefaulting Underwriters.
15. Reports and Blue Sky Matters. We authorize you to file with the
Securities and Exchange Commission and any other governmental agency any reports
required in connection with any transaction effected by you for our account
pursuant to this Agreement, and we will furnish any information needed for such
reports. You will not have any responsibility with respect to the right of any
Underwriter or other person to sell the Shares in any jurisdiction,
notwithstanding any information you may furnish in that connection.
16. Miscellaneous. Any notice hereunder from you to us or from us to
you shall be deemed to have been duly given when sent by mail, telegram or
delivered in person, if to us, at the address stated in the Underwriters'
Questionnaire or telex constituting Questionnaire which we have furnished in
connection with this offering or, if to you, to R. J. Steichen & Company,
Midwest Plaza, Suite 1100, 801 Nicollet Mall, Minneapolis, Minnesota 55402.
We understand that you are members in good standing of the National
Association of Securities Dealers, Inc. ("NASD"). We hereby confirm that we are
either (i) a member in good standing of the NASD or (ii) a dealer with its
principal place of business located outside the United States, its territories
and its possessions and not registered as a broker or dealer under the Exchange
Act who agrees not to make any sales within the United States, its territories
or its possessions or to persons who are nationals thereof or residents therein.
We hereby agree to comply with all applicable rules of the NASD, including,
without limitation, the NASD's Interpretation with respect to Free-Riding and
Withholding and Rule 2740 of the Rules of the Association and, if we are a
foreign dealer and not a member of the NASD, to comply with such Interpretation
with respect to Free-Riding and Withholding and the provisions of Rules 2730,
2740, 2420 (as such Section applies to foreign nonmembers) and 2750 of Article
III of such Rules of the Association as though we were a member of the NASD. In
connection with the sales and offers to sell Shares made by us outside the
United States (x) we will either furnish to each person to whom any such sale or
offer is made a copy of the then current Preliminary Prospectus or the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), as the case may be, or inform such
person that such Preliminary Prospectus or Prospectus will be available upon
request and (y) we will furnish to each person to whom any such sale or offer is
made such Prospectus, advertisement or other offering document containing
information relating to the Shares or the Company as may be required under the
law of the jurisdiction in which such offer or sale is made. Any prospectus,
advertisement or other offering document furnished by us to any such person in
accordance with the preceding sentence and any such additional offering material
as we may furnish to any person (A) shall comply in all respects with the law of
the jurisdiction in which it is so furnished, (B) shall be prepared and so
furnished at our sole risk and expense, and (C) shall not contain information
relating to the Shares or the Company which is inconsistent in any respect with
the information contained in the then current Preliminary Prospectus or in the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), as the case may be. We confirm that we
will not make sales of the Shares to discretionary accounts.
This instrument may be signed by the Underwriters in various
counterparts which together shall constitute one and the same agreement among
all the Underwriters and shall become effective at such time as all the
Underwriters shall have signed such counterparts and you shall have confirmed
all such counterparts.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
_______________________________________
[Type or Print Firm Name]
By____________________________________
Signature of Authorized Representative
_______________________________________
Name of Authorized Representative Typed
or Printed
Its_____________________________________
Title of Authorized Representative Typed
or Printed
Accepted and confirmed as of the date first above written.
R. J. STEICHEN & COMPANY
As Representative
By: ___________________________________
Its____________________________________
BYLAWS
OF
ECO SOIL SYSTEMS, INC.
ARTICLE I.
Offices, Corporate Seal
Section 1.01. Offices. The Corporation shall have a registered
office, a principal office and such other offices as the Board of Directors may
determine.
The registered office of the corporation required by the
Nebraska Business Corporation Act to be maintained in the State of Nebraska may
be, but need not be, identical with the principal office in the State of
Nebraska, and the address of the registered office may be changed from time to
time by the Board of Directors.
Section 1.02. Corporate Seal. The Board of
Directors shall provide a corporate seal which shall be circular in form
and shall have inscribed thereon the name of the corporation and the
words, "Corporate Seal."
ARTICLE II.
Meetings of Shareholders
Section 2.01. Place and Time of Meetings. Meetings of the
shareholders may be held at such place and at such time as may be designated by
the Board of Directors. In the absence of a designation of place, this meeting
shall be held at the principal office. In the absence of a designation of time,
the meeting shall be held at l0:00 a.m.
Section 2.02. Annual Meetings.
(a) The annual meeting of the shareholders of the Corporation
shall be held on such business day as the Board of Directors shall determine.
(b) At an annual meeting the shareholders, voting as provided
in the articles of incorporation and these Bylaws, shall elect qualified
successors for directors who serve for an indefinite term or whose terms have
expired or are due to expire within six months after the date of the meeting and
shall transact such other business as may properly come before them.
(c) To be properly brought before an annual meeting of
shareholders, business must be (1) specified in the notice of the meeting, (2)
directed to be brought before the meeting by the Board of Directors or (3)
proposed at the meeting by a shareholder who (i) was a shareholder of record at
the time of giving of notice provided for in these Bylaws, (ii) is entitled to
vote at the meeting and (iii) gives prior notice of the matter, which must
otherwise be a proper matter for shareholder action, in the manner herein
provided. For business to be properly brought before a regular meeting by a
shareholder, the shareholder must give written notice to the Secretary of the
Corporation so as to be received at the principal executive offices of the
Corporation not later than the close of business on the fifteenth day following
the day on which the notice of the annual meeting was mailed to shareholders.
Such notice shall set forth (1) the name and record address of the shareholder
and of the beneficial owner, if any, on whose behalf the proposal will be made,
(2) the class and number of shares of the Corporation owned by the shareholder
and beneficially owned by the beneficial owner, if any, on whose behalf the
proposal will be made, (3) a brief description of the business desired to be
brought before the regular meeting and the reasons for conducting such business,
and (4) any material interest in such business of the shareholder and the
beneficial owner, if any, on whose behalf the proposal is made. The chair of the
meeting may refuse to acknowledge any proposed business not made in compliance
with the foregoing procedure.
Section 2.03. Special Meetings. Special meetings of the
shareholders for any purpose or purposes shall be called by the Secretary at the
request of two or more directors, by the Chairman of the Board, by the President
or by the President at the request of shareholders owning a majority of the
shares outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed special meeting. Within 30 days after receipt of such a
request by one of those officers, the Board of Directors shall cause a special
meeting of shareholders to be called and held on notice no later than 90 days
after receipt of the request, at the expense of the Corporation. Special
meetings shall be held on the date and at the time and place fixed by the
President or the Board of Directors, except that a special meeting called by or
at demand of a shareholder or shareholders shall be held in the county where the
principal executive office is located. Business transacted at any special
meeting shall be limited to the purposes stated in the notice.
Section 2.04. Quorum, Adjourned Meetings. The holders of a
majority of the shares outstanding and entitled to vote, represented in person
or by proxy, shall constitute a quorum for the transaction of business at any
annual or special meeting. If a quorum is not present at a meeting, a majority
of those shares as represented shall adjourn to such day as they shall agree.
Notice of any adjourned meeting need not be given if the time and place thereof
are announced at the meeting at which the adjournment is taken. At an adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the meeting as originally noticed. If a quorum is
present, the shareholders may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 2.05. Organization. At each meeting of the
shareholders, the Chairman of the Board or in the absence of the Chairman of the
Board, the President, or in the absence of the President, the chairman chosen by
a majority in voting interest of the shareholders present in person or by proxy
and entitled to vote, shall act as chairman; and the Secretary of the
Corporation, or in the absence of the Secretary, an Assistant Secretary, or in
the absence of an Assistant Secretary, any person whom the chairman of the
meeting shall appoint shall act as secretary of the meeting.
Section 2.06. Order of Business. The order of business at all
meetings of the shareholders shall be determined by the chairman of the meeting,
but such order of business may be changed by the vote of a majority in voting
interest of those present or represented at such meeting and entitled to vote
thereat.
Section 2.07. Voting. Subject to the provisions of this
Section 2.07 describing voting for directors, each outstanding share entitled to
vote shall be entitled to one (1) vote upon each matter submitted to a vote at a
meeting of shareholders. Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxy as the bylaws
of such corporation may prescribe, or, in the absence of such provision, as the
board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by such person,
either in person or by proxy, without a transfer of such shares into such
person's name. Shares standing in the name of a trustee may be voted by such
trustee, either in person or by proxy, but no trustee shall be entitled to vote
shares held by such trustee without a transfer of such shares into such
trustee's name. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver, and shares held
by or under the control of a receiver may be voted by such receiver without the
transfer thereof into such receiver's name if authority so to do be contained in
an appropriate order of the court by which such reciever was appointed. A
shareholder whose shares are pledged shall be entitled to vote such shares until
the shares have been transferred into the name of the pledgee, and thereafter
the pledgee shall be entitled to vote the shares so transferred. Neither
treasury shares, nor shares held by another corporation if a majority of the
shares entitled to vote for the election of directors of such other corporation
is held by the Corporation, shall be voted at any meeting, or counted in
determining the total number of outstanding shares at any given time.
Section 2.08. Cumulative Voting. At each election for
directors, every shareholder entitled to vote at such election shall have the
right to vote, in person or by proxy, the number of shares owned by such
shareholder for as many persons as there are directors to be elected and for
whose election such shareholder has a right to vote, or to cumulate such
shareholder's votes by giving one candidate as many votes as the number of such
directors multiplied by the number of such shareholder's shares shall equal, or
by distributing such votes on the same principal among any number of candidates.
Section 2.09. Inspectors of Election. At each meeting of the
shareholders, the chairman of such meeting may appoint two inspectors of
election to act. Each inspector of election so appointed shall first subscribe
an oath or affirmation briefly to execute the duties of an inspector of election
at such meeting with strict impartiality and according to the best of such
inspector of election's ability. Such inspector of election, if any, shall take
charge of the ballots at such meeting and after the balloting thereat on any
question shall count the ballots cast thereon and shall make a report in writing
to the Secretary of such meeting of the results thereof. An inspector of
election need not be a shareholder of the Corporation, and any officer or
employee of the Corporation may be an inspector of election on any question
other than a vote for or against the election of such inspector of election to
any position with the Corporation or on any other question in which such
inspector of election may be directly interested.
Section 2.10. Notices of Meetings and Consents. Every
shareholder shall furnish the Secretary of the Corporation with an address at
which notices of meetings, notices and consent material with respect to proposed
corporate action without a meeting and all other corporate communications may be
served on or mailed to such shareholder. Except as otherwise provided by the
Articles of Incorporation or by statute, a written notice stating the place, day
and hour of each annual and special meeting of shareholders and, in the case of
a special meeting, the purpose or purposes for which the meeting is called,
shall be given not less than l0 nor more than 50 days before the date of such
meeting or the date on which the corporate action without a meeting is proposed
to be taken, to each shareholder of record of the Corporation entitled to vote
at such meeting, by delivering such notice of meeting to such shareholder
personally or depositing the same in the United States mail, postage prepaid,
directed to such shareholder at the post office address shown upon the records
of the Corporation. Service of notice is complete upon mailing. Personal
delivery to any officer of a Corporation or association or to any member of a
partnership is delivery to such Corporation, association or partnership.
Section 2.11. Proxies. At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the shareholder or by his
duly authorized attorney in fact. Such proxy shall be filed with the Secretary
of the corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. Subject to the above, any proxy may be revoked if an
instrument revoking it, or a proxy bearing a later date, is filed with the
Secretary of the Corporation.
Section 2.12. Written Action. Any action that may be taken at
a meeting of the shareholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the actions so
taken, shall be signed by all of the shareholders entitled to vote with respect
to the subject matter thereof. Such consent shall have the same force and effect
as a unanimous vote of the shareholders.
Section 2.13. Shareholder List. The officer who has charge of
the stock transfer books of the Corporation shall prepare and make, at least ten
days before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order and showing the
address of each shareholder and the number of shares registered in the name of
each shareholder. Such list shall be open to the examination of any shareholder
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
shareholder who is present. The original stock transfer book shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders.
ARTICLE III.
Board of Directors
Section 3.01. General Powers. The business of the Corporation
shall be managed by the Board of Directors.
Section 3.02. Number, Qualification and Term of Office. The
number of directors shall be established by a resolution adopted by a majority
of the total number of directors. The directors of the Corporation shall be
divided into three classes, as nearly equal in number as reasonably possible, to
serve for staggered terms of three years, except that one initial class of
directors will hold office for a two-year term and one initial class will hold
office for a one-year term. Directors need not be shareholders or residents of
the State of Nebraska. Each director shall hold office until the annual meeting
of shareholders held three years after such director's election or until the
shareholders have elected directors by consent in writing without a meeting and
until such director's successor is elected and qualified or until such
director's earlier death, resignation or removal.
Section 3.03. Annual Meeting. As soon as practicable after
each election of directors, the Board of Directors shall meet at the registered
office of the Corporation, or at such other place previously designated by the
Board of Directors, for the purpose of electing the officers of the Corporation
and for the transaction of such other business as may come before the meeting.
Section 3.04. Regular Meetings. Regular meetings of the Board
of Directors shall be held from time to time at such time and place as may be
fixed by resolution adopted by a majority of the total number of directors.
Section 3.05. Special Meetings. Special meetings of the Board
of Directors may be called by the Chairman of the Board, the President, or by
any two of the directors and shall be held from time to time at such time and
place as may be designated in the notice of such meeting.
Section 3.06. Notice of Meetings. No notice need be given of
any annual or regular meeting of the Board of Directors. Notice of any special
meeting shall be given at least ten (10) days previously thereto by written
notice delivered personally or mailed to each director at such director's
business address, or by telegram. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company. Any
director may waive notice of any meeting. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except when a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the Board of Directors, need be specified in the
notice or waiver of notice of such meeting.
Section 3.07. Quorum. A majority of the total number of
directors shall constitute a quorum for the transaction of business, but a
majority of the directors present may adjourn the meeting from time to time
without further notice. 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
unless these Bylaws require a greater number.
Section 3.08. Vacancies. Any vacancy among the directors, or
increase in the authorized number of directors, shall be filled for the
unexpired term by a majority of the directors then in office, even if less than
a quorum, or by the sole remaining director. When one or more directors shall
resign from the Board, effective at a future date, a majority of the directors
then in office may fill such vacancy or vacancies to take effect when such
resignation or resignations shall become effective.
Section 3.09. Removal. Any director may be removed from office
for cause at any special meeting of the shareholders called expressly for that
purpose by a vote of the holders of a majority of the shares then entitled to
vote at an election of directors. If the entire Board of Directors or any one or
more directors are so removed, new directors shall be elected at the same
meeting.
Section 3.10. Committees of Directors. The Board of Directors
may, by resolution adopted by a majority of the total number of directors,
designate one or more committees, each to consist of two or more of the
directors of the Corporation, which, to the extent provided in the resolution,
may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation. The Board of Directors 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. Such committee or
committees shall have such name or names as may be determined by the resolution
adopted by the directors. The committees shall keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
Section 3.11. Written Action. Any action required or permitted
to be taken at a meeting of the Board of Directors or any committee thereof may
be taken without a meeting if all directors or committee members consent thereto
in writing and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee.
Section 3.12. Compensation. Directors who are not salaried
officers of the Corporation may receive a fixed sum per meeting attended or a
fixed annual sum and such other forms of reasonable compensation as may be
determined by resolution of the Board of Directors. All directors shall receive
their expenses, if any, of attendance at meetings of the Board of Directors or
any committee thereof. Any director may serve the Corporation in any other
capacity and receive proper compensation therefor.
Section 3.13. Conference Communications. Directors may
participate in any meeting of the Board of Directors, or of any duly constituted
committee thereof, by means of a conference telephone conversation or other
comparable communication technique whereby all persons participating in the
meeting can hear and communicate to each other. For the purposes of establishing
a quorum and taking any action at the meeting, such directors participating
pursuant to this Section 3.l4 shall be deemed present in person at the meeting;
and the place of the meeting shall be the place of origination of the conference
telephone conversation or other comparable communication technique.
Section 3.14. Presumption of Assent. A director of the
corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless such director's dissent shall be entered in the minutes
of the meeting or unless such director shall file a 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 who voted in favor of such
action.
ARTICLE IV.
Officers
Section 4.01. Number. The officers of the Corporation shall
consist of a President, at least one Vice President, a Secretary, a Treasurer,
and any officers and agents as the Board of Directors by a majority vote of the
total number of directors may designate. Any person may hold two or more
offices.
Section 4.02. Election, Term of Office and Qualifications. At
the first meeting after each annual meeting of the Board of Directors all
officers, from within or without their number, shall be elected. Such officers
shall hold office until their successors are elected and qualified, or until
such office is eliminated by a vote of the majority of all directors. Officers
who may be directors shall hold office until the election and qualification of
their successors, notwithstanding an earlier termination of their directorship.
Section 4.03. Removal and Vacancies. Any officer may be
removed from such office by a majority vote of the total number of directors
with or without cause. Such removal shall be without prejudice to the contract
rights of the person so removed. A vacancy among the officers by death,
resignation, removal, or otherwise shall be filled for the unexpired term by the
Board of Directors.
Section 4.04. Chairman of the Board. The Chairman of the
Board, if one is elected, shall preside at all meetings of the shareholders and
directors and shall have such other duties as may be prescribed, from time to
time, by the Board of Directors.
Section 4.05. President. The President shall have general
active management of the business of the Corporation and shall preside at all
meetings of the shareholders and directors. The President shall be the chief
executive officer of the Corporation and shall see that all orders and
resolutions of the directors are carried into effect. The President shall be ex
officio a member of all standing committees. The President may execute and
deliver in the name of the Corporation any deeds, mortgages, bonds, contracts or
other instruments pertaining to the business of the Corporation, except in cases
where the signing and execution thereof shall be expressly delegated by the
Board of Directors or by these Bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed and
in general shall perform all duties usually incident to the office of the
president. The President shall have such other duties as may, from time to time,
be prescribed by the Board of Directors.
Section 4.06. Vice President. Each Vice President shall have
such powers and shall perform such duties as may be prescribed by the Board of
Directors or by the President. In the event of absence or disability of the
President, Vice Presidents shall succeed to the power and duties of the
President in the order designated by the Board of Directors.
Section 4.07. Secretary. The Secretary shall be secretary of
and shall attend all meetings of the shareholders and Board of Directors and
shall record all proceedings of such meetings in the minute book of the
Corporation. The Secretary shall give proper notice of meetings of shareholders
and the Board of Directors. The Secretary shall perform such other duties as may
from time to time be prescribed by the Board of Directors or by the President.
Section 4.08. Treasurer. The Treasurer shall keep accurate
accounts of all moneys of the Corporation received or disbursed. The Treasurer
shall deposit all moneys, drafts and checks in the name of and to the credit of
the Corporation in such banks and depositaries as a majority of the whole Board
of Directors shall from time to time designate. The Treasurer shall have power
to endorse for deposit all notes, checks and drafts received by the Corporation.
The Treasurer shall disburse the funds of the Corporation as ordered by the
directors, making proper vouchers therefor. The Treasurer shall render to the
President and the Board of Directors whenever required an account of all the
Treasurer's transactions as Treasurer and of the financial condition of the
Corporation, and shall perform such other duties as may from time to time be
prescribed by the Board of Directors or by the President.
Section 4.09. Assistant Secretaries and Assistant Treasurers.
The Assistant Secretaries, when authorized by the Board of Directors, may sign
with the President or a Vice-President certificates for shares of the
Corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall, if required by the Board
of Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the President or the Baord of Directors.
Section 4.10. Duties of Other Officers. The duties of such
other officers and agents as the Board of Directors may designate shall be set
forth in the resolution creating such office or by subsequent resolution.
Section 4.11. Compensation. The officers of the Corporation
shall receive such compensation for their services as may be determined from
time to time by resolution of the Board of Directors or by one or more
committees to the extent so authorized from time to time by the Board of
Directors.
ARTICLE V.
Shares and Their Transfer
Section 5.01. Certificates for Shares. Every holder of shares
in the Corporation shall be entitled to a certificate, to be in such form as
shall be prescribed by the Board of Directors, certifying the number of shares
in the Corporation owned by such shareholder. Certificates representing shares
of the corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a
Vice-President and by the Secretary or an Assistant Secretary. All certificates
for shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. Every certificate surrendered to the Corporation for
exchange or transfer shall be cancelled, and no new certificate or certificates
shall be issued in exchange for any existing certificate until such certificate
shall have been so cancelled, except in cases provided for in Section 5.04.
Section 5.02. Issuance of Shares. The Board of Directors is
authorized to cause to be issued shares of the Corporation up to the full amount
authorized by the Articles of Incorporation in such amounts and for such
consideration as may be determined by the Board of Directors. No shares shall be
allotted except in consideration of cash, labor, personal property, or real
property, or leases thereof, or of an amount transferred from surplus to stated
capital upon a share dividend. At the time of such allotment of shares, the
Board of Directors shall state its determination of the fair value to the
Corporation in monetary terms of any consideration other than cash for which
shares are allotted. Shares so issued shall be fully paid and nonassessable. The
amount of consideration to be received in cash or otherwise shall not be less
than the par value of the shares so allotted. Treasury shares may be disposed of
by the Corporation for such consideration, expressed in dollars, as may be fixed
by the Board of Directors.
Section 5.03. Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the Corporation by
the holder or record thereof or by such person's legal representative, who shall
furnish proper evidence of authority to transfer, or by such person's attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the Corporation, and on surrender for cancellation of the
certificate for such shares. The person in whose name shares stand on the books
of the Corporation shall be deemed by the Corporation to be the owner thereof
for all purposes.
Section 5.04. Loss of Certificates. Any shareholder claiming a
certificate for shares to be lost, stolen or destroyed shall make an affidavit
of that fact in such form as the Board of Directors may require and shall, if
the Board of Directors so requires, give the Corporation a bond of indemnity in
form, in an amount, and with one or more sureties satisfactory to the Board of
Directors, to indemnify the Corporation against any claims that may be made
against it on account of the alleged loss, theft or destruction of the
certificate or issuance of such new certificate. A new certificate may then be
issued in the same tenor and for the same number of shares as the one claimed to
have been lost, stolen or destroyed.
Section 5.05. Facsimile Signatures. Whenever any certificate
is countersigned by a transfer agent or by a registrar other than the
Corporation or its employee, then the signatures of the officers or agents of
the Corporation may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed on any
such certificate shall cease to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation as though
the person who signed such certificate or whose facsimile signature or
signatures had been placed thereon were such officer, transfer agent or
registrar at the date of issue.
ARTICLE VI.
Dividends, Surplus, Etc.
Section 6.01. Dividends. The Board of Directors may declare
dividends on its outstanding shares from the Corporation's surplus, or if there
be none, out of its net profits for the current fiscal year, and/or the
preceding fiscal year in such amounts as are advisable in view of their
evaluation of the affairs of the Corporation in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.
Section 6.02. Use of Surplus and Reserves. The Board of
Directors may use any of the Corporation's property or funds, unless such would
cause an impairment of capital, in purchasing any of the shares, bonds,
debentures, notes, scrip or other securities or evidences of indebtedness of the
Corporation. The Board of Directors may from time to time set aside from the
Corporation's surplus or net profits such sums as it deems proper as a reserve
fund for any purpose.
ARTICLE VII.
Books and Records, Audit, Fiscal Year
Section 7.01. Books and Records. The Board of Directors of the
Corporation shall cause to be kept: (a) a stock transfer book which shall be a
charge of an officer designated by the Board of Directors; (b) records of all
proceedings of shareholders and directors; and (c) such other records and books
of account as shall be necessary and appropriate to the conduct of the corporate
business.
Section 7.02. Audit. The Board of Directors shall cause the
records and books of account of the Corporation to be audited at least once in
each fiscal year and at such other times as it may deem necessary or
appropriate.
Section 7.03. Annual Report. The Board of Directors shall
cause to be filed with the Nebraska Secretary of State in each year the annual
report required by law.
Section 7.04. Fiscal Year. The fiscal year of the Corporation
shall be fixed by a resolution of the Board of Directors.
Section 7.05. Examination by Shareholders. Any shareholder of
record of the Corporation, upon written demand under oath stating the purpose
thereof, shall have the right to inspect in person or by agent or attorney,
during usual business hours, for any proper purpose, the Corporation's stock
transfer book, a list of its shareholders and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a shareholder. Holders of voting
trust certificates representing shares of the Corporation shall be regarded as
shareholders for the purpose of this section 7.05. In every instance where an
attorney or other agent shall be the person who seeks the right to inspection,
the demand under oath shall be accompanied by a power of attorney or such other
writing which authorizes the attorney or other agent to so act on behalf of the
shareholder. The demand under oath shall be directed to the Corporation at its
registered office in Nebraska or at its principal office.
ARTICLE VIII.
Indemnification
Section 8.01. Indemnification. The Corporation shall indemnify
such persons for such liabilities in such manner under such circumstances and to
such extent as permitted by Section 21-2004(15) of the Nebraska Business
Corporation Act, as now enacted or hereafter amended. The Board of Directors may
authorize the purchase and maintenance of insurance and/or the execution of
individual agreements for the purpose of such indemnification, and the
Corporation shall advance all reasonable costs and expenses (including
attorneys' fees) incurred in defending any action, suit or proceeding involving
all persons entitled to indemnification under this section 8.01, all in the
manner, under the circumstances and to the extent permitted by Section
21-2004(15) of the Nebraska Business Corporation Act, as now enacted or
hereafter amended.
ARTICLE IX.
Miscellaneous
Section 9.01. Fixing Date for Determination of Shareholders of
Record. (a) In order that the Corporation may determine the shareholders
entitled to receive notice of, or to vote at, any meeting of shareholders or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, 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 shares or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than 50 nor less than l0 days before the
date of such meeting, nor more than 50 days prior to any other action.
(b) If the stock transfer books are not closed and no record
date is fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, or shareholders entitled to receive payment
of a dividend, in the manner prescribed by law, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders.
(c) A determination of shareholders of record entitled to
notice of or to vote at a meeting of shareholders 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.
Section 9.02. Periods of Time. During any period of time
prescribed by these Bylaws, the date from which the designated period of time
begins to run shall not be included, and the last day of the period so computed
shall be included.
Section 9.03. Voting Securities Held by the Corporation.
Unless otherwise ordered by the Board of Directors, the President shall have
full power and authority on behalf of the Corporation (a) to attend and to vote
at any meeting of security holders of other corporations in which the
Corporation may hold securities; (b) to execute any proxy for such meeting on
behalf of the Corporation; and (c) to execute a written action in lieu of a
meeting of such other corporation on behalf of the Corporation. At such meeting,
by such proxy or by such writing in lieu of meeting, the President shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities that the Corporation might have possessed and exercised if it had
been present. The Board of Directors may, from time to time, confer like powers
upon any other person or persons.
Section 9.04. Purchase and Sale of Securities. Unless
otherwise ordered by the Board of Directors, the President shall have full power
and authority on behalf of the Corporation to purchase, sell, transfer or
encumber any and all securities of any other corporation owned by the
Corporation and may execute and deliver such documents as may be necessary to
effectuate such purchase, sale, transfer or encumbrance. The Board of Directors
may, from time to time, confer like powers upon any other person or persons.
Section 9.05. Contracts. The Board of Directors may authorize
any officer or officers, agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or confined to specific instances.
Section 9.06. Checks, Drafts, Etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation shall be signed by such officer or officers,
agent or agents of the Corporation and in such manner as shall from time to time
be determined by resolution of the Board of Directors.
Section 9.07. Waiver of Notice. Whenever any notice is
required to be given to any shareholder or director of the Corporation under the
provisions of these Bylaws or under the provisions of the Articles of
Incorporation or under the provisions of the Nebraska Business Corporation Act,
such shareholder or director may waive the notice orally or in a writing signed
by the person or persons entitled to such notice, whether before or after the
time stated therein. Such waiver shall be deemed equivalent to the giving of
such notice.
ARTICLE X.
Amendments
Section 10.01. Amendments. These Bylaws may be amended,
altered or repealed, and new Bylaws may te adopted, by a vote of the majority of
the total number of directors or of the shareholders at any meeting upon proper
notice.
The undersigned, Secretary of Eco Soil Systems, Inc., a
Nebraska corporation, does hereby certify that the foregoing Amended and
Restated Bylaws are the Amended and Restated Bylaws adopted for the Corporation
by its Board of Directors at a meeting held on November 7, 1996.
___________________________
Secretary
October 14, 1987
INCORPORATED UNDER THE LAWS OF THE STATE OF NEBRASKA
NUMBER:_____ SHARES:_____
ECO SOIL SYSTEMS, INC.
AUTHORIZED STOCK 25,000,000
This certifies that _______________________________ is the
registered holder of ___________________________ Shares
ECO SOIL SYSTEMS, INC. FULLY PAID AND NON-ASSESSABLE
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ______ day of _____________, A.D. 19___.
________________________________ ________________________________
Secretary President
For Value Received, ______ hereby sell, assign and transfer ________________
unto _________________________________ Shares represented by the within
Certificate, and do hereby irrevocably constitute and appoint
_____________________________________ Attorney to transfer the said Shares on
the books of the within named Corporation with full power of substitution in the
premises.
Dated:_____________ 19 ____
IN PRESENCE OF
__________________________________
__________________________________
ECO SOIL SYSTEMS, INC.
STOCK OPTION PLAN
Article I. Establishment and Purpose
1.1 Establishment. Eco Soil Systems, Inc., a Nebraska Corporation
("Company"), hereby establishes a stock option plan for employees and other
providing services to the Company as described herein, which shall be known as
the "STOCK OPTION PLAN OF 1992" (the "Plan"). It is intended that certain of the
options issued pursuant to the Plan to employment of the Company may constitute
incentive stock options within the meaning of section 422 of the Internal
Revenue Code, and that other options issued pursuant to the Plan shall
constitute nonstatutory options. The board shall determine which options are to
be incentive stock options and which are to be nonstatutory options and shall
enter into option agreements with recipients accordingly.
1.2 Purposes. The purpose of this Plan is to enhance stockholder
investment by attracting, retaining and motivating key employees and consultants
of the Company, and to encourage stock ownership by such employees and
consultants by providing them with a means to acquire a proprietary interest in
eh Company's success.
Article II. Definitions
2.1 Definitions. Whenever used herein, the following terms shall have
the respective meanings set forth below, unless the context clearly requires
otherwise, and when said meaning is intended, the term shall be capitalized.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee provided for by Article
IV hereof, which may be created at the discretion of the
board.
(d) "Company" means Eco Soil Systems, Inc., a Nebraska
Corporation.
(e) "Consultant" means any person or entity, including an officer
as director of the Company, who provides services (other than
as a Employe) to the Company.
(f) "Date of Exercise" means the date the Company receives notice,
by an Optionee, of the exercise of an Option pursuant to
section 8.1 of this Plan. Such notice shall indicate the
number of shares of Stock the Optionee intends to exercise.
(g) "Employee" means any person, including an officer or director
of the Company, who is employed by the Company.
(h) "Fair Market Value" means the fair market value of Stock upon
which an option is granted under this Plan.
(i) "Incentive Stock Option" means an Option granted under this
Plan which is intended to qualify as an "incentive stock
option" within the meaning of Section 422 of the Code.
(j) "Nonstatutory Option" means an Option granted under this Plan
which is not intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code. Nonstatutory
Options may be granted at such times and subject to such
restrictions as the Board shall determine without conforming
to the statutory rules of Section 422 of the Code applicable
to incentive stock options.
(k) "Option" means the right, granted under this Plan, to purchase
Stock of the Company at the option price for a specified
period of time. For purposes of this Plan, an Option may be
either an Incentive Stock Option or a Nonstatutory Option.
(l) "Optionee" means an Employee or consultant holding an Option
under the Plan.
(m) "Parent Corporation" shall have the meaning set forth in
Section 424(3) of the Code with the Company being treated as
the employer corporation for purposes of this definition.
(n) "Subsidiary Corporation" shall have the meaning set forth in
Section 24(f) of the Code with the Company being treated as
the employer corporation for purposes of this definition.
(o) "Significant Shareholder" means an individual who, within the
meaning of section 422(b)(6) of the Code, owns stock
possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any Parent
Corporation or Subsidiary Corporation of the Company. In
determining whether an individual is a Significant
Shareholder, and individual shall be treated as owning stock
owned by certain relatives of the individual and certain stock
owned by corporations in which the individual is a
shareholder, partnerships in which the individual is a
partner,m and estates or trusts of which the individual is a
beneficiary, all as provided in Section 424(d) of the Code.
(p) "Stock" means the one-half cent per value common stock of the
Company.
2.2 Gender and Number. Except when otherwise indicated by the context,
any masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
Article III. Eligibility and Participation
3.1 Eligibility and Participation. All Employees are eligible to
participate in this Plan and receive Incentive Stock Options and/or Nonstatutory
Options hereunder. All Consultants are eligible to participate in this Plan and
receive Nonstatutory Options hereunder. Optionees in the Plan shall be selected
by the Board from among those Employees and Consultants who, in the opinion of
the Board, are in a position to contribute materially to the Company's continued
growth and development and to its long-term financial success.
Article IV. Administration
4.1 Administration. The Board shall be responsible for
administering the Plan.
The Board is authorized to interpret the Plan; to prescribe, amend, and
rescind rules and regulations relating to the Plan; to provide for conditions
and assurances deemed necessary or advisable to protect the interests of the
Company and to take all other determinations necessary or advisable for the
administration of the Plan, but only to the extent not contrary to the express
provisions of the Plan. Determinations, interpretations, or other actions made
or taken by the Board pursuant to the provisions of this Plan shall be final and
binding and conclusive for all purposes and upon all persons.
At the discretion of the Board this Plan may be administered by a
Committee which shall be an executive committee of the Board, consisting of not
less than three (3) members of the Board. The members of such Committee may be
directors who are eligible to receive Options under this Plan, but Options may
be granted to such persons only by actions of the full Board and not by action
of the Committee. Such Committee shall have full power and authority, subject to
the limitations of the Plan and any limitations imposed by the Board, to
construe, interpret and administer this Plan and to make determinations which
shall be final, conclusive and binding upon all persons, including, without
limitation, the Company, the stockholders, the directors and any persons having
any interests in any Options which may be granted under this Plan, and, by
resolution or resolution providing for the creation and issuance of any such
Option, to fix the terms upon which, the time or times at or within which, and
the price or prices at which any such shares may be purchased from the Company
upon the exercise of such Option, which terms, time or times and price or prices
shall, in every case, be set forth or incorporated by reference to the
instrument or instruments evidencing such Option, and shall be consistent with
the provisions of this Plan.
The Board may from time to time remove members from, or add members to,
the Committee. The Board may terminate the committee at any time. Vacancies on
the committee, howsoever caused, shall be filled by the Board. The Committee
shall select one of its members as Chairman, and shall hold meetings at such
times and places as the Chairman may determine. A majority of the Committee at
which a quorum is present, or acts reduced to or approved in writing by all of
the members of the Committee, shall be the valid acts of the Committee. A quorum
shall consist of two-thirds (2/3) of the members of the Committee.
Where the Committee has been created by the Board, references herein to
actions to be taken by the Board shall be deemed to refer to the committee as
well, except where limited by this Plan or by the Board.
The Board shall have all of the enumerated powers of the Committee, but
shall not be limited to such powers. No member of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option granted under it.
Article V. Stock Subject to the Plan.
5.1 Number. The total number of shares of Stock hereby made available
and reserved for issuance under the Plan shall be 125,000. The aggregate number
of shares of Stock available under this Plan shall be subject to adjustment as
provided in section 5.3. The total number of shares of Stock may be authorized
but unissued shares of Stock, or shares acquired by purchase as directed by the
Board from time to time in its discretion, to be used for issuance upon exercise
of Options granted hereunder.
5.2 Unused Stock. If an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares of Stock subject
thereto shall (unless the Plan shall have terminated) become available for other
Options under the Plan.
5.3 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, or another similar corporate change, the
aggregate number of shares of Stock set forth in section 5.1 shall be
appropriately adjusted by the Board, whose determination shall be conclusive;
provided however, that fractional shares shall be rounded to the nearest whole
share. In any such case, the number and kind of shares that are subject to any
Option (including any Option outstanding after termination of employment) and
the Option price per share shall be proportionately and appropriately adjusted
without any change in the aggregate Option price to be paid therefor upon
exercise of the Option.
Article VI. Duration of the Plan
6.1 Duration of the Plan Subject to stockholder approval, the Plan
shall be in effect for ten years from the date of its adoption by the Board. Any
Options outstanding at the end of said period shall remain in effect in
accordance with their terms. The Plan shall terminate before the end of said
period, if all Stock subject to it has been purchased pursuant to the exercise
of Options granted under the Plan.
Article VII. Terms of Stock Options
7.1 Grant of Options. Subject to section 5.1, Options may be granted to
Employees or Consultants at any time and from time to time as determined by the
Board; provided, however, that consultants may receive only Nonstatutory
Options, and may not receive Incentive Stock Options. The Board shall have
complete discretion in determining the number of Options granted to each
Optionee. In making such determinations, the Board may take into account the
nature of services rendered by such Employees or consultants, their present and
potential contributions to the Company, and such other factors as the Board in
its discretion shall deem relevant. The Board also shall determine whether an
Option is to be an Incentive Stock Option or a Nonstatutory Option.
In the case of Incentive Stock Options the total Fair Market Value
(determined at the date of grant) of shares of Stock with respect to which
incentive stock options granted after December 31, 1986 are exercisable for the
first time by the Optionee during any calendar year under all plans of the
Company under which Incentive stock options may be granted (and all such plans
of any Parent Corporations and any subsidiary Corporations of the Company) shall
not exceed $100,000. (Hereinafter, this requirements is sometimes referred to as
the "$100,000 Limitation".)
Nothing in this Article VII of the Plan shall be deemed to prevent the
grant of Options permitting exercise in excess of the maximum established by the
preceding paragraph where such excess amount is treated as Nonstatutory Option.
The Board is expressly given the authority to issue amended or
replacement options with respect to shares of Stock subject to an Option
previously granted hereunder. An amended Option amends the terms of an Option
previously granted and thereby supersedes the previous option. A replacement
Option is similar to a new Option granted hereunder except that it provides that
it shall be forfeited to the extent that a previously granted Option is
exercised, or except that its issuance is conditioned upon the termination of a
previously granted Option.
7.2 No Tandem Options. Where an Option granted under this Plan is
intended to be an incentive Stock Option, the Option shall not contain terms
pursuant to which the exercise of the Option would affect the Optionee's right
to exercise another Option, or vice versa, such that the Option intended to be
an Incentive Stock Option would be deemed a tandem stock option within the
meaning of the regulations under Section 422 of the Code.
7.3 Option Agreement; Terms and conditions to Apply Unless Otherwise
Specified. As determined by the board on the date of grant, each Option shall be
evidenced by an Option agreement (the "Option Agreement") that includes the
nontransferability provisions required by Section 10.2 hereof and specifies:
Whether the Option is an Incentive Stock Option or a Nonstatutory Option; the
Option Price; the duration of the Option; the number of shares of Stock to which
the Option applies; any vesting or exercisability restrictions which the Board
may impose; if appropriate, in the case of an Incentive Stock Option, a
provision implementing the $100,000 Limitation; and any other terms or
conditions which the Board may impose. All such terms and conditions shall be
determined by the Board at the time of grant of the Option.
If not otherwise specified by the Board, the following terms and
conditions shall apply to Options granted under the Plan:
(a) Term. The duration of the Option shall be five (5) years from
the date of grant. (The duration can never be more than five
(5) years in the case of an Incentive Stock Option granted to
a Significant Shareholder).
(b) Exercise of Option. Unless an Option is terminated as provided
hereunder, an Optionee may exercise his Option for up to, but
not in excess of, the amounts of shares subject to the Option
specified below, based on the Optionee's number of years of
continuous services with the Company or a Subsidiary
Corporation of the Company from the date on which the Option
is granted. In the case of an Optionee who is an Employee,
continuous service shall mean continuous employment; in the
case of an Optionee who is a Consultant, continuous services
shall mean the continuous provision of consulting services. In
applying said limitations, the amount of shares, if any
previously purchased by the Optionee under the Option shall be
counted in determining the amount of shares the Optionee can
purchase at any time. The Optionee may exercise his Option in
the following accounts:
(i) After one (1) year of such continuous services for up
to but not in excess of one-third of the shares
originally subject to the Option;
(ii) After two (2) years of such continuous services, for
up to but not in excess of two-thirds of the shares
originally subject to the Option;
(iii) At the expiration of the third (3rd) year of such
continuous services the Option may be exercised at
any time and from time to time within its terms in
whole or in part, but it shall not be exercisable
after the expiration of five (5) years.
The Board shall be free to specify terms and conditions other than those set
forth above, in its discretion.
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.4 Option Price. No Incentive Stock Option Granted pursuant to this
Plan shall have an Option price that is less than the Fair Market Value of Stock
on the date the Option is granted. Incentive Stock Options granted to
Significant Shareholders shall have an Option price of not less than 11 percent
of the Fair Market Value of Stock on the date of grant. The Option price for
Nonstatutory Options shall be established by the Board and shall not be subject
to the restrictions applicable to Incentive Stock Options.
7.5 Term of Options. Each Option shall expire at such time as the board
shall determine when it is granted provided however, that no Option shall be
exercisable later than the tenth anniversary date of this grant. By its terms,
an Incentive Stock Option granted to a Significant Shareholder shall not be
exercisable after five years from the date of grant.
7.6 Exercise of Options. Options granted under the Plan shale be
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for all
Optionees.
7.7 Payment. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Payment shall be made (i) in cash, or
(ii) if acceptable to the Board, in stock or in some other form; provided,
however, in the case of an Incentive Stock Option, that said other form of
payment does not prevent the option from qualifying for treatment as an
"incentive stock option" within the meaning of the Code.
Article VIII. Written Notice, Issuance of Stock Certificates,
Stockholder Privileges
8.1 Written Notice. An Optionee wishing to exercise an Option shall
give written notice to the Company, in the form and manner prescribed by the
Board. Full payment for the shares exercised pursuant to the Option must
accompany the written notice.
8.2 Issuance of Stock Certificates. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
a certificate or certificates for the requisite number of shares of Stock.
8.3 Privileges of a Stockholder. An optionee or any other person
entitled to exercise an Option under this Plan shall not have stockholder
privileges with respect to any Stock covered by the Option until the date of
issuance of a stock certificate for such stock.
Article IX. Termination of Employment or Services
9.1 Death. If an Optionee's employment in the case of an Employee, or
provision of services as a Consultant, in the case of a consultant, terminates
by reason of death, the Option amy thereafter be exercised at any time prior to
the expiration date of the Option or within 12 months either the date of such
death, whichever period is the shorter, by the person or persons entitled too
under the Optionee's will or, if the Optionee shall fail to have a testamentary
disposition of an Option or shall die intestate, the Optionee's legal
representative or representatives. The Option shall be exercisable only to the
extent that such Option was exercisable as of the date of death.
9.2 Termination Other Than For Cause or Due to Death. In the event of
an Optionee's termination of employment, in the case of an Employee, or
termination of the provision of services as a Consultant, in the case of a
Consultant, other than by reason of death, the Optionee may exercise such
portion of his Option as was exercisable by him at the date of such termination
(the "Termination Date") at any time within three (3) months of the Termination
Date; provided, however, that where the Optionee is an Employee, and is
terminated due to disability within the meaning of Code ss. 422, he may exercise
such portion of his Option as was exercisable by him on his Termination Date
within one year of his Termination Date. In any event, the Option cannot be
exercised after the expiration of the term of the Option. Options not exercised
within the applicable period specified above shall terminate.
In the case of an Employee, a change of duties or position within the
Company or an assignment of employment in a Subsidiary Corporation or Parent
Corporation of the Company, if any, or from such Corporation to the Company,
shall not be considered a termination of employment for purposes of this Plan.
The Option Agreements may contain such provisions as the Board shall approve
with reference to the effect of approved leaves of absence upon termination of
employment.
9.3 Termination for Cause. In the event of an Optionee's termination of
employment, in the case of an Employee, or termination of the provision of
services as a Consultant, in the case of a Consultant, which termination is by
the Company for cause, any Option or Options held by him under the Plan, to the
extent not exercised before such termination, shall forthwith terminate.
Article X. Rights of Optionees
10.1 Service. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Employee's employment, or any
Consultant's services, at any time, nor confer upon any Consultant any right to
continue to provide services to the Company.
10.2 Nontransferability. All Options granted under this Plan shall be
nontransferable by the OPtionee, other than by will or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime only by
the Optionee.
Article XI. Optionee-Employee's
Transfer of Leave of Absence
11.1 Optionee-Employee's Transfer of Leave of Absence. For Plan
purposes--
(a) A transfer of an Optionee who is an Employee from the
Company to a Subsidiary Corporation or Parent
Corporation, or from one such Corporation to another,
or
(b) a leave of absence for such an Optionee (i) which is
only authorized in writing by the Company, and (ii)
if the Optionee holds an Incentive Stock Option,
which qualifies under the applicable regulations
under the Code which apply in the case of incentive
stock options,
shall not be deemed a termination of employment. However, under no circumstances
may an Optionee exercise an Option during any leave of absence, unless
authorized by the Board.
Article XII. Amendment
Modification and Termination of the Plan
12.1 Amendment, Modification, and Termination of the Plan. The Board
may at any time terminate, and from time to time may amend or modify the Plan,
provided, however, that no such action of the Board, without approval of the
stockholders, may--
(a) increase the total amount of Stock which may be
purchased through Options granted under the Plan,
except as provided in Article V;
(b) change the class of Employees or Consultants eligible
to receive Options;
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.
Article XIII. Acquisition, Merger, or Liquidation
13.1 Acquisition In the event that an Acquisition occurs with respect
to the Company, the Company shall have the option, but not the obligation, to
cancel Options outstanding as of the effective date of Acquisition, whether or
not such Options are then exercisable, in return for payment to the Optionees of
an amount equal to a reasonable estimate of an amount (hereinafter the "Spread")
equal to the difference between the net amount per share payable in the
Acquisition, or as a result of the Acquisition, less the exercise price of the
Option. In estimating the Spread, appropriate adjustments to give effect to the
existence of the Options shall be made, such as deeming the Options to have been
exercised, with the Company receiving the exercise price payable thereunder, and
treating the shares receivable upon exercise of the Options as being outstanding
in determining the net amount per share. For purposes of this section, an
"Acquisition" shall mean any transaction in which substantially all of the
Company's assets are acquired or in which a controlling amount shall mean more
than 50% of the issued and outstanding shares of stock of the Company. The
Company shall have such an option regardless of how the Acquisition is
effectuated, whether by direct purchase, through a merger or similar corporate
transaction, or otherwise. In cases where the acquisition consists of the
acquisition of assets of the Company, the net amount per share shall be
calculated on the basis of the net amount receivable with respect to shares upon
a distribution and liquidation by the Company after giving effect to expenses
and charges, including but not limited to taxes, payable by the Company before
the liquidation can be completed.
Where the Company does not exercise its option under this Section 13.1
the remaining provisions of this Article XIII shall apply, to the extent
applicable.
13.2 Merger or Consolidation. Subject to any required action by the
stockholders, if the Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to the
option would have been entitled in such merger or consolidation.
13.3 Other Transactions. A dissolution or a liquidation of the Company
or a merger and consolidation in which the Company is not the surviving
corporation shall cause every Option outstanding hereunder to terminate as of
the effective date of such dissolution, liquidation, merger or consolidation.
However, the Optionee either (i) shall be offered a firm commitment whereby the
resulting or surviving corporation in a merger or consolidation will tender to
the Optionee an option (the "Substitute Option") to purchase its shares on terms
and conditions both as to the number of shares and otherwise, which shall
substantially preserve to the Optionee the rights and benefits of the Option
outstanding hereunder granted by the Company, or (ii) shall have the right
immediately prior to such dissolution, liquidation, merger, or consolidation to
exercise any unexercised Options whether or not then exercisable, subject to the
provisions of this Plan. The board shall have absolute and uncontrolled
discretion to determine whether the Optionee has been offered a firm commitment
and whether the tendered Substitute Option will substantially preserve to the
Optionee the rights and benefits of the Option outstanding hereunder. In any
event, any Substitute Option for an Incentive Stock Option shall comply with the
requirements of Code Section 424(a).
Article XIV. Securities Registration
14.1 Securities Registration. In the event that the Company shall deem
it necessary or desirable to register under the Securities Act of 1933, as
amended, or any other applicable statute, any Options or any Stock with respect
to which an Option may be or shall have been granted or exercised, or to qualify
any such Options or Stock under the Securities Act of 1933, as amended, or any
other statute, then the Optionee shall cooperate with the Company and take such
action as is necessary to permit registration or qualification of such Options
or Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option under the Plan may be required by
the Company, as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that he is acquiring such
shares for his own account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof, (b) that before any
transfer in connection with the resale of such shares, he will obtain the
written opinion of counsel for the Company, or other counsel acceptable to the
Company, that such shares may be transferred. The Company may also require that
the certificates representing such shares contain legends reflecting the
foregoing.
Article XV. Tax Withholding
15.1 Tax Withholding. Whenever shares of Stock are to be issued in
satisfaction of Options exercised under this Plan, the Company shall have the
power to require the recipient of the Stock to remit to the Company an amount
sufficient to satisfy federal, state, and local withholding tax requirements.
Article XVI. Indemnification
16.1 Indemnification To the extent permitted by law, each person who is
or shall have been a member of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him in connection with or resulting
from any claim, action, suit, or proceeding to which he may be a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
hereof, with the Company approval, or paid by him in satisfaction of judgment in
any such action, suit, or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such person may be entitled under the Company's articles of incorporation
or bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
Article XVII. Requirements of Law
17.1 Requirements of Law. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
17.2 Governing Law The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of
California.
Article XVIII. Effective Date of Plan
18.1 Affecting Date. The Plan shall be effective on February 5, 1992,
the date of its adoption by the Board.
Article XIX. Compliance with Code.
19.1 Compliance with Code. Incentive Stock Options granted hereunder
are intended to qualify as "incentive stock options" under Code ss. 422. If any
provision of this plan is susceptible to more than one interpretation, such
interpretation shall be given thereto as is consistent with Incentive Stock
Options granted under this Plan being treated as incentive stock options under
the Code.
Article XX. No Obligation to Exercise Option.
20.1 No obligation to Exercise. The granting of an Option shall
impose no obligation upon the holder thereof to exercise such Option.
ECO SOIL SYSTEMS, INC.
By: /s/ Jeffrey A. Johnson
Its President
ECO SOIL SYSTEMS, INC.
1996 DIRECTORS' STOCK OPTION PLAN
1. Purpose of the Plan. The purpose of this Eco Soil Systems, Inc.
Directors' Stock Option Plan is to attract and retain the best available
individuals for service as Directors of the Company and provide additional
incentive to the Outside Directors of the Company to serve as Directors.
None of the options granted hereunder shall be "incentive stock
options" within the meaning of Section 422 of the Code (as hereinafter defined).
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Eco Soil Systems, Inc., a Nebraska
corporation.
(e) "Continuous Status as a Director" shall mean the absence
of any interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and
Directors, employed by the Company or any parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(i) "Option" shall mean a stock option granted pursuant to the
Plan.
(j) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(k) "Optionee" shall mean an Outside Director who receives an
Option.
(l) "Outside Director" shall mean a Director who is not an
Employee.
(m) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(n) "Plan" shall mean this Directors' Stock Option Plan.
(o) "Shares" shall mean shares of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 5,000,000 Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the
Plan shall be administered by the Board.
(b) Procedure for Grants. The provisions set forth in this
Section 4(b) shall not be amended more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. All grants of Options hereunder shall
be automatic and nondiscretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically
granted an Option (an "Initial Grant") to purchase 10,000 Shares upon the date
on which such person first becomes a Director, whether through election by the
shareholders of the Company or appointment by the Board of Directors to fill a
vacancy. Options granted under this section 4(b)(ii) shall become vested and
thereby exercisable with respect to 33.33% of such Initial Grant on the twelve
month anniversary date of such Initial Grant and with respect to 33.33% at each
successive anniversary date; provided, however, an unvested portion of an
Initial Grant shall only vest so long as the Outside Director remains a Director
on the date such portion vests.
(iii) Each Outside Director shall automatically
receive, on the date of each Annual Meeting of Shareholders, an Option to
purchase 3,000 Shares of the Company's Common Stock, such Option to become
exercisable six months subsequent to the date of grant; provided, however, that
such Option shall only be granted to Outside Directors who have served since the
date of the last Annual Meeting of Shareholders and will continue to serve after
the date of grant of such Option.
(iv) The terms of an Option granted hereunder shall
be as follows:
(A) the term of the Option shall be ten (10)
years.
(B) the Option shall be exercisable only
while the Outside Director remains a Director of the
Company, except as set forth in Section 8 hereof.
(C) the exercise price per Share shall be
100% of the fair market value per Share on the date
of grant of the Option.
(D) to the extent necessary to comply with
the applicable provisions of Rule 16b-3 promulgated
under the Exchange Act ("Rule 16b-3"), no Option will
be exercisable until a date more than six months
subsequent to the date of the grant of that Option.
(c) Powers of the Board. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of relevant information and in accordance with
Section 7(b) of the Plan, the fair market value of the Common Stock; (ii) to
determine the exercise price per share of Options to be granted, which exercise
price shall be determined in accordance with Section 7(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier of
(i) its adoption by the Board or (ii) its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 12 of the Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value ("Fair Market
Value") of a Share shall be determined by the Board in its discretion; provided,
however, that where there is a public market for the Common Stock, the fair
market value per Share shall be the closing price of the Common Stock in the
over-the-counter market on the date of grant, as reported in The Wall Street
Journal (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation ("NASDAQ") System) or, in
the event the Common Stock is traded on the NASDAQ National Market System, The
Nasdaq Smallcap Market or listed on a stock exchange, the fair market value per
Share shall be the closing price on such system or exchange on the date of grant
of the Option, as reported in The Wall Street Journal.
(c) Form of Consideration. Subject to compliance with
applicable provisions of Section 16(b) of the Exchange Act (or other applicable
law), the consideration to be paid for the Shares to be issued upon exercise of
an Option, including the method of payment, shall be determined by the Board and
may consist entirely of (i) cash, (ii) check, (iii) other Shares which (X) in
the case of Shares acquired upon exercise of an Option, have been owned by the
Optionee for more than six months on the date of surrender, and (Y) have a Fair
Market Value on the date of exercise equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) authorization for
the Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (v) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(vi) delivery of an irrevocable subscription agreement for the Shares which
irrevocably obligates the option holder to take and pay for the Shares not more
than twelve months after the date of delivery of the subscription agreement,
(vii) any combination of the foregoing methods of payment or (viii) such other
consideration and method of payment for the issuance of Shares as may be
permitted under applicable laws. In making its determination as to the type of
consideration to accept, the Board shall consider whether acceptance of such
consideration may be reasonably expected to benefit the Company.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be exercisable
until shareholder approval of the Plan in accordance with Section 16 hereof has
been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of payment
allowable under Section 7(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Director. If an Outside
Director ceases to serve as a Director, such Director may, but only within two
years after the date such Director ceases to be a Director of the Company,
exercise an Option to the extent that such Director was entitled to exercise it
at the date of such termination. To the extent that such Director was not
entitled to exercise an Option at the date of such termination, or if such
Director does not exercise such Option (which such Director was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 8(b) above, an Optionee who is unable to continue to serve as a Director
with the Company as a result of a total and permanent disability (as defined in
Section 22(e)(3) of the Code) may, but only within seven (7) months from the
date of termination, exercise an Option to the extent such Director was entitled
to exercise it at the date of such termination. To the extent that such Director
was not entitled to exercise the Option at the date of termination, or if such
Director does not exercise such Option (which such Director was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of
Section 8(b) above, in the event of the death of an Optionee:
(i) during the term of the Option who is, at the time
of death, a Director of the Company and who has been in Continuous Status as a
Director since the date of grant of the Option, the Option may be exercised, at
any time within seven (7) months following the date of death, by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous Status as a
Director for six (6) months after the date of death; or
(ii) within thirty (30) days after the termination of
Continuous Status as a Director, the Option may be exercised, at any time within
seven (7) months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution or Merger.
(a) In the event that the number of outstanding shares of
Common Stock of the Company is changed by a stock dividend, stock split, reverse
stock split, combination, reclassification or similar change in the capital
structure of the Company without consideration, the number of Shares available
under this Plan and the number of Shares subject to outstanding Options and the
exercise price per share of such Options shall be proportionately adjusted,
subject to any required action by the Board or shareholders of the Company and
compliance with applicable securities laws; provided, however, that no
certificate or scrip representing fractional shares shall be issued upon
exercise of any Option and any resulting fractions of a Share shall be ignored.
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive.
(b) In the event of a dissolution or liquidation of the
Company, a merger in which the Company is not the surviving corporation, a
transaction or series of related transactions in which 100% of the then
outstanding voting stock is sold or otherwise transferred, or the sale of
substantially all of the assets of the Company, any or all outstanding
Options shall, notwithstanding any contrary terms of the written agreement
governing such Option, accelerate and become exercisable in full at least ten
days prior to (and shall expire on) the consummation of such dissolution,
liquidation, merger or sale of stock or sale of assets on such conditions as the
Board shall determine unless the successor corporation assumes the outstanding
Options or substitutes substantially equivalent options.
11. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
12. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuance shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act (or any other applicable law or regulation), the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of the Shares available
for issuance pursuant to this Plan as shall be sufficient to satisfy the
requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval.
(a) The Plan shall be subject to approval by the shareholders
of the Company within twelve (12) months of its adoption by the Board. If such
shareholder approval is obtained at a duly held shareholders' meeting, it may be
obtained by the affirmative vote of the holders of a majority of the outstanding
shares of the Company present or represented and entitled to vote thereon. If
such shareholder approval is obtained by written consent, it may be obtained by
the written consent of the holders of a majority of the outstanding shares of
the Company.
(b) Any required approval of the shareholders of the Company
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
17. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports to shareholders, proxy statements and
other information provided to all shareholders of the Company.
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER executed to be effective as of May
31, 1996 (the "Agreement"), is entered into by and among Eco Soil Systems, Inc.,
a Nebraska corporation (the "Parent"), Eco Specialty, Inc., a Delaware
corporation (the "Subsidiary"), Turf Specialty, Inc., a New Hampshire
corporation ("Target") and Kevin Lyons and David Schermerhorn ("a Shareholder"
or the "Shareholders"), being the owners of record of all of the issued and
outstanding Stock of Target. Subsidiary and Target shall hereinafter sometimes
together be referred to as the "Constituent Corporations".
WHEREAS, the boards of directors of Parent, Subsidiary, and Target deem
the merger of Target into Subsidiary (the "Merger") on the terms herein set
forth to be desirable and in the best interests of their respective
Stockholders, and have approved of this Agreement, and the boards of directors
of Subsidiary and Target have directed that the Agreement be submitted to their
respective Stockholders for approval, which approval has been obtained;
Now, THEREFORE, Subsidiary and Target agree that Target shall be merged
into Subsidiary, which shall be the surviving corporation, and that the plan,
terms, and conditions of such merger shall be as follows:
Section 1.
The Merger
1.1 Effect of Merger. On the Effective Date of the Merger (as defined
in Section 4), Target shall be merged into Subsidiary (Subsidiary being the
surviving corporation), the separate existence of Target shall cease, and
Subsidiary as the surviving corporation shall continue its corporate existence
under the laws of the State of Delaware under the name of Eco Specialty, Inc.,
name to be changed to Turf Specialty, Inc. effective as of the filing of the
Certificate of Merger with the Delaware Secretary of State. On the Effective
Date of the Merger, Subsidiary shall possess all the rights, privileges, powers
and franchises of a public as well as private nature and be subject to all of
the restrictions and duties of Target; and all rights, privileges, powers, and
franchises of Target and all property, real, personal, tangible and intangible
belonging to Target shall be vested in Subsidiary; and all property, rights,
privileges, powers, and franchises of Target, and every other interest of
Target, shall be the property of Subsidiary as they were of Target, and the
title to any real estate vested by deed or otherwise in Target shall not revert
or be in any way impaired by reason of this merger, provided that all rights of
creditors, and all liens upon any property of Target shall be preserved
unimpaired and all debts, liabilities, and duties of Target shall thenceforth
attach to Subsidiary and may be enforced against Subsidiary to the same extent
as if said debts, liabilities, and duties had been incurred or contracted by
Subsidiary.
1.2 Further Assurances. From time to time as and when requested by
Subsidiary or its successors or assigns, the officers and directors of Target
last in office shall execute and deliver such deeds and other instruments and
shall take or cause to be taken such other actions as shall be necessary to vest
or perfect in or to confirm of record or otherwise, Subsidiary's title to, and
possession of, all the property, interests, assets, rights, privileges, powers,
franchises, and authority of Target, and otherwise to carry out the purposes of
this Agreement, provided, however, that there shall be no obligation to execute
documents which modify the rights or obligations of the Target or the
Shareholders under this Agreement.
Section 2.
Certificate of Incorporation
2.1 Use of Name. The Certificate of Incorporation of Subsidiary shall
be amended, (assuming availability of such name under Delaware law) by changing
Article I thereof so as to read in its entirety as follows: "The name of the
corporation is Turf Specialty, Inc."
2.2 Certification of Incorporation. On the Effective Date of the
Merger, the Certificate of Incorporation of Subsidiary, as may hereby be
amended, shall be the Certificate of Incorporation of the surviving corporation.
Target agrees to take whatever action is necessary to ensure that the Turf
Specialty name is available to Subsidiary so such name change or use of such
name can be secured.
2.3 Bylaws. The bylaws of Subsidiary shall be the bylaws of the
surviving corporation in the Merger as set forth in this Agreement.
Section 3.
Conversion and Exchange of Shares
3.1 Conversion Ratio. The manner of converting or exchanging the shares
of each of the Constituent Corporations shall be as follows:
(1) The merger shall effect no change in any of the shares of
Subsidiary, and none of its shares shall be converted or issued as a result of
the merger.
(2) Subject to the adjustment set forth in Section 3.3., and
the provisions of Section 17.6, all of Target's common Stock which is issued and
outstanding on the Effective Date of the Merger (the "Target Stock") shall, by
virtue of the Assets (defined below) contributed by Target to Subsidiary as a
result of the merger, be converted on the Effective Date into, without action on
the part of Shareholders, the following consideration:
(a) The sum of Five Hundred Thousand Dollars ($500,000) in
immediately available funds to be paid in equal shares to the two Shareholders
(the "Cash Payment") with one-half (1/2) of the Cash Payment going to each of
Kevin Lyons and David Schermerhorn
(b) Six Hundred Forty-seven Thousand, Six Hundred Fifty
(647,650) shares of Parent Class A $0.005 par value common voting Stock(the
"Parent Stock"); with one-half (1/2) of such shares going to each of Kevin Lyons
and David Schermerhorn, and
(c) Two promissory Notes of the same Series, one made payable
to Kevin Lyons and the other made payable to David Schermerhorn, each in the
original face amount of Five Hundred Thousand and 00/100 Dollars ($500,000) on
the terms and conditions stated in the form of promissory note which is attached
hereto as Exhibit 3.1 (c), which is incorporated herein by this reference (the
"Purchase Notes"). The Purchase Notes will be secured by a pledge of 100% of the
authorized and issued Stock of the Subsidiary (the "Pledge").
(3) Shareholders, Parent and Subsidiary believe that the fair
market value of the Cash Payment, the Parent Stock and the Purchase Notes are
substantially equal to the fair market value of the assets received by
Subsidiary from Target, but none of them make any warranty or representation to
that effect.
3.2 Exchange of Shares. Promptly on and after the Effective Date of the
Merger, each Shareholder shall surrender a certificate or certificates
representing the Target Stock to the secretary of Subsidiary. The Subsidiary
shall in exchange therefor
(a) deliver to First NH Investment Services, Manchester, New
Hampshire ("Escrow Agent") the number of shares of Parent Stock
required to be escrowed pursuant to Section 17.6 below; and
(b) deliver to the Shareholders the balance of the Parent
Stock, the Cash Payment and the Purchase Notes.
Until so presented and surrendered, each certificate which represents issued and
outstanding shares of Target Stock shall be deemed for all purposes to evidence
ownership of the Parent Stock into which such Target Stock has been converted
pursuant to the Merger. However, until surrender of the Target Stock,
Shareholders shall not be entitled to vote at any meeting of Parent.
3.3 Adjustments to the Purchase Consideration: Limited Right of
Exchange; Standard Accounting Practices; Dispute Resolution, etc. The
considerations to be delivered to the Shareholders under Section 3.1 shall be
subject to adjustment as follows:
(1) As promptly as practicable, but in no event later than July l,
1996, Bigelow & Company, the Target's certified public accountants ("Bigelow"),
will conduct an audit of Target's financial condition as of the Effective Date
and the results of operations of Target for the period then ended (the
"Post-Closing Audit"). The Post-Closing Audit shall be conducted in accordance
with Target's Standard Accounting Practices as that term is defined in Section
3.3(6) below. The accountants for the Parent shall be permitted to observe
procedures utilized by the Shareholders' accountants in conducting the
Post-Closing Audit and to discuss them with Shareholders' Accountants. On or
before August 1, 1996, the Target's accountants shall deliver a written summary
of their Post-Closing Audit to the Parent. The Parent shall have the right to
comment on the contents of the Post-Closing Audit, in writing, within a period
of thirty (30) days following its receipt. If there are differences of view as
to whether the results of the post-closing audit permit Parent to exercise its
Put Rights under Subsection 3.3(2) hereof, the parties shall for a period of
fifteen (15) days attempt to resolve those differences by negotiation, failing
which the matter shall be submitted to binding arbitration on an expedited
basis, pursuant to Subsection 3.3(7) below. If Parent has no Put Right under
Subsection 3.3(2), or if it does not exercise its Put Right thereunder, no
adjustment to the merger consideration will be made upon conclusion of the
Post-Closing Audit.
(2) If the Post-Closing Audit as finally determined establishes that
(a) the balance sheet or the income statement of Target for calendar
1995 must be restated under Standard Accounting Principles; and
(b) the restatement results either in (i) a reduction of Target's
pre-tax net income from the 1995 net income pre-tax set forth in Exhibit 5.5 by
more than 30%, or (ii)) in a reduction in Target's net worth from the year end
1995 net worth set forth in Exhibit 5.5 by more than 30%; then in either such
case, Parent may require the Shareholders (severally, and not jointly and
severally) to purchase all of the outstanding Stock and securities of Subsidiary
("SUBSIDIARY SHARES") in exchange for the return to Parent (except as is
otherwise set forth in Section 3.7 below) of the merger considerations to be
delivered to Shareholders (or placed in Escrow) pursuant to Section 3.1 and 3
.2. This right is referred to as the "Put Right". The Put Right must be
exercised by Parent (if at all) within the thirty (30) day period following
delivery to the Parent of the Post-Closing Audit; it must be exercised as to all
of the Subsidiary's outstanding Stock and securities; and it must be exercised
in writing. The Put Right may not be exercised by Parent:
(i) if it is in material breach of Section 19 of the Merger
Agreement, resulting in a fundamental change in the Subsidiary's
results of operations or financial condition, or the manner in which it
does business; or
(ii) if Shareholders reasonably conclude that Parent is
precluded from effecting this transaction by applicable law, or cannot
deliver title and ownership of the Subsidiary Shares free of all liens,
options, pledges, claims or rights of others; or
(iii) if Shareholders reasonably conclude that (i) acquisition
of the Subsidiary Shares will not give them ownership of all
outstanding Stock and securities of Subsidiary, and all options,
warrants, conversion privileges or other rights to acquire its Stock or
securities; or (ii) ownership and control of Target's assets,
facilities and business.
(3) As promptly as practicable, but in no event later than February 28,
1997, Bigelow will prepare a fully-audited financial statement for the Target
for the calendar year ended December 31, 1996, to include a consolidated balance
sheet, a consolidated statement of income, and a consolidated cash flow
statement (the "Year-End Financial Statement"). The Year-End Financial Statement
shall be prepared in accordance with the Target's Standard Accounting Practices,
as that term is defined in Subsection 3.3(6) below. The accountant for the
Parent shall be permitted to observe the procedures utilized by Bigelow in
preparing the Year-End Financial Statement and to discuss them with Bigelow. On
or before February 28, 1997, Bigelow shall deliver the Year-End Financial
Statement to the Parent. The Parent shall have the right to comment on the
contents of the Year-End Financial Statement, in writing, within a period of
thirty (30) days following its receipt. If there are differences of view on
certain items set forth in the Year-End Financial Statement, the parties shall
for a period of sixty (60) days attempt to resolve those differences by
negotiation, failing which the disputed items shall be submitted to binding
arbitration pursuant to Subsection 3.3(7) below.
(4) If the Year-End Financial Statements as finally determined (by
agreement, by negotiation or by arbitration) establish that the Pre-tax Net
Profit (as calculated pursuant to Section 3.3(6)(c) below) of the Target for the
calendar year 1996, before state and federal income taxes, was less than Nine
Hundred Thousand Dollars ($900,000), then the amount of the considerations to be
paid to Shareholders pursuant to Section 3.1 above shall be adjusted downwards
by an amount equal to (4.444 times the amount of the shortfall). If the Year-End
Financial Statement establishes that the Target's net income before state and
federal income taxes for calendar year 1996 exceeded Nine Hundred Thousand
Dollars ($900,000), then the amount of the considerations to be paid to the
Shareholders pursuant to Section 3.1 shall be increased dollar-for dollar by the
amount of any such excess. Downward adjustments in the purchase consideration
pursuant to this Subsection 3.3 (4) shall be satisfied by surrender of the
shares of Parent Stock; upwards adjustment in the purchase considerations
pursuant to this Subsection 3.3(4) shall be satisfied by payment to Shareholders
in cash. For purposes of this Subsection 3.3(4), each share of Parent Stock
shall be deemed to have a per-share value of $4. Settlement of the upward or
downward adjustment shall be completed within thirty (30) days following final
determination of the amount of the adjustment.
(5) If the Year-End Financial Statement as finally determined (by
agreement, by negotiation or by arbitration) establishes (a) that the Net Assets
of the Target as of the Closing Date were less than $867,407; or (b) that the
Target has made any Distribution to Shareholders subsequent to December 31,
1995, then in any such case the amount of the considerations to be paid to
Shareholders pursuant to Section 3.1 above shall be adjusted downward
dollar-for-dollar for the amount of the shortfall, or the amount of the
Distribution, as the case may be. For purposes of this Agreement, the term
"Distribution" shall mean the sum of any cash or the fair market value of any
property distributed by the Target to the Shareholders as a dividend, as a
transfer from the Target's Accumulated Adjustment Account or in another fashion
to the extent that under Standard Accounting Practices the Distribution would
not result in a charge to Target's earnings for the fiscal year in which the
Distribution was made, but shall not include those items referred to in Section
3.3(6) below. Adjustments in the purchase consideration pursuant to this
Subsection 3.3(5) shall be satisfied by surrender of the shares of Parent Stock
and offset against payments due under the Purchase Notes on a first-in-time
basis, pro rata to the amount of each originally issued at the Effective Date.
For purposes of this Subsection 3.3(5), each share of Parent Stock shall be
deemed to have a per-share value of $4 Settlement of the upward or downward
adjustment shall be completed within thirty (30) days following final
determination of the amount of the adjustment.
(6) (a)For purposes of this Agreement, the term "Standard Accounting
Practices" shall mean generally accepted accounting principles, consistently
applied by the Target in accordance with the historical practices of the Target
prior to the Closing. Certain of Target's Standard Accounting Practices are set
forth in Schedule 3.3(6! hereto; this Schedule is not intended to be
all-inclusive.
(b) For purposes of this Agreement, the term "Net Assets" shall
mean the sum of (i) cash and cash equivalents, (ii) marketable securities, (iii)
refundable income taxes, (iv) accounts receivable net of a reasonable reserve
for bad debts, (v) inventory net of reasonable adjustments for defective or
obsolete items, (vi) prepaid expenses, (vii) machinery and equipment and
vehicles at book less accumulated depreciation, (viii) fixed assets at book,
less accumulated depreciation and (ix)leasehold improvements at book, less
accumulated depreciation, less all of Target's liabilities, including but not
limited to (x) accounts payable, (xi) Notes payable, (xii) accrued payroll and
related taxes, (xiii) unfunded pension liabilities, (xiv) accrued sales taxes
and (xv) customer deposits.
(c) Target's Pre-tax Net Profit and Net Assets shall be calculated
without giving any effect to (i) the Post Closing Loan, as that term is defined
in Section 3.4 below, (ii) professional fees and the expenses of the Target to
be borne by Subsidiary under Subsection 3.4(2) hereof; (iii) the payment of
Federal and state income taxes, penalties and interest arising from amended tax
returns for Target's tax years 1993 1994 and 1995, and professional fees in
connection therewith; (iv) any other transactions contemplated or required by
this Agreement (other than the post-Closing payment of salaries, bonuses and
benefits to the Shareholders pursuant to their Employment Agreements); or (v)
organizational or transitional expenses of Subsidiary, such as (by way of
example only) the exercise of obtaining new taxpayer or employer identification
numbers, and the like.
(7) If the parties are unable to resolve any differences as to
particular aspects of the Post-Closing Audit or the Year-End Financial
Statements, those differences shall be submitted for final and binding
arbitration to a member of the firm of Price Waterhouse & Company, at Boston,
Massachusetts. The arbitrator shall act pursuant to the rules of the American
Arbitration Association, and the parties shall have the right to discovery
afforded by the Federal Rules of Civil Procedure (to the extent not inconsistent
with the Delaware Uniform Arbitration Act, 10 Del. C.ss.5701 et seq.). The
strict rules of evidence need not be followed in the arbitration, and the
arbitrator may (but need not) write an opinion setting forth the basis for
his/her determination. The order of the arbitrator shall be nonappealable except
in cases involving manifest error on the face of the order, or fraud, and an
order of enforcement may be sought in any court of proper jurisdiction. Costs
including reasonable attorneys' fees shall be awarded in favor of the prevailing
party, to the extent that the arbitrator determines they or it prevailed
economically in the arbitration. Each party agrees to make its accounting work
papers available to the other parties, on request.
(8) (a) There is the possibility that the Parent may effect a
registration of shares of its common Stock for sale to the public pursuant to
the Securities Act of 1933, and the further possibility that the effective date
of the Parent's registration statement will occur prior to the final
determination of one or both of the Post-Closing Audit or the Year-End Financial
Statements. Within ten (10) days following the effective date of any such
registration statement, any unpaid balance of principal and accrued interest on
the Purchase Notes shall become due and owing.
(b) There also remains the possibility that payments of principal on
the Purchase Notes may come due, either according to their terms or as a
consequence of acceleration, prior to such final determination, whether or not
Parent has effected a registration of its Shares.
(c) If the Post-Closing Audit and the Year-End Financial Statement have
both been finally determined at any such time as payment becomes due, whether
pursuant to Subsection (a) or by acceleration or at stated maturity, payment
under the Purchase Notes shall be made directly to the Shareholder-payee,
subject to any purchase price adjustment affecting the Purchase Notes which has
been made pursuant to Section 3.3(5).
(d) If either the Post-Closing Audit or the Year-End Financial
Statement has not been finalized on the due date for payment of the Purchase
Notes, or the date on which Parent elects to make prepayment on them, and the
terms of this Agreement call for settlement of open items which may ultimately
be resolved in Parent's favor in cash, then payment on the Purchase Notes shall
be made to the Escrow Agent. In the event the terms of the Escrow Agreement
shall permit release of such funds to the Shareholder-payees, such amounts shall
be paid directly to such Shareholder-payees.
(e) Monthly payments of interest on the Purchase Notes shall be made
directly to the Shareholders.
3.4 Post-Closing Loan; Fees and Expenses: Representation by Counsel.
(1) On or before August 1, 1996, Parent agrees to provide Subsidiary
with sufficient cash to lend each Shareholder ( the "Post-Closing Loan") the sum
of Two Hundred Fifty Thousand Dollars ($250,000), and Subsidiary agrees to do
so. Neither of the Post-Closing Loans shall bear interest. Each Shareholder
shall be severally liable only for the Post-Closing Loan to him. The
Post-Closing Loan of an Employee need not be repaid, and will be canceled and
forgiven on the earlier of
(a) July 1, 1999, if at that date he continues to be employed by
Subsidiary under an Employment Agreement of even date; or
(b) the date on which (I) a Shareholder terminates his employment by
Subsidiary by reason of the latter's breach of that Agreement, pursuant to
Subsection 20.1 (b) of his Employment Agreement; or (ii) the date on which his
employment terminates pursuant to any of Subsections 20.1 (c), (e) or (f) of his
Employment Agreement. Otherwise, on termination of Employees' employment prior
to July 2, 1999, Employee shall be obligated to repay a portion of the
Post-Closing Loan prorated to the number of days worked by him from July 2, 1996
to the effective date of termination of Employment. Reimbursement required by
this Section 3.4(I) shall be made in immediately available funds within 30 days
following termination. Parent and Subsidiary irrevocably agree with the
Shareholders that the Shareholders may apply amounts owed to Subsidiary by the
Shareholders on the Post-Closing Notes against unpaid balances owed to the
Shareholders on the Purchase Notes in the event of any default by Parent on the
Purchase Notes. Parent's obligation to fund the Post-Closing Loan will be
secured by the Pledge.
(2) Immediately following Closing, the Subsidiary will pay all legal
and accounting expenses incurred by Target in connection with the transactions
contemplated by this Agreement, to a maximum aggregate of Sixty-five Thousand
Dollars ($65,000), plus out of pocket expenses.
(3) None of:
(a) the expenses referred to in Subsection 3.4(2) above; or
(b) the accounting expenses to be incurred pursuant to
Subsections 3.3(1), 3.3(3) or 3.3(7) above.
will be deemed a Distribution under Subsection 3.3(5), or will be accounted for
as an expense or other deduction in calculating net profit before state and
federal taxes under Subsection 3.3(4).
(4) Parent and Subsidiary have been independently represented by
counsel in this transaction, and agree (a) that counsel for Target is under no
duty to act for Parent or Subsidiary; and (b) that such counsel may act for
Shareholders in all future matters arising hereunder.
3.5 Transfer of 3MT, Inc.
Immediately prior to closing, the Shareholders shall transfer to Target
all of the outstanding shares of 3MT, Inc., the ownership of which shall pass to
Subsidiary in consequence of its merger with Target.
3.6 Assumption of Lease. At closing, Subsidiary and the Shareholders
will execute an assignment to and assumption by the Subsidiary ("Lease
Assumption") of the existing lease from MLP & JEF Co., Inc., now held by Lionel
and Greta Labonte as successor Lessor, to Shareholders, as amended (the "Labonte
Lease")), in the form of Exhibit 3.6.
3.7. Settlement of DFO Account. (a) Presently, each Shareholder is
indebted to the Target for the following amounts, which are carried on Target's
books as "due from officer" (the "DFO Accounts"):
(i) Lyons - $318,457;
(ii) Schermerhorn - $276,567;
(iii) Total - $595,024.
(b) The DFO Accounts will remain outstanding after Closing and will be
settled in accordance with this Section 3.7, and will be excluded from the
Mutual Releases.
(c) Parent will cause Subsidiary at the earliest possible date to file
amended Federal forms 1120 (the "Amended Returns") for the tax years 1993, 1994
and 1995 (the "Amended Return Years"). Shareholders will be afforded an
opportunity to review and to comment upon the Amended Returns prior to filing.
The Amended Returns shall recompute the tax liability for the Target for the
Amended Return Years as a corporation taxed pursuant to SubChapter C of the
Internal Revenue Code of 1986, as amended. The Subsidiary and Parent shall pay
all taxes, penalties and interest occasioned by or as a consequence of the
filing of the Amended Returns, as and when required by law, without recourse to
or contribution by the Shareholders.
(d) The filing of the Amended Returns is expected to generate tax
refunds to the Shareholders of the individual (federal) income taxes paid by
them in respect of the taxable income of the Target for the Amended Return
Years, as a consequence of the Target's claimed status as a so-called
"SubChapter S" corporation. These refunds (the "Refunds") are expected to be in
the approximate aggregate amount of $220,000. Each Shareholder will confirm
receipt of his Refund and the amount thereof to Parent, in writing, promptly
upon receipt by him.
(e) The Shareholders severally agree to apply their respective Refunds
to satisfaction of the DFO Account on the date upon which Parent tenders payment
in full of any balance on that Shareholder's Purchase Note. The parties may if
they wish simply credit the amount of the required payment on the DFO Account
against Parent's Purchase Note obligation. If Shareholders fail to apply their
refunds to payment of the DFO Account, Parent may offset against the Purchase
Notes. However, if the Purchase Notes are prepaid prior to December 31, 1996,
settlement of the DFO Account will take place on January 2, 1997.
(f) The balance of the DFO Account, which is $374,300, shall also
become due and owing on the date on which Parent tenders payment of any
outstanding balances on the Purchase Note. This balance may be satisfied by
Shareholders by tender of 93,575 shares of Parent Stock, duly endorsed for
transfer with signature guarantees, at a deemed value of $4 per share tendered
(the "Payment Shares"). Shareholders may satisfy all (but not less than all) of
the remaining balance of the DFO Account in this fashion.
(g) At the time the Shareholders satisfy a portion of the DFO Account
wit Payment Shares pursuant to Subsection 3.7(f), they may also tender 54,075
shares of Parent Stock (the "Tender Shares") to Parent for repurchase, at a
price of $4 per share and Parent unconditionally agrees to purchase the Tender
Shares. Tender shall be made by notice in writing to the Parent. Settlement will
be made by delivery by Parent of current funds in the amount of $216,300 within
10 business days of the tender, against delivery by Shareholders of share
certificates for the Tender Shares, duly endorsed for transfer, with signature
guarantees. Shareholders may defer final settlement of the DFO Account pursuant
to Subsection 3.7(f) so that it occurs simultaneously with Parent's repurchase
of the Tender Shares.
(h) The obligation of the Parent to accept the Payment Shares and to
repurchase the Tender Shares pursuant to Subsection 3.7(g) shall be secured by
the Pledge.
3.8 Investment Representation. At Closing, Parent and each Shareholder
will execute the investment representations attached as Exhibit 3.8 (the
"Investment Representations") .
Section 4.
Effective Date of Merger / Closing
4.1 Effective Date. The parties intend for the Merger to be effective
as of May 31, 1996 (the "Effective Date"), and for the closing of the Merger
(the "Closing") to occur in accordance with Section 4.2 on such date or as soon
thereafter as reasonably possible. If any applicable laws dictate that the
Merger cannot become effective for legal purposes until a later date, then all
parties, to the extent practically feasible and consistent with the intent of
this Agreement, nonetheless shall cause the accounting and the treatment of any
revenues, earnings, expenses, and expenditures of the Constituent Corporations
subsequent to the Effective Date to be handled as if the Merger had become
legally effective on May 31, 1996.
4.2 Filing. This Agreement shall be filed and recorded as soon as
administratively possible after the approval of this Agreement and the merger
herein contemplated by the Shareholders of Parent and Target.
4.3 Closing The closing of the Merger (the "Closing") shall be held at
the offices of counsel for the parties on July 8, 1996, unless another place or
earlier time is agreed upon in writing by the parties, and shall be completed by
executive of counterpart copies, exchanges of faxed signature pages, wire
transfer of funds and overnight courier delivery of original documents..
Section 5.
Representations and Warranties of Shareholders
Except as is set forth in the Disclosure Statement attached hereto as
Annex A, the Shareholders represent and warrant to Parent and Subsidiary,
severally as to Sections 5.1, 5.4, and 5.11 (to the extent stated therein) and
otherwise jointly and severally as follows:
5.1 Share Ownership. Each Shareholder owns his shares of Target Stock,
free and clear of all liens, encumbrances, options, rights or any other charges.
5.2 Corporate Organization and Good Standing. Target is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of New Hampshire, and is qualified to do business as a foreign corporation
in each jurisdiction, if any, in which its property or business requires such
qualification.
5.3 Capitalization. Target's authorized capital Stock consists of 300
shares of Target Common Stock, without par value, of which 90.52 shares are
issued and outstanding, and 72.48 are held in treasury. 3MT's authorized capital
consists of 300 shares of no par common Stock, of which 100 shares are issued
and outstanding. all of the outstanding shares of Target Common Stock are (and
all of the outstanding shares of 3MT Common Stock on transfer to Target will be)
fully paid and nonassessable. All of the shares of 3MT and Target Common Stock
are presently registered to Shareholders. There are no options, warrants, or
rights outstanding of any kind to purchase or acquire shares of Target or 3MT
Common Stock.
5.4 Ownership of Target Stock. Each Shareholder is the holder of record
of the number of shares of Target Stock set forth in Schedule 5.4 hereto, all of
which are duly and validly issued and outstanding, fully paid and
non-assessable, and all of which are owned by the respective Shareholders free
from all options, liens, pledges or encumbrances. The shares of Target Stock
registered to Shareholders as set forth in Schedule 5.4 represent in the
aggregate 100% of the authorized and issued Stock and securities of Target.
5.5 Financial Statements. Target's unaudited balance sheets as of
December 31, 1993, 1994 and 1995, and the related statements of income and
retained earnings for the years then ended, copies of which are attached hereto
as Exhibit 5.5 and incorporated herein by this reference ("Target Financial
Statements"), fairly present the financial condition of Target as of said dates
and the results of its operations for the periods then ended, in conformity with
Standard Accounting Practices.
5.6 Absence of Undisclosed Liabilities. Except to the extent reflected
or reserved against in Target's balance sheet as of December 3 l, 1995, Target
did not have at that date any material liabilities or obligations (secured,
unsecured, contingent, or otherwise) of a nature customarily reflected in a
corporate balance sheet prepared in accordance with Standard Accounting
Practices.
5.7 Absence of Certain Chances. There have been no material adverse
changes in the business, properties, or financial condition of Target since
December 31, 1995, which are known to Shareholders.
5.8 Litigation. There is no litigation, arbitration, proceeding, or
investigation pending or, to the actual knowledge of the Shareholders threatened
against Target or Shareholders which if successful might result in a material
adverse change in the business, properties, or financial conditions of Target or
which questions the validity or legality of this Agreement or of any action
taken or to be taken by Target in connection with this Agreement. In addition,
Shareholders have no knowledge of any facts or circumstances that they
reasonably believe could lead to any such litigation or arbitration.
5.9 Contracts. Target is not a party to any material contract which is
to be performed in whole or in part at or after the date of this Agreement. A
material contract shall include any contract which provides for more than
$40,000 in payments over the term of the contract.
5.10 Title. Target owns no real estate. Target has good and valid title
to all other property included in the balance sheet of Target as of December 31,
1995, other than property disposed of in the ordinary course of business after
said date. The properties of Target, if any, are not subject to any mortgage,
encumbrance, or lien of any kind except minor encumbrances not of a financial
nature, which do not materially interfere with the use of the property in the
conduct of the business of Target.
5.11 Tax Matters.
5.11.1 Disclosure Statement. This Section 5.11 is expressly
subject to and shall be read in conjunction with Schedules 5.11.1, 5.11.3(2),
5.11.3(3) and 5.11.3(8) to the Agreement (the "5.11 Schedules"). To the extent
this Section 5.11 conflicts with any of the 5.11 Schedules, the 5.11 Schedules
shall, to the extent of such conflict, apply.
5.11.2 Definitions. For purposes of this Section 5.11, the
following terms shall have the meanings indicated:
(1) "Code" refers to the Internal Revenue Code of 1954, as in
effect from time to time prior to the effectiveness of the Internal Revenue Code
of 1986, and the Internal Revenue Code of 1986, as amended.
(2) "Tax Asset" means any net operating loss, net capital
loss, investment tax credit, foreign tax credit, alternative minimum tax
credits, or any other deduction, credit or tax attribute, including tax basis,
which could, or the depreciation or amortization of which could, reduce Taxes.
(3) "Tax" or "Taxes" means all United States federal, state
and local and all foreign taxes of any kind whatsoever, including, without
limitation, all net income, capital gains, gross income, gross receipts, assets,
sales, use, VAT, ad valorem, property, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
and windfall profit taxes, customs duties, or other taxes, fees, assessments, or
charges of any other kind, the terms "Taxes" and "Tax" shall also include any
interest, penalties and other additions to tax imposed, assessed or asserted
with respect to any Tax.
5.11.3 Tax Representations and Warranties. Target and each of
the Shareholders, jointly and severally, represent and warrant to Parent and
Subsidiary as follows:
(1) Filing of Tax Returns. Target has timely filed with the
appropriate taxing authorities all returns (including, without limitation,
information returns and income tax returns) in respect of Taxes required to be
filed by it through the Effective Date and will timely file any such returns
required to be filed by it on or prior to the Effective Date. Additionally, each
Shareholder has timely filed with the appropriate taxing authorities all returns
(including, without limitation, information returns and income tax returns) in
respect of Taxes required to be filed by him through the Effective Date and will
timely file any such returns required to be filed by him on or prior to the
Effective Date. All such returns and other information filed are, or (with
respect to returns to be filed on or prior to the Effective Date) will be,
complete and accurate in all material respects. Neither of the Shareholders nor
Target has requested any extension of time within which to file returns
(including, without limitation, information returns) in respect of any Taxes,
which returns have not been filed. Neither Target nor any predecessor
corporation has been a member of an affiliated group of corporations for federal
income tax purposes, and the results of operations of Target have not been, nor
should have been, included in a consolidated or combined or similar Tax return
that included the results of operations of Target and any other corporation.
(2) Relevant Jurisdictions in which Returns Required. Schedule
5.11.3(2) lists those states and foreign countries where Target has been, or
will be with respect to operations or activities on and prior to the Effective
Date, required to file a tax or information return.
(3) Payment of Taxes. All Taxes of Target and of the
Shareholders due with respect to periods ending on or prior to the Effective
Date have been, or will be prior to the Effective Date, paid and, except as set
forth on Schedule 5.11.3(3) hereto, neither Shareholders nor Target has any
liability for Taxes in excess of such amounts.
(4) No Audits Investigations or Claims. There are no pending
or threatened audits, investigations or claims for or relating to any Taxes of
either of the Shareholders or of Target, and there are no matters under
discussions with any governmental authorities with respect to Taxes that in the
reasonable judgment of the Shareholders and Target, or their respective
attorneys or accountants, is likely to result in additional liability to Target
or either of the Shareholders for Taxes. No extension of a statute of
limitations relating to Taxes is in effect with respect to either of the
Shareholders or Target.
(5) No Liens. There are no liens for Taxes (other than for
current Taxes not yet due and payable) on the Shareholders' or Target's
respective assets.
(6) U. S. Persons. Neither of the Shareholders nor Target is a
person other than a United States person within the meaning of the Code.
(7) No Rulings. Target has not received a tax ruling or
entered into an agreement with a taxing authority, which ruling or agreement has
or could have an affect on the Taxes of Target payable on or after the Effective
Date.
(8) Elections. All material Tax elections in effect with
respect to Target are set forth in Schedule 5.11.3(8) and shall not, without
Parent's written consent, be changed by Target.
(9) No Tax Sharing Agreements. Neither Target nor either or
both of the Shareholders is a party to any Tax sharing agreement, Tax indemnity
or similar arrangement with any other party.
(10) No Code ss.341(f) Election. Target has not consented to
the application of Section 341(f) of the Code (or any comparable state income
tax provision).
(11) No Golden Parachute Payments. Target is not a party to
any agreement, contract, arrangement or plan that has resulted or could result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(12) No Tax Benefit Leases. No property owned or used by
Target is subject to a tax benefit transfer lease executed in accordance with
Internal Revenue Code Section 168(f) (8).
(13) No Finance or Capital Leases. None of the property owned
or used by Target is subject to a lease, other than a "true" lease for federal
income tax purposes.
(14) No Tax-Exempt Use Property. None of the property owned by
Target is "tax exempt use property" within the meaning of Internal Revenue Code
Section 168(h).
(15) No Code 6481 Adjustments. Target is not, and will not be,
required to recognize positive adjustments to income pursuant to Internal
Revenue Code Section 481.
5.11.4 Allocation of Tax Liabilities; Tax Indemnification
(1) Except for those items set forth in the Disclosure
Statement (and to the extent set forth therein), Shareholders shall be jointly
and severally liable for, and shall pay for the account of Target or other
appropriate person, and shall indemnify and hold harmless Parent and Subsidiary
and their respective successors and assigns against, (i) all Taxes now or
hereafter imposed, assessed or asserted on, against or with respect to Target
for all periods (whether or not a regular or short tax year) ending on or prior
to December 31, 1995, and (ii) all Taxes of any other corporation, which Taxes
have been or are hereafter imposed, assessed or asserted against Target by
reason of its status on or prior to December 31, 1995 as a mender of any
consolidated, combined or unitary group of which such corporation was also a
member. Property taxes shall be apportioned up to and including the Effective
Date on a per diem basis. If any payment of Taxes which has been or is hereafter
made is subsequently adjusted by any taxing authority, then the amount due in
respect to Taxes under this Section 5.11.4 shall be recomputed, and any
differences between the amount originally paid and the adjusted amount shall be
paid by Shareholders to Subsidiary or it successor(s) or assign(s) or by
Subsidiary or its successor(s) to Shareholders, as the case may be. The
indemnification provided by Shareholders pursuant to this Section 5.11.4(1)
shall be subject to the terms and conditions set forth in Section 17 of this
Agreement; provided, however, that the indemnification provided in paragraph (4)
of Schedule 5.11.1 shall not be subject to the limitations set forth in Section
17.4(1)-(5) of this Agreement.
(2) In the event Parent or Subsidiary or their respective
successor(s) or assign(s) elects to carry back a loss or credit for United
States federal or state income tax purposes from a taxable year ending after the
Effective Date to a taxable year of Target ending on or before the Effective
Date, any resulting refund shall belong solely to Parent or Subsidiary or the
successor(s) or assign(s) of Parent or Subsidiary (as appropriate).
5.11.5 Books and Records: Post Effective Date Returns. All
books, records and the like necessary or helpful in preparing any Tax return of
Target, whether such Tax return has been filed prior to the Effective Date (if
the applicable statute of limitations has not expired with respect thereto) or
is required to be filed on or following the Effective Date, shall be delivered
to Subsidiary on the Effective Date and shall accurately reflect all activities
of Target through and including the Effective Date. Subsidiary shall provide to
Shareholders reasonable access to such books and records to the extent necessary
in connection with any audit, litigation or other proceeding related to Taxes of
Target incurred with respect to Target and its affairs on and prior to the
Effective Date. Subsidiary shall prepare and cause to be filed all Tax returns
required to be filed after the Effective Date by Target or Subsidiary with
respect to Target and its affairs, and Shareholders shall cooperate in all
reasonable respects with Subsidiary in this regard.
5.11.6 Tax Disputes. Subsidiary agrees to give prompt notice
to Shareholders of the assertion of any claim, or the commencement of any suit,
action or proceeding (including a Tax audit) with respect to Taxes for which
Shareholders may be responsible pursuant to Section 5.11.4 (as limited by the
5.11 Schedules) and will give Shareholders such information with respect thereto
as Shareholders may reasonably request. Shareholders may, at their own expense,
participate in and, upon providing written notice to the Subsidiary or its
successor(s) or assign(s), assume the defense of any such suit, action or
proceeding, provided that (a) Shareholders' counsel is reasonably satisfactory
to Subsidiary or its successor(s) or assign(s), (b) Shareholders shall
thereafter consult with Subsidiary its successor(s) or assign(s) upon request
for such consultation from time to time with respect to such suit, action or
proceeding and (c) Shareholders shall not, without the written consent of
Subsidiary or its successor(s) or assign(s), agree to any settlement with
respect to any Tax if such settlement could adversely affect a tax Asset or the
tax liability of Target or Subsidiary or its successors or assign(s). If
Shareholders assume such defense, Subsidiary or its successor(s) or assign(s)
shall have the right (but not the duty) to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel employed
by Shareholders. If Shareholders elect not to assume such defense, Subsidiary or
its successor(s) or assign(s) may pay, compromise or contest the Tax at issue
and Shareholders shall be responsible to pay the amount of the Tax directly or,
if Subsidiary or its successor(s) or assign(s) pays such Tax, reimburse
Subsidiary or its successor(s) or assign(s) therefor pursuant to Section 5.11.4.
Shareholders shall be liable for the reasonable fees and expenses of counsel and
other experts and consultants employed by Subsidiary or its successor(s) or
assign(s) for any period during which Shareholders have not assumed the defense
thereof. Whether or not Shareholders choose to defend or prosecute any claim,
all of the parties hereto shall cooperate in the defense or prosecution thereof.
5.11.7 Survival. Notwithstanding anything in this Agreement to
the contrary, the provisions of this Section 5.11 shall survive for the full
period of all applicable statutes of limitation (giving effect to any waivers,
mitigation or extensions thereof).
5.12 No Violation. Consummation of the merger will not constitute or
result in a breach or default under any provision of any charter, bylaw,
indenture, mortgage, lease, or agreement, or any order, judgment, decree, law,
or regulation to which any property of Target is subject or by which Target is
bound, except for breaches or defaults which in the aggregate would not have a
material adverse effect on Target's properties, business operations or financial
condition. Target has complied with and is not in material violation of any
applicable federal, state, or local laws and regulations affecting the operation
of its business.
5.13 Corporate Authority. Target has full corporate power and authority
to enter into this Agreement and those Ancillary Agreements (as that term is
defined in Section 14.5 below) to which it is a party, and to carry out its
obligations hereunder, and will deliver to Parent at the Closing a certified
copy of the minutes of its Board of Directors and Shareholders authorizing
execution of this Agreement and the Ancillary Agreements by its officers and
performance thereunder in substantially the same form as is attached hereto as
Exhibit 5.13 and incorporated herein by this reference.
5.14 Hazardous Waste and Materials. Target and Shareholders have in all
material respects been in compliance with and obeyed all environmental laws
including, but not limited to, those spelled out in the Comprehensive
Environmental Resource Compensation and Liability Act, 42 U.S.C. ss.9600 et
seq., Resources Conservation and Recovery Act, 42 U.S.C., ss.6900 et seq., Clean
Water Act, 33 U.S.C. ss.1251 et seq., as well as other federal, state and local
laws which relate to the creation, storage and disposal of hazardous materials.
5.15 General Release. As of the date of closing, each of the
Shareholders will execute a mutual release ( the "Release") of all claims with
Target in the form attached hereto as Exhibit 5.15, excepting rights and
obligations of the parties under this Agreement and the Ancillary Agreements.
5.16 Employee Benefit Programs. As of the date of closing, other than a
profit sharing plan, disability and the cafeteria plan described in Schedule
5.16, there are no qualified or nonqualified employee benefit plans in place
including, but not limited to, pension, Stock bonus, 401(k), employee Stock
ownership, money purchase, Stock option, medical expense reimbursement or
phantom Stock plans.
Shareholders
5.17 Reliance. Shareholders have been given the opportunity to inspect
and investigate for themselves all of the assets and liabilities of Parent and
Subsidiary and have been given access to all such information as they have
requested, and do not rely on any representation or warranty of Parent or
Subsidiary in entering into this Agreement, except as specifically set forth
herein.
5.18 Full Disclosure. To the best of the actual knowledge of the
Shareholders, none of the representations and warranties made by Shareholders
set forth in this Agreement or in any document executed pursuant hereto contains
or will contain any untrue statement of a material fact pertaining to Target's
assets, liabilities, operations or finances, or omit any material fact
pertaining to Target's assets, liabilities, operations or finances actually
known to Shareholders, the omission of which fact they believe (or should
reasonably have concluded) would be misleading.
5.19 Forecasts and Projections. Shareholders and Target have provided
Parent and Subsidiary with certain forecasts and projections pertaining to the
business. These forecasts and projections are not warranties or representations,
but are simply good faith estimates by the Shareholders of possible future
operating results, and are based on numerous assumptions which Shareholders
currently believe to be reasonable, but which may or may not prove to be
accurate. Section 3.3 provides for price adjustments in the event of a shortfall
in attaining certain operating results addressed in the projections.
Section 6.
Representations and Warranties of,Parent
Parent represents and warrants to Target as follows:
6.1 Corporate Organization Good Standing and Capitalization. Parent is
a corporation duly organized, existing, and in good standing under the laws of
the State of Nebraska, with the corporate power to own its properties and to
carry on its business as now being conducted. Complete and correct copies of
Parent's Certificate of Incorporation and Bylaws, as amended to the date hereof,
have been delivered to Target. Parent's authorized capital Stock consists of 15
million (15,000,000) shares of common Stock, of which Five Million Two Hundred
and Thirty-one Thousand One Hundred Eighty-three (5,231,183) shares are issued
and outstanding, all being fully paid and nonassessable. Warrants, options,
rights or conversion privileges permitting the holders to acquire an additional
Five Million Twenty-five Thousand Four Hundred and Seven (5,025,407) shares are
presently outstanding
6.2 Corporate Authority. The Parent has full corporate power to enter
into this Agreement and the Ancillary Agreements. This Agreement and the
Ancillary Agreements have been approved of by the Board of Directors of Parent
and Parent will deliver to Shareholders at the Closing a certified copy of the
minutes of its Board of Directors authorizing the execution of this Agreement
and the Ancillary Agreements by its officers and performance thereunder in
substantially the same form as is attached hereto as Exhibit 6.2. Neither the
execution and delivery of this Agreement or the Ancillary Agreements, nor
performance by Parent hereunder or thereunder, will conflict with, or result in
a breach of the terms, conditions, or provisions of, or constitute a default
under, the Certificate of Incorporation or Bylaws of Parent or any agreement or
instrument to which Parent is a party or by which it is bound. No approval of
the Shareholders of Parent is required.
6.3 Financial Statements of Parent. Parent has furnished Target with
the audited consolidated financial statements of Parent and its consolidated
subsidiaries, if any, as of December 31, 1993, 1994 and 1995 and for the years
ended on such dates ("Parent Financial Statements). The Parent Financial
Statements fairly present the financial and the results of their operations for
the periods then ended, in conformity with generally accepted accounting
principles applied on a consistent basis, except as noted therein.
6.4 Absence of Undisclosed Liabilities. Except to the extent reflected
or reserved against in Parent's balance sheet as of December 31, 1995, Parent
did not have at that date any material liabilities or obligations (secured,
unsecured, contingent, otherwise) of a nature customarily reflected in a
corporate balance sheet prepared in accordance with generally accepted
accounting principles.
6.5 Litigation. There is no litigation, arbitration, proceeding or
investigation pending or, to the knowledge of the Parent threatened against
Parent which if successful might result in a material adverse change in the
business, properties, or financial conditions of Parent or which questions the
validity or legality of this Agreement or of any action taken or to be taken by
Parent in connection with this Agreement. In addition, Parent has no knowledge
of any facts or circumstances that it reasonably believes could lead to any such
litigation or arbitration.
6.6 No Violation. Completion of the transactions envisioned by this
Agreement and the Ancillary Agreements and consummation of the merger will not
constitute or result in a breach or default under any provision of any charter,
bylaw, indenture, mortgage, lease, or agreement, or any order, judgment, decree,
law, or regulation to which any property of Parent is subject or by which Parent
is bound, except for breaches or defaults which in the aggregate would not have
a materially adverse effect on Parent's properties, business operations or
financial condition. Parent has no actual knowledge of material non- compliance
or material violation on its part of any applicable federal, state, or local
laws and regulations affecting the operation of its business.
6.7 [Intentionally Omitted]
6.8 Full Disclosure. To the best of the actual knowledge of the Parent,
none of the representations and warranties made by Parent set forth in this
Agreement or in any document executed pursuant hereto contains or will contain
any untrue statement of a material fact pertaining to the Parent's assets,
liabilities, operations or finance or omit any material fact pertaining to the
Parent's assets, liabilities, operations or finance actually known to Parent the
omission of which it believes (or should reasonably have concluded) would be
misleading.
6.9 Shares to Be Issued. The shares of Parent Stock to be issued and
delivered pursuant to this Agreement have been (and upon transfer and
reregistration of those Shares to Shareholders, the said shares will be) duly
and validly issued, fully paid, and nonassessable.
6.10 Material Adverse Change. Since December 31, 1995, there has not
been any change in the business, assets, operations, or financial condition of
Parent nor its consolidated subsidiaries, if any, actually known to Parent that
materially adversely affects the business, assets, liabilities or prospects of
Parent and its consolidated subsidiaries, if any, as a whole.
Section 7.
Representations and Warranties of Subsidiary
Subsidiary represents and warrants to Target as follows:
7.1 Corporate Organization, Good Standing. and Capitalization.
Subsidiary is a corporation duly organized, existing, and in good standing under
the laws of the State of Delaware, with authorized capital Stock of one thousand
(1,000) shares of common Stock, with $.01 par value, all of which are duly and
validly issued and outstanding, fully paid and non-assessable and owned on the
date hereof by Parent, free of any lien, option, right or encumbrance in favor
of third persons.
7.2 Corporate Authority. This Agreement and the Ancillary Agreements
have been approved by the Shareholders and the Board of Directors of Subsidiary,
and Subsidiary will deliver to Target at the closing a certified copy of the
minutes of its sole Shareholders and Board of Directors authorizing the
execution of this Agreement and the Ancillary Agreements by its officers and
performance thereunder in substantially the same form as is attached hereto as
Exhibit 7.2 and incorporated herein by this reference. Neither the execution and
delivery of this Agreement or the Ancillary Agreements, nor performance by
Subsidiary hereunder or thereunder, will conflict with, or result in a breach of
the terms, conditions, or provisions of, or constitute a default under, the
Certificate of Incorporation or Bylaws of Subsidiary or any agreement or
instrument to which Subsidiary is a party or by which it is bound.
7.3 Liabilities. Subsidiary has not previously engaged in business
activities, and has no liabilities except liabilities for organizational
expenses and expenses in connection with the merger contemplated by this
Agreement.
Section 8.
Joint Representations For Reorganization Purposes
Parent, Subsidiary, Target and Shareholders make the following
representations with respect to the transaction:
8.1 Continued Activity. Following the proposed transaction, Subsidiary
will continue the active conduct of the business to be acquired from Target
subject to the provisions of Section 19 hereof, and has no plan or intention to
liquidate or sell its assets other than in the ordinary course of business.
8.2 Value of Assets and Stock. The parties in good faith believe that
the fair market value of the Parent Stock plus Cash Payment and the Purchase
Notes is approximately equal to that of the Assets transferred to Subsidiary in
exchange therefor, but make no warranty or representation as to value.
8.3 Continuitv of Interest. The Shareholders represent and warrant that
they have no present plan, intention or arrangement to sell, transfer, exchange,
transfer by gift, or otherwise dispose of any of the Parent Stock subsequent to
the proposed transaction. However, Shareholders have certain rights granted in
Section 19A hereof.
Section 9.
Conduct of Target Pending the Effective Date
[Intentionallv omitted]
Section 10.
Covenants of Parent and Subsidiary Pending the Effective Date
[Intentionally omitted]
Section 11.
Covenants of Parent and Target Pending the Effective Date
[Intentionally omitted]
Section 12.
Conditions to Obligations of Parent and Subsidiary
The obligations of Parent and Subsidiary to effect the merger hereunder
are, at the option of Parent or Subsidiary, subject to the following conditions:
12.1 Representations and Warranties True. The representations and
warranties of Shareholders contained herein shall be true in all material
respects at and as of the Effective Date of the Merger with the same effect as
though made at and as of such date; Shareholders shall have performed all
material obligations and complied with all material covenants required by this
Agreement to be performed or complied with by it prior to the Effective Date of
the Merger; and Shareholders shall have delivered to Parent and Subsidiary a
certificate, dated the Effective Date of the Merger and signed by each of the
Shareholders to both such effects.
12.2 Absence of Litigation. There shall be no actual or threatened
litigation against Target or any actual or threatened litigation to restrain or
invalidate the merger or any other transaction contemplated in this Agreement,
the defense of which would, in the reasonable judgment of the Board of Directors
of Parent, made in good faith and based on the advice of counsel, involve
expense or lapse of time either of which would be materially adverse to the
interests of Parent.
12.3 Requisite Approvals. The consent of any other party which is a
necessary prerequisite to the transfer to Subsidiary of all the rights of Target
in, to, and under any contract, agreement, lease, or other instrument and any
property or asset, tangible or intangible, pursuant to the merger contemplated
by this Agreement, shall have been obtained. The parties expressly agree that
consents and/or waivers will not be required from Bank of New Hampshire, NA; MLP
& JEF Co., Inc.(now Labonte, successor Lessor) or The Scotts Company
12.4 Governmental Permits. All governmental authorizations and permits
necessary for the consummation of the merger shall have been secured.
12.5 Opinion of Target's Counsel. Parent shall have received a
favorable opinion, dated the Effective Date of the Merger, of counsel for
Target, in form and substance reasonably satisfactory to Parent and its counsel
and based on customary assumptions, to the effect that:
(1) All proceedings, other than the filing and recording of
the Agreement, or a substitute Plan of Merger required of Target and necessary
to effectuate the merger of Target into Subsidiary have been duly taken by
Target in accordance with New Hampshire and federal law, and, upon such filing
and recording of the Agreement and Plan of Merger, and in compliance by Parent
and Subsidiary with all laws applicable to them, Target will be fully merged
with and into Subsidiary under New Hampshire law;
(2) The shares of capital Stock of Target outstanding
immediately prior to the Effective Date of the Merger are validly authorized and
issued, and to the best of counsel's actual knowledge, are duly paid and
nonassessable; and
(3) Neither the execution and delivery of this Agreement, nor
performance hereunder, will conflict with, or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, Target's Articles
of Incorporation or Bylaws.
Section 13.
Conditions to Obligations of Target and Shareholders
The obligations of Target and the Shareholders to effect the merger
hereunder are, at the option of Target and the Shareholders, subject to the
conditions that:
13.1 Representations and Warranties True. The representations and
warranties of Parent and Subsidiary contained herein shall be true in all
material respects at and as of the Effective Date of the Merger with the same
effect as though made at and as of such date; Parent and Subsidiary shall have
performed all material obligations and complied with all material covenants
required by this Agreement to be performed or complied with by it prior to the
Effective Date of the Merger; and Parent and Subsidiary shall have delivered to
Target a certificate, dated the Effective Date of the Merger and signed by the
president and secretary of Parent and Subsidiary, to both such effects.
13.2 Absence of Litigation. There shall be no actual or threatened
litigation to restrain or invalidate the merger or any other transaction
contemplated in this Agreement, the defense of which would, in the reasonable
judgment of the Board of Directors of Target, made in good faith and based on
the advice of counsel, involve expense or lapse of time either of which would be
materially adverse to the interests of Target.
13.3 Requisite Approvals. The consent of any other party which is a
prerequisite to the transfer to Subsidiary of all the rights of Target in, to
and under any contract, agreement, lease, or other instrument and any property
or asset, tangible or intangible, pursuant to the merger contemplated by this
Agreement, shall have been obtained. The parties expressly agree that consents
and/or waivers will not be required from Bank of New Hampshire, NA; MLP & Jef
Co., Inc. or the Scotts Company.
13.4 Governmental Permits. All governmental authorizations and permits
necessary for the consummation of the merger shall have been secured.
13.5 Opinion of Parent's Counsel. The Shareholders shall have received
a favorable opinion, dated the Effective Date of the Merger, of counsel to
Parent, in form and substance reasonably satisfactory to the Shareholders and
their counsel and based on customary assumptions, to the effect that:
(1) All proceedings, other than the filing and recording of
the Agreement, required of Parent and Subsidiary in order to effectuate the
merger of Target into Subsidiary have been duly taken by Parent and Subsidiary
in accordance with Delaware and federal law, and, upon such filing and recording
of said Agreement, and upon compliance by Target with all laws applicable to it,
Target will be duly merged with and into Subsidiary under Delaware law;
(2) The shares of Parent Stock which are to be issued and
delivered to the Shareholders of Target upon the consummation of the merger are
validly authorized and, when so issued, will to the best of counsel's actual
knowledge be validly issued, fully paid, nonassessable; and
(3) Neither the execution and delivery of this Agreement, nor
performance hereunder, will conflict with, or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, Parent's or
Subsidiary's Certificate of Incorporation or Bylaws.
Section 14.
Closing Deliveries
14.1 Closing Deliveries by Parent and/or Subsidiary
Parent and/or Subsidiary shall deliver at Closing:
(a) Parent shall deliver the Purchase Notes, the Cash Consideration and
the certificates for the shares of Parent Stock registered in the names of
Shareholders to Subsidiary, and Subsidiary shall redeliver the same to the
Shareholders or deliver them into escrow as required by this Agreement;
(b) The opinion of counsel required by Section 13.5 hereof, to the
Shareholders;
(c) Copies of requisite consents pursuant to Section 13.3 and
governmental permits pursuant to Section 13.4, to the Shareholders;
(d) Certified copies of the resolutions or unanimous written consents
of the Boards of Directors of Parent and Subsidiary, and of the Shareholders of
Subsidiary, to the Shareholders.
(e) The updating certificates required by Section 13.1, to the
Shareholders.
(f) Certificates of corporate and tax good standing, and incumbency
certificates, for Parent and Subsidiary, to the Shareholders;
(g) Certified copies of the Articles or Certificates of Incorporation
and the Bylaws for Parent and Subsidiary, to the Shareholders;
(h) Current funds in payment of professional fees, pursuant to
Subsection 3.4(2), to the Target's counsel and accountants.
14.2 Closing Deliveries by Target and/or Shareholders.
Target and/or Shareholders shall deliver at closing:
(a) Certificates for the Target Stock, duly endorsed for transfer, with
signature guarantees, to Subsidiary;
(b) The opinion of counsel required by Section 12.5 hereof, to Parent;
(c) Copies of requisite consents pursuant to Section 12.3 and
governmental permits pursuant to Section 12.4, to Parent and Subsidiary;
(d) Certificates for the shares of 3MT, Inc., to Target, duly endorsed
for transfer to Target with signature guarantees;
(e) Certified copies of the resolutions or unanimous written consents
of the Board of Directors and Shareholders of Target to Subsidiary.
(f) The updating certificates required by Section 12.1, to Parent and
Subsidiary.
(g) Certificates of corporate and tax good standing, and incumbency
certificates, for Target, to Parent and Subsidiary
(h) Certified copies of the Articles of Incorporation and Bylaws of
Target, to Subsidiary;
(i) Resignations of all officers and directors of Target, effective
immediately, to Subsidiary;
(j) The corporate minute books and Stock transfer records of Target to
Subsidiary, along with ownership and possession of Target's assets and
operations (subject to Section 19 hereof).
14.3 Documents to be Executed by Some or all of the Parties at Closing.
At the Closing:
(a) The Subsidiary and the Shareholders shall execute the Employment
Agreements;
(b) The Shareholders and Subsidiary (as successor to Target) shall
execute the mutual releases required by Section 5.15 hereof; and
(c) Parent and the Shareholders shall execute the Indemnity Agreement
(the "Indemnity Agreement") from Parent (or from Parent and Subsidiary) to the
Shareholders, required by Sections 17.5 and 17.7 hereof.
(d) Escrow Agent, Parent and the Shareholders shall execute the Escrow
Agreement, required by Section 17.6 hereof.
(e) Parent and the Shareholders shall execute the Pledge.
(f) Shareholders and Subsidiary shall execute the Lease Assumption; and
(g) Parent and Shareholders shall execute the Investment
Representations.
14.4 Filings to be undertaken by Subsidiary and Target at Closing: The
Subsidiary and Target shall make the filings contemplated by Section 4.2 hereof.
14.5 Ancillary Agreements. The term "Ancillary Agreements" shall mean
some or all ( as context may require) of the Employment Agreements; the
Indemnity Agreement; the Purchase Notes; the Pledge; the Lease Assumption; the
Investment Representations; the Escrow Agreement; the Release; and - as and when
executed the Post-Closing Notes.
Section 15.
Non-competition
15.1 [Intentionally Omitted]
Section 16.
Tax Consequences of the Transfers
16.1 Tax Responsibility. Neither Target nor the Shareholders is relying
upon Parent or Subsidiary or their legal or other tax counsel regarding any
matter related to this Agreement (except as specifically set forth herein),
including one or more possible tax consequences which may result from any of the
transactions contemplated in this Agreement.
16.2 Consistency. Each party agrees to file all federal, state and
local tax returns in a fashion consistent with the characterizations given the
transactions by this Agreement, and each party further agrees not to adopt any
position inconsistent with these characterizations in any audit or proceeding
involved any such taxing authority.
Section 17.
Indemnification
17.1 Indemnification of Parent and Subsidiary. The Shareholders agree
to indemnify, defend, and hold Parent and Subsidiary harmless from and against
any and all claims, costs, obligations, loss, damage or expense (including
interest, penalties and reasonable attorneys' fees) suffered by Parent and
Subsidiary from (1) any breach by Shareholders of their covenants set forth in
this Agreement or in any Ancillary Agreement; or (2) any inaccuracy in or breach
of any of the representations, or warranties by the Shareholders herein.
17.2 Indemnification of Shareholders. Parent and Subsidiary agree to
indemnify, defend, and hold Shareholders harmless from and against any and all
claims, costs, litigation, loss, damage or expense (including interest,
penalties, and reasonable attorneys' fees) suffered by Shareholders from (1) any
breach by Parent or Subsidiary of their covenants set forth in this Agreement or
in any Ancillary Agreement; or (2) any inaccuracy in or breach of any of the
representations or warranties by Parent and Subsidiary herein.
17.3 Defense of Claims. Upon obtaining knowledge thereof, the
indemnified party shall promptly notify the indemnifying party of any claim
which has given or could give rise to a right of indemnification under this
Agreement. If the right of indemnification related to a claim asserted by a
third party against the indemnified party, the indemnifying party shall have the
right to employ counsel acceptable to the indemnifying party to cooperate in the
defense of any such claim. So long as the indemnifying party is defending any
such claim in good faith, the indemnified party will not settle such claim. If
the indemnifying party does not elect to defend any such claim, the indemnified
party shall have no obligation to do so.
17.4 Limits on Indemnification. Notwithstanding anything to the
contrary set forth herein, any claim by Parent, Subsidiary or Shareholders for
indemnity for breach of warranty or representation under Subsections 17.1 (2) or
17.2(2) (acclaim") shall be limited as follows:
(1) The Indemnifying Party shall not be required to pay
indemnity to the Indemnified Party until the aggregate of all Claims for
indemnity exceeds Fifty Thousand Dollars ($50,000), and then only to the extent
of any excess of Claims over Fifty Thousand Dollars ($50,000);
(2) No Claim for indemnity need be honored if it is asserted
subsequent to December 31, 1997 except for (a) Claims for indemnity under
Section 5.11 above (taxes); (b) Claims for indemnity in respect of Section 5.14
above (environmental); or (c) other Claims the existence or nature of which was
intentionally concealed by the Indemnifying Party. The Indemnified Party shall
have the burden of proving the applicability of any of the foregoing exceptions
to this limitation.;
(3) The aggregate liability of any Indemnifying Party for all
Claims asserted against him or it shall not exceed One Million, Five Hundred
Thousand Dollars ($1,500,000);
(4) Any matter which was the subject of an adjustment in the
purchase considerations pursuant to Section 3.3 may not be asserted as a Claim
against Shareholders under this Section 17;
(5) Indemnity shall not be based on theories of consequential,
incidental or punitive damages, except that an indemnified party may seek
indemnity from an indemnifying party for any claim for consequential, incidental
or punitive damages asserted by a third party against the indemnified party; and
(6) The provisions of this Section 17.4 shall be exclusive,
and shall bar any remedy for money damages which may otherwise be available to
an indemnified party at law or in equity for breach of warranty, with the
proviso that nothing herein shall limit the right of an indemnified party to
apply for or receive injunctive relief under appropriate circumstances.
17.5 Parent Conduct of Tax Audits.
Parent and Subsidiary agree to notify the Shareholders promptly in
writing if any federal or state tax authority commences a review of any tax
period falling in whole or in part prior to June 30, 1996; and upon request to
execute IRS Forms 2848 or similar powers of attorney permitting the Shareholders
or their professional representatives to act on behalf of Parent and/or
Subsidiary with respect to such matters. If a federal or state taxing authority
commences a review for any tax period falling in whole or in part subsequent to
the Effective Date, involving items which if adjusted -are likely to result in
material adverse adjustments for tax periods falling in whole or in part prior
to the Effective Date, Subsidiary and Parent shall give the Shareholders prompt
written notice of the commencement of the review and shall afford them a
reasonable opportunity to participate in the procedure. Parent and Subsidiary
shall make the records of Subsidiary pertaining to any such tax period (whether
before or after the Effective Date) available to the Shareholders and their
professional representatives for matters relating to the review, subject to
reasonable confidentiality undertakings. Each of the parties agrees that he or
it will not voluntarily accept adjustments in a tax year for which he or it has
primary tax liability, if it is likely in the reasonable opinion of another
party to result in material adverse changes in a tax year for which that other
party has primary tax liability.
17.6 Escrow. At Closing, Shareholders authorize that (a) the so-called
"Payment Shares and "Tender Shares" totalling 147, 650 such shares; plus (b) One
Hundred Sixty Thousand (160,000) additional shares of Parent Stock be delivered
in escrow to the Escrow Agent, under an escrow agreement in the form of Exhibit
17.6 hereto (the "Escrow Agreement"), to be held on the terms set forth therein.
17.7 Personal Liabilities. Shareholders have personally guaranteed the
banking facility of Target with Bank of New Hampshire, NA, (the "Bank
Facility"), and are personally obligated on the original Lease. Shareholders
have agreed to leave in place their guarantees of the banking facility pending
completion of Parent's negotiation of a substitute facility, but in no event
beyond December 31, 1996. Shareholders' have also agreed to leave in place their
leasehold obligations until a new lease arrangement is structured, but in no
event beyond December 31, 1996. Parent and Subsidiary will devote best good
faith efforts to obtain a release of these guarantees or liabilities as quickly
as possible prior to that deadline, without cost or expense to Shareholders. At
Closing, the Parent and Shareholders will execute the Indemnity Agreement, which
provides that Parent will indemnify, defend and hold harmless Shareholders,
their estates, heirs, successors or assigns from all loss, damage, cost,
liability or expense incurred by Shareholders under the Bank Facility or the
Lease, or in respect of certain other matters.
Section 18.
Lease of Commercial Property
18.1 Lease. Shareholders currently lease the property located at 15
Londonderry Road, Londonderry, NH 03053 which is used as the principal place of
business for Target, on the terms and conditions stated in the Lease.
Section 19.
19. Post-Closing Covenants of Parent and Subsidiary. For the period
extending from the Effective Date through and including December 31, 1996 (the
"Test Period"), it is the intention of the parties that the business operations
of Subsidiary be under the management and direction of the Shareholders, subject
to the terms of their Employment Agreements, and that the Subsidiary be given
the opportunity to operate independently during the Test Period, utilizing the
assets and the personnel of Target. Accordingly, during the Test Period, the
Parent agrees as follows;
(1) The Subsidiary will conduct Target's business as it
existed on the Effective Date as a free-standing and independent Subsidiary,
using only the name "Turf Specialty", will maintain separate books of account
for the Subsidiary and will not require the Subsidiary to share facilities,
assets, overhead or administrative expenses with any of Parent's other business
operations, unless in each such case the Shareholders shall agree in writing to
the contrary;
(2) Except as provided herein, Subsidiary will not be charged
for administrative fees, "home office expense", administrative expense or other
charges of similar nature, and will not be required to pay dividends or to make
other distributions of similar nature to or for the benefit of the Parent;
(3) Any course of dealing between the Subsidiary on the one
hand and the Parent or any other Affiliate of the Parent on the other hand, will
be "at arms' length" and will be subject to the reasonable prior approval of the
Shareholders;
(4) The Subsidiary will not be required to engage in business
activities not directly relevant to the customary operations of Target, or to
acquire or conduct additional business operations;
(5) The Subsidiary will not be required to participate in or
service any loan facilities established from time to time which are extraneous
to its "stand-alone" need for working capital; and
(6) The Parent will not directly or indirectly take any other
actions with respect to Subsidiary which would have a material adverse effect on
Subsidiary's ability to meet the earnings test set forth in Subsection 3.3(3)
above.
Notwithstanding the foregoing, Parent may take any of the actions referred to in
Subsections (1)-(6) above if:
(a) the action is consented to in writing by the Shareholders,
which consent shall not be unreasonably withheld; or
(b) (i) the Put Right has expired or has been waived; (ii) the
Shareholders' personal liability for the Lease and the Bank Facility has
terminated; (iii) Parent and Subsidiary simultaneously waive in writing the
earnings test set forth in Subsection 3.3(3); (iv) Parent escrows any unpaid
principal and accrued interest on the Purchase Notes pursuant to Section
3.3(8)(d) above, and (v) an equitable adjustment is made for Shareholders'
potential right to receive consideration for net profits pre-tax in calendar
1995 in excess of $900,000.
In any event, Parent will be allowed to accrue (but not to require payment of)
administrative fees to the Subsidiary for calendar 1996 once the Put Right has
expired or been waived, so long as (i) no effect is given to the accrual in
applying the earnings test of Subsection 3.3(3), and (ii) provision is made for
cancellation of those fees in the event Shareholders foreclose on the Pledge.
If the Purchase Notes remain outstanding at December 31, 1996, then
these restrictions shall remain in effect until the Purchase Notes are paid in
full, or the proceeds are placed in escrow pursuant to Subsection 3.3(8)(d)
above.
19A. Registration Rights.
(1) For purposes of this Section 19A, the term "Registration
Rights" shall mean any rights from time to time conferred by the Parent upon a
Rights Holder (as that term is defined herein) in connection with the
acquisition of his business, to require registration of his or its shares of
Parent Stock for sale to the public pursuant to federal or state securities
laws; any right conferred by the Parent on a Rights Holder to require inclusion
of his or its shares in any such registration of shares for sale by the Parent
or any affiliate of the Parent; any agreement with a Rights Holder having the
same or similar effect; and any agreement conferring rights ancillary to the
registration on a Rights Holder, such as (by way of example only) an obligation
on the part of the Parent to pay underwriting fees, to file forms required by
regulatory agencies and to update and keep current information contained in
prospectuses and registration statements. A "Rights Holder" shall mean (a) any
present or future member of ITODA; and (b) any other independent distributor,
engaged in the sale or distribution of ornamental and turf care, management or
conservation products or services at the time the rights are granted, who would
have been eligible for ITODA membership had he applied. The term shall in any
event exclude Abbott Labs and its affiliates.
(2) Registration Rights have not been granted by Parent prior
to the date hereof Parent. Parent shall give Shareholders prompt notice in
writing if Parent grants further Registration Rights to any other person or
entity, enclosing a copy of the relevant portion of documents granting the
Registration Rights.
(3) Within thirty (30) days of the giving of notice by the
Parent pursuant to Section 19A(2) above the Shareholders may request that such
Registration Rights be extended to them for no more than 500,000 shares of
Parent Stock, adjusted for stock dividends and splits. If they do so, the
Shareholders and the Parent shall in good faith negotiate the form of a written
agreement setting forth the Shareholders' Registration Rights. If the
third-party Registration Rights are subject to "cutback" clauses, ceilings on
the number of shares of Parent Stock to be registered or other numerical
limitations, then the effect of such limitations shall be allocated amongst
Shareholders and the third parties, pro rata to the number of shares of Parent
Stock owned by each. Registration Rights will be extended both to shares of
Parent Stock held outright by Shareholders, and to those held by Escrow Agent,
but shall not be available for so-called "Payment Shares" and "Tender Shares" as
defined in Subsection 3.7.
(4) Shareholders may at any given point in time have the
benefit of only a single set of Registration Rights. The granting of a request
for Registration Rights to Shareholders shall supersede any prior grants of
Registration Rights to them.
(5) Shareholders' rights to request additional registration
rights with respect to shares of Parent Stock shall cease on the earlier of:
(a) the date on which the shares of Parent Stock have been
registered for public sale on any form available for resale; or
(b) the date on which the shares of Parent Stock may be
freely traded by Shareholders without restriction under Rule 144(k).
Section 20.
General Provisions
20.1 Acknowledgment. The parties acknowledge that they have read this
Agreement in its entirety, understand its contents, and sign it freely and
voluntarily. The parties affirm that neither party, nor their representatives,
have made any representations concerning the terms or effects of this Agreement
other Man those contained herein. The parties further acknowledge that they have
negotiated with each other over the terms and language of this Agreement, and
have had the opportunity to consult with an attorney of their own choosing prior
to executing this Agreement.
20.2 Amendments or Alterations. The entire agreement between the
parties with respect to this subject matter is contained in this Agreement. The
provisions of this Agreement are solely for the benefit of the parties and not
for the benefit of any other person or entity. No alteration, waiver or
modification of any of the provisions of this Agreement shall be binding unless
in writing and signed by the parties hereto.
20.3 Attorneys Fees. In the event any attorney is employed by either
party to this Agreement with regard to any legal actions, arbitration or other
proceeding brought by either party for the enforcement of this Agreement, or
because of an alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, then the party
prevailing in such proceeding, whether at trial or upon appeal, shall be
entitled to recover reasonable attorneys' fees and other costs and expenses
incurred, in addition to any other relief to which it may be entitled.
20.4 Post Judgment Fees. In the event a party obtains a judgment in a
proceeding brought to enforce this Agreement, that party shall also be entitled
to recover reasonable attorneys' fees and costs incurred in enforcing said
judgment. This provision is intended to be severable from the other provisions
of this Agreement, shall not be deemed merged into but shall survive any such
judgment.
20.5 Authority to Execute. Each party hereto hereby warrants and
represents to each other party that it has the legal authority and capacity to
enter into this Agreement and that all resolutions or other actions have been
taken so as to enable it to enter into this Agreement.
20.6 Broker Fees. Parent and Subsidiary agree to indemnify Shareholders
against any liability, loss, cost, damage, or expense arising out of claims for
fees or commissions of brokers employed or alleged to have been employed by
Parent and Subsidiary. Shareholders or their affiliates agree to indemnify
Parent and Subsidiary against any liability, loss, cost, damage or expense
arising out of claims for fees or commissions of brokers employed or alleged to
have been employed by Target, Shareholders or its affiliates.
20.7 Choice of Laws. This Agreement shall be governed by the internal
laws of the State of Delaware, without regard to its conflict of laws doctrine.
Each of the parties to this Agreement hereby irrevocably and unconditionally
agrees (i) to be subject to the jurisdiction of the courts of the State of
Delaware and of the federal courts sitting in the State of Delaware, and (ii) to
the extent such party is not otherwise subject to service of process in the
State of Delaware, to appoint and maintain an agent in the State of Delaware as
such party's agent for acceptance of legal process, and that service made
pursuant to (ii) above shall have the same legal force and effect as if served
upon such party personally within the State of Delaware. For purposes of
implementing the parties' agreement to appoint and maintain an agent for service
of process in the State of Delaware, each such party that has not as of the date
hereof already duly appointed such an agent does hereby appoint RL&F Service
Corp., One Rodney Square, 10th Floor, Wilmington, Delaware 19801, as such agent.
20.8 Confidentiality. The parties agree that they and any of their
officers, directors, or other representatives will hold in strictest confidence,
and will not disclose any of the terms and conditions or other details of this
Agreement, and will not disclose any information furnished by or obtained from
any other party hereto in connection with the negotiation and preparation of
this Agreement, except with the prior written consent of all parties hereto. The
parties will coordinate and agree in advance as to the contents of any press
release or public announcement, and no such announcement shall be made unless
approved in advance by all concerned. The provisions of this Section 20.E shall
not apply if a party is required to produce information in response to a court
order, a summons or subpoena, or if the disclosure is necessary in order for a
party to assert or defend against claims hereunder, but in any such event notice
of proposed disclosure shall be given to all other parties, and all parties
shall cooperate in drafting an appropriate protective order.
20.9 Cooperation. The parties to this Agreement agree to cooperate with
each other in good faith to accomplish the objectives and purposes hereto and to
that end, from time-to-time, shall make, execute and deliver such other and
further instruments, and do or refrain from doing such acts as may be necessary
or convenient to the fulfillment of the purposes of this Agreement.
20.10 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
20.11 Cumulative Rights. The various rights, options, elections, powers
and remedies of a party or parties to this Agreement shall be construed as
cumulative and no one of them exclusive of any other, or except as limited by
Section 17.4 above of any other legal or equitable remedy which said party or
parties might otherwise have in the event of breach or default of the terms
hereof. The exercise of one right or remedy by a party or parties shall not in
any way impair his rights to any other right or remedy and to all obligations
imposed on a party or parties to have been fully performed.
20.12 Enforceability and Severability. If any provision of this
Agreement in held by a court of competent jurisdiction to be invalid, illegal or
unenforceable by reason of any rule of law or public policy, all other
provisions of this Agreement shall nevertheless remain in effect. No provision
of this Agreement shall be deemed dependent on any other provision unless so
expressed herein.
20.13 Entire Agreement. This Agreement and the Ancillary Agreements
supersede any and all other agreements, either oral or in writing, between the
parties hereto with respect to the subject matter hereof, and no other
agreement, statement or promise relating to the subject matter of this Agreement
which is not contained herein or therein shall be valid or binding.
20.14 Exhibits. All exhibits to which reference is made are deemed
incorporated in this Agreement, whether or not actually attached.
20.15 Fictitious Business Name. The parties hereto covenant and
represent that if any or all of them are doing business under a fictitious name,
they, and each of them, have fully and completely complied with California or
other local law in relation to doing business under such fictitious name.
20.16 Further Acts. The parties hereto agree to execute, acknowledge
and deliver any and all additional papers, documents and other assurances and
shall perform any and all acts and things reasonably necessary in connection
with the performance of the obligations hereunder to carry out the intent of the
parties hereto.
20.17 Recitals. The above recitals are incorporated herein as if set
forth in full.
20.18 Interpretation. All parties have been represented by attorneys of
their choice. The rule of construction and interpretation that provides that any
ambiguity or drafting error is to be construed against the drafting party and in
favor of the interpretation advocated by the non-drafting party is waived and it
is deemed that all parties hereto coequally drafted this Agreement.
20.19 [Intentionally omitted]
20.20 [Intentionally omitted]
20.21 Arbitration. To the fullest extent permitted by applicable law,
any dispute arising out of or in connection with this Agreement or any Ancillary
Agreement (a "Dispute") shall be submitted to mandatory and binding arbitration
at the election of either Parent, on the one hand, and Shareholders on the other
hand (the "Disputing Party") unless (x) the Dispute is subject to Subsection
3.3(7) in which case such section shall control: (y) the Dispute relates to
either Purchase Notes and the Pledge in which case the use of binding
arbitration shall be at the option of the Seller. Except as otherwise provided
in this Section, the arbitration shall be pursuant to the Commercial Arbitration
Rules of the American Arbitration Association ("AAA") to the extent not
inconsistent with the Delaware Uniform Arbitration Act, 10 Del. C. ss.5701, et
seq.
(1) To initiate the arbitration, the Disputing Party shall
notify the other party in writing (the "Arbitration Demand"), which shall (i)
describe in reasonable detail the nature of the Dispute, (ii) state the amount
of the claim (if known), and (iii) specify the requested relief. Within 15 days
after the other party's receipt of the Arbitration Demand, such other party
shall file, and serve on the Disputing Party, a written statement (i) answering
the claims set forth in the Arbitration Demand and including any affirmative
defenses of such party; and (ii) asserting any counterclaim, which shall (A)
describe in reasonable detail the nature of the Dispute relating to the
counterclaim, (B) state the amount of the counterclaim (if known) and (C)
specify the requested relief. The arbitration will be heard by a panel of the
three arbitrators chosen according to the rules of AAA who have no past or
present relationships with the parties or their counsel, except as otherwise
disclosed in writing to and approved by the parties (the "Arbitration Panel").
The Arbitration Panel shall be convened promptly no later than 15 days following
the giving of the response to the Arbitration Demand. Decisions of the majority
of the members of the Arbitration Panel shall be determinative.
(2) The arbitration hearing shall be held in such neutral
location as the parties may mutually agree. The Arbitration Panel is
specifically authorized to tender partial or full summary judgment as provided
for in the Federal Rules of Civil Procedure. The Federal Rules of evidence shall
apply to the arbitration proceeding. The party bringing a particular claim or
asserting an affirmative defense will have the burden of proof with respect
thereto. The arbitration proceedings and all testimony, filings, documents and
information relating to or presented during the arbitration proceedings shall be
deemed to be information subject to the confidentiality provisions set forth in
this Agreement. The Arbitration Panel will have no power or authority, under the
Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties
from their agreement hereunder to arbitrate or otherwise to amend or disregard
any provision of this Agreement, including, without limitation, the provisions
of this Section 20.21.
(3) Within 15 days after the closing of the arbitration
proceeding, the Arbitration Panel shall prepare and distribute to the parties a
writing setting forth the Arbitration Panel's findings of facts and conclusions
of law relating to the Dispute, including the reasons for the giving or denial
of any award. The findings and conclusions and the award, if any, shall be
deemed to be information subject to the confidentiality provisions set forth in
Section 20.08.
(4) The Arbitration Panel is instructed to schedule promptly
all discovery and other procedural steps and otherwise to assume case management
initiative and control to effect an efficient and expeditious resolution of the
Dispute. The Arbitration Panel is authorized to issue monetary sanctions against
either party if, upon a showing of good cause, such party is unreasonably
delaying the proceeding.
(5) Any award rendered by the Arbitration Panel will be final,
conclusive and binding upon the parties absent manifest error on the face of the
order or fraud, and any judgment thereon may be entered and enforced in any
court of competent jurisdiction.
(6) Each party will bear a pro rata share of all fees, costs
and expenses of the arbitrators, and notwithstanding any law to the contrary,
each party will bear all the fees, costs and expenses of its own attorneys,
experts and witnesses; provided, however, that in connection with any judicial
proceeding to compel arbitration pursuant to this Agreement or to enforce any
award rendered by the Arbitration Panel, the prevailing party in such a
proceeding will be entitled to recover reasonable attorneys' fees and expenses
incurred in connection with such proceeding, in addition to any other relief to
which it may be entitled.
(7) Nothing in this Section 20.21 shall be construed to
prevent any party from seeking from a court a temporary restraining order or
other temporary or preliminary injunctive relief pending final resolution of a
Dispute pursuant to this Section 20.21.
20.22 Survival. All statements contained in any of these instruments,
certificates, opinions or other writings shall be deemed to be representations
and warranties under this Agreement. The representations, warranties and
indemnities made by the parties in this Agreement, or in instruments,
certificates, opinions, or other writings provided for in the covenants and
agreements to be performed or complied with by the respective parties under it
for or upon the closing date, shall be deemed to be continuing and shall survive
the closing as limited by this Agreement. Nothing in this paragraph shall affect
the obligations and indemnities of the parties with respect to covenants and
agreements contained in this Agreement that are permitted to be performed, in
whole or in part, after the closing date.
20.23 Headings. The paragraphs headings used in this Agreement are for
reference and convenience only and shall not in any way limit or amplify the
terms and provisions hereof, nor affect the interpretation of this Agreement.
20.24 Non-Assignability/Succession. This Agreement is personal in
nature and is not assignable by either party without the prior written consent
of the non-assigning party. Any purported assignment or delegation shall be null
and void and of no force and effect unless consented to by all parties. This
Agreement shall be binding upon and inure to the benefit to the parties and
their respective heirs, legatees, legal representatives, successors and
permitted assigns.
20.25 Notice. Notices given under this Agreement shall be writing and
shall be either served personally or delivered by first-class U.S. mail, postage
prepaid. Notice shall be deemed received at the earlier of actual receipt or
three (3) days following deposit in the U.S. mail, postage prepaid. Notices
shall be directed to the following addresses, provided that a party may change
his address for notice by giving written notice to all other parties in
accordance with this paragraph:.
Parent:
Eco Soil Systems, Inc.,
10890 Thornmint Road #200
San Diego, California 92127
Fax:
Subsidiary::
Eco Specialty, Inc. 10890
Thornmint Road #200
San Diego, California 92127
Fax:
In each case, with a copy to:
Thomas Edwards, Esq.
Latham & Watkins
701 B Street, Suite 2100
San Diego,CA 92101-8197
Telephone (619) 235-1234
Fax (619) 696-7419
Target and Shareholders:
Kevin Lyons
128 Fiasco Hill Road
Sturbridge, MA 01566
Fax: 508-347-8070
David Schermerhorn
274 Little Alum Road
Brimfield, MA 01010
Fax:
With a copy to:
Alan L. Reische, Esq.
Sheehan Phinney Bass + Green, PA
1000 Elm Street, PO Box 3701
Manchester, NH 03105
Fax: 603-627-8121
20.26 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 person other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third person any right of
subrogation or actions over or against any party to this Agreement.
20.27 Time of Essence. Time is of the essence of this Agreement.
20.28 Waiver. The failure of either party at any time to enforce any of
the provisions of this Agreement, or any rights it may have in respect thereto,
or to exercise any right herein provided, shall in no way be considered to be a
waiver of such provisions or rights or in any way affect the validity of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of this _______________ day of ____________, 1996.
/s/ Kevin Lyons
- ----------------------------------- --------------------------------
Kevin Lyons WITNESS
/s/ David Schermerhorn
- ----------------------------------- --------------------------------
David Schermerhorn WITNESS
ECO SOIL SYSTEMS, INC.
By: /s/William B. Adams
------------------------------- --------------------------------
Chairman and CEO Attest
ECO SPECIALTY, INC.
By: /s/ Jeffrey A. Johnson
------------------------------- --------------------------------
President
Target:
TURF SPECIALTY, INC.
By:
------------------------------- --------------------------------
President
APPENDIX A
GLOSSARY OF TERMS
The following terms have the meanings set forth where used in the
Agreement and Plan of Merger and identified with initial capital letters:
<TABLE>
<CAPTION>
TERM DEFINITION
<S> <C>
AAA As defined in Section 20.21 of the Agreement.
Agreement As defined in the preamble to the Agreement.
Amended Return As defined in Section 3.7(c) of the Agreement.
Amended Return Years As defined in Section 3.7(c) of the Agreement.
Ancillary Agreements As defined in Section 14.5 of the Agreement.
Arbitration Demand As defined in Section 20.21 (1) of the Agreement.
Arbitration Panel As defined in Section 20.21 (1) of the Agreement.
Bank Facility As defined in Section 17.7 of the Agreement.
Bigelow As defined in Section 3.3(1) of the Agreement.
Cash Payment As defined in Section 3.1 (2)(a) of the Agreement.
Claim As defined in Section 17.4 of the Agreement.
Closing As defined in Section 4.3 of the Agreement.
Constituent Corporations As defined in the preamble to the Agreement.
DFO Accounts As defined in Section 3.7 of the Agreement.
Dispute As defined in Section 20.21 of the Agreement.
Disputing Party As defined in Section 20.21 of the Agreement.
Distribution As defined in Section 3.3 (5) of the Agreement.
Effective Date of the Merger As defined in Section 4.1 of the Agreement.
Escrow Agent As defined in Section 3.2 (a) of the Agreement.
Escrow Agreement As defined in Section 17.6 of the Agreement.
Indemnity Agreement As defined in Section 14.3(c) of the Agreement
Investment Representations As defined in Section 3.8 of the Agreement.
Labonte Lease As defined in Section 3.6 of the Agreement.
Lease Assumption As defined in Section 3.6 of the Agreement.
Merger Shares As defined in Section 3.7 of the Agreement.
Net Assets As defined in Section 3.3 (6)(b) of the Agreement.
Parent As defined in the preamble to the Agreement.
Parent Financial Statements As defined in Section 6.3 of the Agreement.
Parent Stock As defined in Section 3.1 (2) (b) of the Agreement.
Payment Shares As defined in Section 3.7(f) of the Agreement.
Pledge As defined in Section 3.l (2) (c) of the Agreement
Post-Closing Audit As defined in Section 3.3 (1) of the Agreement.
Post-Closing Loan As defined in Section 3.4(1) of the Agreement.
Purchase Notes As defined in Section 3.1 (2) ( c ) of the
Agreement; Exhibits A-1 and A-2 of the
Agreement.
Put Right As defined in Section 3.3 (2) (b) of the Agreement.
Refunds As defined in Section 3.7(d) of the Agreement.
Registration Rights As defined in Section 19A of the Agreement.
Release As defined in Section 5.15 of the Agreement.
Rights Holder As defined in Section 19A( I ) of the Agreement.
Shareholder or Shareholders As defined in the preamble to the Agreement.
Standard Accounting Practices As defined in Section 3.3 (6)(a) of the Agreement.
SubChapter S corporation As defined in Section 3.7(d) of the Agreement.
Subsidiary As defined in the preamble to the Agreement.
Subsidiary Shares As defined in Section 3.3 (2) (b) of the Agreement.
Target As defined in the preamble to the Agreement.
Target Financial Statements As defined in Section 5.5 of the Agreement.
Target Stock As defined in Section 3.1 (2) of the Agreement.
Tender Shares As defined in Section 3.7(g) of the Agreement.
Test Period As defined in Section l 9 of the Agreement.
Year-End Financial Statement As defined in Section 3.3 (3) of the Agreement.
</TABLE>
AGREEMENT AND PLAN OF MERGER
October 28, 1996
VIA FACSIMILE
Mr. Kevin Lyons
128 Fiske Hill Road
Sturbridge, MA 01566
Mr. David Schermerhorn
274 Little Alum Road
Brimfield, MA 01010
Re: Agreement and Plan of Merger
Gentlemen:
This will confirm our discussions in which we have agreed to
amend our existing Agreement and Plan of Merger (the "Merger Agreement") as
follows:
Specifically, Eco Soil, Inc. ("Eco Soil") and you have each
agreed:
1. The parties will extend the date for the funding of the
$250,000 Post Closing Loans to the earlier of five (5) business days following
the closing of Eco Soil's initial public offering or December 15, 1996 (the
"Extension Date"). In addition, Eco Soil agrees to pay on or before the
Extension Date accrued interest on such amount at the interest rate contained in
the Purchase Notes from August 1, 1996 through the Extension Date.
2. Such funds will be held in accordance with the terms of the
Escrow Agreement. On or before the Extension Date, Eco Soil shall deliver to the
Escrow Agent the sum of $1,000,000 constituting the entire amount of principal
outstanding under the Purchase Notes.
3. Eco Soil will pay on or before the Extension Date any
currently unpaid interest on the Purchase Notes which is now due and owing
together with all late payment penalties due pursuant to Section 2.1 of the
Purchase Notes and Eco Soil will pay any future interest payments on the
Purchase Notes as they come due in accordance with their terms.
4. Eco Soil will provide Shareholders with monthly financial
statement no later than the fifteenth day of the following month commencing
November 15, 1996 until such time as all payments due to Shareholders pursuant
to Section 3 of the Merger Agreement shall have been paid in full.
5. Except as set forth herein, the Merger Agreement and the
Ancillary Agreements shall remain in full force and effect and the provisions of
which are hereby incorporated by reference. Capitalized terms used herein shall
have the same meaning as in the Merger Agreement and the ancillary Agreements.
None of the provisions of the Merger Agreement or the Ancillary Agreements have
been waived, modified or abrogated except as is expressly provided in this
document with respect to rescheduling payments. Nothing is expressly provided in
this document with respect to rescheduling of payments. Nothing herein implies
any obligations of Shareholders to waive any future defaults by Eco Soil.
6. As consideration for entering into this Amendment, Eco Soil
will provide to each of the Shareholders warrants to purchase 10,000 shares of
Eco Soil Common Stock in the form previously provided.
If the foregoing comports with your understanding of our
agreement, please countersign in the space below whereupon this will become a
binding Amendment among us.
Thank you very much for your courtesy and cooperation.
Very truly yours,
Eco Soil Systems, Inc.
By: /s/ William B. Adams
------------------------------------
Its: CEO
------------------------------------
Turf Specialty, Inc.
By: /s/ William B. Adams
------------------------------------
Its: CEO
------------------------------------
ACCEPTED AND AGREED TO:
/s/ Kevin Lyons
- --------------------------------------
Kevin Lyons
/s/ David Schermerhorn
- --------------------------------------
David Schermerhorn
AGREEMENT AND PLAN OF MERGER
by and among
ECO SOIL SYSTEMS, INC.,
a Nebraska corporation,
ECO TURF PRODUCTS, INC.,
a Delaware corporation,
TURF PRODUCTS, INC.,
an Illinois corporation,
WALTER FUCHS
and
WALTER FUCHS, AS TRUSTEE OF
THE FUCHS FAMILY CHARITABLE REMAINDER TRUST
May 31, 1996
TABLE OF CONTENTS
Section 1 Definitions
Section 2 The Merger
2.1 Merger
2.2 Use of Name
2.3 Certificate of Incorporation and Bylaws
2.4 Conversion and Exchange of Shares
2.5 Effective Date
2.6 Closing
2.7 Further Assurances
Section 3 Representations and Warranties of Turf Products and
Shareholder
3.1 Shareholder
3.2 Corporate Organization and Good Standing
3.3 Capitalization
3.4 Subsidiaries
3.5 Financial Statements
3.6 Absence of Undisclosed Liabilities
3.7 Absence of Certain Changes
3.8 Litigation
3.9 Contracts
3.10 Title
3.11 Tax Returns
3.12 No Violation
3.13 Corporate Authority
3.14 Hazardous Waste and Materials
3.15 Employee and Employee Benefit Matters
3.16 Reliance
3.17 Merger Consideration
3.18 Restrictive Legend
3.19 Accredited Investor
3.20 Full Disclosure
3.21 Legal and Tax Advice
3.22 Trust
Section 4 Representations and Warranties of Parent
4.1 Corporate Organization, Good Standing, and Capitalization
4.2 Corporate Authority
4.3 Financial Statements of Parent
4.4 Shares to Be Issued
4.5 No Material Adverse Change
4.6 Private Placement Memorandum
4.7 Additional Capital
4.8 Reliance
Section 5 Representations and Warranties of Subsidiary
5.1 Corporate Organization, Good Standing, and Capitalization
5.2 Corporate Authority
5.3 Liabilities
5.4 Continued Activity
Section 6 Conduct of Turf Products Pending the Closing
6.1 Certificate of Incorporation and Bylaws
6.2 Capitalization
6.3 Shareholders' Meeting
6.4 Conduct of Business
6.5 Termination of the Profit Sharing Plan
Section 7 Covenants of Parent and Subsidiary Pending the Closing
7.1 meeting of Parent's Directors
7.2 Meeting of Subsidiary's Shareholders
7.3 Information
7.4 Contribution to Subsidiary
Section 8 Covenants of Parent and Turf Products Pending the Closing
8.1 Announcement
8.2 Information
Section 9 Conditions to Obligations of Parent Subsidiary
9.1 Representations and Warranties True
9.2 Absence of Litigation
9.3 Requisite Approvals
9.4 Governmental Permits
9.5 Opinion of Turf Products' Counsel
Section 10 Conditions to Obligations of Tuft Products
10.1 Representations and Warranties True
10.2 Absence of Litigation
10.3 Requisite Approvals
10.4 Governmental Permits
10.5 Opinion of Parent's Counsel
Section 11 Termination
11.1 Circumstances of Termination
11.2 Effect of Termination
Section 12 Certain Post-Closing Matters
12.1 Employment of Shareholder; Covenant Not to Compete
12.2 Employment of Turf Products Employment
Section 13 Indemnification
13.1 Indemnification of Parent Subsidiary
13.2 Indemnification of Shareholder
13.3 Defense of Claims
Section 14 Accounting, Adjustments and Put Right
14.1 Accounting
14.2 Post-Closing Adjustment and Put Right
14.3 No Duplication of Recovery
Section 15 General Provisions
15.1 Acknowledgement
15.2 Alterations and Waivers
15.3 Attorneys Fees
15.4 Post Judgment Fees
15.5 Authority to Execute
15.6 Broker Fees
15.7 Choice of Laws
15.8 Confidentiality
15.9 Counterparts
15.10 Cumulative Rights
15.11 Enforceability and Severability
15.12 Entire Agreement
15.13 Exhibits
15.14 Fictitious Business Name
15.15 Further Acts
15.16 Recitals
15.17 Joint and Several Obligations
15.18 Jurisdiction and Venue
15.19 Survival
15.20 Headings
15.21 Assignability
15.22 Notice
15.23 Parties
15.24 Time of Essence
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of May
31, 1996, is entered into by and among ECO SOIL SYSTEMS, [NC., a Nebraska
corporation (the "PARENT"), ECO Turf Products, Inc., a Delaware corporation (the
"Subsidiary"), Turf Products, Ltd., an Illinois corporation ("TURF PRODUCTS"),
WALTER FUCHS ("FUCHS"), and WALTER FUCHS, AS TRUSTEE OF THE FUCHS FAMILY
CHARITABLE REMAINDER TRUST ("TRUST") Fuchs and Trust being the owners of record
of all of the issued and outstanding stock of Turf Products. Fuchs and Trust
sometimes are referred to herein collectively as "SHAREHOLDER".
WHEREAS, the boards of directors of Parent, Subsidiary, and Turf
Products deem the merger of Turf Products into Subsidiary on the terms herein
set forth to be desirable and in the best interests of their respective
stockholders, and have approved this Agreement, and the boards of directors of
Subsidiary and Turf Products have directed that the Agreement be submitted to
their respective stockholders for approval.
NOW, THEREFORE, Subsidiary and Turf Products agree that Turf Products
shall be merged into Subsidiary, which shall be the surviving corporation, and
that the plan, terms, and conditions of such merger shall be as follows:
SECTION 1 -- DEFINITIONS
This Section I sets forth certain defined terms used from time to time in this
Agreement. Additional terms are defined in the text of the Agreement.
"CLOSING DATE" shall mean the first date upon which all of the steps
described in Section 2.6 hereof have been completed.
"CONSTITUENT CORPORATIONS" shall mean Subsidiary and Turf Products.
"EXISTING INDEBTEDNESS TO SHAREHOLDER" shall mean any and all claims or
obligations of any nature whatsoever owed by Turf Products to Shareholder or any
Shareholder Affiliate.
"HEADQUARTERS PROPERTY" shall mean the real property (and all
improvements thereon) described in Exhibit "A" attached hereto and incorporated
herein by reference.
"INTERIM BALANCE SHEET DATE" shall mean April 30, 1996.
"MERGER" shall mean the merger of Turf Products into Subsidiary as
contemplated by Section 2.1 hereof.
"SHAREHOLDER AFFILIATE" shall mean: (a) any natural person who has a
relationship with Fuchs or Fuchs' spouse, by blood, marriage or adoption, that
is no more remote than second cousin (and any spouse of any such person); (b)
any trust or estate of which Fuchs or any other person referenced in clause (a)
of this definition is a beneficiary or a trustee, executor or other fiduciary;
or (c) any corporation, association, partnership, joint venture, limited
liability company, other organization or entity (i) for which Fuchs or any other
person referenced in clause (a) of this definition, individually or in the
aggregate, directly or indirectly owns 10% or more of the voting stock of such
entity or otherwise owns 10% or more of the equity interests in such entity,
(ii) which Fuchs and/or any person reference in clause (a) of this definition,
individually or in the aggregate, has the capacity to cause the direction and
management of the policies or operations of such entity, whether through
ownership of voting securities partnership interests or other debt or equity
securities, employment contracts or relationships, or other means.
"TRANSACTION DOCUMENTS" means this Agreement, the Mutual Release, the
Pledge Agreement, the Employment Agreement, the Headquarters Lease, and any
additional agreement or instrument required to be executed and delivered by a
party pursuant to the terms of any of the foregoing.
SECTION 2--THE MERGER
2.1 MERGER. On the Closing Date, Turf Products shall be merged into
Subsidiary (Subsidiary being the surviving corporation), the separate existence
of Turf Products shall cease, and Subsidiary as the surviving corporation shall
continue its corporate existence under the laws of the State of Delaware under
the name of Eco Turf Products, Inc., dba Turf Products; and Subsidiary shall
possess all the rights, privileges, powers and franchises of a public as well as
private nature and be subject to all of the restrictions and duties of Turf
Products; and all rights, privileges, powers, and franchises of Turf Products
and all property, real, personal, tangible and intangible belonging to Turf
Products shall be vested in Subsidiary; and all property, rights, privileges,
powers, and franchises and every other interest shall be the property of
Subsidiary as they were of Turf Products, and the title to any real estate
vested by deed or otherwise in Turf Products shall not revert or be in any way
impaired by reason of this merger, provided that all rights of creditors, and
all liens upon any property of Turf Products, shall be preserved unimpaired and
all debts, liabilities, and duties of Turf Products shall thenceforth attach to
Subsidiary and may be enforced against Subsidiary to the same extent as if said
debts, liabilities, and duties had been incurred or contracted by Subsidiary.
2.2 USE OF NAME. The parties agree to take whatever actions are
necessary to ensure that the "Turf Products" name is available to Subsidiary for
its use from and after the Closing. For example, within the discretion of
Subsidiary, (a) the certificate of incorporation of Subsidiary may be amended,
by changing Article I thereof so as to read in its entirety as follows: "The
name of the corporation is Turf Products Inc.," or (b) Subsidiary may use such
name as a dba.
2.3 CERTIFICATE OF INCORPORATION AND BYLAWS. The certificate of
incorporation and bylaws of Subsidiary in effect immediately prior to the
Closing shall continue to be the certificate of incorporation and bylaws of
Subsidiary, as the surviving corporation, from and after the Merger.
2.4 CONVERSION AND EXCHANGE OF SHARES. The manner of converting or
exchanging the shares of each of the Constituent Corporations shall be as
follows:
(a) The Merger shall effect no change in any of the shares of
Subsidiary stock, and none of its shares shall be converted or issued as a
result of the Merger.
(b) All of Turf Products' stock which is issued and
outstanding on the Closing Date (the "TURF STOCK") shall, by virtue of the
Merger, be converted at the Closing into, without action on the part of
Shareholder, Four Hundred Thousand (400,000) shares of Parent common stock (the
"PARENT STOCK") and cash in the amount of $1,310,000 (which cash shall be
provided by Subsidiary). Such Parent Stock and cash shall be distributed to
Fuchs and Trust pro rata in proportion to their holdings of the Turf Stock.
2.5 EFFECTIVE DATE. The parties intend for the Merger to be effective
as of May 31, 1996 (the "EFFECTIVE DATE"), and for the closing of the Merger
(the "CLOSING") to occur in accordance with Section 2.6 hereof on such date or
as soon thereafter as reasonably possible. If any applicable laws dictate that
the Merger cannot become effective for legal purposes until a later date, then
the parties, to the extent practically feasible and consistent with the intent
of this Agreement, nonetheless shall cause the accounting and the treatment of
any revenues, earnings, expenses and expenditures of the Constituent
Corporations subsequent to the Effective Date to be handled as if the Merger had
become legally effective on May 31, 1996, and Subsidiary hereby consents to and
ratifies all expenses paid by Turf Products from such date to the Closing Date.
2.6 CLOSING. The Closing shall be held at the principal offices of
Parent, unless another place is agreed upon in writing by the parties. In
connection with the Closing, the parties shall cause the following steps to be
taken:
(a) Subsidiary and Turf Products shall file each of the
following:
(i) A Certificate of Merger substantially in the form
of Exhibit "B" attached here to (the "CERTIFICATE OF MERGER") shall be executed
and filed in the office of the Secretary of State for the State of Delaware;
(ii) A duplicate original of the Certificate of
Merger shall be filed in the office of the Secretary of State for the State of
Illinois;
(iii) Illinois BCA Forms 11.25 and 14.35 shall be
filed in the office of Secretary of State for the State of Illinois.
(b) Subsidiary shall deliver to Shareholder the Parent Stock
and cash described in Section 2.4(b) hereof.
(c) Shareholder shall surrender to Subsidiary for cancellation
the certificates representing the Turf Stock. Until so presented and
surrendered, each certificate which represents issued and outstanding shares of
Turf Stock shall be deemed for all purposes to evidence ownership of the Parent
Stock into which such Turf Stock have been converted pursuant to the Merger.
However, until surrender of the Turf Stock, Shareholder shall not be entitled to
vote at any meeting of Parent's shareholders.
(d) Shareholder and Subsidiary shall execute and deliver a
Mutual Release and Settlement Agreement in the form attached hereto as Exhibit
"C" (the "MUTUAL RELEASE"), pursuant to which, as more fully set forth therein
and subject to the terms thereof, Subsidiary shall pay to Fuchs and his spouse
on the Closing Date the sums described in Section 1 thereof and Fuchs, his
spouse and Subsidiary shall release all claims which they may have against each
other as of the Closing Date, other than claims arising under this Agreement and
the other Transaction Agreements.
(e) Shareholder shall deliver to Subsidiary a Pledge Agreement
in the form attached hereto as Exhibit "D" (the "PLEDGE AGREEMENT"), pursuant to
which, as more fully set forth therein and subject to the terms thereof,
Shareholder shall provide to Parent and Subsidiary a first priority security
interest in the shares of Parent Stock received by Shareholder at the Closing,
which security interest shall secure the obligations of Shareholder under
Sections 13.1 and 14.2(b) hereof.
(f) Subsidiary and Fuchs shall execute and deliver an
"Employment Agreement" in the form attached hereto as Exhibit "E" (the
"EMPLOYMENT AGREEMENT"), pursuant to which, as more fully set forth therein and
subject to the terms thereof, Subsidiary shall agree to employ Fuchs and Fuchs
shall agree to work for Subsidiary.
(g) Subsidiary and Fuchs, as beneficial owner, shall enter
into a lease in the form attached hereto as Exhibit "G" (the "HEADQUARTERS
LEASE"), pursuant to which, as more fully set forth therein and subject to the
terms thereof, Subsidiary shall lease the Headquarters Property from Fuchs.
(h) Parent and Subsidiary shall deliver the certificates
called for by Sections 4.2 5.2 and 10.1 hereof and the opinion called for by
Section 10.5 hereof.
(i) Shareholder and Turf Products shall deliver the
certificates called for by Sections 3.13 and 9.1 hereof and the opinion called
for by Section 9.5 hereof.
2.7 FURTHER ASSURANCES. From time to time as and when requested by
Subsidiary or its successors or assigns, the officers and directors of Turf
Products last in office shall execute and deliver such deeds and other
instruments and shall take or cause to be taken such other actions as shall be
necessary to vest or perfect in or to confirm of record or otherwise,
Subsidiary's title to, and possession of, all the property, interests, assets,
rights, privileges, powers, franchises, and authority of Turf Products, and
otherwise to carry out the purposes of this Agreement.
SECTION 3--REPRESENTATIONS AND WARRANTIES OF
TURF PRODUCTS AND SHAREHOLDER
Turf Products and Shareholder represent and warrant to Parent and
Subsidiary that the following are and shall be true and correct as of the
Effective Date and as of the Closing Date:
3.1 SHAREHOLDER. Fuchs and Trust are the only shareholders of Turf
Products and they own their shares free and clear of all liens, encumbrances and
any liabilities.
3.2 CORPORATE ORGANIZATION AND GOOD STANDING. Turf Products is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Illinois, with full corporate power and authority to
conduct its business as it presently is being conducted and to own and lease its
properties and assets. Turf Products is qualified to do business as a foreign
corporation in each jurisdiction, if any, in which its property or business
requires such qualification. Copies of the articles and by-laws of Turf
Products, and all amendments thereto, heretofore delivered to Parent are
accurate and complete.
3.3 CAPITALIZATION. Turf Products' authorized capital stock consists of
100 shares of Turf Products Common Stock, $10.00 par value, of which 100 shares
are issued and outstanding, fully paid and nonassessable. Fuchs owns 95 shares
of Turf Products Common Stock; Trust owns 5 shares of Turf Products Common
Stock. There are no options, warrants, or rights outstanding of any kind to
purchase or acquire shares of Turf Products Common Stock.
3.4 SUBSIDIARIES. Except as set forth on Exhibit "O". Turf Products has
no subsidiaries.
3.5 FINANCIAL STATEMENTS. Turf Products' unaudited balance sheets as of
December 31, 1993, 1994, 1995, and short year ending on the Interim Balance
Sheet Date, and the related statements of income and retained earnings for the
years then ended, copies of which are attached hereto as Exhibit "H", fairly
present in all material respects the financial condition of Turf Products as of
said dates and the results of its operations for the periods then ended, on an
accrual basis and in conformity with generally accepted tax accounting
principles consistently applied for the periods covered. Further, Exhibit "I"
attached hereto lists the names and addresses of all of the material customers
of Turf Products during calendar year 1995.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent reflected
or reserved against in Turf Products' balance sheet as of DECEMBER 31, 1995 and
short year ending on the Interim Balance Sheet Date, Turf Products did not have
on such dates any liabilities or obligations (secured, unsecured, contingent, or
otherwise) of a nature customarily reflected in a corporate balance sheet
prepared in accordance with generally accepted accounting principles. Further,
the aggregate Existing Indebtedness to Shareholder equals $440,000. All such
Existing Indebtedness to Shareholder is reflected in the balance sheet for Turf
Products referenced in Section 3.6 prepared as of the Interim Balance Sheet
Date.
3.7 ABSENCE OF CERTAIN CHANGES. Except as set forth on Exhibit "J"
attached hereto, (a) Turf Products has not incurred, since the Interim Balance
Sheet Date, any additional liabilities except for liabilities incurred in the
ordinary course of business and in accordance with reasonably prudent business
practices, and (b) there have been no material adverse changes in the business,
properties, or financial condition of Turf Products since December 31, 1995.
3.8 LITIGATION. Except as set forth on Exhibit "K" attached hereto,
there is no litigation, proceeding, or investigation pending or, to the
knowledge of Turf Products or Shareholder threatened against Turf Products or
Shareholder which if successful might result in an adverse change in the
business, properties, or financial conditions of Turf Products or which
questions the validity or legality of this Agreement or of any action taken or
to be taken by Turf Products or Shareholder in connection with this Agreement.
In addition, Shareholder has no knowledge of any facts or circumstances that
could lead to any such litigation or arbitration against Turf Products or
Shareholder (including without limitation litigation or arbitration that might
be brought by past or present employees of Turf Products).
3.9 CONTRACTS. Except as set forth in Exhibit "L" attached hereto, Turf
Products is not a party to any material contract which is to be performed in
whole or in part at or after the date of this Agreement. A material contract
shall include any contract which provides for more than $40,000 in payments over
the term of the contract.
3.10 TITLE. Fuchs has good and marketable fee title to the Headquarters
property. Turf Products has good and valid title to all property (excluding the
real estate) included in the balance sheet of Turf Products as of the Interim
Balance Sheet Date, other than property disposed of in the ordinary course of
business after said date. Except as set forth in Exhibit "M" attached hereto,
the properties of Turf Products, if any, are not subject to any mortgage,
encumbrance, or lien of any kind except minor encumbrances not of a financial
nature, which do not materially interfere with the use of the property in the
conduct of the business of Turf Products.
3.11 TAX RETURNS. The federal income tax returns of Turf Products have
been filed with the Internal Revenue Service for all years to and including the
taxable year ending December 31, 1995. Turf Products has provided Parent with
accurate and complete copies of all federal and state income tax returns filed
for Turf Products for the 1992, 1993, 1994 and 1995 calendar years. The
provisions for federal and state taxes reflected in the financial statements
referred to in Section 3.5 hereof are adequate to cover any such taxes which may
be assessed against Turf Products in respect of its business and its operations
during the periods covered by said financial statements and all prior periods.
3.12 NO VIOLATION. Consummation of the merger will not constitute or
result in a breach or default under any provision of any charter, bylaw,
indenture, mortgage, lease, or agreement, or any order, judgment, decree, law,
or regulation to which any property of Turf Products is subject or by which Turf
Products is bound, except for breaches or defaults which in the aggregate would
not have a materially adverse effect on Turf Product's properties, business
operations or financial condition. To the best knowledge of Fuchs, Turf Products
has complied with and is not in violation of any applicable federal, state, and
local laws and regulations affecting the operation of its business, except (i)
for any such noncompliance which in the aggregate would not have a materially
adverse effect on Turf Product's properties, business operations or financial
condition, and (ii) the provisions of this Section 3.12 shall not apply to
environmental laws, which are the subject of Section 3.14 hereof.
3.13 CORPORATE AUTHORITY. Turf Products has full corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder and will deliver to Parent at the Closing a certified copy of the
minutes of its Sole Director and Sole Shareholder authorizing execution of this
Agreement by its officers and performance thereunder in substantially the same
form as is attached hereto as Exhibit "N".
3.14 HAZARDOUS WASTE AND MATERIALS. Turf Products and Shareholder have
been in material compliance with all environmental laws including, but not
limited to, those spelled out in the Comprehensive Environmental Resource
Compensation and Liability Act, 42 U.S.C. ss.9600 et seq., Resources
Conservation and Recovery Act, 42 U.S.C., ss.6900 et seq., Clean Water Act, 33
U.S.C. ss.1251 et seq., as well as other federal, state and local laws which
relate to the creation, storage and disposal of hazardous materials. To the best
knowledge of Fuchs, there are no claims pending or threatened, by any person or
agency, against Turf Products or Shareholder or any property owned or leased by
Turf Products under any environmental laws (and no circumstances have occurred
which could form the basis for any such claims). Neither Turf Products nor
Shareholder has created, utilized, stored nor disposed of, or suffered the
existence of, any material or substance which may be hazardous on any property
or land owned or leased by Turf Products or Shareholder, except in accordance
with all applicable laws and in the ordinary course of its business.
3.15 EMPLOYEE AND EMPLOYEE BENEFIT MATTERS. Exhibit "O" attached hereto
lists all of the employees of Turf Products. No such employees have any right to
accrued vacation (or payment in lieu of all or part thereof) in excess of 10
business days. Other than the plans described on Exhibit "O" there are no
employee benefit plans in place including, but not limited to, pension, stock
bonus, 401(k), employee stock ownership, money purchase, stock option,
cafeteria, medical expense reimbursement or phantom stock plans, under which
Turf Products is subject to liability. Shareholder hereby agrees to defend and
hold Parent and Subsidiary harmless from any and all liability relating to any
such employee benefit plans, including the profit sharing plan to be terminated
pursuant to Section 6.5 hereof.
3.16 RELIANCE. Turf Products and Shareholder have inspected and
investigated for themselves all of the assets and liabilities of Parent and
Subsidiary and have been given access to such information as they have
requested, and relies on no representations or warranties of Parent and
Subsidiary in entering into this Agreement, except as specifically set forth
herein.
3.17 MERGER CONSIDERATION. The Parent Stock to be delivered at the
Closing is being acquired for Fuchs and Trust's respective own accounts, with no
intention of assigning any participation or interest therein, and without a view
to the distribution of any portion thereof, except in accordance with the
Securities Act of 1933 (as amended from time to time) (the "SECURITIES ACT") and
all applicable state securities laws. Fuchs is a resident solely of the State of
Illinois, Trust is organized and existing under the laws of the State of
Illinois, and all material negotiations relating to this Agreement and the
transactions contemplated hereby occurred while such Fuchs was in the State of
Illinois. Fuchs and Trust understand that the Parent Stock to be delivered at
the Closing is not being registered under the Securities Act or any state
securities law and must be held unless and until such time as it is subsequently
registered thereunder or an exemption from such registration is available. Fuchs
and Trust further understand that, except as otherwise provided in this
Agreement, the Parent Stock to be delivered at the Closing is not being
registered under the Securities Act or any state securities law in part on the
grounds that the issuance thereof is exempt under Section 4(2) of the Securities
Act, and Regulation D promulgated thereunder, as a transaction by an issuer not
involving any public offering; that Parent's reliance on such exemption is
predicated in part on the foregoing representation and warranty of Fuchs and
Trust and that in the view of the Securities and Exchange Commission, the
statutory basis for the exemption claimed would not be present if,
notwithstanding such representation and warranty, Fuchs or Trust contemplates
acquiring any of the Parent Stock for sale upon the occurrence or non-occurrence
of some predetermined event. Shareholder understands and acknowledges that the
sale of the Parent Stock may be restricted or limited by the qualification or
listing requirements of any securities exchange upon which the common stock of
Parent may subsequent to Closing become designated or listed for trading.
3.18 RESTRICTIVE LEGEND. Shareholder understands that Parent will have
an appropriate stop order placed on its records indicating the existence of the
terms of this Agreement, and that the certificates representing the Parent Stock
shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"), but
have been issued pursuant to an exemption thereunder. The
registered holder of such shares has agreed not to effect a
disposition of such shares until either: (1) the holder has
received the opinion of counsel acceptable to the Company that
registration under the Act is not required, or (2) a
registration statement under the Act covering such shares and
disposition has become effective under the Act."
3.19 ACCREDITED INVESTOR. Fuchs is an "accredited investor" as that
term is defined in Rule 501(a) of the Securities and Exchange Commission.
Exhibit "P" attached hereto sets forth in reasonable detail all bases upon which
Shareholder qualifies is an "accredited investor."
3.20 FULL DISCLOSURE. None of the representations and warranties made
by Turf Products and Shareholder contain or will contain any untrue statement of
a material fact or omit any material fact, the omission of which would be
misleading.
3.21 LEGAL AND TAX ADVICE. Each of Turf Products and Shareholder has
had an opportunity to discuss this Agreement with counsel of their respective
choosing, and to have the legal consequences of the Transaction Agreements and
the transactions contemplated thereby explained by such counsel. Shareholder
also has had an opportunity to seek and obtain the advice of a competent tax
professional with respect to the tax consequences of the Transaction Agreements
and the transactions contemplated hereby. Neither Turf Products nor Shareholder
is relying upon Parent, Subsidiary or any of their respective stockholders,
directors, officers, attorneys, accountants, agents or representatives for
purposes of interpreting the provisions of the Transaction Agreements or
assessing the consequences hereof.
3.22 TRUST. Fuchs is the sole grantor that created the Trust. Fuchs
also is the sole Trustee of the Trust.
SECTION 4--REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Turf Products that the following are
and shall be true and correct as of the Effective Date and the Closing Date:
4.1 CORPORATE ORGANIZATION, GOOD STANDING, AND CAPITALIZATION. Parent
is a corporation duly organized, existing, and in good standing under the laws
of the State of Nebraska, with the corporate power to own its properties and to
carry on its business as now being conducted. Complete and correct copies of
Parent's Certificate of Incorporation and Bylaws, as amended to the date hereof,
have been delivered to Turf Products. As of May 30, 1996, (a) Parent's
authorized capital stock consisted of Ten Million (10,000,000) shares of common
stock, of which, Five Million, Two Hundred Thirty-One Thousand, One Hundred
Eighty-Three (5,231,183) shares were issued and outstanding all fully paid and
nonassessable, and (b) warrants, options, rights or conversion privileges
permitting the holders to acquire an additional Four Million Twenty-Five
Thousand Four Hundred and Seven (4,025,407) shares of Parent's Common Stock were
outstanding. As of the Closing, the authorized Parent's authorized capital stock
will be Fifteen Million (15,000,000). In addition to the stock, warrants,
options, rights and conversion privileges referenced above, it is anticipated
that as of the Closing (i) if the private placement contemplated by the
Confidential Private Placement Memorandum referenced in Section 4.6 below has
closed by such date, then there will be outstanding additional warrants
permitting the holders thereof to acquire up to an additional One Million
(1,000,000) shares of Parent's common stock; and (ii) if the acquisition of the
Northeast independent dealer referenced on page 29 of such Confidential Private
Placement Memorandum has closed by such date, then there will be outstanding up
to an additional Five Hundred Thousand (500,000) shares of Parent's common
stock. The certificates representing the shares of Parent common stock issued
and outstanding as of the Closing Date will contain restrictive legends
substantially similar to that described in Section 3.18 above.
4.2 CORPORATE AUTHORITY. This Agreement has been approved of by all
necessary corporation action of Parent and Parent will deliver to Turf Products
at the closing a certified copy of the minutes of its Board of Directors
authorizing the execution of this Agreement by its officers and performance
thereunder in substantially the same form as is attached hereto as Exhibit "O".
Neither the execution and delivery of this Agreement, nor performance hereunder,
will conflict with, or result in a breach of the terms, conditions, or
provisions of, or constitute a default under, the Certificate of Incorporation
or Bylaws of Parent or any agreement or instrument to which Parent is a party or
by which it is bound.
4.3 FINANCIAL STATEMENTS OF PARENT. Parent has furnished Turf Products
with the audited consolidated financial statements of Parent and its
consolidated subsidiaries, if any, as of December 31, 1993, 1994 and 1995 and
for the years ended on such dates. Such financial statements fairly present, the
financial position of Parent and its consolidated subsidiaries, if any, on the
dates indicated, and the results of their operations for the periods then ended,
in conformity with generally accepted accounting principles applied on a
consistent basis, except as noted therein.
4.4 SHARES TO BE ISSUED. The shares of Parent Stock to be issued and
delivered pursuant to this Agreement will be duly and validly issued, fully
paid, and nonassessable.
4.5 NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, there has not
been any change in the business, assets, operations, or financial condition of
Parent nor its consolidated subsidiaries, if any, that materially adversely
affects the business of Parent and its consolidated subsidiaries, if any, as a
whole.
4.6 PRIVATE PLACEMENT MEMORANDUM. Parent has provided Shareholder with
a copy of the Confidential Private Placement Memorandum pertaining to units to
be sold by Parent consisting of notes and warrants to purchase shares of
Parent's common stock. The matters set forth therein pertaining to the business
and affairs of Parent are true and correct in all material respects.
4.7 ADDITIONAL CAPITAL. Parent presently intends to seek from time to
time to raise additional capital as it deems appropriate in order to enhance the
value of the shares of Parent's common stock. The primary option presently being
considered is an initial public offering of Parent's common stock, and Parent's
present plans are to continue to pursue such an offering. The parties recognize,
however, that a number of factors could impact the ultimate decision as to
whether and when to consummate such an offering, and accordingly there can be no
assurance as to if and when such a public offering might occur.
4.8 RELIANCE. Parent and Subsidiary have inspected and investigated for
themselves all of the assets and liabilities of Turf Products and have been
given access to such information as they have requested, and rely on no
representations or warranties of Turf Products in entering into this Agreement,
except as specifically set forth herein.
SECTION 5--REPRESENTATIONS AND WARRANTIES OF SUBSIDIARY
Subsidiary represents and warrants to Turf Products that the following
are and shall be true and correct as of the Effective Date and the Closing Date:
5.1 CORPORATE ORGANIZATION, GOOD STANDING, AND CAPITALIZATION. On the
Closing Date, Subsidiary shall be a corporation duly organized, existing, and in
good standing under the laws of the State of Delaware, with authorized capital
stock of 1,000 shares of common stock, par value $.01, 100 of which shall be
issued, outstanding, and owned by Parent (with no other shares issued or
outstanding).
5.2 CORPORATE AUTHORITY. This Agreement has been approved of by the
Board of Directors of Subsidiary and Subsidiary will deliver to Turf Products at
the closing a certified copy of the minutes of its Sole Shareholder and Board of
Directors authorizing the execution of this Agreement by its officers and
performance thereunder in substantially the same form as is attached hereto as
Exhibit "R". Neither the execution and delivery of this Agreement, nor
performance hereunder, will conflict with, or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, the Certificate of
Incorporation or Bylaws of Subsidiary or any agreement or instrument to which
Subsidiary is a party or by which it is bound.
5.3 LIABILITIES. Subsidiary has no liabilities except liabilities for
organizational expenses and expenses in connection with the merger contemplated
by this Agreement.
5.4 CONTINUED ACTIVITY. Following the merger, Subsidiary will continue
the active conduct of the business to be acquired from Turf Products and has no
plan or intention to liquidate or sell its assets other than in the ordinary
course of business.
SECTION 6--CONDUCT OF TURF PRODUCTS PENDING THE CLOSING
Turf Products and Shareholder agree that between the date of this
Agreement and the Closing:
6.1 CERTIFICATE OF INCORPORATION AND BYLAWS. No change will be made in
Turf Products' certificate of incorporation or bylaws.
6.2 CAPITALIZATION. Turf Products will not make any change in its
authorized or issued capital stock, declare or pay any dividend or other
distribution, or issue, encumber, purchase, or otherwise acquire any of its
capital stock.
6.3 SHAREHOLDERS' MEETING. By the execution of this Agreement,
Shareholder hereby approves of the terms and conditions contained herein and no
further approval by Turf Products, its Shareholder or Board of Directors is
required.
6.4 CONDUCT OF BUSINESS. Except as provided in Section 6.5 hereof, Turf
Products will use its best efforts to maintain and preserve its business
organization, employee relationships, and goodwill intact, and will not, without
the written consent of Parent and Subsidiary, except in good faith and in the
ordinary course of business, enter into any contracts or other commitments,
amend any existing contracts, increase, directly or indirectly, the compensation
or benefits of any officer or employee, hire any new employees, borrow money,
make loans, or sell any of its assets or client lists.
6.5 TERMINATION OF THE PROFIT SHARING PLAN. Prior to the Closing, Turf
Products and Shareholders shall terminate the Profit Sharing Plan (as identified
in Exhibit "O" attached hereto), and Turf Products and Shareholder shall take
all necessary and appropriate action to transfer full and complete authority, to
the trustees of such plan, to consummate the termination of such plan, including
without limitation, effecting the distribution of benefits thereunder.
SECTION 7--COVENANTS OF PARENT AND SUBSIDIARY PENDING THE CLOSING
Parent and Subsidiary agree that between the date hereof and the Closing:
7.1 MEETING OF PARENT* DIRECTORS. Parent will submit and recommend the
merger of Turf Products into Subsidiary to Parent's Directors at a special
meeting to be duly called and held prior to the Closing, (or such other date as
may be agreed upon in writing by Parent and Turf Products).
7.2 MEETING OF SUBSIDIARY'S SHAREHOLDERS. Parent will vote all the
outstanding shares of common stock of Subsidiary in favor of the merger of Turf
Products into Subsidiary at a special meeting of Subsidiary's shareholders to be
duly called and held prior to the Closing (or such other date as may be agreed
upon in writing by Subsidiary and Turf Products).
7.3 INFORMATION. Parent will furnish Turf Products with all information
reasonably requested by Turf Products prior to the Closing concerning Parent or
Subsidiary in connection with the transactions contemplated by this Agreement.
Shareholder acknowledges that it has received the Confidential Private Placement
Memorandum pertaining to units to be sold by Parent consisting of notes and
warrants to purchase shares of Parent's common stock.
7.4 CONTRIBUTION TO SUBSIDIARY. Parent will contribute to Subsidiary
such cash as may be required in order for Subsidiary to make the payments
contemplated by Section 2.6(b) hereof and Section I of the Mutual Release.
SECTION 8--COVENANTS OF PARENT AND TURF PRODUCTS PENDING THE CLOSING
8.1 ANNOUNCEMENT. Prior to the Closing, neither Turf Products nor
Parent, without the prior approval of the other, will make any announcement or
other statement to the public, and each will promptly forward to the other a
copy of any general announcement or statement to its employees, customers, or
suppliers concerning the transactions covered by this Agreement.
8.2 INFORMATION. Turf Products and Shareholder will furnish Parent and
Subsidiary, or their representative, with all information reasonably requested
by Parent or Subsidiary prior to the Closing concerning Turf Products or
Shareholder in connection with the transactions contemplated by this Agreement.
SECTION 9--CONDITIONS TO OBLIGATIONS OF PARENT AND SUBSIDIARY
The obligations of Parent and Subsidiary to effect the Merger are, at
the option of Parent or Subsidiary, subject to the following conditions:
9.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Turf Products contained herein (other than those set forth in
Sections 3.14 or the last sentence of Section 3.12 hereof) shall be true at and
as of the Effective Date and the Closing Date with the same effect as though
made at and as of such dates; Turf Products shall have performed all obligations
and complied with all covenants required by this Agreement to be performed or
complied with by it prior to the Closing; and Turf Products shall have delivered
to Parent and Subsidiary a certificate, dated the Closing Date and signed by
Turf Products' president and its secretary, to both such effects.
9.2 ABSENCE OF LITIGATION. There shall be no actual or threatened
litigation against Turf Products or any actual or threatened litigation to
restrain or invalidate the merger or any other transaction contemplated in this
Agreement, the defense of which would, in the judgment of the Board of Directors
of Parent, made in good faith and based on the advice of counsel, involve
expense or lapse of time that would be materially adverse to the interests of
Parent.
9.3 REQUISITE APPROVALS. The requisite approvals of this Agreement and
the transactions contemplated herein shall have been given by the Boards of
Directors of Parent, Subsidiary, and Turf Products and the consent of any other
party to the transfer to Subsidiary of all the rights of Turf Products in, to,
and under any contract, agreement, lease, or other instrument and any property
or asset, tangible or intangible, pursuant to the merger contemplated by this
Agreement, shall have been obtained.
9.4 GOVERNMENTAL PERMITS. All governmental authorizations and permits
necessary for the consummation of the merger shall have been secured.
9.5 OPINION OF TURF PRODUCTS' COUNSEL. Parent shall have received a
favorable opinion, dated the Closing Date, of counsel for Turf Products, in form
and substance satisfactory to Parent and its counsel, to the effect that:
(a) All proceedings, other than the filings described in
Section 2.6(a) hereof, necessary to be taken by Turf Products or Shareholder
under Illinois law in order to effectuate the merger of Turf Products into
Subsidiary have been duly taken by Turf Products and Shareholder in accordance
with Illinois law, and, upon such filings, Turf Products will be duly merged
with and into Subsidiary;
(b) The shares of capital stock of Turf Products outstanding
immediately prior to the Effective Date and the Closing are, to the best
counsel's actual knowledge, validly authorized and issued and duly paid and
nonassessable; and
(c) Neither the execution and delivery of this Agreement, nor
the performance hereunder, will conflict with, or result in a breach of the
terms, conditions, or provisions of, or constitute a default under, Turf
Product's Certificate of Incorporation or Bylaws or any agreement, instrument,
judgment, decree, regulation, or other restriction of which such counsel has
knowledge and to which Turf Products is a party or by which it is bound.
SECTION 10--CONDITIONS TO OBLIGATIONS OF TURF PRODUCTS
The obligations of Turf Products to effect the Merger are, at the
option of Turf Products, subject to the conditions that:
10.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Parent and Subsidiary contained herein shall be true at and as of
the Effective Date and the Closing with the same effect as though made at and as
of such dates; Parent and Subsidiary shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by it prior to the Closing; and Parent and Subsidiary shall have
delivered to Turf Products a certificate, dated the Closing Date and signed by
the president and secretary of Parent and Subsidiary, to both such effects.
10.2 ABSENCE OF LITIGATION. There shall be no actual or threatened
litigation to restrain or invalidate the merger or any other transaction
contemplated in this Agreement, the defense of which would, in the judgment of
the Board of Directors of Turf Products, made in good faith and based on the
advice of counsel, involve expense or lapse of time that would be materially
adverse to the interests of Turf Products.
10.3 REQUISITE APPROVALS. The requisite approvals of this Agreement and
the transactions contemplated herein shall have been given by the Boards of
Directors of Parent, the Board of Directors and Shareholder of Subsidiary, and
Turf Products and the consent of any other party to the transfer to Subsidiary
of all the rights of Turf Products in, to and under any contract, agreement,
lease, or other instrument and any property or asset, tangible or intangible,
pursuant to the merger contemplated by this Agreement, shall have been obtained.
10.4 GOVERNMENTAL PERMITS All governmental authorizations and permits
necessary for the consummation of the merger shall have been secured.
10.5 OPINION OF PARENT'S COUNSEL.
(a) Shareholder shall have received a favorable opinion, dated
the Closing Date, of counsel to Parent, in form and substance satisfactory to
Turf Products and its counsel, to the effect that: the shares of Parent Stock
which are to be issued and delivered to the Shareholder of Turf Products upon
the consummation of the Merger are validly authorized and, when so issued, will
be, to the best of counsel's actual knowledge, validly issued, fully paid,
nonassessable; and
(b) All proceedings, other than the filings described in
Section 2.6(a) hereof, necessary to be taken by Parent or Subsidiary under
Delaware law in order to effectuate the merger of Turf Products into Subsidiary
have been taken by Parent and Subsidiary in accordance with Delaware law, and,
upon such filings, Turf Products will be duly merged with and into Subsidiary.
SECTION 11--TERMINATION
11.1 CIRCUMSTANCES OF TERMINATION. This Agreement may be terminated
prior to Closing:
(a) By the mutual consent in writing of the Board of Directors
of Turf Products and Parent.
(b) By the Board of Directors of Turf Products if any
condition provided in Section 10 hereof has not been satisfied or waived on or
before the Closing.
(c) By the Board of Directors of Parent if any condition
provided in Section 9 hereof has not been satisfied or waived on or before the
Closing.
11.2 EFFECT OF TERMINATION. In the event of a termination of this
Agreement pursuant to Section 11.1 hereof, each party shall pay the costs and
expenses incurred by it in connection with this Agreement and no party (or any
of its officers, directors, and shareholders) shall be liable to any other party
for any costs, expenses, damage, or loss of anticipated profits hereunder.
SECTION 12--CERTAIN POST-CLOSING MATTERS
12.1 EMPLOYMENT OF SHAREHOLDER; COVENANT NOT TO COMPETE. Shareholder
and Subsidiary shall execute and deliver at Closing the Employment Agreement.
Shareholder acknowledges and agrees that Section 8 of the Employment Agreement
includes, as more fully set forth therein, certain covenants by Shareholder not
to compete with the business of Parent or Subsidiary. Shareholder further
acknowledges and agrees that the covenants set forth in the Employment Agreement
are being made to induce Parent to enter into this Agreement and are required by
Parent for the purpose of preserving the business and goodwill of Turf Products,
Subsidiary and Parent for the benefit of Parent. Accordingly, Parent shall have
the rights of a third party beneficiary with respect to such covenants and shall
have the right to enforce said covenants separately and independently from
Subsidiary.
12.2 EMPLOYMENT OF TURF PRODUCTS EMPLOYEES. It is the general intent of
Subsidiary to employ the existing employees of Turf Products (other than
Shareholder) on an "at will" basis and otherwise on terms substantially akin to
those under which said employees are employed by Turf Products prior to the
Closing (it being understood, however, that Subsidiary may alter such terms to
the extent reasonably necessary in order to cause them to be consistent with the
general employment policies of Subsidiary and/or Parent).
12.3 REGISTRATION RIGHTS. Shareholder acknowledges and agrees that the
Parent Stock being delivered by Subsidiary in connection with the Merger is
being acquired by Shareholder without any registration rights whatsoever, except
as set forth in the immediately succeeding sentence. Parent agrees that in the
event that William B. Adams is granted piggyback registration rights with
respect to Parent Stock in connection with the registration under the Securities
Act of 1933 of other securities of Parent and such registration rights are
exercised by Mr. Adams, then Shareholder shall be afforded the opportunity to
similarly register one share of Parent Stock held by Shareholder for each 3.62
shares of Parent Stock so registered by Mr. Adams. In such event, Shareholder's
registration rights with respect to such registration shall be otherwise subject
to the same terms and conditions as Mr. Adams' registration rights. The
foregoing shall not be construed as (a) providing Shareholder with any rights to
demand that Parent commence a registration of its securities or (b) providing
Shareholder with any right to sell or otherwise dispose of any of the common
stock which it holds in Parent in a manner not permitted by the Pledge
Agreement.
SECTION 13--INDEMNIFICATION
13.1 INDEMNIFICATION OF PARENT AND SUBSIDIARY. The Shareholder agrees
to indemnify, defend, and hold Parent and Subsidiary harmless against any and
all claims, costs, obligations, loss, damage or expense (including interest,
penalties and reasonable attorneys' fees) suffered by Parent and/or Subsidiary
(collectively, "Damages") from (a) any breach by Shareholder or Turf Products of
any of their covenants under this Agreement or any inaccuracy in or (b) breach
of any of the representations or warranties of Shareholder or Turf Products
herein; provided however, that (i) Shareholder shall not be liable for any such
Damages to the extent the same are covered by recoveries from insurance carriers
(without reservations of rights) identified by Shareholder as providing coverage
for such Damages (it being understood that to the extent Shareholder reasonably
identifies any such insurance carriers, Parent, Subsidiary and Shareholder shall
work together in good faith to reasonably pursue such recoveries), and (ii)
Shareholder's aggregate liability under this Section 13.1 (excluding, of course,
Damages covered through insurance recoveries) shall not exceed the sum of (A)
$1,750,000 plus (B) any amounts that Parent or Subsidiary may recover through
the exercise of any remedies under the Pledge Agreement with respect to the
collateral encumbered thereby.
13.2 INDEMNIFICATION OF SHAREHOLDER. Parent and Subsidiary agree to
indemnify, defend, and hold Shareholder harmless against any and all claims,
costs, litigation, loss, damage or expense (including interest, penalties, and
reasonable attorneys' fees) suffered by Shareholder from any breach by Parent or
Subsidiary of any of their covenant under this Agreement or any inaccuracy in or
breach of any of the representations or warranties by Parent and Subsidiary
herein.
13.3 DEFENSE OF CLAIMS. Upon obtaining knowledge thereof, the
indemnified party shall promptly notify the indemnifying party of any claim
which has given or could give rise to a right of indemnification under this
Agreement. If the right of indemnification related to a claim asserted by a
third party against the indemnified party, the indemnifying party shall have the
right to employ counsel acceptable to the indemnified party to cooperate in the
defense of any such claim. So long as the indemnifying party is defending any
such claim in good faith, the indemnifying party will not settle such claim. If
the indemnifying party does not elect to defend any such claim, the indemnified
party shall have no obligation to do so.
SECTION 14--ACCOUNTING, ADJUSTMENTS AND PUT RIGHT
14.1 ACCOUNTING. In order to permit the parties to confirm the accuracy
of certain of the representations and warranties of Shareholder set forth
herein, Subsidiary shall engage an accounting firm promptly following the
Closing to review the books and records of Turf Products and prepare a balance
sheet for Turf Products reflecting the assets and liabilities of Turf Products
as of the earlier of the Closing Date and June 30, 1996. Said balance sheet
shall be prepared in accordance with generally accepted accounting principles
applied in a manner consistent with those applied in preparation of the balance
sheet prepared as of the Interim Balance Sheet Date (as modified for calculation
of depreciation in accordance with federal tax laws). Turf Products and
Shareholder shall cooperate with Subsidiary and such accountants in preparing
said balance sheet. Subsidiary shall apply its best efforts to cause the
accounting firm to complete the balance sheet and deliver the same to
Shareholder within 30 days after the Closing Date. In any event, the balance
sheet shall be completed within 60 days after the Closing Date. If Shareholder
objects to the balance sheet prepared by the accounting firm selected by
Subsidiary, then Shareholder shall have the right to deliver to Subsidiary,
within five (5) days after its receipt of such balance sheet, a written
statement detailing the nature of the objections. If Shareholder does not timely
deliver such notice, then Shareholder shall be deemed to have approval of the
balance sheet prepared by the accounting firm selected by Subsidiary. If
Shareholder timely delivers such objection notice and if Subsidiary, Shareholder
and the accounting firm selected by Subsidiary cannot resolve such objections
within ten (10) days after Subsidiary's receipt of such notice, then Shareholder
shall have the right to engage a separate accounting firm to prepare a separate
balance sheet (to speak as the Closing Balance Sheet Date) to be delivered to
Subsidiary within twenty-five (25) days after Shareholder's receipt of the
balance sheet prepared by the accounting firm selected by Subsidiary. If such
separate balance sheet is not so delivered, then the accounting firm selected by
Subsidiary shall be deemed approved by Shareholder. If Shareholder timely
delivers such separate balance sheet, and if Subsidiary objects to said balance
sheet, then Subsidiary shall have the right to deliver to Shareholder, within
five (5) days after its receipt of such balance sheet, a written statement
detailing the nature of the objections. If Subsidiary does not timely deliver
such notice, then Subsidiary shall be deemed to have approved the balance sheet
prepared by the accounting firm selected by Shareholder. If Subsidiary timely
delivers the objection notice, and if Subsidiary, Shareholder and the accounting
firm selected by Shareholder are unable to resolve such objections within ten
(10) days after Shareholder's receipt of such notice, then the accounting firm
selected by Subsidiary and the accounting firm selected by Shareholder mutually
shall select a third accounting firm to prepare a balance sheet in accordance
with this section, and the balance sheet so prepared shall be deemed approved by
Subsidiary and Shareholder. The balance sheet ultimately deemed approved by
Subsidiary and Shareholder pursuant to this Section 14.1 shall be referred to
herein as the "Closing Balance Sheet."
14.2 POST-CLOSING ADJUSTMENT AND PUT RIGHT. The parties acknowledge and
agree that Parent and Subsidiary have entered into this Agreement with the
expectation that the Closing Balance Sheet will confirm that the excess of the
assets of Turf Products over the liabilities of Turf Products, as determined by
the Closing Balance Sheet as of the Closing Balance Sheet Date (the "NET CLOSING
ASSETS"), will equal at least $1,100,000. In the event that the Closing Balance
Sheet indicates that the Net Closing Assets are less than this sum, then Parent
and Subsidiary agree as follows:
(a) The amount by which the Net Closing Assets are less than
$1,100,000, as indicated by the Closing Balance Sheet, shall be referred to
herein as the "Closing Deficiency".
(b) If the Closing Deficiency is greater than $110,000, then
Parent shall have the right to make an election (an "ADJUSTMENT ELECTION") to
require Shareholder to return to Parent and Subsidiary a portion of the
consideration provided to Shareholder pursuant to this Agreement, as hereinafter
provided. Parent shall make the Adjustment Election, if at all, by delivery of
notice to such effect to Shareholder within 30 days after approval of the
Closing Balance Sheet in accordance with Section 14.1. If Parent timely makes
the Adjustment Election, then:
(i) On the l5th day after Parent's delivery of the
Adjustment Election, Shareholder shall convey to Parent, free and clear of all
claims or encumbrances of any kind whatsoever, a number of shares of Parent
Stock (rounded down to the nearest whole number) equal to the product of (A) the
Closing Deficiency times (b) 50.7% divided by (C) $4.50;
(ii) Concurrently therewith, Shareholder shall
deliver to Parent, free and clear of any claims or encumbrances of any kind
whatsoever, cash equal to the product of (A) the Closing Deficiency times (B)
49.3%.
(c) If the Closing Deficiency is more than $275,000, then
Parent shall have the right to make an election (a "PUT ELECTION") to transfer
to Shareholder all of the issued and outstanding stock of Subsidiary. Parent
shall make the Put Election, if at all, by delivery of written notice to such
effect to Shareholder within 30 days after the approval of the Closing Balance
Sheet in accordance with Section 14.1. If Parent timely makes the Put
Election, then:
(i) On the 15th day after the delivery of such
notice, Parent shall deliver to Shareholder all of the issued and outstanding
stock of Subsidiary, free and clear of all encumbrances and shall return all
funds distributed by Subsidiary after the Closing, other than funds paid out for
expenses incurred in the ordinary course of business;
(ii) Concurrently therewith, Shareholder shall
deliver to Parent, free and clear of any claims or encumbrances of any kind
whatsoever, all of the Parent Stock and cash delivered to Shareholder pursuant
to Section 2.6(b) hereof and any cash delivered to Shareholder pursuant to
Section I of the Mutual Release;
(iii) Promptly thereafter, Shareholder and Subsidiary
shall take such steps as Parent may from time to time request in order to assure
that there will be no confusion between the business or assets of Subsidiary and
Parent. Such steps shall include without limitation the deletion of the word
"ECO" from Subsidiary's name; and
(iv) All confidential information provided by any
party to another shall be held strictly confidential and shall not be used in
any manner.
14.3 NO DUPLICATION OF RECOVERY. The remedies provided by Section
14.2(b) and 14.2(c) are not intended to be duplicative of each other.
Accordingly Parent shall not be entitled to make both the Adjustment Election
and the Put Election.
SECTION 15--GENERAL PROVISIONS
15.1 ACKNOWLEDGMENT. The parties acknowledge that they have read this
Agreement in its entirety, understand its contents, and sign it freely and
voluntarily. The parties affirm that neither party, nor their representatives,
have made any representations concerning the terms or effects of this Agreement
other than those contained herein. The parties further acknowledge that they
have negotiated with each other over the terms and language of this Agreement
and the other Transaction Agreements, and have had the opportunity to consult
with an attorney of their own choosing prior to executing this Agreement. The
rule of construction and interpretation that provides that any ambiguity or
drafting error is to be construed against the drafting party and in favor of the
interpretation advocated by the non-drafting party is waived and it is deemed
that all parties hereto co-equally drafted this Agreement.
15.2 ALTERATIONS AND WAIVERS. No alteration or modification of any of
the provisions of this Agreement shall be binding unless in writing and signed
by the parties hereto. Further, the failure of either party at any time to
enforce any of the provisions of this Agreement, or any rights it may have in
respect thereto, or to exercise any right herein provided, shall in no way be
considered to be a waiver of such provisions or rights or in any way affect the
validity of this Agreement.
15.3 ATTORNEYS FEES. In the event any attorney is employed by either
party to this Agreement with regard to any legal actions, arbitration or other
proceeding brought by either party for the enforcement of this Agreement, or
because of an alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, then the party
prevailing in such proceeding, whether at trial or upon appeal, shall be
entitled to recover reasonable attorneys' fees and other costs and expenses
incurred, in addition to any other relief to which it may be entitled.
15.4 POST JUDGMENT FEES. In the event a party obtains a judgment in a
proceeding brought to enforce this Agreement, that party shall also be entitled
to recover attorneys' fees and costs incurred in enforcing said judgment. This
provision is intended to be severable from the other provisions of this
Agreement, shall not be deemed merged into but shall survive any such judgment.
15.5 AUTHORITY TO EXECUTE. Each party hereto hereby warrants and
represents to each other party that it has the legal authority and capacity to
enter into this Agreement and that all resolutions or other actions have been
taken so as to enable it to enter into and perform this Agreement.
15.6 BROKER FEES. Parent and Subsidiary agree to indemnify Turf
Products and Shareholder against any liability, loss, cost, damage, or expense
arising out of claims for fees or commissions of brokers employed or alleged to
have been employed by Parent and Subsidiary. Turf Products and Shareholder or
their affiliates agree to indemnify Parent and Subsidiary against any liability,
loss, cost, damage or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by Turf Products, Shareholder
or its affiliates.
15.7 CHOICE OF LAWS. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
15.8 CONFIDENTIALITY. The parties agree that they and any of their
officers, directors, or other representatives will hold in strictest confidence,
and will not disclose any of the terms and conditions or other details of this
Agreement, and will not disclose any information furnished by or obtained from
any other party hereto in connections with the negotiation and preparation of
this Agreement, except with the prior written consent of all parties hereto.
15.9 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
15.10 CUMULATIVE RIGHTS. The various rights, options, elections, powers
and remedies of a party or parties to this Agreement shall be construed as
cumulative and no one of them exclusive of any other, or of any other legal or
equitable remedy which said party or parties might otherwise have in the event
of breach or default of the terms hereof. The exercise of one right or remedy by
a party or parties shall not in any way impair his rights to any other right or
remedy and to all obligations imposed on a party or parties to have been fully
performed.
15.11 ENFORCEABILITY AND SEVERABILITY. If any provision of this
Agreement in held by a court of competent jurisdiction to be invalid, illegal or
unenforceable by reason of any rule of law or public policy, all other
provisions of this Agreement shall nevertheless remain in effect. No provision
of this Agreement shall be deemed dependent on any other provision unless so
expressed herein.
15.12 ENTIRE AGREEMENT. This Agreement supersedes any and all other
Agreements, either oral or in writing, between the parties hereto with respect
to the subject matter hereof, and no other agreement, statement or promise
relating to the subject matter of this Agreement which is not contained herein
or in any other documents to be delivered as contemplated hereby shall be valid
or binding.
15.13 EXHIBITS. All exhibits to which reference is made are deemed
incorporated in this Agreement, whether or not actually attached.
15.14 FICTITIOUS BUSINESS NAME. The parties hereto covenant and
represent that if any or all of them are doing business under a fictitious name,
they, and each of them, have fully and completely complied with California and
Illinois law in relation to doing business under such fictitious name.
15.15 FURTHER ACTS. The parties hereto agree to execute, acknowledge
and deliver any and all additional papers, documents and other assurances and
shall perform any and all acts and things reasonably necessary in connection
with the performance of the obligations hereunder to carry out the intent of the
parties hereto.
15.16 RECITALS. The above recitals are incorporated herein as if set
forth in full.
15.17 JOINT AND SEVERAL OBLIGATIONS. If any party (e.g., Shareholder)
consists of more than one person or entity, the obligation of all such persons
or entities is joint and several.
15.18 JURISDICTION AND VENUE. If any legal action is brought for the
enforcement of any term or provision of this instrument, or because of an
alleged dispute, breach, default or misrepresentation, the parties agree that
the proper venue shall be the United States District Court, Northern District of
Illinois.
15.19 SURVIVAL. All statements contained in any of the instruments,
certificates, opinions or other writings delivered pursuant hereto shall be
deemed to be representations and warranties of the party delivering the same
under this Agreement. All such representations and warranties and the covenants
and agreements to be performed or complied with by the respective parties for or
upon the Closing Date, shall be deemed to be continuing and shall survive the
Closing for a period of 18 months. Nothing in this paragraph shall affect the
obligations of the parties with respect to covenants and agreements contained in
this Agreement or any of the other Transaction Agreements that are permitted to
be performed, in whole or in part, after the Closing Date.
15.20 HEADINGS. The paragraphs headings used in this Agreement are for
reference and convenience only and shall not in any way limit or amplify the
terms and provisions hereof, nor affect the interpretation of this Agreement.
15.21 ASSIGNABILITY. This Agreement is personal in nature and is not
assignable by either party without the prior written consent of the
non-assigning party. Any purported assignment or delegation without such consent
shall be null and void and of no force and effect. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit to the parties and
their respective heirs, legatees, legal representatives, successors and assigns.
15.22 NOTICE. Notices given under this Agreement shall be in writing
and shall be either served personally or delivered by first-class U.S. mail,
postage prepaid. Notice shall be deemed received at the earlier of actual
receipt or three (3) days following deposit in the U.S. mail, postage prepaid.
Notices shall be directed to the addresses shown on the signature page hereto,
provided that a party may change his address for notice by giving written notice
to all other parties in accordance with this paragraph.
15.23 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 person other than the parties to it and their permitted
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third personal to any
party to this Agreement, nor shall any provision give any third person any right
of subrogation or actions over or against any party to this Agreement.
15.24 TIME OF ESSENCE. Time is of the essence of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PARENT: ADDRESS
ECO SOIL SYSTEMS, INC., 10890 Thornmint Road, #200
a Nebraska corporation San Diego, California 92127
By: /s/ William B. Adams
---------------------------------
CEO
SUBSIDIARY: ADDRESS:
ECO Turf Products, Inc. 10890 Thornmint Road #200
a Delaware corporation San Diego, California 92127
By: /s/ William B. Adams
---------------------------------
CEO
TURF PRODUCTS: ADDRESS:
Turf Products, Ltd., 2 North 255 County Farm Road West
an Illinois corporation Chicago, Illinois 60185
By: /s/ Walter W. Fuchs
---------------------------------
President
SHAREHOLDER: ADDRESS:
2 North 255 County Farm Road West
/s/ Walter W. Fuchs Chicago, Illinois 60185
- -------------------------------------
WALTER FUCHS
THE FUCHS FAMILY
CHARITABLE REMAINDER TRUST: ADDRESS:
2 North 255 County Farm Road West
By: /s/ Walter W. Fuchs Chicago, Illinois 60185
---------------------------------
Walter Fuchs, Trustee
SPOUSAL CONSENT
I, Bonnie Jean Fuchs, have reviewed the Agreement and Plan of Merger
and the Exhibits attached thereto and agree to be bound by all of its and their
terms and conditions.
Dated: ________________________ /s/ Bonnie J. Fuchs
---------------------------------
Bonnie J. Fuchs
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 21st day of May 1991, by and between
Eco-Soil Systems, Inc., a Nebraska corporation (the "Corporation"), and William
B. Adams, of San Diego County, California, (hereinafter called "Employee"),
W I T N E S S E T H:
WHEREAS, the Corporation desires to employ the Employee as its Chairman
of the Board and Chief Executive Officer in accordance with the following terms,
conditions and provisions; and
WHEREAS, the Employee desires to perform such services for the
Corporation, all in accordance with the following terms, conditions and
provisions;
WHEREAS, Employee has purchased 183,199 shares of the Corporation's
stock;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed as follows:
Section 1. Employment and Duties. The Corporation hereby employs
Employee, and Employee hereby accepts employment as the Corporation's Chairman
of the Board and Chief Executive Officer ("CEO") to perform the duties of
managing the Corporation, subject always to the control and direction of the
Board of Directors of the Corporation (the "Board of Directors"). Employee shall
devote his full time and best efforts to the performance of services hereunder
and to the advancement of the Corporation's business and affairs.
1.1 Employee will serve as Chairman of the Company's Board and
Directors and as such will have one vote on all issues put before the Board.
1.2 Employee shall also perform such other duties, including
administrative duties, in connection with the Corporation's business as shall
from time to time be assigned to him by the Board of Directors.
1.3 Employee, as CEO, shall hire, terminate and set the terms of
employment for all personnel of the Corporation, except other Officers.
1.4 Employee, as CEO, shall select marketing strategy, including, but
not limited to, establishing and expanding marketing and sales of the
Corporation's products and services and setting prices and discounts to
customers.
1.5 Employee, as CEO, shall, subject to review and approval by the
Board of Directors, supervise and make recommendations to the Board of Directors
with respect to the financial affairs of the Corporation, including, but not
limited to, designating the bank or depository of the Corporation's funds and
the borrowing of money. An annual budget and business plan, including a cash
flow and capital expenditure plan, will be prepared under Employee's supervision
and submitted to the Board of Directors prior to the beginning of each fiscal
year for the Board's review and approval.
1.6 Employee, as CEO, shall establish and maintain operating
procedures, including, but not limited to, setting policies and procedures for
the development of the Corporation's products and services, establishing working
hours and establishing policy and procedures for other personnel matters and
establishing policy and procedures for the sale of the Corporation's products.
Section 2. Compensation. Employee shall receive as compensation for the
full and faithful performance of his obligations hereunder, including the
performance of services as an officer, director or member of any committee of
the Board of Directors, a salary, the amount of which shall be determined from
time to time by the Board of Directors, but the Employee's annual salary shall
not be less than $75,000 payable in equal installments twice (2) per month. In
addition to such salary, the Corporation, in the sole discretion of its Board of
Directors, may pay to the Employee bonus compensation. In addition, Employee
will be paid an automobile allowance of $500/month.
Section 3. Term. This Agreement shall commence and become effective on
March 1, 1991, and, unless sooner terminated as provided in Section 12, shall
end on February 29, 1993. The first year of employment under the term hereof
shall end on February 28, 1992, and each subsequent year of employment under the
term hereof shall commence on March 1 and end on the following February 28
within said term.
Employee agrees that until the Company receives the proceeds from the
sale of additional shares of common stock or other securities, that payments of
his salary and other benefits will be deferred. Once the Company elects to break
escrow and receives the proceeds of the "new investment", employee will be paid
the deferred compensation that is due and will begin to be paid on a timely,
normal basis his monthly salary. However, in no event will more than three (3)
months of the employee's salary be deferred and paid after the offering is
completed.
Section 4. Stock Option. That pursuant to a certain Consulting
Agreement dated the 13th of May, 1991, and pursuant to the Nonqualified Stock
Option Agreement by and between the Company and Employee attached hereto and
incorporated herein the Employee shall be granted a stock option to purchase
shares of the Company's common stock on the terms and conditions set forth in
said Nonqualified Stock Option Agreement.
Section 5. Expenses. The Corporation will reimburse Employee for
reasonable expenses and expenditures incurred by Employee from January 1, 1991,
through the term of employment of Employee in connection with and for the
benefit of the business of the Corporation according to policies promulgated
from time to time by the Board of Directors upon presentation by Employee of
appropriate substantiation for such expenses. In the event escrow is not broken
in accordance with a certain Consulting Agreement dated May 13, 1991, such
expense reimbursement shall be limited to Five Thousand and 00/100 dollars
($5,000.00).
Section 6. Employee Benefit Plans. During the term of his employment,
Employee shall be entitled to participate in any employee benefit plan or plans
established and maintained by the Corporation for its employees, in accordance
with the eligibility requirements and other terms and provisions of such plan or
plans. It being understood that the Corporation is under no obligation to
Employee to establish or maintain any employee benefit plan in which Employee
may participate, and that the terms and provisions of any employee benefits plan
of the Corporation are matters solely within the exclusive province of the Board
of Directors.
Section 7. Vacation and Time Off. Employee shall be entitled to four
(4) weeks of vacation in each year of employment under the terms of this
Agreement without reduction of salary. Unused vacation time may not be carried
over to future years of employment hereunder. In addition, the Employee shall be
entitled to such additional time off from work, without loss of compensation,
for attendance at professional meetings, conventions and educational courses in
accordance with the Corporation's general policy in this regard, as from time to
time determined by its Board of Directors.
Section 8. Insurance. Employee agrees that the Corporation, in the
discretion of its Board of Directors, may apply for and procure on its own
behalf, life insurance on the life of Employee, for the purpose of protecting
the Corporation against loss caused by the death of the Employee. Employee
agrees to submit to medical examination and to execute or deliver any
documentation reasonably required by the Corporation's insurer in order to
effectuate such insurance.
Additionally, the Corporation shall, during each year of employment,
apply for and procure on behalf of Employee, life insurance in the amount of
$200,000 on the life of Employee, for the purpose of protecting Employee's
designated beneficiaries in the event of Employee's death.
Section 9. Medical and Dental Coverage. During his employment, Employee
and family shall be entitled to any executive or other medical and dental
coverage provided by the Corporation.
Section 10. Leave of Absence. The Board of Directors may, from time to
time, grant a leave of absence to Employee. The Employee shall have no right
under this Agreement to any compensation during such period of leave of absence,
unless the Board of Directors fixes and determines an amount of compensation to
be paid to Employee during a period of leave of absence. If Employee fails to
return to active employment with Employer within fifteen (15) days after
termination of a leave of absence, Employee shall be deemed to have breached
this Agreement as of the end of said period of leave of absence.
Section 11. Sick Leave and Disability.
11.1 The Employee shall be entitled to ten (10) calendar days of sick
leave in each year of employment hereunder without loss of compensation. Unused
sick leave shall not be carried over to future years of employment under this
Agreement.
11.2 Notwithstanding any other provision of the Agreement, if Employee
is "totally disabled" (as that term is defined in Section 12) for an aggregate
of 120 calendar days in any one year of employment under the terms of this
Agreement, then the Corporation shall not be obligated to pay to Employee the
Compensation provided in this Agreement for any period of "total disability"
during such year in excess of 120 days.
Section 12. Termination. This Agreement, including the Corporation's
obligation pursuant to Section 2 hereof to pay compensation to the Employee,
shall be terminated upon the happening of any one of the following events:
(a) At any time by mutual agreement in writing between the
Corporation and the Employee;
(b) Upon the death of the Employee;
(c) At the Corporation's option, if Employee shall be "totally
disabled" for a continuous period of time in excess of nine
(9) months under the term of this Agreement. The Corporation's
said option shall be exercised by giving at least thirty (30)
days prior written notice thereof to Employee.
(d) At the option of either party hereunder after thirty (30) days
prior written notice given to the other party, in the event of
a breach of any term or provision of this Agreement by the
other party which has not been cured within said thirty (30)
day period.
(e) If the Corporation has "good cause" for termination of
Employee including, but not limited to, the breach of the
covenants of this Agreement or other acts which the Board of
Directors of the Corporation reasonably constitute just and
good cause for the termination of the Employee.
Section 13. Payment Due Upon Termination. If your employment is
terminated prior to the last day of February, 1993, for any reason other than
your death or disability, your employment has been terminated for "good cause"
or you have voluntarily resigned in circumstances not covered by Paragraph 14
below, then you shall be entitled to receive, at the date of termination,
severance pay equal to six (6) months of pay at your then base salary rate.
Section 14. Change in Control.
(a) If you voluntarily leave the employ of the Company within six
(6) months after any "change of control" not approved by the
affirmative vote of the "Continuing Directors" within ten (10)
days after they become aware of the events in question, you
will be entitled to receive, on the date of such termination,
severance pay equal to six (6) months of pay at your base
salary calculated at the rate in effect during the last year
of your term of employment. The normal employee benefits
maintained by the Company for its full-time employees shall be
available to you for six (6) months after such termination.
(b) For purposes of this Agreement:
1. A "change of control" will occur when (x) any person,
company or institution becomes directly or indirectly, the beneficial
owner of thirty percent (30%) or more of the common stock of the
Company, (y) the "Continuing Directors" cease for any reason to
constitute a majority of the Board of Directors of the Company, or (z)
any change in control occurs within the meaning of the proxy rules of
the Securities and Exchange Commission; provided, however, that if in
the case of an event referred to in clause (x) or (z), two thirds of
the Continuing Directors so determine, no change in control will be
deemed to have occurred.
2. The "Continuing Directors" are those members of the Board
of Directors of the of the Company on the date of this Agreement or
elected as Directors prior to the event in question.
3. Your rights under this paragraph are in lieu of your rights
under Paragraph 13 and any other rights you may have under this
Agreement. Accordingly, if you elect under Paragraph 14, you may not
receive compensation under 13 hereof.
4. The change of control definition will not apply if any
person, institution or company becomes -- with your approval -- the
beneficial owner of 30% or more of the common stock of the Company
through the sale of any additional common stock or other additional
securities of the Company.
Section 15. Total Disability. For purposes of this Agreement, Employee
shall be considered to be "totally disabled" when he is considered to be totally
disabled by any insurance company used by the Corporation to provide disability
benefits for the Employee, and Employee shall continue to be considered "totally
disabled" until such insurance company ceases to recognize him as "totally
disabled" for purposes of disability benefits. If no such disability insurance
policies are in force for the benefit of Employee, or if for any reason an
insurance company fails to make a determination of the question of whether
Employee is "totally disabled", Employee shall be considered to be "totally
disabled" if, because of mental or physical illness or other cause, he is unable
to perform the majority of his usual duties on behalf of the Corporation. The
existence of "total disability" of Employee, the date it commenced, and the date
it ceases, shall be determined by the Board of Directors and the Employee. If,
however, the parties cannot agree, then any such determination shall be made
after examination of Employee by a medial doctor selected by the Board of
Directors, and a medical doctor selected by the Employee. If the medical doctors
cannot agree, a third medical doctor shall be selected by the two doctors and
the conclusion of a majority of said doctors shall be final and binding on the
parties.
Section 16. Covenant Not to Compete. Employee hereby covenants and
agrees that during his employment with the Corporation, and for a period of one
(1) year thereafter, he should not be engaged either directly or indirectly, in
any manner or capacity, whether as an adviser, principal, agent, partner,
officer, director, employee, member of an association, or otherwise, in any
business or activity, or own beneficially, or of record, five percent (5%) or
more of the outstanding stock of any class of equity securities in any
corporation, in competition with the business or activity of the Corporation.
16.1 It is understood that if Employee should breach aforesaid covenant
of non-competition, the Corporation would suffer irreparable harm for which a
recovery of money damages would be an inadequate remedy. It is therefore agreed
that the Corporation shall be entitled, as a matter of right, in any court of
competent jurisdiction, to a-mandatory injunction restraining and enjoining
Employee, pending litigation, as well as upon final determination thereof, from
attempting to violate or violating the aforesaid covenant of non-competition;
and it is further agreed that the Corporation's right to such injunction relief
shall be cumulative with and in addition to any other rights, remedies or
actions which the Corporation may have against Employee.
Section 17. Confidentiality.
17.1 Employee will in the course of his employment by the Corporation
have access to confidential or proprietary data or information of the
Corporation. Employee will not at any time divulge or communicate to any person
(other than to a person bound by confidentiality obligations to the Corporation
similar to those contained in this Agreement) or use to the detriment of the
Corporation or for the benefit of any other person of such data or information.
The provisions of this Section 17.1 shall survive employee's employment
hereunder whether by the normal expiration of that employment or otherwise. The
term "confidential or proprietary data or information" as used in this Agreement
shall mean information not generally available to the public including, without
limitation, personnel information, financial information, customer lists,
supplier lists, trade secrets, secret processes, know-how, computer data and
programs, pricing, marketing and advertising data. The Employee acknowledges and
agrees that any confidential or propriety data or information that Employee has
heretofore acquired was received in confidence and as a fiduciary with respect
to the business of the Corporation.
17.2 All written materials, records and documents made by Employee or
coming into Employee's possession during the term of employment concerning any
products, processes, information or services used, developed, investigated or
considered by the Corporation, or otherwise concerning the business or affairs
of the Corporation, shall be the sole property of the Corporation and upon
termination of Employee's employment, or upon request by the Board of Directors
during Employee's employment, Employee shall promptly deliver the same to the
Corporation. In addition, upon termination of Employee's employment, or upon
request of the Board of Directors during Employee's employment, Employee shall
deliver to the Corporation all other property of the Corporation in Employee's
possession or under Employee's control including, but not limited to, financial
statements, marketing and sales data and other document and all Employer credit
cards.
Section 18. Notice. Any notice or other communication required or
desired to be sent pursuant to this Agreement shall be in writing, and shall be
deemed to have been duly given when delivered personally or when deposed in the
mails, certified or registered, return receipt requested, and with the proper
postage prepaid, addressed as follows:
If to the Corporation: Eco-Soil Systems
4101 Industrial Avenue
Lincoln, NE 68504
If to the Employee: William B. Adams
1111 Isabella Street
Coronado, CA 92118
or such other address as either party hereto may designate for itself or written
notice given to the other party from time to time in the manner herein and above
provided.
Section 19. Waiver. This Agreement shall not be modified or amended
except by a further written documents signed by Employee and approved by the
Board of Directors. No provisions hereof may be waived except by an Agreement in
writing signed by the waiving party. A waiver of any term or provision shall not
be construed as a waiver of any other term or provision.
Section 20. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall constitute one and the same instrument.
Section 21. Entire Agreement. This Agreement contains the entire
understanding between the parties relating to the employment of William B. Adams
by the Corporation, and shall not be modified or amended except in writing
signed by both of the parties hereto.
Section 22. Applicable Law. This Agreement shall be subject to and
governed by the laws of the State of Nebraska and all questions concerning the
meaning and intention of the terms of this Agreement and concerning the validity
hereof and questions relating to performance hereunder shall be adjudged and
resolved in accordance with the laws of that state.
Section 23. Binding Effect. This Agreement shall be binding upon and
inure to the benefits of the parties hereto, and their respective heirs,
successors, legal representatives and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 21st day of May, 1991.
ECO-SOIL SYSTEMS, INC.
By: /s/ Jeffrey A. Johnson -- President
And:
EMPLOYEE:
/s/ William B. Adams
William B. Adams
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 13th day of May, 1991, by and between
Eco-Soil Systems, Inc., a Nebraska corporation (the "Corporation"), and Jeffrey
A. Johnson, of San Diego County, California, (hereinafter called "Employee"),
W I T N E S S E T H:
WHEREAS, the Corporation desires to employ the Employee as its Chief
Operations Officer and President in accordance with the following terms,
conditions and provisions; and
WHEREAS, the Employee desires to perform such services for the
Corporation, all in accordance with the following terms, conditions and
provisions;
WHEREAS, Employee has purchased 91,600 shares of the Corporation's
stock;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed as follows:
Section 1. Employment and Duties. The Corporation hereby employs
Employee, and Employee hereby accepts employment as the Corporation's President
and Chief Operations Officer ("COO") to perform the duties of managing the
Corporation, subject always to the control and direction of the Board of
Directors of the Corporation (the "Board of Directors"). Employee shall devote
his full time and best efforts to the performance of services hereunder and to
the advancement of the Corporation's business and affairs.
1.1 Employee will be responsible for the day to day operations of the
firm and will have direct control of the Company's finance, accounting,
administration, operations, systems and contract pricing department. Employee
will in addition assist the Chief Executive Officer in the Company's sales,
marketing and business development efforts. Employee will also play a key role
in any capital raising activities undertaken by the Company.
1.2 Employee shall also perform such other duties, including
administrative duties, in connection with the Corporation's business as shall
from time to time be assigned to him by the Chief Executive Officer and the
Corporation's Board of Directors.
Section 2. Compensation. Employee shall receive as compensation for the
full and faithful performance of his obligations hereunder, including the
performance of services as an officer, director or member of any committee of
the Board of Directors, a salary, the amount of which shall be determined from
time to time by the Board of Directors, but the Employee's annual salary shall
not be less than $75,000 paid in equal installments twice (2) per month. In
addition to such salary, the Corporation, in the sole discretion of its Board of
Directors, may pay to the Employee bonus compensation. In addition, Employee
will be paid an automobile allowance of $300/month.
Section 3. Term. This Agreement shall commence and become effective on
March 1, 1991, and, unless sooner terminated as provided in Section 12, shall
end on February 29, 1993. The first year of employment under the term hereof
shall end on February 28, 1992, and each subsequent year of employment under the
term hereof shall commence on March 1 and end on the following February 28
within said term.
Employee agrees that until the Company receives the proceeds from the
sale of additional shares of common stock or other securities, that payments of
his salary and other benefits will be deferred. Once the Company elects to break
escrow and receives the proceeds of the "new investment", employee will be paid
the deferred compensation that is due and will begin to be paid on a timely,
normal basis his monthly salary. However, in no event will more than three (3)
months of the employee's salary be deferred and paid after the offering is
completed.
Section 4. Stock Option. That pursuant to a certain Consulting
Agreement dated the 13th of May, 1991, and pursuant to the Nonqualified Stock
Option Agreement by and between the Company and Employee attached hereto and
incorporated herein the Employee shall be granted a stock option to purchase
shares of the Company's common stock on the terms and conditions set forth in
said Nonqualified Stock Option Agreement.
Section 5. Expenses. The Corporation will reimburse Employee for
reasonable expenses incurred by Employee in connection with the business of the
Corporation according to policies promulgated from time to time by the Board of
Directors upon presentation by Employee of appropriate substantiation for such
expenses.
Section 6. Employee Benefit Plans. During the term of his employment,
Employee shall be entitled to participate in any employee benefit plan or plans
established and maintained by the Corporation for its employees, in accordance
with the eligibility requirements and other terms and provisions of such plan or
plans. It being understood that the Corporation is under no obligation to
Employee to establish or maintain any employee benefit plan in which Employee
may participate, and that the terms and provisions of any employee benefits plan
of the Corporation are matters solely within the exclusive province of the Board
of Directors.
Section 7. Vacation and Time Off. Employee shall be entitled to four
(4) weeks of vacation in each year of employment under the terms of this
Agreement without reduction of salary. Unused vacation time may not be carried
over to future years of employment hereunder. In addition, the Employee shall be
entitled to such additional time off from work, without loss of compensation,
for attendance at professional meetings, conventions and educational courses in
accordance with the Corporation's general policy in this regard, as from time to
time determined by its Board of Directors.
Section 8. Insurance. Employee agrees that the Corporation, in the
discretion of its Board of Directors, may apply for and procure on its own
behalf, life insurance on the life of Employee, for the purpose of protecting
the Corporation against loss caused by the death of the Employee. Employee
agrees to submit to medical examination and to execute or deliver any
documentation reasonably required by the corporation's insurer in order to
effectuate such insurance.
Additionally, the Corporation shall, during each year of employment,
apply for and procure on behalf of Employee, life insurance in the amount of
$200,000 on the life of Employee, for the purpose of protecting Employee's
designated beneficiaries in the event of Employee's death.
Section 9. Medical and Dental Coverage. During his employment, Employee
and his family, if any, shall be entitled to any executive or other medical and
dental coverage provided by the Corporation.
Section 10. Leave of Absence. The Board of Directors may, from time to
time, grant a leave of absence to Employee. The Employee shall have no right
under this Agreement to any compensation during such period of leave of absence,
unless the board of Directors fixes and determines an amount of compensation to
be paid to Employee during a period of leave of absence. If Employee fails to
return to active employment with Employer within fifteen (15) days after
termination of a leave of absence, Employee shall be deemed to have breached
this Agreement as of the end of said period of leave of absence.
Section 11. Sick Leave and Disability.
11.1 The Employee shall be entitled to ten (10) calendar days of sick
leave in each year of employment hereunder without loss of compensation. Unused
sick leave shall not be carried over to future years of employment under this
Agreement.
11.2 Notwithstanding any other provision of the Agreement, if Employee
is "totally disabled" (as that term is defined in Section 15) for an aggregate
of 120 calendar days in any one year of employment under the terms of this
Agreement, then the Corporation shall not be obligated to pay to Employee the
Compensation provided in this Agreement for any period of "total disability"
during such year in excess of 120 days.
Section 12. Termination. This Agreement, including the Corporation's
obligation pursuant to Section 2 hereof to pay compensation to the Employee,
shall be terminated upon the happening of any one of the following events:
(a) At any time by mutual agreement in writing between the
Corporation and the Employee;
(b) Upon the death of the Employee;
(c) At the Corporation's option, if Employee shall be "totally
disabled" for a continuous period of time in excess of nine
(9) months under the term of this Agreement. The Corporation's
said option shall be exercised by giving at least thirty (30)
days prior written notice thereof to Employee.
(d) At the option of either party hereunder after thirty (30) days
prior written notice given to the other party, in the event of
a breach of any term or provision of this Agreement by the
other party which has not been cured within said thirty (30)
day period.
(e) If the Corporation has "good cause" for termination of
Employee including, but not limited to, the breach of the
covenants of this Agreement or other acts which the Board of
Directors of the Corporation reasonably constitute just and
good cause for the termination of the Employee.
Section 13. Payment Due Upon Termination. If your employment is
terminated prior to the last day of February, 1993, for any reason other than
your death or disability, your employment has been terminated for "good cause"
or you have voluntarily resigned in circumstances not covered by Paragraph 14
below, then you shall be entitled to receive, at the date of termination,
severance pay equal to six (6) months of pay at your then base salary rate.
Section 14. Change in Control.
(a) If you voluntarily leave the employ of the Company within six
(6) months after any "change of control" not approved by the
affirmative vote of the "Continuing Directors" within ten (10)
days after they become aware of the events in question, you
will be entitled to receive, on the date of such termination,
severance pay equal to six (6) months of pay at your base
salary calculated at the rate in effect during the last year
of your term of employment. The normal employee benefits
maintained by the Company for its full-time employees shall be
available to you for six (6) months after such termination.
(b) For purposes of this Agreement:
1. A "change of control" will occur when (x) any person,
company or institution becomes directly or indirectly, the beneficial
owner of thirty percent (30%) or more of the common stock of the
Company, (y) the "Continuing Directors" cease for any reason to
constitute a majority of the Board of Directors of the Company, or (z)
any change in control occurs within the meaning of the proxy rules of
the Securities and Exchange Commission; provided, however, that if in
the case of an event referred to in clause (x) or (z), two thirds of
the Continuing Directors so determine, no change in control will be
deemed to have occurred.
2. The "Continuing Directors" are those members of the Board
of Directors of the of the Company on the date of this Agreement or
elected as Directors prior to the event in question.
3. Your rights under this paragraph are in lieu of your rights
under Paragraph 13 and any other rights you may have under this
Agreement. Accordingly, if you elect under Paragraph 14, you may not
receive compensation under 13 hereof.
4. The change of control definition will not apply if any
person, institution or company becomes -- with your approval -- the
beneficial owner of 30% or more of the common stock of the Company
through the sale of any additional common stock or other additional
securities of the Company.
Section 15. Total Disability. For purposes of this Agreement, Employee
shall be considered to be "totally disabled" when he is considered to be totally
disabled by any insurance company used by the Corporation to provide disability
benefits for the Employee, and Employee shall continue to be considered "totally
disabled" until such insurance company ceases to recognize him as "totally
disabled" for purposes of disability benefits. If no such disability insurance
policies are in force for the benefit of Employee, or if for any reason an
insurance company fails to make a determination of the question of whether
Employee is "totally disabled", Employee shall be considered to be "totally
disabled" if, because of mental or physical illness or other cause, he is unable
to perform the majority of his usual duties on behalf of the Corporation. The
existence of "total disability" of Employee, the date it commenced, and the date
it ceases, shall be determined by the Board of Directors and the Employee. If,
however, the parties cannot agree, then any such determination shall be made
after examination of Employee by a medial doctor selected by the Board of
Directors, and a medical doctor selected by the Employee. If the medical doctors
cannot agree, a third medical doctor shall be selected by the two doctors and
the conclusion of a majority of said doctors shall be final and binding on the
parties.
Section 16. Covenant Not to Compete. Employee hereby covenants and
agrees that during his employment with the Corporation, and for a period of one
(1) year thereafter, he should not be engaged either directly or indirectly, in
any manner or capacity, whether as an adviser, principal, agent, partner,
officer, director, employee, member of an association, or otherwise, in any
business or activity, or own beneficially, or of record, five percent (5%) or
more of the outstanding stock of any class of equity securities in any
corporation, in competition with the business or activity of the Corporation.
16.1 It is understood that if Employee should breach aforesaid covenant
of non-competition, the Corporation would suffer irreparable harm for which a
recovery of money damages would be an inadequate remedy. It is therefore agreed
that the Corporation shall be entitled, as a matter of right, in any court of
competent jurisdiction, to a mandatory injunction restraining and enjoining
Employee, pending litigation, as well as upon final determination thereof, from
attempting to violate or violating the aforesaid covenant of non-competition;
and it is further agreed that the Corporation's right to such injunction relief
shall be cumulative with and in addition to any other rights, remedies or
actions which the Corporation may have against Employee.
Section 17. Confidentiality.
17.1 Employee will in the course of his employment by the Corporation
have access to confidential or proprietary data or information of the
Corporation. Employee will not be at any time divulge or communicate to any
person (other than to a person bound by confidentiality obligations to the
Corporation similar to those contained in this Agreement) or use to the
detriment of the Corporation or for the benefit of any other person of such data
or information. The provisions of this Section 17.1 shall survive employee's
employment hereunder whether by the normal expiration of that employment or
otherwise. The term "confidential or proprietary data or information" as used in
this Agreement shall mean information not generally available to the public
including, without limitation, personnel information, financial information,
customer lists, supplier lists, trade secrets, secret processes, know-how,
computer data and programs, pricing, marketing and advertising data. The
Employee acknowledges and agrees that any confidential or propriety data or
information that Employee has heretofore acquired was received in confidence and
as a fiduciary with respect to the business of the Corporation.
17.2 All written materials, records and documents made by Employee or
coming into Employee's possession during the term of employment concerning any
products, processes, information or services used, developed, investigated or
considered by the Corporation, or otherwise concerning the business or affairs
of the Corporation, shall be the sole property of the Corporation and upon
termination of Employee's employment, or upon request by the Board of Directors
during Employee's employment, Employee shall promptly deliver the same to the
Corporation. In addition, upon termination of Employee's employment, or upon
request of the Board of Directors during Employee's employment, Employee shall
deliver to the Corporation all other property of the Corporation in Employee's
possession or under Employee's control including, but not limited to, financial
statements, marketing and sales data and other document and all Employer credit
cards.
Section 18. Notice. Any notice or other communication required or
desired to be sent pursuant to this Agreement shall be in writing, and shall be
deemed to have been duly given when delivered personally or when deposed in the
mails, certified or registered, return receipt requested, and with the proper
postage prepaid, addressed as follows:
If to the Corporation: Eco-Soil Systems
4101 Industrial Avenue
Lincoln, NE 68504
If to the Employee: Jeffrey A. Johnson
2357 Caringa Way, #1
Coronado, CA 92118
or such other address as either party hereto may designate for itself or written
notice given to the other party from time to time in the manner herein and above
provided.
Section 19. Waiver. This Agreement shall not be modified or amended
except by a further written documents signed by Employee and approved by the
Board of Directors. No provisions hereof may be waived except by an Agreement in
writing signed by the waiving party. A waiver of any term or provision shall not
be construed as a waiver of any other term or provision.
Section 20. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall constitute one and the same instrument.
Section 21. Entire Agreement. This Agreement contains the entire
understanding between the parties relating to the employment of Jeffrey A.
Johnson by the Corporation, and shall not be modified or amended except in
writing signed by both of the parties hereto.
Section 22. Applicable Law. This Agreement shall be subject to and
governed by the laws of the State of Nebraska and all questions concerning the
meaning and intention of the terms of this Agreement and concerning the validity
hereof and questions relating to performance hereunder shall be adjudged and
resolved in accordance with the laws of that state.
Section 23. Binding Effect. This Agreement shall be binding upon and
inure to the benefits of the parties hereto, and their respective heirs,
successors, legal representatives and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 13th day of May, 1991.
ECO-SOIL SYSTEMS, INC.
By: /s/ Jeffrey A. Johnson
And: _____________________
EMPLOYEE:
/s/ Jeffrey A. Johnson
Jeffrey A. Johnson
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 1st day of January 1994, by and between
Eco Soil Systems, Inc., a Nebraska Corporation (the "Corporation"), and Douglas
M. Gloff, of San Diego County, California, (Hereinafter called "Employee"),
W I T N E S S E T H :
WHEREAS, the Corporation desires to employ the Employee as its
Executive Vice President in accordance with the following terms, conditions and
provisions; and
WHEREAS, the Employee desires to perform such services for the
Corporation, all in accordance with the following terms, conditions and
provisions;
WHEREAS, Employee has purchased 25.000 shares of the Corporation's
stock and loaned the Company $250,000 through a demand note;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed as follows:
SECTION 1. EMPLOYMENT AND DUTIES.
The Corporation hereby employs Employee, and Employee hereby accepts
employment as the Corporation's Executive Vice President ("EVP") to perform the
duties of managing the Corporation, subject always to the control and direction
of the Board of Directors of the Corporation (the "Board of Directors") and the
Company's Chief Executive Officer. Employee shall devote his full time and best
efforts to the performance of services hereunder and to the advancement of the
corporation's business and affairs.
1.1 Employee will be responsible for the day to day operations of the
firm and will have direct control of the Company's sales and marketing and
operations functions. Employee will be responsible for the sales and marketing,
product development, systems and contract pricing department. Employee will also
play a key role in any capital raising activities undertaken by the Company.
1.2 Employee shall also perform such other duties, including
administrative duties, in connection with the Corporation's business as shall
from time to time be assigned to him by the Chief Executive Officer and the
Corporation's Board of Directors.
SECTION 2. COMPENSATION.
Employee shall receive as compensation for the full and faithful
performance of his obligations hereunder, including the performance of services
as an officer, director or member of any committee of the Board of Directors, a
salary, the amount of which shall be determined from time to time by the Board
of Directors, but the Employee's annual salary shall not be less than $75,000
paid in equal installments twice (2) per month. In addition to such salary, the
Corporation, in the sole discretion of its Board of Directors, may pay to the
Employee bonus compensation.
SECTION 3. TERM.
This Agreement shall commence and become effective on January 1, 1994
and, unless sooner terminated as provided in Section 12, shall end on December
31, 1996. The first year of employment under the term hereof shall end on
December 31, 1994, and each subsequent year of employment under the term hereof
shall commence on January 1, and end on the following December 31 within said
term.
Employee agrees that until the Company receives the proceeds from the
sale of additional shares of common stock or other securities, that payments of
his salary and other benefits for the period January 1, 1994 through March 31,
1994 will be deferred. Once the Company elects to break escrow and receives the
proceeds of the "new investment", employee will be paid the deferred
compensation that is due and will begin to be paid on a timely, normal basis his
monthly salary.
SECTION 4. STOCK OPTION.
That pursuant to this Employment Agreement, and pursuant to two (2)
Nonqualified Stock Option Agreements by and between the Company and Employee
attached hereto and incorporated herein the Employee shall be granted a stock
option to purchase shares of the Company's common stock on the terms and
conditions set forth in said Nonqualified Stock Option Agreement.
SECTION 5. EXPENSES.
The Corporation will reimburse Employee far reasonable expenses
incurred by Employee in connection with the business of the Corporation
according to policies promulgated from time to time by the Board of Directors
upon presentation by Employee of appropriate substantiation for such expenses.
SECTION 6. EMPLOYEE BENEFIT PLANS.
During the term of his employment, Employee shall be entitled to
participate in any employee benefit plan or plans established and maintained by
the Corporation for its employees, in accordance with the eligibility
requirements and other terms and provisions of such plan or plans. It being
understood that the Corporation is under no obligation to Employee to establish
or maintain any employee benefit plan in which Employee may participate, and
that the terms and provisions of any employee benefits plan of the Corporation
are matters solely within the exclusive province of the Board of Directors.
SECTION 7. VACATION AND TIME OFF.
Employee shall be entitled to four (4) weeks of vacation in each year
of employment under the terms of this Agreement without reduction salary. Unused
vacation time may not be carried over to future years of employment hereunder.
In addition, the Employee shall be entitled to such additional time off from
work, without loss of compensation, for attendance at professional meetings,
conventions and educational courses in accordance with the Corporation's general
policy in this regard, as from time to time determined by its Board of
Directors.
SECTION 8. INSURANCE.
Employee agrees that the Corporation, in the discretion of its Board of
Directors, may apply for and procure on its own behalf, life insurance on the
life of Employee, for the purpose of protecting the Corporation against loss
caused by the death of the Employee. Employee agrees to submit to medical
examination and to execute or deliver any documentation reasonably required by
the Corporation's insurer in order to effectuate such insurance.
SECTION 9. MEDICAL AND DENTAL COVERAGE.
During his employment, Employee and his family, if any, shall be
entitled to any executive or other medical and dental coverage provided by the
Corporation.
SECTION 10. LEAVE OF ABSENCE.
The Board of Directors may, from time to time, grant a leave of absence
to Employee. The Employee shall have no right under this Agreement to any
compensation during such period of leave of absence, unless the Board of
Directors fixes and determines an amount of compensation to be paid to Employee
during a period of leave of absence. If Employee fails to return to active
employment with Employer within fifteen (15) days after termination of a leave
of absence, Employee shall be deemed to have breached this Agreement as of the
end of said period of leave of absence.
SECTION 11. SICK LEAVE AND DISABILITY.
11.1 The Employee shall be entitled to ten (10) calendar days of sick
leave in each year of employment hereunder without loss of compensation. Unused
sick leave shall not be carried over to future years of employment under this
Agreement.
11.2 Notwithstanding any other provision of the Agreement, if Employee
is "totally disabled" (as that term is defined in Section 15) for an aggregate
of 120 calendar days in any one year of employment under the terms of this
Agreement, then the Corporation shall not be obligated to pay to Employee the
Compensation provided in this Agreement for any period of "total disability"
during such year in excess of 120 days.
SECTION 12. TERMINATION.
This Agreement, including the Corporation's obligation pursuant to
Section 2 hereof to pay compensation to the Employee, shall be terminated upon
the happening of any one of the following events:
(a) At any time by mutual agreement in writing between the
Corporation and the Employee;
(b) Upon the death of the Employee;
(c) At the Corporation's option, if Employee shall be "totally
disabled" for a continuous period of time in excess of nine
(9) months under the term of this Agreement. The Corporation's
said option shall be exercised by giving at least thirty (30)
days prior written notice thereof to Employee.
(d) At the option of either party hereunder after thirty (30) days
prior written notice given to the other party, in the event of
a breach of any term or provision of this Agreement by the
other party which has not been cured within said thirty (30)
day period.
(e) If the Corporation has "good cause" for termination of
Employee including, but not limited to, the breach of the
covenants of this Agreement or other acts which the Board of
Directors of the Corporation reasonably constitute just and
good cause for the termination of the Employee.
SECTION 13. PAYMENT DUE UPON TERMINATION.
If your employment is terminated prior to the last day of December,
1996, for any reason other than your death or disability, your employment has
been terminated for "good cause" or you have voluntarily resigned in
circumstances not covered by Paragraph 14 below, then you shall be entitled to
receive, at the date of termination, severance pay equal to six (6) months of
pay at your then base salary rate.
SECTION 14. CHANGE IN CONTROL.
(a) If you voluntarily leave the employ of the Company within six
(6) months after any "change of control" not approved by the
affirmative vote of the "Continuing Directors" within ten (10)
days after they become aware of the events in question, you
will be entitled to receive, on the day of such termination,
severance pay equal to six (6) months of pay at your base
salary calculated at the rate in effect during the last year
of your term of employment. The normal employee benefits
maintained by the Company for its full-time employees shall be
available to you for six (6) months after such termination.
(b) For purposes of this Agreement:
1. A "change of control" will occur when (x) any persona c()mr)any or
institution becomes directly or indirectly, the beneficial owner of
thirty percent (30%) or more of the common stock of the Company, (y)
the "Continuing Directors" cease for any reason to constitute a
majority of the Board of Directors of the Company, or (z) any change in
control occurs within the meaning of the proxy rules of the Securities
and Exchange Commission; provided, however, that if in the case of an
event referred to in clause (x) or (z), two thirds of the Continuing
Directors so determine, no change in control will be deemed to have
occurred.
2. The "Continuing Directors" are those members of the Board of Directors
of the Company on the date of this Agreement or elected as Directors
prior to the event in question.
3. Your rights under this paragraph are in lieu of your rights under
Paragraph 13 and any other rights you may have under this Agreement.
Accordingly, if you elect under Paragraph 14, you may not receive
compensation under 13 hereof.
4. The change of control definition will not apply if any person,
institution or company becomes -- with your approval -- the beneficial
owner of 30% or more of the common stock of the Company through the
sale of any additional common stock or other additional securities of
the Company.
SECTION 15. TOTAL DISABILITY.
For purposes of this Agreement, Employee shall be considered to be
"totally disabled" when he is considered to be totally disabled by any insurance
company used by the Corporation to provide disability benefits for the Employee,
and Employee shall continue to be considered "totally disabled" until such
insurance company ceases to recognize him as "totally disabled" for purposes of
disability benefits. If no such disability insurance policies are in force for
the benefit of Employee, or if for any reason an insurance company fails to make
a determination of the question of whether Employee is "totally disabled",
Employee shall be considered to be "totally disabled" if, because of mental or
physical illness or other cause, he is unable to perform the majority of his
usual duties on behalf of the Corporation. The existence of "total disability"
of Employee, the date it commenced, and the date it ceases, shall be determined
by the Board of Directors and the Employee. If, however, the parties cannot
agree, then any such determination shall be made after examination of Employee
by a medical doctor selected by the Board of Directors, and a medical doctor
selected by the Employee. If the medical doctors cannot agree, a third medical
doctor shall be selected by the two doctors and the conclusion of a majority of
said doctors shall be final and binding on the parties.
SECTION 16. COVENANT NOT TO COMPETE.
Employee hereby covenants and agrees that during his employment with
the Corporation, and for a period of one (l) year thereafter, he should not be
engaged either directly or indirectly, in any manner or capacity, whether as a
an adviser, principal, agent, partner, officer, director, employee, member of an
associations or otherwise, in any business or activity, or own beneficially, or
of record, five percent (5%) or more of the outstanding stock of any class of
equity securities in any corporation, in competition with the business or
activity of the Corporation.
16.1 It is understood that if Employee should breach aforesaid covenant
of noncompetition, the Corporation would suffer irreparable harm for which a
recovery of money damages would be an inadequate remedy. It is therefore agreed
that the Corporation shall be entitled, as a matter of right, in any court of
competent jurisdiction, to a mandatory injunction restraining and enjoining
Employee, pending litigation, as well as upon final determination thereof, from
attempting to violate or violating the aforesaid covenant of non-competition and
it is further agreed that the Corporation's right to such injunction relief
shall be cumulative with and in addition to any other rights, remedies or
actions which the Corporation may have against Employee.
SECTION 17. CONFIDENTIALITY.
17.1 Employee will in the course of his employment by the Corporation
have access to confidential or proprietary data or information of the
Corporation. Employee will not be at any time divulge or communicate to any
person (other than to a person bound by confidentiality obligations to the
Corporation similar to those contained in this Agreement) or use to the
detriment of the Corporation or for the benefit of any other person of such data
or information. The provisions of this Section 17.1 shall survive employee's
employment hereunder whether by the normal expiration of that employment or
otherwise. The term "confidential or proprietary data or information" as used in
this Agreement shall mean information not generally available to the public
including, without limitation, personnel information, financial information,
customer lists, supplier lists, trade secrets, secret processes, know-how,
computer data and programs, pricing, marketing and advertising data. The
Employee acknowledges and agrees that any confidential or propriety data or
information that Employee has heretofore acquired was received in confidence and
as a fiduciary with respect to the business of the Corporation.
17.2 All written materials, records and documents made by Employee or
coming into Employee's possession during the term of employment concerning any
products, processes, information or services used, developed, investigated or
considered by the Corporation, or otherwise concerning the business or affairs
of the Corporation, shall be the sole property of the Corporation and upon
termination of Employee's employment, or upon request by the Board of Directors
during Employee's employment, Employee shall promptly deliver the same to the
Corporation. In addition, upon termination of Employee's employment, Employee
shall deliver to the Corporation all other property of the Corporation in
Employee's possession or under Employee's control including, but not limited to,
financial statements, marketing and sales data and other document and all
Employer credit cards.
SECTION 18. NOTICE.
Any notice or other communication required or desired to be sent
pursuant to this Agreement shall be in writing, and shall be deemed to have been
duly given when delivered personally or when deposed in the mails, certified or
registered, return receipt requested, and with the proper postage prepaid,
addressed as follows:
If to the Corporation: Eco Soil Systems
4101 Industrial Avenue
Lincoln, NE 68504
If to the Employee: Douglas M. Gloff
16476 Calle Pulido
San Diego, CA 92128
or such other address as either party hereto may designate for itself or written
notice given to the other party from time to time in the manner herein and above
provided.
SECTION 19. WAIVER.
This Agreement shall not be modified or amended except by a further
written documents signed by Employee and approved by the Board of Directors. No
provisions hereof may be waived except by an Agreement in writing signed by the
waiving party. A waiver of any term of provision shall not be construed as a
waiver of any other term or provision.
SECTION 20. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall constitute one and the same instrument.
SECTION 21. ENTIRE AGREEMENT.
This Agreement contains the entire understanding between the parties
relating to the
SECTION 22. APPLICABLE LAW.
This Agreement shall be subject to and governed by the laws of the
State of Nebraska and all questions concerning the meaning and intention of the
terms of this Agreement and concerning the validity hereof and questions
relating to performance hereunder shall be adjudged and resolved in accordance
with the laws of that state.
SECTION 23. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefits of the
parties hereto, and their respective heirs, successors, legal representatives
and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 1st day of January, 1994.
ECO SOIL SYSTEMS, INC.
By: /s/ Jeffrey A. Johnson
And
EMPLOYEE:
/s/ Douglas M. Gloff
Douglas M. Gloff
AGREEMENT OF EMPLOYMENT
THIS AGREEMENT, effective as of October 1, 1995, is entered into by and
between ASPEN CONSULTING COMPANIES, INC., a Colorado corporation ("Employer"), a
wholly owned subsidiary of ECO SOIL SYSTEMS, INC., a Nebraska corporation
("ECO") and MIKE R. SCOTT (the "Employee"), with respect to the following facts:
RECITALS
A. Employer is a California corporation engaged in the general business
of turf and crop maintenance products, sales and service.
B. Employee is the originator of the Employer and is currently being
employed to act as the Chief Executive Officer and Chief Operating Officer for
the Employer.
C. Employer desires assurance of the continued association and services
of Employee in order to retain his experience, skills, abilities, background and
knowledge, and is therefore willing to engage his services on the terms and
conditions set forth below.
D. Employee desires to be employed by Employer and is willing to do so
on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows.
COVENANTS
1. Employment
The Employer hereby employs Employee and Employee accepts employment
with Employer pursuant to the terms and provisions of this Agreement.
2. Effective Date
The effective date of this Employment Agreement shall be as of the date
first written above.
3. Term
Said employment shall continue until September 30, 1999, and from year
to year thereafter, unless terminated earlier under the provisions of Paragraph
18.
a. Any change in the term of this Agreement shall be reflected by a
written endorsement attached to this Agreement and signed by Employee and a duly
authorized officer of Employer.
4. Title
Employee's title during the term of employment shall be "Chief
Executive Officer" and "Chief Operating Officer".
5. Duties of Employee
The duties of the Employee during the term of this Agreement are to
perform those duties ordinarily and necessarily performed by a Chief Executive
Officer and Chief Operating Officer as well as those duties deemed necessary and
appropriate by the Board of Directors of Employer or ECO. In addition, Employee
shall serve as a member of ECO's executive management committee.
6. Matters Requiring Consent of Board of Directors
The Employee shall not, without specific approval of the Board of
Directors of Employer, or its President, do or contract to do any of the
following:
a. Borrow on behalf of Employer sums exceeding $2,500.
b. Purchase capital equipment or make expenditures for amounts in
excess of the amounts budgeted by the Board of Directors.
c. Do any act, except in the exercise of his best judgment, which would
or could subject Employer to liability.
7. Devotion to Employer's Business
Employee shall devote all of his time toward the satisfactory
performance of his duties for Employer.
8. Competitive Activities
During the term of this Agreement and for a period of one (1) year
after its termination the Employee shall not, directly or indirectly, either as
an Employee, Employer, Consultant, Agent, Principal, Partner, Stockholder,
Corporate officer, Director, or in any other individual or representative
capacity, engage or participate in any business that is in competition in any
manner with the business of the Employer or ECO. Such agreement not to compete
shall include such activities in any country, state or county, in which Employer
or ECO conducts business.
9. Trade Secrets
The parties acknowledge and agree that during the term of this
Agreement Employee shall have access to and become acquainted with information
concerning operations and products of Employer and ECO and that such information
constitutes Employer's trade secrets. The Employee specifically agrees that he
shall not misuse, misappropriate, or disclose any such trade secrets, directly
or indirectly, to any other person or use them in any way during the term of
this Agreement or at any time thereafter.
10. Base Compensation
The compensation to be paid to Employee during the term shall be as
follows:
a. For the employment years beginning October 1, 1995, and ending
September 30, 1999, Employee shall receive compensation of Ninety-Six Thousand
Dollars ($96,000), unless increased by the Employer at its sole discretion,
commencing with the first payment on October 15 of each such year and ending
with the last payment on September 15 of each year. Employee shall receive equal
monthly installments of Eight Thousand Dollars ($8,000). The monthly
installments shall be payable one-half (1/2) on the first day of each month and
one-half (1/2) on the fifteenth day of each month.
b. Any change in the base compensation shall be reflected by a written
endorsement attached to this Agreement and signed by Employee and a duly
authorized officer of Employer.
11. Incentive Compensation
Employee shall be entitled to incentive compensation as follows:
a. Stock Incentive Program. Employee shall be entitled to participate
in Eco's stock incentive program and may do so in accordance with the terms and
conditions spelled out in that certain Non-qualified Stock Option Plan effective
October 1, 1995, a copy of which is attached hereto as Exhibit "A" and
incorporated herein by this reference.
b. Performance Bonus 1995. In an effort to encourage the peak
performance of Employee, to the extent that the pre-tax net profit of Employer,
determined in accordance with Generally Accepted Accounting Principals
(excluding performance bonuses), which can be passed up to Eco on its
consolidated tax return for the period beginning on November 1, 1994 and ending
on December 31, 1995, is in excess of Eighty Thousand Dollars ($80,000),
Employer shall pay Employee a one time bonus of Fifty Thousand Dollars
($50,000). Such bonus shall be made in twelve equal monthly installments of Four
Thousand One Hundred Sixty-Six and 67/100 Dollars ($4,166.67) payable fifteen
days after Aspen has delivered its year end 1995 financial statements to Eco.
c. Performance Bonus 1996. In an effort to encourage the peak
performance of Employee, to the extent that the pre-tax net profit of Employer,
determined in accordance with Generally Accepted Accounting Principals
(excluding performance bonuses), which can be passed up to Eco on its
consolidated tax return for its year ending December 31, 1996, is in excess of
One Hundred Ten Thousand Dollars ($110,000), Employer shall pay to Employee a
one time bonus of One Hundred Fifty Thousand Dollars ($150,000). Such bonus
shall be made in one lump sum payment fifteen days after Aspen has delivered its
year end 1996 financial statements to Eco.
12. Business Expenses
The Employer shall promptly reimburse Employee for all reasonable
business expenses within its stated annual budget and for all other preapproved
business expenses incurred by the Employee on behalf of the Employer.
13. Facilities
The Employer shall provide the Employee with an office consistent with
that which Employee had prior to the merger of Employer with ECO, appropriate
office equipment, supplies, stenographic and other employee services, and all
other facilities and services suitable to Employee's position and necessary and
customary for the performance of his duties.
14. Medical Insurance
Employer agrees to provide Employee with suitable medical insurance
commensurate with what Employee maintained for himself just prior to entering
into this Agreement.
15. Life Insurance
To the extent Employee can reasonably pass the required physical
without creating an unreasonable premium, Employer shall provide Employee with
term life insurance with a face amount of One Million Dollars ($1,000,000)
designating the spouse of Employee as the beneficiary.
16. Vacations
The Employee shall be entitled to three (3) weeks vacation time for his
first two (2) years of employment without loss of compensation. For years
beginning October 1, 1997 and October 1, 1998, Employee shall be entitled to
four (4) weeks vacation without loss of compensation. The Employee may be absent
from his employment for vacation at such time or times as the Board of Directors
shall approve. If the Employee is unable, for any reason, to take the total
amount of vacation time authorized during any year, he may accrue that time or
may, in his discretion, receive cash payment in an amount equal to the amount of
annual salary attributable to that period of time.
17. Car Allowance
Employer shall provide Employee with a car allowance of Four Hundred
Sixty Dollars ($460) per month, the agreed upon value of obtaining the use of a
suitable automobile. The Employee shall procure his own automobile and the
Employer shall be responsible for obtaining adequate insurance coverage for the
automobile and for its maintenance.
18. Termination
This Agreement may be terminated in the following manner:
a. For Cause
The Employer may terminate this Agreement upon thirty (30) days written
notice if Employee willfully breaches or habitually neglects the duties he is
required to perform or commits such acts of dishonesty, fraud, misrepresentation
or other acts of moral turpitude as would prevent the effective performance of
his duties.
b. Without Cause
This Agreement may be terminated without cause upon thirty (30) days
written notice to the Employee. If Employee is terminated without cause, he
shall be entitled to severance pay equal to six (6) months of pay.
c. By Employee
The Employee may terminate this Agreement upon giving sixty (60) days
written notice to the Board of Directors.
d. Death or Disability
In the event of Employee's death or on the continuing incapacitating
disability of the Employee for a period in excess of one (1) year during the
term of this Agreement, it shall terminate immediately.
19. Notices
All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of service if served personally to the party to whom notice is to be given,
or on the third day after mailing if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
To Employer: ASPEN CONSULTING COMPANIES, INC.
c/o William B. Adams
10890 Thornmint Road
San Diego, CA 92127
To Employee: Mike R. Scott
16935 W. Bernardo Drive, Suite 190
San Diego, CA 92127
20. Arbitration
Any controversy between the Employer and Employee regarding the
construction or application of any of the terms, provisions, or conditions of
this Agreement shall, upon the written request of either party served on the
other, be submitted to arbitration in accordance with the provisions of the
California Arbitration Act.
21. Entire Agreement
This Agreement supersedes any and all other agreements, either oral or
in writing, between the parties hereto with respect to provisions of this
Agreement and contains all of the covenants and agreements between the parties
whatsoever. Each party to this Agreement acknowledges that they have read and
understood this Agreement and that no representations, inducements, promises, or
agreements, oral or otherwise, have been made by either party or anyone acting
on behalf of either party, which are not embodied herein, and that no agreement,
statement, or promise not contained in this Agreement shall be valid or binding.
22. Modifications
Any modification of this Agreement will be effective only if it is in
writing and signed by all of the parties.
23. Severability
Should any provision in this Agreement be declared invalid, void or
unenforceable, then such portion shall be deemed to be severable from this
instrument and shall not affect the remainder thereof.
24. Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
25. Binding Upon Successors
This instrument shall be binding upon and inure to the benefit of the
personal and legal representatives, successors and assigns, except as restricted
in Paragraph 26 below, of the parties hereto and also upon the heirs, executors
and administrators of the individual persons executing this instrument.
26. Non-Assignability Clause
It is agreed that neither Employee nor any other designee or successor,
other than the estate of Employee, shall have any right to commute, sell,
assign, transfer, encumber or otherwise convey the right to receive any payments
hereunder, which payments and the right thereto are expressly declared to be
non-assignable and non-transferable, and any attempt to do such shall be null
and void.
27. Cumulative Rights
The various rights, options, elections, powers and remedies of a party
or parties to this instrument shall be construed as cumulative and no one of
them exclusive of any others or of any other legal or equitable remedy which
said party or parties might otherwise have in the event of breach or default in
the terms hereof, and the exercise of one right or remedy by a party or parties
shall not in any way impair his rights to any other right or remedy until all
obligations imposed on a party or parties have been performed.
28. Time
Time is of the essence of this Agreement.
29. No Waiver of Default
No waiver of default by any party or parties hereto shall be implied
from any omission by a party or parties to take any action on account of such
default if such default persists or is repeated and no express waiver shall
affect any default other than the default specified in the express waiver, and
that only for the time and to the extent therein stated. One or more waivers of
any covenant, term or condition of this instrument by a party or parties shall
not be construed to be a waiver of any subsequent breach of the same covenant,
term or condition. The consent or approval by any party or parties shall be
deemed to waive or render unnecessary the consent to or approval of said party
or parties of any subsequent or similar acts by a party or parties.
30. Attorney's Fees
If any action at law or equity is necessary to enforce the terms of
this Agreement, the prevailing party shall be entitled to reasonable attorney's
fees, costs, and necessary disbursements, in addition to any other relief to
which he or it may be entitled.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the dates below.
EMPLOYER:
ASPEN CONSULTING COMPANIES, INC.
a Colorado corporation
Date:_____________________ By: William B. Adams, President
EMPLOYEE:
Date:_September 30, 1995__
Mike R. Scott
EXHIBIT "A"
ECO SOIL SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT effective as of October 1, 1995, is entered into by and
between ECO SOIL SYSTEMS, INC. (the "Company"), a Nebraska corporation and MIKE
R. SCOTT (the "Employee").
WHEREAS, Employee, the Company, and Aspen CONSULTING COMPANIES, INC.
("Aspen") are parties to that certain Agreement of Employment dated of even date
herewith (the "Employment Agreement") pursuant to which the Company is granting
this Option to Employee; and
WHEREAS, consistent with the Employment Agreement, the Company wishes
to provide incentive for the Employee to perform services for Aspen and the
Company and to maximize his performance on their behalf by providing a means by
which he can benefit from the increases in the value of the Company.
NOW THEREFORE, in consideration of the foregoing premises and of the
mutual promises and covenants herein contained, the Company and the Employee
agree as follows:
1. Grant. The Company hereby grants to the Employee an option (the
"Option") to purchase shares of the Company's common stock upon the terms and
conditions set forth below. The number of shares and the Employee's eligibility
to exercise such options are as follows:
1.1 A total of Fifty Thousand (50,000) shares in increments of
Twelve Thousand Five Hundred (12,500) shares for each year of Employee's
employment for a period of four (4) years. Employee shall be entitled to
purchase such incremental shares on December 31, 1996, December 31, 1997,
December 31, 1998 and December 31, 1999, so long as Employee continues to be
employed by Aspen on such dates.
1.2 A total of One Hundred Fifty Thousand (150,000) additional
shares shall be made available to Employee in the following incremental amounts,
so long as Employee continues to be employed by Aspen at the times stated below,
and achieves the stated income objectives for Aspen for each period. Such
options shall be exercisable on the first day of the month following the month
in which the Company has had an opportunity to audit the financial statements of
Aspen for each stated period.
1.2.1 Ten Thousand (10,000) shares if the December 31, 1996
pre-tax net income of Aspen which can be passed up to the Company on its
consolidated tax return is greater than One Hundred Ten Thousand Dollars
($110,000).
1.2.2 Twenty Thousand (20,000) shares if the December 31, 1997
pre-tax net income of Aspen which can be passed up to the Company on its
consolidated tax return is greater than One Hundred Sixty Thousand Dollars
($160,000).
1.2.3 Forty Thousand (40,000) shares if the December 31, 1998
pre-tax net income of Aspen which can be passed up to the Company on its
consolidated tax return is greater than Two Hundred Seventy-Five Thousand
Dollars ($275,000).
1.2.4 Eighty Thousand (80,000) shares if the December 31, 1999
pre-tax net income of Aspen which can be passed up to the Company on its
consolidated tax return is greater than Five Hundred Thousand Dollars
($500,000).
2. Definitions. As used herein, the following terms shall have the
meanings set forth below, and where said meaning is intended, said terms shall
be capitalized:
2.1 "Options" mean the Options which are granted to Employee
hereunder.
2.2 "Stock" means the common stock of the Company.
2.3 "Subject Stock" means shares of stock acquired by the
Employee through the exercise of the Options.
3. Purchase Price. The purchase price of the stock shall be Three
Dollars ($3.00) per share.
4. Nonqualified Options. The Options shall be Nonqualified Options and
are not intended to be treated as an incentive stock option under the Internal
Revenue Code of 1986.
5. Term; Exercise. The Options will expire December 31, 2001.
6. Transferability. The Options are not transferable except by will or
the laws of descent and distribution and my be exercised during the lifetime of
the Employee only by him.
7. Death. If the Employee dies, the Options - provided that they have
become exercisable pursuant to the other provisions of this Agreement - may be
exercised by his legal representative or by a person who acquired the right to
exercise such Options by request or inheritance or by reason of the death of the
Employee.
8. Acquisition.
8.1 Acquisition. For purposes of this Section 8, an
"Acquisition" shall mean any transaction in which a majority of the Company's
assets are acquired, or in which shares of the Company's stock representing more
than a fifty percent (50%) equity interest or a fifty percent (50%) voting
interest in the Company are acquired. An Acquisition shall include any
transaction in which the foregoing results are effectuated, whether through a
purchase, merger, consolidation, liquidation and transfer of assets, or
comparable transaction.
8.2 Right to Exercise in the Event of an Acquisition. In the
event that an Acquisition occurs with respect to the Company, the Options shall
become immediately and fully exercisable by Employee.
9. Adjustment to Prevent Dilution. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split, or any
combination, recapitalization, or reclassification, the number of unexercised
Options hereunder shall be appropriately adjusted by the Company, whose
reasonable determination shall be conclusive, provided, however, that the
Company may round fractional shares to the nearest whole share.
10. Investment Representation; Legend. The Employee represents and
agrees that all shares of common stock purchased by him under this Agreement
will be purchased for investment purposes only and not with a view to
distribution or resale within the meaning of applicable securities laws. The
Company may required that an appropriate legend be inscribed on the face of any
certificate issued under this Agreement, indicating that transfer of the shares
is restricted, and may place an appropriate stop transfer order with the
Company's transfer agent with respect to such shares. It is understood, that
pursuant to the Consulting Agreement, the Employee holds registration rights
which, in certain circumstances, may result in the restrictions of this section
not being applicable.
11. Method of Exercise. Provided that this Option has become
exercisable as provided in Sections 1, 5 or 8 hereof, the Options may be
exercised, at any time, in whole or in part, by written notice to the Company.
The notice shall be in the form attached to this Agreement and will be
accompanied by payment (in such form as the Company may specify) of the full
purchase price of the shares to be issued. The Company will issue and deliver
certificates representing the number of shares purchased under the Options,
registered in the name of the Employee (r other purchaser under paragraph 7
hereof) as soon as practicable after receipt of the notice. The Company shall
pay any issue or transfer taxes payable in connection with the issue of such
Stock, or the transfer of any Stock by Employee in payment of the exercise
price.
Employee shall pay the exercise price for any shares of Stock purchased
pursuant to the exercise of an Option by delivering to the Company (a) cash in
the amount of the exercise price, (b) certificates, a valid assignment and nay
other necessary documents of transfer assigning to the Company Employee's rights
in shares of Stock of the Company having a Fair Market Value equal to the
exercise price, or (c) a combination of (a) and (b).
12. Miscellaneous.
12.1 Shareholder Privileges. The Employee shall not possess
any right or privilege as a holder of Stock until such time as a certificate for
Stock has been issued to him.
12.2 Governing Law. This Agreement shall be construed under
and governing by the laws of the State of California.
12.3 Amendments. This Agreement shall not be amended except by
a writing duly executed by the parties hereto.
COMPANY:
ECO SOIL SYSTEMS, INC. a Nebraska
corporation
Dated:_September 30, 1995__ By: Jeffrey A. Johnson
President
EMPLOYEE:
Dated:_September 30, 1995__
Mike R. Scott
April 19, 1996
Mr. L. Jean Dunn
544 A Avenue
Coronado, CA 92118
Dear Jean:
I would like to take this opportunity to offer you the position of Chief
Financial Officer of Eco Soil Systems, Inc. Jeff, Doug and I were impressed with
you during our interviews and we look forward to a strong association in the
future. As we mentioned in our last discussion, we would like to make this a
conditional employment offer with an initial employment term of six months to
ensure that compatibility with our team exists, and to give you a chance to get
comfortable with our systems and business strategy. Six months from the date of
your official start date, options in your stock option plan will begin to vest,
and the plan for your severance will take effect as well. Specific terms of the
offer are as follows:
1. Start Date: June 1, 1996
2. Salary: $90,000.00 per annum.
3. Employment Term: 2 years to begin 6 months after initial
employment.
4. Initial Employment: 6 month term beginning June 1, 1996 and
ending December 1, 1996.
5. Severance: Equal to 1 month per year of employment.
6. Vacation: Two weeks paid vacation beginning after the 6 month
initial employment period.
7. Holidays: Eight paid holidays per year.
8. Health Insurance Benefits: HMO fully paid for yourself and
your family or PPO option with some employee contribution.
9. Stock Options: The option to purchase 75,000 shares at $3.00
per share vesting at the rate of 25,000 per year with vesting
beginning on December 1, 1996.
Jean, as we discussed, the position would include officer status of Vice
President level which will be conferred on you if employment continues after the
initial period. Additionally, this offer is subject to Board approval, which
will occur at our next Board Meeting on May 9, 1996 or sooner, if I am able to
poll the Board Members prior to the meeting. As we discussed, there may be the
potential prior to June 1, of temporary part-time work being available. This
will be determined entirely by the availability of Jeff Johnson and myself given
the importance of our involvement with any part-time project we may be able to
hand-off to you.
Jean, we look forward to this new relationship. Clearly our plate is full with
projects to date, and your involvement will help us convert these projects to
revenue and profits in the near term. We appreciate your interest in our
business.
Sincerely,
/s/ William B. Adams
Chief Executive Officer
WBA/ds
cc: Jeff Johnson
Doug Gloff
Denise Brue
Mike Mullenniex
AGREEMENT OF EMPLOYMENT
THIS AGREEMENT, effective as of July 8, 1996 (this "Agreement"), is
entered into by and between Eco Specialty, Inc., a Delaware corporation
("Employer"), a wholly owned subsidiary of Eco Soil Systems, Inc., a Nebraska
corporation "Eco"), and Kevin Lyons (the "Employee").
RECITALS
A. Employer is a Delaware corporation engaged in the general business
of turf and crop maintenance products sales and service.
B. Contemporaneously with the execution of this Agreement, Turf
Specialty, Inc., a New Hampshire corporation, of whom Employee was a
shareholder, was merged with and into Eco Specialty, Inc., a Delaware
corporation (the "Merger"), pursuant to an Agreement and Plan of Merger (the
"Merger Agreement).
C. Employer desires to employ Employee in order to retain his
experience, skills, abilities, background and knowledge of the business of
Employer.
D. Employee desires to be employed by Employer and is willing to do so
on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and for other good.and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows.
COVENANTS
1. Employment.
Employer hereby employs Employee and Employee hereby accepts
employment with Employer pursuant to the terms and provisions of this Agreement.
2. Effective Date.
The effective date of this Agreement shall be July 8, 1996.
3. Term.
Employee's employment under this Agreement shall commence as-
of the effective date of this Agreement and shall continue in full force for a
term of three (3) years, expiring at midnight on July 7, 1999, unless earlier
terminated in the manner specified in Section 20 of this Agreement (hereinafter
referred to as the "Term"). The parties may by mutual agreement reduced to
writing extend this Agreement upon terms mutually agreed upon by the parties.
4. Title.
Employee's title during the Term shall be Senior Vice
President and Co-General Manager.
5. Duties of Employee.
5.1 Duties During Test Period.
During the Test Period (as that term is defined in the Merger
Agreement), it is the intention of Employer and Eco that Employer be operated as
a free-standing and independent subsidiary of Eco. In order to achieve this,
Employee (together with his counterpart, David Schermerhorn ("Schermerhorn"),
who is being employed by Employer under a separate employment agreement) is
hereby vested with day to day operational control over Employer during the Test
Period. In cooperation with Schermerhorn, Employee shall be responsible for the
proper and efficient running, management and promotion of the business, affairs,
and interests of Employer. Without limiting the generality of the foregoing,
during the Test Period Employee shall have complete authority in conjunction
with Schermerhorn, without having to secure the approval or consent of Employer,
to take all actions necessary for the operation of the Employer as a going
business, including but not limited to, hiring and firing employees of Employer,
establishing and administering benefit plans for its employees, entering into
contracts for the purchase and sale of Employer's inventory, executing
appropriate contacts with vendors and customers, purchasing and selling or
otherwise disposing of Employer's equipment, maintaining personal contact with
Employer's customers and vendors, establishing (where necessary) and utilizing
credit facilities for the needs of Employer, and taking any and all other
actions that are deemed by Employee, in his reasonable good faith judgment, to
be in the best interests of Employer. Employer shall not interfere with
Employee's exercise of autonomy during the Test Period. It shall be the sole
responsibility of Employee and David Schermerhorn to divide their specific
duties between themselves as they, in their collective judgment, deem
appropriate. The provisions of Section 19 of the Merger Agreement are hereby
incorporated by reference as covenants of the Employer.
6. Duties Following Test Period.
Employee's duties following the Test Period shall be as
mutually agreed upon by the parties, taking in account Employee's level of
experience, expertise and knowledge of Employer's business and his status as a
senior executive of Employer. Once agreed upon by the parties, those duties
shall be set forth in a duly executed Amendment to this Agreement.
7. Devotion to Employer's Business.
During Employee's employment hereunder, unless prevented by
ill health or accident and except during vacation and holidays permitted by this
Agreement, Employee shall devote his full-time and best efforts to the
performance of his duties as set forth herein.
8. Competitive Activities.
8.1 During the Term of this Agreement and for a period of five (5)
years thereafter, Employee shall not directly or indirectly, either as an
Employee, Employer, Consultant, Agent, Principal, Partner, Shareholder (except
as otherwise provided in Section 8.3 below and except as a ten percent (10%) or
less shareholder in a publicly held company), Corporate Officer, Director, or in
any other individual or representative capacity, engage or participate in any
business that is in competition in any manner with the business of Employer as
it exists when Employee's employment under this Agreement terminates. Such
agreement not to compete shall include such activities in any country, state or
county, in which Employer conducts business.
8.2 The parties intend that this covenant not to compete be construed
in the broadest possible manner. If any court should rule that the territorial
scope of this covenant not to compete is overbroad, and that any city, county,
state, political subdivision of any state, or country, specified is not
permissibly within the scope of the covenant not to compete, this covenant not
to compete shall be narrowed so that its territorial scope would be limited to
the maximum geographical area permitted by law, and shall remain effective and
enforceable with respect to each other specified city, county, state, territory
and country.
8.3 Notwithstanding the foregoing, Employer and Eco are aware that
Employee has an ownership interest in Advanced Agronomics, Inc., a Massachusetts
corporation ("Agronomics"). Employee is not active in the business affairs of
Agronomics. Employee and Eco are also aware that Employee has an ownership
interest in and is active in the business of Universal Turf, Inc., a
Massachusetts corporation. Employer and Eco recognize that Employee will
continue to maintain his ownership interest in Agronomics and his ownership
interest in and business activity with Universal during the Term hereof, and
have agreed that under no circumstances will such ownership and/or activity by
Employee be construed as a breach by Employee of this Section 8. Employee shall,
however, continue to be obligated to devote his full-time and best efforts to
Employer as required under Section 7 above.
8.4 Employee's obligations under this Section 8 shall cease immediately
without recourse to Employer in any of the following events:
(a) Employee terminates his employment hereunder pursuant to
either Section 20.1 (b) or Section 20.1 (f) below;
(b) Employer terminates Employee's employment hereunder pursuant
to Section 20.1 (c)
(c) Employer does not renew Employee's employment following
expiration of the Term on at least as favorable terms as are
provided for hereunder.
In all other events, Employee's obligations under this Section 8 shall continue.
9. Trade Secrets.
The parties acknowledge and agree that during the Term
Employee shall have access to and become acquainted with information concerning
operations and products of Employer and ECO not generally known to the public,
and that such confidential information constitutes Employer's trade secrets.
Employee specifically agrees that he shall not misuse, misappropriate, or
disclose any such trade secrets, directly or indirectly, to any other person or
use them in any way during the term of this Agreement or at any time thereafter.
The term "trade secrets" as used in this Section 9 shall not apply to any
information that is presently or becomes lawfully available to the general
public through a source other than Employee or Employee's agent, representative,
or a person who acquired the information from Employee. Notwithstanding the
foregoing, Employee may make disclosure of "trade secrets":
(a) in response to legal process issued in connection with any
judicial or administrative proceeding; and
(b) in prosecuting or defending litigation concerning this
Agreement to the tribunal before which the matter is pending.
10. Base Compensation.
The compensation to be paid to Employee during the Term shall
be as follows:
10.1 During the period commencing on the effective date of this
Agreement and ending at midnight on December 31, 1996 (the "Initial Period"),
Employee shall receive a minimum annualized base salary of Eighty Thousand
Dollars ($80,000), payable in equal installments every two weeks, less
withholding and other mandatory wage deductions. Employer shall, at Employee's
direction and in Employee's sole and absolute discretion, raise Employee's
annualized base salary during the Initial Period to One Hundred Sixty-Five
Thousand Dollars ($ 165,000). In no event shall Employee be entitled to
carry-over beyond the Initial Period any salary that he would have been entitled
to receive during the Initial Period had he exercised his discretion set forth
in the immediately preceding sentence. Following the Initial Period, and during
the balance of Employee's employment with Employer hereunder, Employee shall,
receive a minimum annualized base salary of One Hundred Sixty-Five Thousand
Dollars ($165,000), payable in equal installments every two weeks, less
withholding and other mandatory wage deductions.
10.2 Any change in Employee's base compensation set forth in Section
10.1 above shall be reflected by a written endorsement attached to this
Agreement and signed by Employee and a duly authorized officer of Employer.
11. Incentive Compensation.
Employee shall be entitled to participate in incentive
compensation programs as may from time to time be established for similarly
situated employees of Employer, Eco or Eco affiliates.
12. Business Expenses.
Subject to compliance by Employee with such policies regarding
expenses and expense reimbursement as may be adopted from time to time by
Employer, Employee is authorized to incur reasonable expenses in the performance
of his duties hereunder in furtherance of the business and affairs of Employer.
Employer shall reimburse Employee for all such reasonable expenses, in all cases
upon the presentation by Employee of an itemized account satisfactory to the
Company in substantiation of the expenses when claiming reimbursement.
13. Locus of Duties; Facilities.
Employee shall perform his duties hereunder at Employer's
premises in Londonderry, New Hampshire and shall not be required to relocate
from Sturbridge, Massachusetts. Employee shall undertake such travel both within
the United States and abroad and in such manner and on such occasions as may be
reasonably necessary for the effective discharge of his duties under this
Agreement, as to which Employee shall be the final arbiter. Employee shall be
reimbursed for the expenses incurred by him in connection with all such travel
in accordance with the provisions of Section 12 above. The Employer shall
provide Employee with an office consistent with that which Employee had prior to
the merger of Turf with Employer, appropriate office equipment, supplies,
stenographic and other employee services, and all other facilities and services
suitable to Employee's position and necessary and customary for the performance
of his duties.
14. Fringe Benefits.
During the term of his employment hereunder, Employee shall be
entitled to participate in employee benefit plans or programs established by
Employer to the extent that his position, tenure, salary, age, health, and other
qualifications make him eligible to participate, subject to regulations and
criteria applicable thereto.
15. Medical Insurance.
Employer agrees to provide Employee with suitable medical and
disability insurance commensurate with what Employee was receiving just prior to
entering into this Agreement, as more particularly set forth on Exhibit A
attached hereto.
16. Vacations.
Employee shall be entitled to four (4) weeks vacation each
employment year during which this Agreement remains in effect, without loss of
compensation. The Employee may be absent from his employment for vacation at
such time or times as the Board of Directors shall approve. If the Employee is
unable, for any reason, to take the total amount of vacation time authorized
during any employment year, he may accrue that time or may, in his discretion,
receive cash payment in an amount equal to the amount of annual salary
attributable to that period of time. Employee shall also be entitled to such
holidays as the Board of Directors of Employer establish for the employees of
Employer.
17. Sickness.
Employer acknowledges that Employee may at any time be
prevented by illness or accident or other incapacity from properly performing
his duties under this Agreement. Employee shall receive normal pay, without
reduction, for a reasonable number of days missed as a result of illness.
18. Automobile.
Employee shall be entitled to the use of an automobile
provided by Employer, without charge, for the purpose of performing his duties
under this Agreement. Employer shall pay all expenses, including but not limited
to, gas, oil, insurance, maintenance, and repair, incurred by Employee in
connection with the operation of the vehicle. The automobile provided by
Employer to Employee under this Section 17 shall at all times be equivalent to
the automobile utilized by Employee in connection with the business of Turf
prior to the Merger.
19. Loan to Employee.
Pursuant to Section 3.4 of the Merger Agreement, Employer has
agreed to make a Post-Closing Loan (as that term is defined in the Merger
Agreement) to Employee.
20. Terminations
20.1 Employee's employment with Employer under this Agreement,
Employee's salary and other rights of Employee under this Agreement or otherwise
as an employee of Employer may be terminated (except as to salary, benefits and
rights accrued prior to such termination): (a) by Employer for cause upon thirty
(30) days written notice (for purposes hereof, "cause" refers to dishonesty or
fraud; conviction of a felony or a crime involving embezzlement, theft or other
conversion of property, or Employee's breach of Section 8 hereof); (b) by either
Employer or Employee, if the other party is in material violation of the other
terms and conditions of this Agreement, but then only if the material violation
is not cured to the satisfaction of the non-breaching party within thirty (30)
days of the non-breaching party notifying the breaching party of the violation;
(c) by Employer without cause upon sixty (60) days written notice; (d) by
Employee for any reason upon sixty (60) days written notice; (e) by Employer in
the event of Employee's continuing physical or mental disability of Employee
which prevents Employee from performing any material part of his duties
hereunder for a period in excess of one (1) year; (f) by Employee, immediately
and without notice if Eco defaults on its obligations to either Employee or
Schermerhorn under the Purchase Notes (as that term is defined in the Merger
Agreement) and the default is not (i) cured within relevant grace periods (if
any), or (ii) waived in writing by the Payee of the Purchase Note; or (g) in all
events, if not terminated earlier, on June 30, 1999.
20.2 In all events of termination as set forth in Section 20.1 above,
any amount then outstanding under any promissory note to which Employee is Payee
executed in connection with the Merger Agreement (the "Promissory Notes") shall
become immediately due and payable to Employee. Notwithstanding the foregoing,
Employee shall have the right to offset dollar for dollar any amounts then
outstanding under the Promissory Notes against amounts then owed by him under
the Loan.
21. Indemnification.
Employee shall not be liable, responsible or accountable in damages or
otherwise to Employer, and Employer shall indemnify, defend and save harmless
Employee from, any loss, damage, claim, liability, cost or expense arising in
connection with the performance of his duties hereunder, or any act or omission
performed or omitted by Employee in good faith on behalf of Employer and in the
reasonable belief of Employee that his conduct was not opposed to the best
interests of Employer; provided, however, that (a) Employee shall not have been
determined to have committed fraud, gross negligence or willful misconduct with
respect to such act or omission, and (b) the satisfaction of any such
indemnification shall be from, and only to the extent of, Employer's assets. Any
act or omission of Employee, or of any of his employees or agents, upon the
advice of legal counsel shall be deemed to have been performed or omitted in
good faith. ECO Soil Systems, Inc., the parent of Employer shall guarantee
Employer's indemnity obligations under this Section 21.
22. Notices.
All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
on the date of service if served personally to the party to whom notice is to be
given, or on the third day after mailing if mailed to the party to whom notice
is to be given, by first class mail, registered or certified postage prepaid,
and properly addressed as follows:
To Employer: ECO SPECIALTY, INC.
c/o William B. Adams
10890 Thornmint Road, #200
San Diego, CA 92127
To Employee: KEVIN LYONS
128 Fiske Hill Road
Sturbridge, MA 01566
23. Arbitration.
Any controversy between Employer and Employee regarding the
construction or application of any of the terms, provisions, or conditions of
this Agreement shall, upon written request of either party served on the other
be submitted to arbitration in accordance with Section 20.21 of the Merger
Agreement.
24. Entire Agreement.
This Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to Employee's
employment with Employer, other than Section 3.4 of the Merger Agreement which
remains in full force and effect. Each party to this Agreement acknowledges that
they have read and understood this Agreement and that no representations,
inducements, promises, or agreements, oral or otherwise, have been made by
either party or anyone acting on behalf of either party, which are not embodied
herein, and that no agreement, statement, or promise not contained in this
Agreement shall be valid or binding.
25. Modifications.
Any modification of this Agreement will be effective only if
it is in writing and signed by all parties.
26. Severability
Should any provision in this Agreement be declared invalid,
void or unenforceable, then such portion shall be deemed to be severable from
this instrument and shall not affect the remainder thereof.
27. Governing Law.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New Hampshire without giving effect
to the principals of conflict of law thereof.
28. Binding Upon Successors.
This instrument shall be binding upon and inure to the benefit
of the personal and legal representatives, successors and assigns, except as
restricted in Section 29 below, of the parties hereto and also upon the heirs,
executors and administrators of the individual persons executing this
instrument.
29. Non-Assignability Clause.
It is agreed that neither Employee nor any other designee or
successor, other than the estate of Employee, shall have any right to commute,
sell, assign, transfer, encumber or otherwise convey the right to receive any
payments hereunder, which payments and the right thereto are expressly declared
to be non-assignable and nontransferable, and any attempt to do such shall be
null and void.
30. Cumulative Rights.
The various rights, options, elections, powers and remedies of
a party or parties to this instrument shall be construed as cumulative and no
one of them exclusive of any others or of any other legal or equitable remedy
which said party or parties might otherwise have in the event of breach or
default in the terms hereof, and the exercise of one right or remedy by a party
or parties shall not in any way impair his rights to any other right or remedy
until all obligations imposed on a party or parties have been performed.
31. Time.
Time is of the essence of this Agreement.
32. No Waiver of Default.
No waiver of default by any party or parties hereto shall be
implied from any omission by a party or parties to take any action on account of
such default if such default persists or is repeated and no express waiver shall
affect any default other than the default specified in the express waiver, and
that only for the time and to the extent therein stated. One or more waivers of
any covenant, term or condition of this instrument by a party or parties shall
not be construed to be a waiver of any subsequent breach of the same covenant,
term or condition. The consent or approval by any party or parties shall be
deemed to waive or render unnecessary the consent to or approval of said party
or parties of any subsequent or similar acts by a party or parties.
33. Attorney's Fees.
If any action at law or equity is necessary to enforce the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorney's fees, costs, and necessary disbursements, in addition to any other
relief to which he or it may be entitled.
34. Counterparts.
This Agreement may be executed in one or more counterparts,
all of which together shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the dates below.
EMPLOYER:
ECO SPECIALTY, INC.
a Delaware corporation
Dated: July 3, 1996 By: /s/ Jeffrey A. Johnson
President
EMPLOYEE:
Dated: July 3, 1996 By: /s/ Kevin Lyons
Kevin Lyons
GUARANTOR:
ECO SOIL SYSTEMS, INC.
as Guarantor of Employer's obligations
under Section 21
Dated: July 3, 1996 By:_______________________
CEO
AGREEMENT OF EMPLOYMENT
THIS AGREEMENT, effective as of July 8, 1996 (this "Agreement"), is
entered into by and between Eco Specialty, Inc., a Delaware corporation
("Employer"), a wholly owned subsidiary of Eco Soil Systems, inc., a Nebraska
corporation ("Eco"), and David Schermerhorn (the "Employee").
RECITALS
A. Employer is a Delaware corporation engaged in the general business
of turf and crop maintenance products sales and service.
B. Contemporaneously with the execution of this Agreement, Turf
Specialty, Inc., a New Hampshire corporation, of whom Employee was a
shareholder, was merged with and into Eco Specialty, Inc., a Delaware
corporation (the merger"), pursuant to an Agreement and Plan of Merger (the
"Merger Agreement).
C. Employer desires to employ Employee in order to retain his
experience, skills, abilities, background and knowledge of the business of
Employer.
D. Employee desires to be employed by Employer and is willing to do so
on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows.
COVENANTS
1. Employment.
Employer hereby employs Employee and Employee hereby accepts
employment with Employer pursuant to the terms and provisions of this Agreement.
2. Effective Date.
The effective date of this Agreement shall be July 8, 1996.
3. Term.
Employee's employment under this Agreement shall commence as
of the effective date of this Agreement and shall continue in full force for a
term of three (3) years, expiring at midnight on July 8, 1999, unless earlier
terminated in the manner specified in Section 20 of this Agreement (hereinafter
referred to as the term"). The parties may by mutual agreement reduced to
writing extend this Agreement upon terms mutually agreed upon by the parties.
4. Title.
Employee's title during the Term shall be Senior Vice
President and Co-General Manager.
5. Duties of Employee.
5.1 Duties During Test Period.
During the Test Period (as that term is defined in the Merger
Agreement), it is the intention of Employer and Eco that Employer be operated as
a free-standing and independent subsidiary of Eco. In order to achieve this,
Employee (together with his counterpart, Kevin Lyons ("Lyons"), who is being
employed by Employer under a separate employment agreement) is hereby vested
with day to day operational control over Employer during the Test Period. In
cooperation with Lyons, Employee shall be responsible for the proper and
efficient running, management and promotion of the business, affairs, and
interests of Employer. Without limiting the generality of the foregoing, during
the Test Period Employee shall have complete authority in conjunction with
Lyons, without having to secure the approval or consent of Employer, to take all
actions necessary for the operation of the Employer as a going business,
including but not limited to, hiring and firing employees of Employer,
establishing and administering benefit plans for its employees, entering into
contracts for the purchase and sale of Employer's inventory, executing
appropriate contracts with vendors and customers, purchasing and selling or
otherwise disposing of Employer's equipment, maintaining personal contact with
Employer's customers and vendors, establishing (where necessary) and utilizing
credit facilities for the needs of Employer, and taking any and all other
actions that are deemed by Employee, in his reasonable good faith judgment, to
be in the best interests of Employer. Employer shall not interfere with
Employee's exercise of autonomy during the Test Period. It shall be the sole
responsibility of Employee and Kevin Lyons to divide their specific duties
between themselves as they, in their collective judgment, deem appropriate. The
provisions of Section 19 of the Merger Agreement are hereby incorporated by
reference as covenants of the Employer.
6. Duties Following Test Period.
Employee's duties following the Test Period shall be as
mutually agreed upon by the parties, taking in account Employee's level of
experience, expertise and knowledge of Employer's business and his status as a
senior executive of Employer. Once agreed upon by the parties, those duties
shall be set forth in a duly executed Amendment to this Agreement.
7. Devotion to Employer's Business.
During Employee's employment hereunder, unless prevented by
ill health or accident and except during vacation and holidays permitted by this
Agreement, Employee shall devote his full-time and best efforts to the
performance of his duties as set forth herein.
8. Competitive Activities.
8.1 During the Term of this Agreement and for a period of five
(5) years thereafter, Employee shall not directly or indirectly, either as an
Employee, Employer, Consultant, Agent, Principal, Partner, Shareholder (except
as otherwise provided in Section 8.3 below and except as a ten percent (10%) or
less shareholder in a publicly held company), Corporate Officer, Director, or in
any other individual or representative capacity, engage or participate in any
business that is in competition in any manner with the business of Employer as
it exists when Employee's employment under this Agreement terminates. Such
agreement not to compete shall include such activities in any country, state or
county, in which Employer conducts business.
8.2 The parties intend that this covenant not to compete be
construed in the broadest possible manner. If any court should rule that the
territorial scope of this covenant not to compete is overbroad, and that any
city, county, state, political subdivision of any state, or country, specified
is not permissibly within the scope of the covenant not to compete, this
covenant not to compete shall be narrowed so that its territorial scope would be
limited to the maximum geographical area permitted by law, and shall remain
effective and enforceable with respect to each other specified city, county,
state, territory and country.
8.3 Notwithstanding the foregoing, Employer and Eco are aware
that Employee has an ownership interest in Advanced Agronomics, Inc., a
Massachusetts corporation ("Argonomics"). Employee is not active in the business
affairs of Argonomics. Employee and Eco are also aware that Employee has an
ownership interest in and is active in the business of Universal Turf, Inc., a
Massachusetts corporation. Employer and Eco recognize that Employee will
continue to maintain his ownership interest in Argonomics and his ownership
interest in and business activity with Universal during the Term hereof, and
have agreed that under no circumstances Still such ownership and/or activity by
Employee be construed as a breach by Employee of this Section 8. Employee shall,
however, continue to be obligated to devote his full-time and best efforts to
Employer as required under Section 7 above.
8.4 Employee's obligations under this Section 8 shall cease
immediately without recourse to Employer in any of the following events:
(a) Employee terminates his employment hereunder pursuant
to either Section 20.1 (b) or Section 20.1 (f) below;
(b) Employer terminates Employee's employment hereunder
pursuant to Section 20.1 (c)below;
(c) Employer does not renew Employee's employment
following expiration of the Term on at least as
favorable terms as are provided for hereunder.
In all other events, Employee's obligations under this Section 8 shall continue.
9. Trade Secrets.
The parties acknowledge and agree that during the Term
Employee shall have access to and become acquainted with information concerning
operations and products of Employer and ECO not generally known to the public,
and that such confidential information constitutes Employer's trade secrets.
Employee specifically agrees that he shall not misuse, misappropriate, or
disclose any such trade secrets, directly or indirectly, to any other person or
use them in any way during the term of this Agreement or at any time thereafter.
The term "trade secrets" as used in this Section 9 shall not apply to any
information that is presently or becomes lawfully available to the general
public through a source other than Employee or Employee's agent, representative,
or a person who acquired the information from Employee. Notwithstanding the
foregoing, Employee may make disclosure of "trade secrets":
(a) in response to legal process issued in connection
with any judicial or administrative proceeding; and
(b) in prosecuting or defending litigation concerning
this Agreement to the tribunal before which the
matter is pending.
10. Base Compensation.
The compensation to be paid to Employee during the Term shall
be as follows:
10.1 During the period commencing on the effective date of
this Agreement and ending at midnight on December 31, 1996 (the "Initial
Period"), Employee shall receive a minimum annualized base salary of Eighty
Thousand Dollars ($80,000), payable in equal installments every two weeks, less
withholding and other mandatory wage deductions. Employer shall, at Employee's
direction and in Employee's sole and absolute discretion, raise Employee's
annualized base salary during the Initial Period to One Hundred Sixty-Five
Thousand Dollars ($165,000). In no event shall Employee be entitled to
carry-over beyond the Initial Period any salary that he would have been entitled
to receive during the Initial Period had he exercised his discretion set forth
in the immediately preceding sentence. Following the Initial Period, and during
the balance of Employee's employment with Employer hereunder, Employee shall,
receive a minimum annualized base salary of One Hundred Sixty-Five Thousand
Dollars ($165,000), payable in equal installments every two weeks, less
withholding and other mandatory wage deductions.
10.2 Any change in Employee's base compensation set forth in
Section 10.1 above shall be reflected by a written endorsement attached to this
Agreement and signed by Employee and a duly authorized officer of Employer.
11. Incentive Compensation.
Employee shall be entitled to participate in incentive
compensation programs as may from time to time be established for similarly
situated employees of Employer, Eco or Eco affiliates.
12. Business Expenses.
Subject to compliance by Employee with such policies regarding
expenses and expense reimbursement as may be adopted from time to time by
Employer, Employee is authorized to incur reasonable expenses in the performance
of his duties hereunder in furtherance of the business and affairs of Employer.
Employer shall reimburse Employee for all such reasonable expenses, in all cases
upon the presentation by Employee of an itemized account satisfactory to the
Company in substantiation of the expenses when claiming reimbursement.
13. Locus of Duties; Facilities.
Employee shall perform his duties hereunder at Employer's
premises in Londonderry, New Hampshire and shall not be required to relocate
from Brimfield, Massachusetts. Employee shall undertake such travel both within
the United States and abroad and in such manner and on such occasions as may be
reasonably necessary for the effective discharge of his duties under this
Agreement, as to which Employee shall be the final arbiter. Employee shall be
reimbursed for the expenses incurred by him in connection with all such travel
in accordance with the provisions of Section 12 above. The Employer shall
provide Employee with an office consistent with that which Employee had prior to
the merger of Turf with Employer, appropriate office equipment, supplies,
stenographic and other employee services, and all other facilities and services
suitable to Employee's position and necessary and customary for the performance
of his duties.
14. Fringe Benefits.
During the term of his employment hereunder, Employee shall be
entitled to participate in employee benefit plans or programs established by
Employer to the extent that his position, tenure, salary, age, health, and other
qualifications make him eligible to participate, subject to regulations and
criteria applicable thereto.
15. Medical Insurance.
Employer agrees to provide Employee with suitable medical and
disability insurance commensurate with what Employee was receiving just prior to
entering into this Agreement, as more particularly set forth on Exhibit A
attached hereto.
16. Vacations.
Employee shall be entitled to four (4) weeks vacation each
employment year during which this Agreement remains in effect, without loss of
compensation. The Employee may be absent from his employment for vacation at
such time or times as the Board of Directors shall approve. If the Employee is
unable, for any reason, to take the total amount of vacation time authorized
during any employment year, he may accrue that time or may, in his discretion,
receive cash payment in an amount equal to the amount of annual salary
attributable to that period of time. Employee shall also be entitled to such
holidays as the Board of Directors of Employer establish for the employees of
Employer.
17. Sickness.
Employer acknowledges that Employee may at any time be
prevented by illness or accident or other incapacity from properly performing
his duties under this Agreement. Employee shall receive normal pay, without
reduction, for a reasonable number of days missed as a result of illness.
18. Automobile.
Employee shall be entitled to the use of an automobile
provided by Employer, without charge, for the purpose of performing his duties
under this Agreement. Employer shall pay all expenses, including but not limited
to, gas, oil, insurance, maintenance, and repair, incurred by Employee in
connection with the operation of the vehicle. The automobile provided by
Employer to Employee under this Section 17 shall at all times be equivalent to
the automobile utilized by Employee in connection with the business of Turf
prior to the Merger.
19. Loan to Employee.
Pursuant to Section 3.4 of the Merger Agreement, Employer has
agreed to make a Post-Closing Loan (as that term is defined in the Merger
Agreement) to Employee.
20. Termination.
20.1 Employee's employment with Employer under this Agreement,
Employee's salary and other rights of Employee under this Agreement or otherwise
as an employee of Employer may be terminated (except as to salary, benefits and
rights accrued prior to such termination): (a) by Employer for cause upon thirty
(30) days written notice (for purposes hereof, "cause" refers to dishonesty or
fraud; conviction of a felony or a crime involving embezzlement, theft or other
conversion of property, or Employee's breach of Section 8 hereof); (b) by either
Employer or Employee, if the other party is in material violation of the other
terms and conditions of this Agreement, but then only if the material violation
is not cured to the satisfaction of the non-breaching party within thirty (30)
days of the non-breaching party notifying the breaching party of the violation;
(c) by Employer without cause upon sixty (60) days written notice; (d) by
Employee for any reason upon sixty (60) days written notice; (e) by Employer in
the event of Employee's continuing physical or mental disability of Employee
which prevents Employee from performing any material part of his duties
hereunder for a period in excess of one (1) year; (f) by Employee, immediately
and without notice if Eco defaults on its obligations to either Employee or
Lyons under the Purchase Notes (as that term is defined in the Merger Agreement)
and the default is not (i) cured within relevant grace periods (if any), or (ii)
waived in writing by the Payee of the Purchase Note; or (g) in all events, if
not terminated earlier, on June 30, 1999.
20.2 In all events of termination as set forth in Section 20.1
above, any amount then outstanding under any promissory note to which Employee
is Payee executed in connection with the Merger Agreement (the "Promissory
Notes") shall become immediately due and payable to Employee. Notwithstanding
the foregoing, Employee shall have the right to offset dollar for dollar any
amounts then outstanding under the Promissory Notes against amounts then owed by
him under the Loan.
21. Indemnification.
Employee shall not be liable, responsible or accountable in
damages or otherwise to Employer, and Employer shall indemnify, defend and save
harmless Employee from, any loss, damage, claim, liability, cost or expense
arising in connection with the performance of his duties hereunder, or any act
or omission performed or omitted by Employee in good faith on behalf of Employer
and in the reasonable belief of Employee that his conduct was not opposed to the
best interests of Employer; provided, however, that (a) Employee shall not have
been determined to have committed fraud, gross negligence or willful misconduct
with respect to such act or omission, and (b) the satisfaction of any such
indemnification shall be from, and only to the extent of, Employer's assets. Any
act or omission of Employee, or of any of his employees or agents, upon the
advice of legal counsel shall be deemed to have been performed or omitted in
good faith. ECO Soil Systems, Inc., the parent of Employer shall guarantee
Employer's indemnity obligations under this Section 21.
22. Notices.
All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
on the date of service if served personally to the party to whom notice is to be
given, or on the third day after mailing if mailed to the party to whom notice
is to be given, by first class mail, registered or certified, postage prepaid,
and properly addressed as follows:
To Employer: ECO SPECIALTY, INC.
c/o William B. Adams
10890 Thornmint Road, #200
San Diego, CA 992127
To Employee: DAVID SCHERMERHORN
264 Little Alum Road
Brimfield, MA 010010
23. Arbitration.
Any controversy between Employer and Employee regarding the
construction or application of any of the terms, provisions, or conditions of
this Agreement shall, upon written request of either party served on the other
be submitted to arbitration in accordance with Section 20.21 of the Merger
Agreement.
24. Entire Agreement.
This Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to Employee's
employment with Employer, other than Section 3.4 of the Merger Agreement which
remains in full force and effect. Each party to this Agreement acknowledges that
they have read and understood this Agreement and that no representations,
inducements, promises, or agreements, oral or otherwise, have been made by
either party or anyone acting on behalf of either party, which are not embodied
herein, and that no agreement, statement, or promise not contained in this
Agreement shall be valid or binding.
25. Modifications.
Any modification of this Agreement will be effective only if
it is in writing and signed by all parties.
26. Severability
Should any provision in this Agreement be declared invalid,
void or unenforceable, then such portion shall be deemed to be severable from
this instrument and shall not affect the remainder thereof.
27. Governing Law.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New Hampshire without giving effect
to the principals of conflict of law thereof.
28. Binding Upon Successors.
This instrument shall be binding upon and inure to the benefit
of the personal and legal representatives, successors and assigns, except as
restricted in Section 29 below, of the parties hereto and also upon the heirs,
executors and administrators of the individual persons executing this
instrument.
29. Non-Assignability Clause.
It is agreed that neither Employee nor any other designee or
successor, other than the estate of Employee, shall have any right to commute,
sell, assign, transfer, encumber or otherwise convey the right to receive any
payments hereunder, which payments and the right thereto are expressly declared
to be non-assignable and nontransferable, and any attempt to do such shall be
null and void.
30. Cumulative Rights.
The various rights, options, elections, powers and remedies of
a party or parties to this instrument shall be construed as cumulative and no
one of them exclusive of any others or of any other legal or equitable remedy
which said party or parties might otherwise have in the event of breach or
default in the terms hereof, and the exercise of one right or remedy by a party
or parties shall not in any way impair his rights to any other right or remedy
until all obligations imposed on a party or parties have been performed.
31. Time.
Time is of the essence of this Agreement.
32. No Waiver of Default.
No waiver of default by any party or parties hereto shall be
implied from any omission by a party or parties to take any action on account of
such default if such default persists or is repeated and no express waiver shall
affect any default other than the default specified in the express waiver, and
that only for the time and to the extent therein stated. One or more waivers of
any covenant, term or condition of this instrument by a party or parties shall
not be construed to be a waiver of any subsequent breach of the same covenant,
term or condition. The consent or approval by any party or parties shall be
deemed to waive or render unnecessary the consent to or approval of said party
or parties of any subsequent or similar acts by a party or parties.
33. Attorney's Fees.
If any action at law or equity is necessary to enforce the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorney's fees, costs, and necessary disbursements, in addition to any other
relief to which he or it may be entitled.
34. Counterparts.
This Agreement may be executed in one or more counterparts,
all of which together shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the dates below.
EMPLOYER:
ECO SPECIALTY, INC.
a Delaware corporation
By: /s/ Jeffrey A. Johnson
------------------------------------
Dated: July 3, 1996 President
EMPLOYEE:
/s/ David Schermerhorn
----------------------------------------
Dated: July 8, 1996 David Schermerhorn
GUARANTOR:
ECO SOIL SYSTEMS, INC.
as Guarantor of Employer's obligations
under Section 21
By: /s/ William B. Adams
------------------------------------
Dated: July 3, 1996 CEO
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, effective as of July 10, 1996, is entered
into by and between Eco Turf Products, Inc. a Delaware corporation ("EMPLOYER"),
a wholly owned subsidiary of Eco Soil Systems, Inc., a Nebraska corporation
("ECO") and Walter Fuchs (the "EMPLOYEE"), with respect to the following facts:
RECITALS
A. EMPLOYER. Employer is a Delaware corporation engaged in the
general business of turf and crop maintenance, products, sales and service.
B. EMPLOYEE. Employee is the originator of the Turf Products
division of Employer's business and is currently being employed to act as the
Vice-President and General Manager of the Turf Products division of Employer.
C. EMPLOYMENT. Employer desires assurance of the continued
association and services of Employee in order to retain his experience, skills,
abilities, background and knowledge, and is therefore willing to engage his
services on the terms and conditions set forth below. Employee desires to be
employed by Employer and is willing to do so on the terms and conditions set
forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows.
1. EMPLOYMENT. The Employer hereby employs Employee and Employee
accepts employment with Employer pursuant to the terms and provisions of this
Agreement.
2. EFFECTIVE DATE. The effective date of this Employment
Agreement shall be as of the date first written above.
3. TERM. Said employment shall continue until the second
anniversary of the date of this Agreement (the "SCHEDULED TERMINATION DATE"),
unless terminated earlier under the provisions of Paragraph 17. Any change in
the Term of this Agreement shall be reflected by a written endorsement attached
to this Agreement and signed by Employee and a duly authorized officer of
Employer.
4. TITLE. Employee's title during the Term of employment shall
be "Vice-President" and "General Manager".
5. DUTIES OF EMPLOYEE. The duties of the Employee during the
Term of this Agreement are to perform those duties ordinarily and necessarily
performed by a Vice-President and General Manager as well as those duties deemed
necessary and appropriate by the Board of Directors of Employer or Eco.
Employee's duties shall include but not be limited to developing the initial
management structure of Turf Products, a division of Employer; continuing to
participate in trade organizations such as ITOIDA, and spearheading a
consolidation plan to locate and gain the interest of additional dealers like
Turf Products, Inc.; formulating a product line to be utilized throughout the
distribution system; overseeing management functions needed to successfully
operate Turf Products, a division of Employer; and reporting to The Golf Group
at Eco. It is envisioned that Employer shall continue to maintain offices in the
Chicago metropolitan area and that Employee's duties shall not require Employee
to travel outside the Chicago metropolitan area more than 20 business days per
calendar year (excluding any days of travel appropriate as a consequence of
Employee's involvement with ITOIDA).
6. MATTERS REQUIRING CONSENT OF BOARD OF DIRECTORS. The Employee
shall not, without specific approval of the Employer or its President, do or
contract to do any of the following:
a. Borrow on behalf of Employer sums exceeding $2,500.
b. Purchase capital equipment or make expenditures for
amounts in excess of the amounts budgeted by the Employer.
c. Do any act which would or could subject Employer to
any liability (provided that the foregoing shall not be construed as prohibiting
Employee from taking any acts undertaken in the ordinary course of Employer's
business, in good faith, and in accordance with reasonably prudent business
practices).
7. DEVOTION TO EMPLOYER'S BUSINESS. Employee shall devote such
of his time as is appropriate for a position of this type (as compared to
customary commercial practices) toward the satisfactory performance of his
duties for Employer.
8. COMPETITIVE ACTIVITIES; COVENANT NOT TO COMPETE. During the
Term of this Agreement and for a period of three (3) years after its
termination, the Employee will not directly or indirectly solicit business from,
engage in business with, or divert business from any of ECO's or Employer's
current or future customers (including without limitation any former customers
of Turf Products, Inc.), and that he will not directly or indirectly, either as
an employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director, or in any other individual or representative
capacity, engage or participate in any business that is in competition in any
manner with the business of the Employer, Eco or any other division of
subsidiary thereof. Such agreement not to compete shall include such activities
in any country, state or county, in which Employer, Eco, or any other division
or subsidiary thereof conducts business.
The parties intend that this covenant not to compete be
construed in the broadest possible manner. Each series of separate covenants and
agreements, one for each city, county, state, political subdivision of each
state, and country, in which Employer, Eco or any other division or subsidiary
thereof. If any court should rule that the territorial scope of this covenant
not to compete is over broad, and that any city, county, state, political
subdivision of any state, or country, specified is not permissibly within the
scope of the covenant not to compete, this covenant not to compete shall be
narrowed so that its territorial scope would be limited to the maximum
geographical area permitted by law, and shall remain effective and enforceable
with respect to each other specified city, county, state, territory and country.
If any provision of this Agreement is held to be unenforceable
or invalid by a court, the invalid or unenforceable provision shall, if
possible, be construed narrowly so as to be enforceable to the maximum extent
permitted by law. If the court cannot or will not narrow the time, scope or
effect of the unenforceable or invalid provision so as to make it enforceable
and valid, the offending provision shall be deemed severed from this Agreement,
and the remainder of this Agreement shall remain in full force and effect.
Employee acknowledges that the violation of the terms of this
Section 8 would be detrimental and cause irreparable injury to Employer and Eco
which could not be compensated by money damages. Employee agrees that an
injunction from a court of competent jurisdiction is the appropriate remedy for
these provisions, and consents to the entry of an appropriate judgment enjoining
Employee from violating these provisions in the event there is a finding of a
breach.
Notwithstanding the foregoing provisions of this Section 8, if
either Employer or ECO shall fail to remedy a material breach by either of them
of any covenant set forth in a Transaction Agreement within 30 days after
Employee delivers a written notice to Employer or ECO describing in reasonable
detail the nature of such material breach, then from and of the end of said
30-day period the provisions of this Section 8 shall have further force or
effect.
9. TRADE SECRETS. The parties acknowledge and agree that during
the term of this Agreement Employee shall have access to and become acquainted
with information concerning operations and products of Employer and Eco and that
such information constitutes Employer's trade secrets. The Employee specifically
agrees that he shall not misuse, misappropriate, or disclose any such trade
secrets, directly or indirectly, to any other person or use them in any way
during the term of this Agreement or at any time thereafter.
10. BASE COMPENSATION. The compensation to be paid to Employee
during the Term shall be as follows:
a. During the term hereof, Employee shall receive annual
compensation of One Hundred Fifty-Five Thousand Dollars ($155,000), payable in
equal monthly installments of Twelve Thousand Nine Hundred Sixteen and 67/100
Dollars ($12,916.67). The monthly installments shall be payable one-half (1/2)
on the first day of each month and one-half (1/2) on the fifteenth day of each
month.
b. Any change in the base compensation shall be
reflected by a written endorsement attached to this Agreement and signed by
Employee and a duly authorized officer of Employer.
11. INCENTIVE COMPENSATION. Employee shall be entitled to
incentive compensation as follows:
A. STOCK INCENTIVE PROGRAM. At some point in the
future, Employee may be entitled to participate in Eco's stock incentive program
and would do so based on the terms and conditions as spelled out in the proposed
Non-qualified Stock Option Plan, a copy has been provided to Employee. Employer
and Eco reserve the right to amend or terminate such non-qualified Stock Option
Plan, in their sole discretion.
B. BONUS PERFORMANCE. One of the duties that Employee
has is to locate other suitable dealers similar to Turf Products, Inc. who would
be interested in joining Eco on a basis similar to that of Turf Products, Inc.
In an effort to encourage the peak performance of Employee in this area,
Employer will grant, and Employee shall receive, an option to purchase 25,000
shares of Eco for each dealer listed on Exhibit "1" attached hereto which:
(i) Employee locates;
(ii) is approved of by the Board of Directors of
Eco, in its sole and absolute discretion, and
(iii) is able to complete a purchase, merger or
other form of consolidation with Eco, provided such purchase, merger or
other form of consolidation is closed within 90 days after termination
of this Agreement. Employee shall earn and receive such options upon
the closing of any such transactions. Whether a particular dealer is a
suitable candidate for this purpose is a decision to be made by, and is
within the sole discretion of, the Board of Directors of Eco. The
option price for such option shares shall be determined based on the
then current fair-market value of such shares at the time of closing of
each respective purchase, merger or other form of consolidation with
each dealer that has been presented by Employee and approved of by the
Board of Directors of Eco. Each such option shall terminate on the
earlier of four (4) years after issuance thereof and six (6) months
after termination of Employee's employment hereunder.
C. CASH BONUS. Employee further shall be eligible for
an annual cash bonus of $50,000, which shall be determined and paid for each
year during the term hereof, if at all, as soon as reasonably possible following
each anniversary of the commencement date of the employment hereunder. The
requirements to be satisfied in order to achieve said bonus for the first year
shall be determined by Employer and Employee in good faith within 30 days after
the date of the commencement of the term hereof, and the requirements to be
satisfied in order to achieve said bonus for the second year shall be determined
by Employer and Employee in good faith within 30 days after the start of the
second year of the term.
D. SURVIVAL. Except as otherwise agreed in writing by
the parties, in the event of termination of this Agreement pursuant to Section
17.b, 17.c or 17.d,the bonuses payable to Employee pursuant to this Section 11
(with respect to the year of the term during which the termination occurs, or
any prior year) shall continue to be payable following the termination.
12. BUSINESS EXPENSES. The Employer shall promptly reimburse
Employee for all reasonable business expenses within its stated annual budget
and for all other pre-approved business expenses incurred by the Employee on
behalf of the Employer.
13. FACILITIES. The Employer shall provide the Employee with an
office consistent with that which Employee had prior to the merger of Employer
with Eco, appropriate office equipment, supplies, stenographic and other
employee services, and all other facilities and services suitable to Employee's
position and necessary and customary for the performance of his duties.
14. MEDICAL INSURANCE. Employer agrees to provide Employee and
Employee's family at Employer expense with suitable medical insurance
commensurate with what Employee maintained for himself just prior to entering
into this Agreement (provided that Employer shall be entitled from time to time
to modify the terms of such coverage so long as the coverage provided remains
consistent with that generally provided to employees then holding positions of
like responsibility within Eco or any other subsidiaries of Eco).
15. VACATIONS. The Employee shall be entitled to four (4) weeks
vacation time each year for the Term of this Agreement, without loss of
compensation. The Employee may be absent from his employment for vacation at
such time or times as the Board of Directors shall approve. If the Employee is
unable, for any reason, to take the total amount of vacation time authorized
during any year, he may accrue that time or may, in his discretion, receive cash
payment in an amount equal to the amount of annual salary attributable to that
period of time.
16. CAR ALLOWANCE. Employer shall provide Employee with a car by
allowing Employee continued use of the cars now owned. The Employer shall be
responsible for obtaining adequate insurance coverage for the automobile and for
its maintenance.
17. TERMINATION. This Agreement may be terminated in the
following manner:
A. FOR CAUSE. The Employer may terminate this Agreement
upon thirty (30) days written notice if Employee materially breaches this
Agreement or the Agreement and Plan of Merger to which this Agreement is made
an exhibit, habitually neglects the duties he is required to perform or commits
such acts of dishonesty, fraud, misrepresentation or other acts of moral
turpitude as would prevent the effective performance of his duties.
B. WITHOUT CAUSE. This Agreement may be terminated
without cause upon thirty (30) days written notice to the Employee. If Employee
is terminated without cause, he shall be entitled to continue (a) to receive the
scheduled compensation payments contemplated by Section 10.a hereof through the
Scheduled Termination Date, and (b) to receive, at Employer's expense, family
medical insurance coverage through the Scheduled Termination Date on
substantially the same terms as those applying prior to the termination
(provided that Employer shall be entitled from time to time to modify the terms
of such coverage so long as the coverage provided remains consistent with that
generally provided to employees then holding positions of like responsibility
within Eco or any other subsidiaries of Eco).
C. BY EMPLOYEE. The Employee may terminate this
Agreement upon giving sixty (60) days written notice to the Board of Directors.
D. DEATH OR DISABILITY. In the event of Employee's
death or on the continuing incapacitating disability of the Employee for a
period in excess of one (1) year during the term of this Agreement, it shall
terminate immediately.
18. NOTICES. All notices, requests, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if served personally to the party to
whom notice is to be given, or on the third day after mailing if mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed as follows:
To Employer: Eco Turf Products, Inc.
c/o William B. Adams
10890 Thornmint Road, #200
San Diego, CA 92127
To Employee: Walter Fuchs
2 North 255 County Farm Road
West Chicago, IL 60185
19. ARBITRATION. Any controversy between the Employer and Employee
regarding the construction or application of any of the terms, provisions, or
conditions of this Agreement shall, upon the written request of either party
served on the other, be submitted to arbitration in Illinois in accordance with
the provisions of the American Arbitration Association.
20. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to provisions of this Agreement and contains all of the covenants and agreements
between the parties whatsoever. Each party to this Agreement acknowledges that
they have read and understood this Agreement and that no representations,
inducements, promises, or agreements, oral or otherwise, have been made by
either party or anyone acting on behalf of either party, which are not embodied
herein, and that no agreement, statement, or promise not contained in this
Agreement shall be valid or binding.
21. MODIFICATIONS. Any modification of this Agreement will be
effective only if it is in writing and signed by all of the parties.
22. SEVERABILITY. Should any provision in this Agreement be
declared invalid, void or unenforceable, then such portion shall be deemed to be
severable from this instrument and shall not affect the remainder thereof.
23. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.
24. BINDING UPON SUCCESSORS. This instrument shall be binding upon
and inure to the benefit of the personal and legal representatives, successors
and assigns, except as restricted in Paragraph 25 below, of the parties hereto
and also upon the heirs, executors and administrators of the individual persons
executing this instrument.
25. NON-ASSIGNABILITY CLAUSE. It is agreed that neither Employee
nor any other designee or successor, other than the estate of Employee, shall
have any right to commute, sell, assign, transfer, encumber or otherwise convey
the right to receive any payments hereunder, which payments and the right
thereto are expressly declared to be non-assignable and non-transferable, and
any attempt to do such shall be null and void.
26. CUMULATIVE RIGHTS. The various rights, options, elections,
powers and remedies of a party or parties to this instrument shall be construed
as cumulative and no one of them exclusive of any others or of any other legal
or equitable remedy which said party or parties might otherwise have in the
event of breach or default in the terms hereof, and the exercise of one right or
remedy by a party or parties shall not in any way impair his rights to any other
right or remedy until all obligations imposed on a party or parties have been
performed.
27. TIME. Time is of the essence of this Agreement.
28. NO WAIVER OF DEFAULT. No waiver of default by any party or
parties hereto shall be implied from any omission by a party or parties to take
any action on account of such default if such default persists or is repeated
and no express waiver shall affect any default other than the default specified
in the express waiver, and that only for the time and to the extent therein
stated. One or more waivers of any covenant, term or condition of this
instrument by a party or parties shall not be construed to be a waiver of any
subsequent breach of the same covenant, term or condition. The consent or
approval by any party or parties shall be deemed to waive or render unnecessary
the consent to or approval of said party or parties of any subsequent or similar
acts by a party or parties.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the date first above written.
EMPLOYER:
ECO TURF PRODUCTS, INC.,
a Delaware corporation
By: /s/ William B. Adams
William B. Adams, President
EMPLOYEE:
--------------------------
WALTER FUCHS
SCHEDULE 1 TO
INDEPENDENT TURF AND ORNAMENTAL
DISTRIBUTORS ASSOCIATION
AgraTurf Searcy, Arkansas
Benham Chemical Farmington Hills, Michigan
Big Bear Turf Equipment Omaha, Nebraska
Cannon Turf Supply Indianapolis, Indiana
The Chas. C. Hart Seed Co. Wethersfield, Connecticut
Geo. W. Hill & Co., Inc. Florence, Kentucky
Landscape Supply, Inc. Roanoke, Virginia
Lea's Green Meadows, Inc. Temple Hills, Maryland
Maxwell Turf & Supply Jericho, New York
Metro Milorganite Bedford Hills, New York
J. Mollema & Son, Inc. Grand Rapids, Michigan
Nick Knott Turf Supply Broken Arrow, Oklahoma
Professional Turf Specialties, Inc. Champaign, Illinois
SAJ Turf Federal Heights, Colorado
Sierra Pacific Turf Supply, Inc. Campbell, California
Southeastern Turf Grass Supply Jacksonville, Florida
Southern Agricultural Insecticides, Inc. Palmetto, Florida
Supreme Turf Products Eureka, Missouri
The Terre Company Clifton, New Jersey
Todd Farm Equipment Chesapeake, Virginia
Turf & Nursery Supply, Inc. Canton, Ohio
Turfgrass, Inc. South Lyon, Michigan
Turf Specialties Corp. Fort Wayne, Indiana
Turf Specialty Londonderry, New Hampshire
Turf Supply Eagan, Minnesota
Westchester Turf Supply Lincolndale, New York
Zimco Supply Sioux City, Iowa
[ECO SOIL SYSTEMS LETTERHEAD]
July 1, 1996
Dr. Tom Quick
38580 Chicago Avenue
Wadsworth, IL 60083
Dear Tom:
Per our further discussions regarding the terms of your employment, we have
mutually agreed on the following:
1. Start Date: September 1, 1996
2. Salary: $80,000.00 per annum.
3. Bonus of up to 15% of this year's salary based upon mutually
established MBO's.
4. Employment Term: 2 years to begin 6 months after initial
employment.
5. Initial Employment: 6 month term beginning August 1, 1996
and ending March 1, 1997.
6. $3,000 moving bonus.
7. Approved moving bonus.
8. One Company paid house hunting trip. Please contact our travel
agent, Uniglobe Travel at (619) 238-5200 for your travel
arrangements.
9. Severance: Equal to 1 month per year of employment.
10. Vacation: Two weeks paid vacation beginning after the 6
month initial employment period.
11. A $30,000 loan against future commissions and bonuses to be
repaid at a rate of $10,000 per year over the next 3 years, or
sooner at your discretion.
12. Holidays: Eight paid holidays per year.
13. Health Insurance Benefits: HMO fully paid for yourself and
your family or PPO option with some employee contribution.
14. Stock Options: The option to purchase 30,000 shares at $3.00
per share vesting at the rate of 10,000 per year with vesting
beginning on March 1, 1997.
We look forward to seeing you soon.
Sincerely,
/s/ Doug Gloff
Doug Gloff
Executive Vice President
DG:db
cc: Bill Adams
Jean Dunn
Jeff Johnson
DISTRIBUTOR AGREEMENT
THIS AGREEMENT between the Chemical and Agricultural Products Division
of Abbott Laboratories (referred to as ABBOTT) and ________________ (referred to
as DISTRIBUTOR),
WITNESSES:
ABBOTT and DISTRIBUTOR agree as follows:
I. PRODUCTS
ABBOTT hereby appoints DISTRIBUTOR as a distributor of the following
products or product lines (hereinafter called the Products):
DiPel 2X
II. EFFECTIVE DATE
This Agreement shall be effective as of January 1, 1996, and shall
continue in effect unless terminated as hereinafter provided.
III. THE DISTRIBUTOR AGREES:
A. To purchase and properly maintain an adequate stock of
ABBOTT's Products to assure prompt delivery to DISTRIBUTOR's
trade.
B. To actively solicit orders for and promote the sale of
ABBOTT's Products and to include such Products in lists,
bulletins, and catalogs issued by the DISTRIBUTOR to its
customers. The area of primary responsibility to be serviced
by the DISTRIBUTOR shall be:
C. To promptly pay for Products sold by ABBOTT to the
DISTRIBUTOR at the ABBOTT prices in effect on the date of
shipment and with such allowances for discounts and under
such terms and conditions as ABBOTT may establish from time
to time during the term of this Agreement.
D. To cooperate and participate in promotions established by
ABBOTT for Products covered by this Agreement.
E. Not to contract obligations in the name of or on account of
ABBOTT and not make any representations, guaranty, or warranty
with respect to the Products covered by this Agreement, except
as authorized by ABBOTT in writing. DISTRIBUTOR shall at all
times be an independent distributor and shall not be
considered as an agent or employee of ABBOTT for any purpose.
F. To promptly notify ABBOTT in writing of any actual or
potential damage, claim, or lawsuit involving Products covered
by this Agreement.
IV. ABBOTT AGREES TO:
A. Support the DISTRIBUTOR by active promotion of Products via
advertising and other promotional activities selected by
ABBOTT from time to time and make available all sales
promotion plans designed for DISTRIBUTOR use and applicable to
the Products.
B Supply such literature and promotional aids and furnish the
DISTRIBUTOR with such other information as, in the opinion of
ABBOTT, may be useful in the sale of Products covered by this
Agreement.
V. TERMS OF SALE
All orders and delivery of Products shall be governed by the provisions
of this Agreement and the terms set forth from me to time in the ABBOTT
distributor price lists. None of the provisions of the DISTRIBUTOR's
purchase order or any acknowledgment thereof (whether printed, stamped,
typed, or written), except those specifying the quantity and Products
ordered, invoice information, and shipping instructions, shall be
considered applicable to the DISTRIBUTOR's purchases. No modification
of this Agreement shall be binding on either ABBOTT or the DISTRIBUTOR
unless specifically accepted in writing, signed on behalf of ABBOTT and
the DISTRIBUTOR by their duly authorized representatives.
VI. REPRESENTATIONS AND WARRANTIES
DISTRIBUTOR recognizes the importance of the responsible handling of
chemical products and shall not store, handle, transport or market
Products in a manner inconsistent with the label or which could
endanger the health or safety of human beings, animals, or plant life
or damage the environment. DISTRIBUTOR shall not make any
representations, recommendations, warranties, express or implied,
relating to the use, effectiveness or safety of any Products, except
such representations, recommendations or warranties as may be expressly
set forth in the labeling therefore as furnished by ABBOTT.
VII. GENERAL CONDITIONS
A. Neither DISTRIBUTOR nor ABBOTT shall be liable for failure to
perform any part of this Agreement where such failure is due
to causes beyond the reasonable control of either party, such
as acts of God, acts of civil or military authority, fires,
strikes, floods, epidemics, quarantine restrictions, war,
riot, delays in transportation, car shortages, and inability
due to causes beyond ABBOTT's reasonable control to supply
Products due to labor shortages, material shortages or
manufacturing facility shortages. In the event of a Product
shortage, ABBOTT shall have the right to allocate its
available products among its DISTRIBUTORS and other customers
in such a manner as ABBOTT considers equitable.
B. This Agreement replaces any pre-existing agreements between
ABBOTT and DISTRIBUTOR relating to the purchase, sale or
distribution of any Products, except obligations with respect
to any Products sold and delivered to the DISTRIBUTOR prior to
the Effective Date of this Agreement.
C. Upon termination of this Agreement, the DISTRIBUTOR shall upon
request return all Products to ABBOTT for credit to the
DISTRIBUTOR's account on ABBOTT's books at the then prevailing
prices in the ABBOTT Distributor price lists, provided that
all Products return hereunder shall be new, unused and in
saleable condition.
D. This Agreement may not be assigned by the DISTRIBUTOR
without ABBOTT's prior written consent and shall be construed
and governed by the laws of the State of Illinois.
E. Any and all notices required by this Agreement shall be sent
to the following addresses:
ABBOTT LABORATORIES DISTRIBUTOR: EcoSoil Systems
Chemical and Agricultural Suite 200
Products Division 10890 Thornmint Road
D-090F, Building A1-3 San Diego, CA 92127
1401 Sheridan Road Phone: 619-675-1660
North Chicago, IL 60064-4000 Fax: 619-675-1162
VIII. TERMINATION
Either ABBOTT or the DISTRIBUTOR may terminate this Agreement at any
time upon thirty (30) days written notice.
PRICES AND QUOTATIONS: All prices, quotations, and terms are submitted without
obligation and are subject to change without notice by Abbott Laboratories. All
orders are subject to prior credit approval and acceptance at Abbott
Laboratories, Chemical and Agricultural Products Division, Department 90F, North
Chicago, Illinois 60064, and at prices in
effect at time of shipment.
TERMS: A service charge of 1.5% per month will be added on all past due
accounts.
SHIPMENT: Title to goods sold passes to the customer upon delivery of goods to
the carrier, and the responsibility of Abbott Laboratories for the goods ceases
when so delivered to the transportation companies. Shipping charges will be
prepaid when method of shipping is the choice of Abbott Laboratories. Extra
shipping costs must be borne by our customers when special handling or routing
is requested.
LOST OR DAMAGED IN TRANSIT: If the goods arrive short of quantity shipped or in
a broken or damaged conditions, the extent of damage or breakage should be noted
on your delivery receipt by an agent for the transportation company. In the
event that hidden damage is discovered after delivery of a shipment, notify the
transportation company immediately and request that inspection of the shipment
be made and an inspection report rendered. The transportation companies act as
agents of the customer, and we must refer our customers to them for reparation
in case of loss or damage in transit. We will be pleased to assist our customers
in collecting any claims for loss or damage in transportation, but only if we
are notified within ten (10) days after receipt of the goods, or after receipt
of the hidden damage inspection report, and if an agent of the transportation
company has acknowledged the damage or breakage on the delivery receipt.
If you wish our assistance in helping you collect a claim, please contact us
within 10 days following delivery or determination that loss or shortage has
occurred. We will then:
1. If requested by customer, arrange for reshipment of lost or
damaged product, rendering a debit invoice for same.
2. Contact carrier to trace lost shipments and file claim with
carrier if required.
3. File claim with carrier for loss or damage as noted on carrier
delivery receipt, which must be provided to us in order to
substantiate claim.
If damage is involved, indicate on our packing slip the quantity for each
product short or damaged. Enclose our packing slip and the delivery receipt,
with damage acknowledged by the driver and/or an inspection report from carrier,
in the damaged package(s).
GENERAL: All products are sold subject to state laws and regulations
wherever applicable.
All orders are subject to local, state or Federal taxes.
Credit privileges may be suspended for any account where there is a past due
balance.
IMPORTANT NOTE: These shipping details, terms and trade policies cannot be
modified or waived except by agreement in writing signed by an executive officer
of Chemical and Agricultural Products Division, Abbott Laboratories.
DOT HAZARDOUS MATERIALS INFORMATION
Data sheets, by product, are available on request from the Regional Sales office
serving your account, or from the North Chicago office.
This sheet supersedes all previous policy and term statements prior to January,
1996.
ACCEPTED: ACCEPTED:
ABBOTT LABORATORIES DISTRIBUTOR
Chemical and Agricultural
Products Division
Thomas Chavez /s/ John M. Doyle
Signed Signed
Director of Sales V.P., Product Development
Title Title
7/31/96 2 August 1996
Date Date
TO: Mr. Gibb Crowell
CCT Corporation
FROM: John M. Doyle
EcoSoil Systems, Inc.
SUBJECT: DENY/BioJect Supply Agreement
DATE: October 7, 1996
OBJECTIVE: To incorporate DENY(R) (bacterial fungicide) into the BioJect
program as a control agent in the disease program.
1. DENY, an EPA registered biological fungicide exclusively marketed by
CCT Corporation, would be provided to each golf course at the rate of 1
gallon per golf course per month in those months that a qualifying
program is operating at the following price schedule (prices are
retroactive to the beginning of the year):
1-500 gallons $160/gallon
501-1000 gallons $140/gallon
1001 and up $120/gallon
2. The license fee paid to CCT is 10% of EcoSoil's program price to the
use (golf course superintendent) less 25% (the distributor's margin).
This would be paid for each month that the product is utilized as
part of the disease control program. EcoSoil has the right to choose
which programs, in part or in whole, the DENY will be used based on
efficacy for specific diseases. Based upon current information,
DENY will be included in the disease programs for SCLEROTINIA,
PYTHIUM, RHIZOCTONIA, AND FUSARIUM. License fee payments are due
15 days after the end of each business quarter.
3. The DENY product is used in the disease program based on its ability to
perform adequately (i.e., Minimum 50% disease reduction). The level of
performance should be evaluated either by university replicated trials
(some may have already been performed) or in user programs that verify
performance based on treated vs. non-treated areas. This criteria
should be evaluated in the 1997 growing season. All programs that
utilize the DENY will be designated by the use of specific program
names. Audit of all program revenue is available for review.
4. Term of agreement: Duration of 1996 (pending agreement reached,
rate of adaption for BioJect, and availability
of inoculum) and entire 1997 calendar year.
Beyond 1997, the option to renew the
agreement for one year periods will be
determined each year by both companies
thereafter.
5. Currently there are 90 golf courses that utilize the "Disease
Management Program." The program is focused on primarily foliar
diseases including, but not limited to, dollar spot (SCLEROTINIA SPP.),
PYTHIUM (PYTHIUM SPP.), ANTHRACNOSE (COLLETOTRICHUM SPP.).
6. EcoSoil will cover the cost of regulatory fees in order to obtain
required label amendments. Owner of registration is responsible for
submitting any and all label amendments required for use in the BioJect
system. Stine Microbials and CCT agree to make available all required
data to assist EcoSoil in registration for use in BioJect.
7. Sufficient standards are to be constructed for inoculum quality with
determination of shelf life under stated storage conditions.
Currently, the shelf life standard for the dry product form is one(1)
year and for the liquid is six (6) months, both from e date of
manufacture/packaging. Any changes must be submitted in writing.
Any product not provided at these agreed upon shelf life levels will
be the responsibility of CCT. No product meeting these shelf life
standards can be returned to CCT for credit or refund.
8. EcoSoil has the exclusive rights to distribute the DENY products
through an on-site fermentation/injection system. CCT reserves the
rights to sell DENY to golf courses through turf distributors for
conventional application methods (i.e., boom spray). However, EcoSoil
would be allowed the option to exclusively distribute packaged material
to distributors already selling BioJect which include Turf Products
(Illinois, Wisconsin), Turf Specialty (Maine, Vermont, New Hampshire,
Connecticut, Massachusetts, New York, Rhode Island), Davisson Golf
(Maryland, Washington, D.C., Virginia, Pennsylvania, New Jersey,
Delaware), Commercial Turf Services (Michigan, Ohio), Sarver Irrigation
(Ohio, Pennsylvania, New York, West Virginia), Turf Specialties
(Indiana), Eco Green (Missouri), Wilbur Ellis (San Diego & Los Angeles,
California), Sierra Pacific Turf Supply (San Francisco, CA), Turf Tech
(Nevada). It has already been established that Golf Ventures (Florida)
already distributes packaged DENY for CCT. Product pricing structure
for DENY sold for conventional application methods will be addressed in
an addendum to this agreement.
9. EcoSoil will issue to CCT the amount of 2,500 stock options. Details
of the options will be included in the documentation with the
options.
The undersigned are in agreement with the terms and conditions of this supply
agreement.
/s/ Gilbert Crowell /s/ John M. Doyle
Gilbert Crowell John M. Doyle
President Vice President, Product Development
CCT Corporation EcoSoil Systems, Inc.
Date: Oct. 21, 1996 Date: 17 October 1996
EXCLUSIVE CONSULTING AGREEMENT
BETWEEN
ECO SOIL SYSTEMS, INC. AND
ENCORE TECHNOLOGIES, INC.
This Agreement is entered into as of the 1st day of January, 1995, by
and between Eco Soil Systems, Inc., a Nebraska corporation (hereinafter referred
to as "Eco Soil") having its principal place of business at 10890 THORNMINT
ROAD, RANCHO BERNARDO, CA 92127 and ENCORE TECHNOLOGIES, INC., a Minnesota
corporation (hereinafter referred to as "Encore") having its principal place of
business at 6482 CARLSON DRIVE, EDEN PRAIRIE, MINNESOTA 55346.
Whereas, Eco Soil has developed and patented a device that
automatically cultures microorganisms in an enclosed tank and then regularly
injects these organisms and their byproducts, along with other compatible
products, into an irrigation line for distribution into the area being
irrigated. For purposes of this Agreement, such device and any successor,
derivative, equivalent and/or improvement thereof may collectively be referred
to as "BioJect" or the "BioJect System";
Whereas, Encore is in the business of developing, acquiring and/or
marketing microorganisms for commercial purposes;
Whereas, Eco Soil desires to have Encore develop, supply and/or improve
microorganisms for specific applications which can be cultured and distributed
through Eco Soil's BioJect System, including the development of certain
proprietary recipes and techniques for the culture and scale-up of
microorganisms and their byproducts for distribution in the BioJect System as
set forth herein.
Now, therefore, the parties have agreed to enter into an Exclusive
Consulting Agreement under the terms and conditions set forth herein.
I. PURPOSE OF THE AGREEMENT.
The parties are entering into this Agreement primarily for the purposes
of expanding the installed end user base of the BioJect System in the golf turf
market; introducing BioJect to other markets such as agriculture; and exploring
new product opportunities in order to increase potential sales of biological
products distributable through the BioJect System.
II. TERM OF THE AGREEMENT.
This Agreement shall commence on the date hereof and continue for a
period of thirty (30) years and, unless terminated prior to expiration by either
party as set forth in Article VI hereof, shall automatically renew for up to
five successive three (3) year renewal terms thereafter.
III. OBLIGATIONS OF ENCORE.
Encore's initial consulting responsibilities are as follows:
A. Identify microorganisms and/or their byproducts appropriate
for distribution through the BioJect System to target a wide
range of applications such as herbicides, insecticides,
fungicides, thatch control, and nitrogen fixation, and
including improved versions of microorganisms currently used
in the BioJect System and any Encore or third party
proprietary organisms and/or byproducts to be evaluated,
developed, supplied or improved by Encore ( referred to herein
as a "Product" or "Products"). From time to time, Eco Soil may
provide Encore with specific Eco Soil preferences and criteria
for proposed Product efficacy, cost and marketing
considerations and/or the desirability of using microorganisms
developed by large and well-known companies. Encore will
evaluate all applicable Products on an independent basis using
such information, and will make final recommendations without
regard to any prior relationship or affiliation(s) with
Encore.
B. Explore and negotiate (and/or assist Eco Soil to negotiate and
obtain) selected development, licensure or other Product
acquisition opportunities.
C. Provide microorganism test result affidavits and certain other
information and assistance in connection with Eco Soil's
efforts to obtain permits and required Product registration of
these microorganisms with federal, state and local
governments.
D. Conduct scale-up work to determine the nutritional
requirements necessary to culture and maintain adequate
population levels of Products. Encore will also offer
technical input or other suggestions regarding potential
machine modifications in order to optimize organism growth in
the BioJect System.
E. Develop confidential Encore manufacturing assessments and
scale-up work regarding the culture and delivery of BioJect
System Products. Eco Soil acknowledges and agrees that Encore
will preserve and retain such information as its confidential
and proprietary property, and will not be obligated to
disclose such information to Eco Soil. Encore will take
reasonable steps to maintain and preserve copies of all such
proprietary materials in a locked safe deposit box or, upon
request and at the sole expense of Eco Soil, with a neutral
third party escrow agent at all times during the term of this
Agreement, which contents will be made available to Eco Soil:
(a) with Encore's prior written consent; (b) upon Encore's
failure to cure a material breach of this Agreement with
respect to the its confidential assessment and scale-up
services; (c) immediately, if Encore elects to suspend this
Agreement under Section VI.C (1) or (3); or (d) if Encore
becomes insolvent or files (or has filed against it) any
bankruptcy petition which is not dismissed within 60 days of
filing.
F. Assist Eco Soil with field efficacy studies, both at BioJect
customer sites and at the University of Minnesota laboratories
used by Encore, as such studies are deemed reasonably
necessary by Encore, and subject to payment of pre-authorized
Encore expenses incurred in connection with any travel to any
site located more than 50 miles from Encore's principal place
of business.
G. Offer suggestions and other assistance to help Eco Soil
develop and improve supportive relationships with the
scientific community.
H. Document and provide Eco Soil with a verified composition
analysis and Encore laboratory test verifications for each
BioJect System Product developed internally by Encore (and
sufficient non-confidential scale-up and operating
instructions therefor), and make reasonable efforts to obtain
comparable analyses, instructions and lab test verifications
from any third party vendors. Encore warrants only that its
composition analyses for internally-developed Products will be
true and correct in all material respects, and that such
Products have been created under laboratory conditions by
Encore. EXCEPT AS SET FORTH ABOVE OR UNDER ANY LIMITED
WARRANTY OFFERED UNDER AN ENCORE LICENSE AGREEMENT, ENCORE
MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO
ANY PRODUCT OR SERVICE PROVIDED HEREUNDER, AND EXPRESSLY
DISCLAIMS ALL OTHER WARRANTIES OF ANY NATURE, INCLUDING ANY
WARRANTIES WITH RESPECT TO PRODUCTS SUPPLIED BY OR THROUGH ANY
THIRD PARTY, OR ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. Eco Soil agrees further that
Encore will not be liable to Eco Soil or any third party for
any lost profits, special, incidental, indirect, or
consequential damages arising out of this agreement or the
distribution or use of any Product.
I. Provide all services hereunder in a competent and professional
manner, and using reasonable best efforts.
The parties acknowledge that Encore's responsibilities may not be
limited to the preceding tasks and that the scope of services may be reasonably
and consistently modified, provided that any proposed change in Encore's
responsibilities must be identified in a written, signed amendment to this
agreement.
IV. OBLIGATIONS OF ECO SOIL.
Eco Soil's responsibilities under this agreement include the following:
A. Provide, on a commercially reasonable basis, ongoing service,
maintenance, end user support and other services sufficient to
keep the BioJect System functioning in all material respects.
These functions include supply and replenishment of Products,
consumables, related biological products and support media,
(including the acquisition and use of such items from and/or
as directed by Encore), preventative maintenance and prompt
BioJect System repairs, and ongoing product improvements and
enhancements. These functions may be performed in certain
geographical locations through a dealer network to be
supervised and managed by Eco Soil.
B. Bill customers for the BioJect service and perform all credit
and collection functions with customers, either directly or
through a dealer network to be supervised and managed by Eco
Soil. For dealer sales, Eco Soil will bill and collect all
BioJect System funds due therefrom.
C. Make all BioJect System Products developed, supplied or
improved by Encore hereunder available on a commercially
reasonable basis to its customers, and offer reasonable
promotional support, pricing, credit and other terms and
policies designed to achieve maximum use and acceptance of
such products. Eco Soil may accept or reject any proposed
Product which, in its judgment, lacks commercial viability.
Eco Soil agrees further that it will, subject to the
new/replacement product exceptions outlined below, enter into
a BioJect Product License Agreement (in substantially the form
of Exhibit A), or will obtain Encore's written consent prior
to offering or selling any proposed microorganism, byproduct
or product through the BioJect System, and will not remove,
replace, substitute, reverse engineer or otherwise interfere
with the sale and use of any Product or attempt to offer or
sell any product similar to or derived from any proposed
Product previously rejected by Eco Soil on grounds of
commercial viability. Encore will consent to any proposed new
or replacement product which has been independently developed
by Eco Soil, and which possesses significant efficacy
advantages over Encore's applicable BioJect Product.
D. Design, engineer, manufacture and market current and improved
BioJect Systems and related hardware and equipment.
E. On a commercially reasonable basis and in the manner required
under Section VII., purchase and maintain adequate quantities
of such other equipment or materials required to keep the
BioJect System operating in all material respects, including
the timely payment or performance of all vendor obligations.
Advance purchases of consumables, biological products or
support media from or through Encore may require prepayment by
Eco Soil and/or compliance with Encore's then current credit
terms. Subject to its other obligations hereunder, the
final determination of and payment for all other BioJect
System equipment, products, biologicals and supplies used will
be the sole obligation and liability of Eco Soil.
F. Perform such accounting, bookkeeping and recordkeeping
functions necessary to support the BioJect service, and to
maintain originals or copies of all invoices, records or other
documents necessary to enable Encore or its representatives to
verify royalties and other amounts due Encore. All such
records will be made available for review and copying by
Encore upon request.
G. Provide all services hereunder in a competent and professional
manner, and using reasonable best efforts.
The parties acknowledge that Eco Soil's responsibilities may not be
limited to the preceding tasks and that the scope of services may be reasonably
and consistently modified, provided that any proposed change in Eco Soil's
responsibilities must be identified in a written, signed amendment to this
agreement. It is further agreed that nothing in this Agreement will require Eco
Soil to promote products or expend resources hereunder where such activities or
expenditures are commercially unreasonable, and that Eco Soil will not be liable
to Encore for any lost profits, special, incidental, indirect or consequential
damages arising out of this agreement or the distribution or use of any Product.
V. COMPENSATION TO ENCORE.
During the initial and any renewal term hereunder, Eco Soil Systems
agrees to enter into an agreement (in substantially the form of Exhibit A) to
pay Encore a royalty equal to 13% of all revenues due Eco Soil from any dealer,
end user or other third party under any sale, licensure or other use or transfer
of any BioJect Product, or for any derivative or successor product thereof. This
royalty rate is based on Eco Soil's agreement to bill and collect all BioJect
System revenues without dealer or other third party involvement, and will be
increased to 20% in the event any dealer or other third party is authorized to
direct bill for BioJect System use. Encore will also consider and negotiate an
appropriate royalty reduction in good faith and in extraordinary cases.
All royalty payments will be paid quarterly, on or before the 15th of
the month following the end of each calendar quarter, and will be delivered
together with Eco Soil's royalty computations which have been reviewed and
certified by Eco Soil's chief financial officer. No royalty will be payable for
any pre-existing products which have not been developed, supplied or improved by
Encore (which products are identified on the attached Exhibit B), for the annual
lease fee for the BioJect machine, or for any applicable product. taxes or
duties which have been separately identified on Eco Soil's invoices.
On or before each January 31 during the term of this Agreement, Eco
Soil will be entitled to offset future Product royalties due via credit equal to
royalties paid during the previous year for any "bad debts" (obligations due Eco
Soil which have been written off for financial statement purposes in accordance
with generally accepted accounting principles) and for documented, bona fide
product returns made during the previous calendar year. All such adjustments
will be resolved via credit against future royalties due Encore, and only in the
manner set forth in this section. Eco Soil will not make or attempt any other
offsets against product royalties payable except with Encore's prior written
consent. Any subsequent payments received from "bad debt" accounts will be
immediately reported to Encore, with reinstated royalty payments due on or
before the next quarterly royalty payment date.
In the event and to the extent aggregate annual royalty payments made
under all such agreements do not equal or exceed $100,000 for 1995, and such
aggregate-royalties paid do not equal or exceed $25,000 per calendar quarter in
1996, and 1997, Eco Soil will make an additional cash payment to Encore in the
amount of such aggregate royalty shortfall, due and payable on or before January
15, 1996 for 1995 royalties, and within 15 days following the close of each
calendar quarter for royalty shortfalls due for 1996 or 1997.
In exchange for such payments, Encore will be responsible for
compensating any third party microorganism licensor from the payment of
royalties it receives hereunder. For example, if Encore found a thatch control
organism for the BioJect System and Eco Soil charged the dealer $3,000 for a
series of thatch reducing applications, then Eco Soil's royalty payment for that
product would be $3,000 x .13 or $390. The compensation due to the owner of the
organism would then be made by Encore out of this royalty payment. Assuming the
organism owner had agreed to a 5% royalty, Encore would pay $150 to such owner
out of the $390 royalty it received from Eco Soil.
The parties have entered into a separate, independent consulting
agreement dated and effective November l, 1994 regarding monthly contract
research and development activities undertaken by Encore on behalf of Eco Soil
for products to be developed by Encore, which agreement (and the compensation
paid thereunder) are separate from and in addition to compensation to be paid
under this Agreement.
As additional compensation and in exchange for Encore's execution of
this Agreement, Eco Soil will grant Encore a warrant to purchase up to 50,000
shares of stock of Eco Soil at an exercise price of $3 per share, which shall be
immediately and fully exercisable for a seven-year period thereafter, and which
will be substantially in the form of the attached Exhibit C.
VI. TERMINATION.
A. Any material breach of this Agreement by either party may be
deemed a default, which default shall give the non-breaching
party the right to terminate this Agreement prior to
expiration as set forth herein. Upon receipt of a written
default notice outlining the alleged default(s), the
defaulting parry will have 60 days to cure all such defaults,
or to provide a good faith plan for the prompt resolution of
any such defaults that cannot be resolved within 60 days. Any
failure to do so shall entitle the non-defaulting party to
terminate this Agreement immediately thereafter upon delivery
of a termination notice.
B. Either party, by written notice delivered to the other party
at least 10 days prior to the proposed termination date, may
also elect to terminate this Agreement prior to expiration if
the other party: (1) terminates its business operations (or
suspends such operations for any 30 day period); (2) initiates
or becomes subject to any bankruptcy or insolvency proceeding,
corporate dissolution or similar proceeding under federal or
state law which is not dismissed within 60 days of filing; (3)
becomes insolvent or makes an assignment for the benefit of
its creditors; or (4) is made subject to the direct control of
a trustee, receiver or similar authority for any period of 30
days or more.
C. At any time after December 31, 1996, either party, by written
notice delivered to the other party at least 60 days prior to
the proposed suspension date, may also suspend this Agreement
prior to expiration if: (1) that party has permanently
abandoned and terminated all of its business operations; (2)
all use of the BioJect System has been permanently
discontinued under circumstances which do not require
compliance with Section X.F.; or (3) Encore permanently
discontinues the evaluation and supply of irrigation system
microorganisms. Such notice shall specify that suspension is
being effected under this Section VI.C. suspension will not
affect or alter the existence or enforceability of any
pre-termination debts, covenants or other obligations under
this Agreement or create or give rise to any claim, liability,
damage, or other obligation based on or alleged to have
resulted from such termination.
Provided that the suspending party (or any assignee, successor,
transferee or other representative) does not resume any such activities for the
ten year period following the suspension date, the suspension will be converted
into a final termination of this Agreement as of the tenth anniversary thereof.
D. Any termination of this Agreement will not alter or affect the
validity, survival or enforceability of any pre-termination
BioJect product royalty agreement or the parties' November 1,
1994 consulting agreement, and, except as prohibited under
Section VI.C. above, will not affect or alter any legal or
equitable remedies available to the non-terminating party for
debts due or other claims arising out of this Agreement,
including without limitation any claims relating to the
unauthorized, post-termination use of any party's products,
technology or other property or any Eco Soil claim hereunder
regarding the release of escrowed confidential information.
VII. SUPPLY SOURCING OBLIGATIONS.
Encore agrees to offer to sell or to provide Eco Soil with third party
sourcing information for all Product consumables, related biological products,
support media or other ancillary supplies. All such supplies must be reasonably
satisfactory to Eco Soil with respect to cost and payment terms; availability
and delivery options; specifications; and title, merchantability, fitness,
non-infringement or other warranty coverage. Eco Soil will provide Encore with
quarterly supply forecasts and proposed delivery deadlines in order to allow
Encore to investigate and respond with available sourcing options. All supplies
will only be purchased hereunder by Encore following receipt of Eco Soil's
written purchase order or other binding authorization, and will be prepaid
unless Encore (using reasonable best efforts) can negotiate acceptable 30-day
credit terms with the supply source. Eco Soil remains free to negotiate its own
credit and payment terms for direct purchases from third party supply sources.
VIII. EXCLUSIVITY.
Eco Soil and Encore agree that Encore's developmental efforts for Eco
Soil will be targeted specifically to commercializing and adapting
microorganisms so that they can be effectively introduced to the soil and to
turf and crops through the BioJect System. Encore agrees to perform such
services exclusively for Eco Soil during the term of this agreement and not to
provide consulting services regarding the growth, introduction and delivery of
microorganisms through an irrigation system to any Eco Soil competitor without
Eco Soil's prior written consent. However, Encore is not restricted under this
Agreement from creating or commercializing microorganisms or other biological
products for itself or for other individuals or entities, so long as such
products are delivered to the plant and/or soil via any non-irrigation systems
or methods, including without limitation, any products deliverable by spraying,
granular or powder applications.
Eco Soil agrees that it will use its reasonable best efforts to utilize
and market all Products developed, supplied and/or improved by Encore under this
Agreement; and that unless it has obtained Encore's prior written consent or
Encore has elected to suspend its obligations under Section VI.C.(1) or (3), it
will work exclusively with Encore and will not hire, contract with or enter into
any other relationship with any third party during the term of this Agreement
for the research, evaluation, development, acquisition, supply or improvement of
any current or proposed BioJect System products or any other services to be
provided by Encore under this Agreement.
IX. CONFIDENTIALITY.
Both parties currently possess and Encore is expected to develop,
acquire or improve certain additional and substantial confidential and/or
proprietary products, information, documents or other valuable tangible or
intangible property under this Agreement, the value of which could be greatly
and adversely affected by unauthorized use or disclosure (collectively referred
to in this Section as "Secrets"). Therefore, each party agrees to abide by the
following restrictions for all Secrets revealed hereunder.
A. To maintain all of the other party's Secrets in strictest
confidence and utilizing all reasonable precautions necessary
to protect such Secrets, except as may otherwise be
pre-authorized in writing by the other party;
B. To refrain from using any of the other party's Secrets except
as and to the extent necessary for the purpose of working on
projects currently in progress or on future projects
authorized and agreed to in advance by both parties;
C. To refrain from disclosing any of the other party's Secrets to
any third party without the other party's prior written
consent;
D. To limit access to all Secrets to those employees who
reasonably require the information to actively work on
authorized projects hereunder and who have expressly agreed to
treat the other party's Secrets as confidential in the same
manner and to the same extent as its own Secrets;
E. To abide by such other confidentiality restrictions or
practices that may be reasonably requested by the other party,
including the execution and delivery of such
confidentiality/nondisclosure agreement(s) as may be requested
from time to time.
Nothing contained in this agreement will in any way restrict either
party's rights to use, disclose or otherwise deal with any Secrets which the
party can prove: was in its possession through legitimate means prior to the
date of this agreement; obtained thereafter from a source entitled to disclose
such Secret(s); or was already generally known and within the public domain as
of the date of initial disclosure hereunder, or which becomes generally known
thereafter through legitimate means and through no fault of Eco Soil.
Each party acknowledges and agrees that it shall not claim or receive
any ownership or other interest in any Secrets disclosed and/or developed by the
other party under this Agreement regarding the composition, properties and
characteristics, formulation, reproduction, applications, and other use of any
microorganism or other BioJect Product developed, supplied or improved
hereunder. In order to protect and preserve the value of such Encore Secrets and
notwithstanding any other provision of this Agreement or the parties' operation
of the BioJect System during the term hereof, Eco Soil agrees that it will not
make, sell or use any microorganism or product which is identical to, derived
from and/or the successor to or equivalent of any BioJect Product, except as
authorized under a Product License Agreement, or except for any manufacture,
sale or use by Eco Soil which is beyond the scope of any License Agreement and
which does not involve the disclosure or use of any Encore Secrets. Eco Soil
acknowledges and agrees that such restrictions are reasonable and necessary for
the protection of Encore's Secrets, and that Encore would be irreparably harmed
and will be entitled to injunctive relief in the event of any post termination
breach of the provisions of this Section. The parties also agree that the
provisions of this Section IX. will expressly survive any expiration or
termination of this Agreement.
During the term of this Agreement and notwithstanding any other
provision of this Agreement or the parties' operation of the BioJect System,
Encore agrees that it will not disclose any confidential manufacturing
assessments or other unique Product Secrets to any individual or form which
manufacturers or markets any irrigation system competitive with the BioJect
System. Encore acknowledges and agrees that such restrictions are reasonable and
necessary for the protection of such Secrets, and that Eco Soil would be
irreparably harmed and will be entitled to injunctive relief in the event of any
post-termination breach of the provisions of this Section. The parties also
agree that the provisions of this Section IX. will expressly survive any
expiration or termination of this Agreement.
X. MISCELLANEOUS PROVISIONS.
A. NOTICES. Any and all notices required or permitted hereunder
must be in writing and delivered personally or sent by
overnight courier, or by registered or certified mail with
return receipt requested, addressed to the other party at the
address hereinabove set forth, or at such other address as
shall be designated from time to time by the parties. Notice
shall be deemed to be effective upon the earlier of personal
service or upon the date of receipt indicated on the proof of
delivery.
B. ENTIRE AGREEMENT; AMENDMENTS. Except for the parties'
Consulting Services Agreement dated and effective November 1,
1994 or any Product License to be executed hereunder, this
agreement (together with any amendments, schedules or other
exhibits) contains all of the parties' agreements,
understandings, representations, conditions, warranties, and
covenants, and supersedes all prior or contemporaneous
agreements, understandings, negotiations or discussions. All
waivers, modifications or amendments hereto must be in writing
and signed by authorized officers of both parties.
C. AUTHORITY TO ENTER INTO THE AGREEMENT. Each of the parties
represents that it has full power and authority to enter into
and perform its respective obligations under this Agreement,
and that such entry and performance will not breach or
conflict with any other contract or obligation to which such
party is bound, and will not violate any applicable statute,
regulation or other law.
D. WAIVER. The failure of either party at any time to require
performance by the other party of any provision hereof shall
not affect in any way the right to require such performance at
any time thereafter. Nor shall a waiver by either party of a
breach of any provision hereof be taken or held to be a waiver
of the provision itself.
E. SEPARABILITY. Each of the terms of this Agreement is exclusive
and the invalidity of one or more terms shall not void or make
voidable any other terms of the Agreement.
F. ASSIGNMENT; BINDING EFFECT. Any proposed Eco Soil sale, lease,
licensure or other transfer or assignment of its BioJect
System (or any material element(s) thereof), or any proposed
assignment or other transfer of either party's rights and/or
obligations under this Agreement, may not be undertaken
without the prior written consent of the other party, and any
attempted transfer undertaken without such consent will be
null and void. No consent will be unreasonably withheld or
delayed, and the parties agree that consent will be provided
where the proposed assignee or transferee: (a) agrees to
expressly observe all covenants and assume all obligations
hereunder; and (b) will, following the assignment/transfer and
taking into account its acquisitions thereunder, have
financial and other abilities reasonably equivalent to those
of its predecessor.
Except as limited by the preceding sentences, this Agreement
shall be binding upon and inure to the benefit of the parties
hereto, and their respective permitted assigns, transferees,
successors or other representatives.
The foregoing language shall not prohibit or require consent
for any sale or other transfer of the stock of either party or
any other organic change that does not affect or alter Eco
Soil's obligations under this Agreement or its ownership of
the BioJect System. However, if either party commences serious
negotiations regarding the sale or exchange of all or
substantially all of its stock, it shall promptly advise the
other party of such negotiations and allow the other party a
period of at least 15 days to prepare and present any such
proposals as it may desire. In addition, the parties intend to
negotiate in good faith regarding a potential buyout or other
arrangements acceptable to Encore in the event Eco Soil is
merged with or acquired by another company.
G. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but
all of which taken together shall constitute one and the same
document.
H. DISCLAIMER OF AGENCY. This Agreement shall not constitute
either party's appointment or designation as the legal
representative or agent of the other, and neither party has
any right or authority to assume, create, or incur any
liability or any obligation of any kind, express or implied,
against or in the name of or on behalf of the other party in
any manner, or to attempt to do so or hold itself out as being
authorized to do so.
I. GOVERNING LAW, JURISDICTION AND VENUE. The validity,
interpretation, and performance of this Agreement shall be
controlled by and construed under the laws of the State of
Minnesota, the state in which this Agreement is accepted. Eco
Soil hereby irrevocably consents to the jurisdiction of the
appropriate Minnesota courts located in Hennepin County,
Minnesota, and agrees that all litigation arising hereunder
shall be venued in Hennepin County, Minnesota.
J. HEADINGS. Paragraph headings are not to be considered part of
this Agreement and are included solely for the convenience and
are not intended to be full or accurate descriptions of the
content thereof.
K. TIME OF ESSENCE. Time is of the essence in this Agreement and
the failure of either party to promptly pay when due any
payments, or to perform any material obligations required
herein, may be treated by the other party as a material breach
of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and accepted as set forth herein, as of the date and year first
appearing above.
ECO SOIL SYSTEMS, INC.
10890 Thornmint Road, Suite 200
San Diego, CA 92127
By: /s/ William B. Adams
William B. Adams, Its Chief
Executive Officer
Accepted in Eden Prairie, Minnesota.
ENCORE TECHNOLOGIES, INC.
6482 Carlson Drive
Eden Prairie, MN 553464
By: /s/ David Goulet
David Goulet, Its Vice President
LICENSE AGREEMENT
THIS AGREEMENT is entered into this 20th day of April, 1992 by and
between Eco Soil Systems, Inc. a Nebraska corporation, hereinafter referred to
as "SELLER," having its principal place of business at 7825 Fay Avenue, Suite
200, La Jolla, California 92037, and WESTBRIDGE AGRICULTURAL PRODUCTS, a wholly
owned subsidiary of WESTBRIDGE RESEARCH GROUP, having its principal place of
business at 2776 Loker Avenue West, Carlsbad, CA 92008, referred to as
("WESTBRIDGE").
RECITALS
A. WESTBRIDGE has developed and is engaging in the manufacture
and sale of certain proprietary products for use in agriculture.
B. SELLER has developed considerable expertise in distributing
materials to the turf grass industry.
C. WESTBRIDGE desire to grant and SELLER desire to obtain an
appointment to market, sell and distribute products as hereinafter set
forth.
COVENANTS AND CONDITIONS
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, the parties agree as follows:
ARTICLE I: DEFINITIONS
SECTION 1. PRODUCTS. "Products" shall mean all products as jointly
formulated by the parties or for which specific applications are jointly
developed for sale and use within the Territory, as set forth in Appendix A
attached hereto and incorporated herein by this reference, including all
improvements thereto, and manufactured by WESTBRIDGE.
SECTION 2. TERM. "Term" shall mean the period commencing from the date
hereof, and continuing for a period of twenty (20) years and, unless terminated
by either party for breach for cause and failure to cure as set forth in Article
V hereof, shall automatically renew for successive three (3) year periods
thereafter.
SECTION 3. QUOTAS. "Quotas" shall mean the fiscal year minimum annual
purchase required to be made by SELLER from WESTBRIDGE.
SECTION 4. TERRITORY. "Territory" shall mean the golf course, sod farm
and institutional turf grass maintenance industries in the United States. Eco
Soil Systems, Inc. will have the right to distribute the products listed in
Appendix A in any foreign countries in the future in these markets, provided
that it has established legal representation in the foreign country, has
contractual relationships with local representative to market and service the
product and is in full compliance with the terms and conditions of this
contract.
ARTICLE II: EXCLUSIVE APPOINTMENT
SECTION 1. APPOINTMENT. WESTBRIDGE hereby appoints SELLER for the Term
hereof, and SELLER hereby accepts, an exclusive appointment to sell, market and
distribute the Products within the designated Territory. In the furtherance of
such appointment; WESTBRIDGE agrees to sell Products only to SELLER for use in
designated Territory and SELLER agrees to purchase only from WESTBRIDGE to fill
requirements for Products comparable to Products covered herein.
SECTION 2. IMPROVEMENTS. During each annual period in which the
Agreement is in effect, the parties shall disclose anticipated development work
for the next coming term. Both parties shall, without charge, promptly make
available to one another any technical information relating to protocols,
applications or improvements to Products.
SECTION 3. SPECIAL RESERVATION. WESTBRIDGE specifically reserves the
right to sell its product line, in any manner in which it shall deem
appropriate, other than as limited pursuant to the terms of this Agreement, to
any distributors, outlets, or ultimate users.
ARTICLE III. A. WESTBRIDGE PERFORMANCE
SECTION 1. RISK OF LOSS. Delivery shall occur and risk of loss shall
pass to SELLER when the Products are on board common carrier FOB plant, U.S.A.,
packaged for delivery. WESTBRIDGE shall not be responsible for any delays or
damages in shipment.
SECTION 2. MEETS SPECIFICATIONS. WESTBRIDGE warrants that the Products
comply in all respects with the specifications, or amendments thereto, at the
time of each such delivery. WESTBRIDGE shall not be liable for any consequential
damages or for loss, damage or expense directly or indirectly arising form the
use of Product, or from any other cause. ANY WESTBRIDGE LIABILITY IS EXPRESSLY
LIMITED TO THE REPLACEMENT OF DEFECTIVE PRODUCT AND NOT FOR ANY VALUE ADDED TO
THE MATERIAL. Every claim on account of defective Product or workmanship or for
any other cause shall be deemed waived by SELLER unless made in writing within
90 days from the date of SELLER'S receipt of Product to which such claim
relates. THIS SHALL BE SELLER'S EXCLUSIVE REMEDY FOR BREACH OF WARRANTY. IN NO
EVENT SHALL WESTBRIDGE BE LIABLE FOR ANY SPECIAL CONSEQUENTIAL, OR CONTINGENT
DAMAGES RESULTING FROM BREACH OF WARRANTY, DELAY OF PERFORMANCE OR ANY OTHER
DEFAULT HEREUNDER. WESTBRIDGE specifically disclaims any liability for Products
altered in any way after leaving its control.
SECTION 3. SALES PROTECTION. WESTBRIDGE agrees that it will not enter
into any arrangements with any other distributor or dealer for the Products
during the Term of this Agreement, provided SELLER is in full compliance with
the terms and obligations herein appertaining.
B. SELLER'S PERFORMANCE
SECTION 1. SALES. In consideration for its appointment herein, SELLER
agrees that it will, at its sole expense, use its best efforts to promote demand
for and sales of Products and establish, train and maintain a sales organization
sufficient to market and sell the Products in its designated Territory, and to
maintain an adequate inventory of Products, advertise as appropriate and in the
amount customary within the Territory, and provide periodic and timely progress
reports.
SECTION 2. COST OF PRODUCT TRIALS. SELLER agrees to pay the cost of
product trails performed by the University of California, Riverside, as detailed
in Appendix B.
SECTION 3. INDEMNIFICATION. SELLER agrees to indemnify WESTBRIDGE for
costs and profits lost on any sales as a result of SELLER'S failure to take
delivery or pay for Products manufactured pursuant to firm orders of SELLER.
SECTION 4. QUOTAS. AS a condition, precedent to all other commitments
of WESTBRIDGE made herein, SELLER must annually purchase from WESTBRIDGE, and
pay for, subject to the terms of this Agreement, the minimum annual U.S. dollar
amount set forth below:
First annual period - U.S. $ 75,000
Second annual period - U.S. $ 225,000
Third annual period - U.S. $ 500,000
Fourth annual period - U.S. $1,000,000
Fifth annual period - U.S. $1,500,000
Successive quotas shall be established a minimum of one hundred twenty
(120) days prior to the end of each year, initialed by all parties and attached
to this Agreement. Should SELLER fail to purchase the minimum requirements in
any annual period, or should the parties fail to make an agreement as to
successive quotas, such failure shall constitute a breach of this Agreement, and
WESTBRIDGE shall have available to it all remedies at law including termination
of this Agreement.
SECTION 5. REGISTRATION. SELLER shall, at its sole expense, register
the Products for sale within the Territory and shall be responsible for all
taxes and fees occurring in connection therewith.
SECTION 6. SALES RESTRICTIONS. SELLER understands and agrees that it is
expressly prohibited from selling to, offering to sell to, or soliciting sales
from anyone outside the Territory.
C. MUTUAL PERFORMANCE
SECTION 1. NON-DISCLOSURE. Each party, recognizing that it or its
agents or employees obtain knowledge of confidential matters, trade secrets, and
techniques or other expertise developed by the other, agrees that it will take
all reasonable steps, at its sole expense, to protect said confidential
information and that no party will divulge said confidential information at any
time, other than disclosures contemplated by the terms of this Agreement,
without prior written consent of the other party.
SECTION 2. RESULTS. Each party agrees to promptly make available to one
another any and all results in development and experimentation with the Products
and further agrees not to publish the other party's results without first having
obtained written approval of the party providing the results which shall not be
unreasonably withheld.
SECTION 3. REPRESENTATIONS OF WARRANTIES. Each of the parties hereto
represents and warrants as follows:
a. it is duly organized and existing and in good standing under
applicable state law and has the requisite authority to own or
operate its properties and assets and to carry out its
business as presently conducted. Further, it is qualified to
do business in California and in each jurisdiction where
failure to be qualified could materially and adversely affect
its business or financial condition.
b. It has all requisite legal and corporate power to execute and
deliver this Agreement and to carry out and perform its
obligations under the terms of this Agreement, including the
appendices hereto.
c. All corporate actions on the part of the party, its directors,
stockholders or partners necessary for performance of its
obligations hereunder, have been duly and validly taken.
d. This Agreement constitutes a valid and binding obligation,
enforceable in accordance with its terms, as to the party.
e. It is not, and will not, by entering into and performing this
Agreement and the obligations contemplated herein, be in
violation of any term of its charter documents, or in any
material respect be in violation of or in default as to any
other agreement, judgment or decree by which it is bound, and
to the best of its knowledge is not, and will not by entering
into and performing this Agreement, be in violation of any
applicable order, statute, rule or regulation.
ARTICLE IV. COST AND PAYMENT TERMS
SECTION 1. PRICES. All prices shall be FOB manufacturing plant, Net 30,
and as set forth in Appendix A which is attached hereto and incorporated herein
by this reference. No prices shall be changed except upon thirty (30) day
written notice and shall be effective only for orders received after said
thirty-day period.
SECTION 2. PAYMENT.
a. All payments to WESTBRIDGE shall be in U.S. dollars payable 30
days from the date of _____ or shipment, whichever occurs
later, or in such other form of payment as may be agreed to
from time to time by the parties.
b. SELLER shall place orders with WESTBRIDGE in writing
(including telex or telefax) with reasonable lead times
necessary to facilitate manufacture and shipping, and no
shipments shall be made except upon specific SELLER purchase
order.
SECTION 3. FORECASTS. To assist WESTBRIDGE in efficiently scheduling it
manufacturing, at least thirty (30) days prior to the start of each calendar
quarter. SELLER shall provide WESTBRIDGE a good faith quarterly forecast of
Products anticipated to be purchased. However, purchases shall only be initiated
by SELLER'S firm purchase order.
SECTION 4. CREDIT. SELLER's credit shall be subject to WESTBRIDGE's
continuing approval. In the event that SELLER should be delinquent in the
payment terms set forth herein or in the event that SELLER's current liabilities
exceed its current assets, WESTBRIDGE may thereupon demand advance payment,
satisfactory security, or in acceptable guarantee of prompt payment from SELLER
or, in addition to all of the above remedies, or elect to unilaterally rescind
this Agreement.
SECTION 5. GENERAL TERMS AND CONDITIONS. Notwithstanding any terms and
conditions that may appear on or be contained in SELLER's purchase orders or
other documents of SELLER, all purchases hereunder shall be governed by the
terms and conditions so contained in contravention hereof, shall not be deemed
applicable.
SECTION 6. RETURNS. Unless WESTBRIDGE shall have authorized or
permitted the return of any Products, WESTBRIDGE shall not be obligated to
accept from SELLER any Products, nor to make any exchange or to credit SELLER
therefore.
ARTICLE V. TERMINATION
SECTION 1. DEFAULT. The parties recognize that prompt and full
compliance with the terms of this Agreement are essential, and the failure to
perform hereunder may be deemed a material breach of this Agreement, creating in
the non-breaching party the right to treat the Agreement in default. Upon such
default and after sixty (60) days notice of default and the failure of the
defaulting party to remedy the default within such period, this Agreement may be
deemed terminated by the non-defaulting party, such party then having the right
to pursue such further remedies as it may deem appropriate, at law or otherwise.
In the event of termination, this Agreement shall remain applicable to
any order for Products which SELLER has previously placed and which have been
accepted by WESTBRIDGE.
In the event of termination of this Agreement, SELLER shall promptly
return to WESTBRIDGE all samples, descriptive literature, or other materials
pertaining to Products, then remaining in its possession
ARTICLE VI. MISCELLANEOUS PROVISIONS
SECTION 1. NOTICES. Any and all notices provided herein shall be in
writing and delivered personally or sent by registered or certified mail with
return receipt requested, and confirmed by telegraph, telex, or telefax to the
other party at the address hereinabove set forth, or at such other address as
shall be designated from time to time by the parties. Notice shall be deemed to
be effective upon personal service or transmittal of telegraph, telex or telefax
or upon the date of receipt indicated on the postage proof of delivery,
whichever date is earlier.
SECTION 2. AMENDMENTS. This instrument contains all of the agreements,
understandings, representations, conditions, warranties, and covenants made
between the parties hereto. Unless set forth herein, neither party shall be
liable for any representations made, and all modifications and amendments hereto
must be in writing and signed by both parties.
SECTION 3. AUTHORITY TO ENTER INTO THE AGREEMENT. Each of the parties
represents that it has full power and authority to enter into this Agreement.
SECTION 4. WAIVER. The failure of either party at any time to require
performance by the other party of any provision hereof shall not affect in any
way the right to require such performance at any time thereafter. Nor shall a
waiver by either party of a breach of any provision hereof be taken or held to
as a waiver of the provision itself.
SECTION 5. SEPARABILITY. Each of the terms of the Agreement is
exclusive and the invalidity of one or more terms shall not void or make
voidable any other terms of the Agreement.
SECTION 6. COSTS OF DEFAULT. The parties agree that in the event of a
default of a term or condition of this Agreement, the defaulting party shall be
liable for reasonable attorneys fees and costs in the even of engagement of
legal counsel to represent the non-defaulting party's interest.
SECTION 7. INTEGRATION. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties and there
are no warranties, representations or agreements among the parties in connection
with the subject matter herefor except as set forth or referred to herein.
SECTION 8. BINDING EFFECT AND ASSIGNMENT. This Agreement shall inure to
the benefit of and bind the parties' successors, assigns, transferees, heirs and
personal representatives.
SECTION 9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same document.
SECTION 10. FORCE MAJEURE. The obligations of either party hereunder
shall be excused by reason of fire, explosion, or flood, or other actions of the
elements, strikes, labor disputes however caused, accident, acts of public
enemies, lawful rules and regulation or orders of any court or any civil or
military authority, loss or shortage of raw materials, supplies or energy
sources or failure of usual means of delivery and any other causes beyond the
reasonable control of any of the parties.
In the event that any of the parties is prevented by any of the
contingencies of the type set forth in this subparagraph, said party shall be
free of all liability as would otherwise be determined by the requirements of
this Agreement, but only for so long as the circumstances of force majeure
exist. For any cause whatsoever, whether or not beyond the control of WESTBRIDGE
or SELLER, liability of either for failure or delay in performance shall not
include consequential damages.
SECTION 11. DISCLAIMER OF AGENCY. This Agreement shall not constitute
either party the legal representative or agent of the other, nor shall either
party have the right or authority to assume, create, or incur any liability or
any obligation of any kind, express or implied, against or in the name of or on
behalf of the other party in any manner.
SECTION 12. INTERPRETATION. The validity, interpretation and
performance of this Agreement has been controlled by and construed under the
laws of the State of California, the state in which this Agreement is accepted.
SECTION 13. ASSIGNMENT. The rights and obligations under this Agreement
may not be assigned by either party to any person, firm or corporation without
the prior written consent of the other party first obtained. Any attempted
assignment without such other party's consent shall be null and void. Except as
limited by the preceding sentence, this Agreement shall be binding upon and
inure to the benefit of the parties hereto, their successors and assigns.
SECTION 14. HEADINGS. Paragraph headings are not to be considered part
of this Agreement and are included solely for convenience and are not intended
to be full or accurate descriptions of the contents thereof.
SECTION 15. TIME OF ESSENCE. Time is of the essence in this Agreement
and the failure of either party to promptly pay when due any and all payments,
or perform any and all obligations required herein, may be treated by the other
party as a material breach of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in San Diego, California, on the date above appearing.
SELLER WESTBRIDGE
ECO SOIL SYSTEMS, INC. WESTBRIDGE AGRICULTURAL PRODUCTS
7825 Fay Avenue, Ste 200 2776 Lokar Avenue West
La Jolla, CA 92037 Carlsbad, CA 92008
/s/ William B. Adams /s/ Warren Currier
Warren Currier, President
APPENDIX "A"
Product Description Price
Suppress Nematode suppressant for the $ /gar
following species of turf grass
nematodes
APPENDIX "B"
Description and Estimated Cost of Product Trials to be performed by
University of California, Riverside.
'
PRODUCT SUPPLY AGREEMENT
This Agreement is entered into this 2nd day of November 1993 by and
between Eco Soil Systems, Inc., a Nebraska Corporation (hereinafter referred to
as Eco Soil) having its principal place of business at Suite 200, 10890
Thornmint Road, San Diego, CA 92127, and V.I.T. Product, Inc. a California
Corporation (hereinafter referred to as V.I.T.) having its principal place of
business at Suite 100, 10890 Thornmint Road, San Diego, CA 92127.
Whereas Eco Soil Systems has developed a proprietary and patented lake
treatment system that introduces and circulates oxygen and biological products
through a pond, lake, or similar body of water to restore and then maintain a
balanced eco system, thereby substantially reducing algae formations and blooms.
Whereas V.I.T. has produced a prototype of Eco Soil's lake restoration
system, and possesses the manufacturing ability and capacity to produce these
systems on a timely basis to specifications that will vary according to the
physical dimensions of the pond, lake, or body of water that these systems are
placed in;
Whereas, Eco Soil is developing opportunities to sell a substantial
number of its lake restoration systems to distributors and to golf courses,
agricultural customers, nurseries, etc., and desires to sub-contract the
production of these systems to V.I.T.;
Now therefore, in consideration of the mutual covenants and conditions
herein contained, the parties agree as follows:
SECTION 1. TERM:
The term of this Agreement is five years from the date of the
Agreement.
SECTION 2. APPOINTMENT:
Eco Soil hereby grants V.I.T. Products the exclusive rights to
manufacture and build the first one hundred fifty (150) lake
restoration systems that Eco Soil Systems sells in each twelve month
period. In the furtherance of such a grant, V.I.T. agrees to sell to
Eco Soil, subject to the terms and conditions stated herein these lake
restoration systems, and to refrain from producing these systems for
any other party.
SECTION 3. ECO SOIL'S OWNERSHIP OF THE LAKE RESTORATION SYSTEMS:
V.I.T. recognizes that Eco Soil Systems has designed the lake
restoration system and such design is covered by a patent that Eco Soil
Systems has filed on this design (U.S. Patent # 5,227,067) V.I.T.
agrees to disclose to Eco Soil all improvements and developmental work
which V.I.T. discovers during the manufacturing process and to work
with Eco Soil to the extent necessary in amending its patents so that
the improvements in technology so developed are covered in its amended
filings. V.I.T. recognizes that this is a contract manufacturing
agreement and all rights to and ownership in the lake restoration
system are the property of Eco Soil Systems.
SECTION 4. COST:
(A) COMPONENT COST BASIS:
Base cost for all components, both procured by or
manufactured/assembled by V.I.T., are according to Appendix
"A" attached to this agreement. Costs have been determined
based on a standard design of a system as shown in Appendix
"B". Both partners acknowledge that costs will change to the
extent that the design of the system is modified.
(B) COST:
V.I.T. will markup from base cost to determine sales price to
Eco Soil. Markup from base cost will be 25%. Because it is
anticipated that each installed system will vary in component
quantities, all equipment will be ordered, manufactured and
billed in component increments.
(C) BASE COST ADJUSTMENT:
The base cost may from time to time be adjusted due to
inflationary cost increases or in the event of cost decrease
generated by competitive downward pricing. The base cost may
also be adjusted upward or downward due to design changes.
V.I.T. will generate base cost adjustments requests for
approval by Eco Soil. Approval by Eco Soil will not be
unreasonably withheld.
(D) ECONOMIES OF VOLUME PROCUREMENT AND VOLUME PRODUCTION:
V.I.T. will vigorously seek price concessions for volume
buying on all procured items (submersible pump, metering pump,
electric and electronic components, ratcheting valve,
proprietary items as needed). Both parties agree that 67% of
any cost savings generated by volume purchasing will inure to
the benefit of Eco Soil and 33% will inure to the benefit of
V.I.T. Products.
V.I.T. Products will additionally vigorously strive to reduce
costs as a result of increased order quantities for items
manufactured and/or assembled. Reduced costs in the production
of manufactured or assembled items (control center, cradle,
valve distribution platform, distribution outlets) will be
shared 50/50 by the parties.
SECTION 5. INITIAL ORDER:
Eco Soil agrees that during the first twelve months of this
Agreement, that Eco Soil will order a minimum of 35 systems from V.I.T.
Eco Soil agrees with the execution of this document to issue V.I.T. a
Purchase Order for the first 10 of these 35 systems.
SECTION 6. TERMS OF ORDERS:
Eco Soil agrees to the following payment terms based on unit
order sizes.
- -----------------------------------------------------------------------
On Order On Delivery 30 Days from Delivery
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Initial 10 System Order 33% 33% 33%
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
10 or less Systems 25% 33% 42%
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
10-25 Systems 33% 33% 34%
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Over 25 Systems 40% 33% 27%
- -----------------------------------------------------------------------
SECTION 7. DELIVERY:
V.I.T. agrees to supply all systems ordered by Eco Soil
Systems, Inc within 60 days of the date of order for all orders under
25 systems. For orders that exceed 25 systems, V.I.T. agrees to supply
all systems ordered within 90 days of the value of the order. To assist
V.I.T. in efficiently scheduling its manufacturing, at least thirty
(30) days prior to the start of each calendar quarter, Eco Soil will
provide V.I.T. with a good faith quarterly forecast of the units it
expects to order by month. However, purchases will only be initiated by
Eco Soil's firm purchase orders.
SECTION 8. WARRANTY:
V.I.T. agrees to warrant that the lake restoration systems
will comply in all respects with the specifications therefor (or
amendments thereto) at the time of each such delivery and will be
suitable for their intended purpose. V.I.T. may disclaim liability to
end users of the system for any consequential damages or for loss,
damage or expense directly or indirectly arising from the use of the
system or from any other cause and may expressly limit its liability to
the replacement of defective material and not for any value added to
the material. Every claim on account of defective product or
workmanship or for any other cause shall be deemed waived by V.I.T.
unless made in writing within 180 days from Eco Soil's receipt of
products to which such claim relates. In no event will V.I.T. be liable
to endorsers for any special, consequential or contingent damages
resulting from breach of warranty, delay of performance or any other
cause. The V.I.T. warranty will not apply to systems or other products
altered in any way after leaving its control, unless such alterations
have been performed by V.I.T. or authorized by V.I.T. in writing.
SECTION 9. RISK OF LOSS:
Delivery shall occur and risk of loss shall pass to Eco Soil
when systems are on board common carrier as may be designated by Eco
Soil. V.I.T. shall not be liable for delays or damages in transit.
SECTION 10. RESULTS:
Each party agrees to promptly make available to one another
any and all results in development and experimentation with the
systems. Eco Soil will undertake to conduct field tests of the systems,
at its costs, the results of which shall promptly be made available to
V.I.T. at no cost to V.I.T.
SECTION 11. NON-DISCLOSURE:
Each party, recognizing that it or its agents or employees may
obtain knowledge of confidential matters, trade secrets and techniques
or other expertise developed by the other, agrees to take all
reasonable steps, at its sole expense, to protect said confidential
information, and that no party will divulge said confidential
information at any time, other than disclosures contemplated by the
terms of this Agreement, without the prior written consent of the other
party.
SECTION 12. TERMINATION:
The parties recognize that prompt and full compliance with the
terms of this Agreement are essential, and the failure to perform
hereunder may be deemed a material breach of this Agreement creating in
the non-breaching party the right to treat the Agreement in default.
Upon such default and after sixty (60) days notice of default and the
failure of the defaulting party to remedy the default within such
period, this Agreement may be deemed terminated by the non-defaulting
party, such party then having the right to pursue such further remedies
as it may deem appropriate, at law or otherwise.
Either party may, by written notice delivered to the other
party, terminate this Agreement if the other party terminates or
suspends business; or initiates or becomes subject to any bankruptcy or
insolvency proceeding or similar proceeding under federal or state law;
or becomes insolvent or subject to the direct control of a trustee,
receiver or similar authority or makes an assignment for the benefit of
its creditors.
In the event of termination of this Agreement, this Agreement
shall remain applicable to any order for systems which Eco Soil has
previously placed and which has been accepted by V.I.T.
SECTION 13. MISCELLANEOUS PROVISIONS:
A. NOTICES. Any and all notices provided herein shall be in
writing and delivered personally or sent by registered or
certified mail with return receipt requested, and confirmed by
telegraph, telex or telefax to the other party at the address
hereinabove set forth, or at such other address as shall be
designated from time to time by the parties. Notice shall be
deemed to be effective upon personal service or transmittal of
telegraph, telex or telefax or upon the date of receipt
indicated on the postal proof of delivery, whichever date is
earlier.
B. AMENDMENTS. This instrument contains all of the agreements,
understandings, representations, conditions, warranties, and
covenants made between the parties hereto. Unless set forth
herein, neither party shall be liable for any representations
made, and all modifications and amendments hereto must be in
writing and signed by both parties.
C. AUTHORITY TO ENTER INTO THE AGREEMENT. Each of the parties
represents that it has full power and authority to enter into
this Agreement.
D. WAIVER. The failure of either party at any time to require
performance by the other party of any provision hereof shall
not affect in any way the right to require such performance at
any time thereafter. Nor shall a waiver by either party of a
breach of any provision hereof be taken or held to be a waiver
of the provision itself.
E. SEPARABILITY. Each of the terms of the Agreement is exclusive
and the invalidity of one or more terms shall not void or make
voidable any other terms of the Agreement.
F. COST OF DEFAULT. The parties agree that in the event of a
default of a term or condition of this Agreement, the
defaulting party shall be liable for attorney's fees and costs
in the event of engagement of legal counsel to represent the
non-defaulting party's interest.
G. INTEGRATION. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter
hereof and supersedes all prior and contemporaneous
agreements, understandings, negotiations and discussions
whether oral or written, of the parties and there are no
warranties, representations or agreements among the parties in
connection with the subject matter hereof except as set forth
or referred to herein.
H. BINDING EFFECT AND ASSIGNMENT. This Agreement shall inure to
the benefit of and bind the parties' successors, assigns,
transferees, heirs and personal representatives.
I. COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original, but
all of which taken together shall constitute one and the same
document.
J. FORCE MAJEURE. The obligations of either party hereunder shall
be excused by reason of fire, explosion, or flood, or other
actions of the elements, strikes, labor disputes however
caused, accident, acts of public enemies, lawful rules and
regulations or orders of any court or any civil or military
authority, loss or shortage of raw materials, supplies or
energy sources or failure of unusual means of supply and other
causes beyond the reasonable control of any of the parties.
In the event that any of the parties is prevented by any of
the contingencies of the type set forth in this subparagraph,
said party shall be free of all liability as would otherwise
be determined by the requirements of this Agreement, but only
for so long as the circumstances of force majeure exist. For
any cause whatsoever, whether or not beyond the control of Eco
Soil or V.I.T., liability of either for failure or delay in
performances shall not include consequential damages.
K. DISCLAIMER OF AGENCY. This Agreement shall not constitute
either party the legal representative or agent of the other,
nor shall either party have the right or authority to assume,
create, or incur any liability or any obligation of any kind,
express or implied, against or in the name of, or on behalf of
the other party in any manner.
L. INTERPRETATION. The validity, interpretation, and performance
of this Agreement shall be controlled by and construed under
the laws of the state of California, the state in which this
Agreement is accepted.
M. ASSIGNMENT. The rights and obligations under this Agreement
may not be assigned by either party to any person, firm or
corporation without the prior written consent of the other
party first obtained. Any attempted assignment without such
other party's consent shall be null and void. Except as
limited by the preceding sentence, this Agreement shall be
binding upon and inure to the benefit of the parties hereto,
their successors and assigns.
N. HEADINGS. Paragraph headings are not to be considered part of
this Agreement and are included solely for convenience and are
not intended to be full or accurate descriptions of the
content thereof.
O. TIME OF ESSENCE. Time is of the essence in this Agreement and
the failure of either party to promptly pay when due any and
all payments, or perform any and all obligations required
herein, may be treated by the other party as a material breach
of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in San Diego, California, on the date appearing above.
ECO SOIL SYSTEMS, INC V.I.T. PRODUCTS, INC.
10890 Thornmint Road, Ste 200 10890 Thornmint Road, Ste 100
San Diego, CA 92127 San Diego, CA 92127
/s/William B. Adams /s/Arthur Arns
William B. Adams Arthur Arns
Chief Executive Officer Chief Executive Officer
APPENDIX "A"
Base Cost for Standard System
COMPONENT: Model 21124
UNIT COST PER TOTAL
QUANTITY UNIT COST
Submersible pump 1 786 786
Mounting Cradle 1 200 200
Control Center 1 1800 1800
Valve Center 2 292 584
Distribution Outlets 24 32 768
Injection Point Assembly 1 40.50 40.50
TOTAL COST: 4178.50
Agreement made this 8th day of December, 1992, by and between Eco Soil
Systems, Inc., a Nebraska Corporation whose address is 10890 Thornmint Road,
Suite 200, San Diego, California, 92127 (hereinafter referred to as Eco Soil
Systems) and the Wilbur Ellis Company whose western region United States
headquarters are located at 320 California Street, San Francisco, California,
94104 (hereinafter referred to as Wilbur Ellis western region).
Whereas Eco Soil Systems has developed a soil remediation/microbial
inoculation service and related organic granular and liquid nutrient program for
golf courses;
Whereas Wilbur Ellis western region is a company engaged in the
distribution of fertilizers, seed, chemicals and related products to golf
courses; and
Whereas Eco Soil Systems is interested in distributing its soil
remediation/microbial inoculation and fertilizer programs through Wilbur Ellis
in the western region, and Wilbur Ellis western region is interested in
obtaining the rights to sell Eco Soil Systems' products and services; IT IS
THEREFORE AGREED AS FOLLOWS:
1. TERM. The term of this Agreement is from the date above through
December 31, 1993. This Agreement is renewable annually thereafter, provided
that both parties agree on minimum purchases by Wilbur Ellis western region in
future terms.
2. GENERAL NATURE OF THE AGREEMENT. Eco Soil Systems and Wilbur Ellis
western region will work together to market Eco Soil Systems' soil
remediation/microbial inoculation service and nutrient program to golf courses
in the western region. Eco Soil Systems agrees to place a mobile laboratory or
provide remote tissue analysis by the following dates in the territories covered
by the following Wilbur Ellis western region branches:
* Chula Vista, CA October 1, 1992
* Pomona, CA November 30, 1992
* Fresno, CA December 15, 1992
* Phoenix, AZ February 1, 1993
Each mobile laboratory will be equipped with a near infrared spectrometer for
grass tissue analysis and other diagnostic and analytical equipment to perform
water and soil analysis and to maintain a database on the conditions at each
course. Eco Soil Systems will also supply the customer service representative
who is responsible for the operation of the mobile laboratory. In addition, Eco
Soil Systems will supply the soil remediation/microbial inoculation equipment,
liquid nutrient injection systems and aeration equipment that is necessary as
customers subscribe to its soil remediation program and/or nutrient programs.
Eco Soil Systems will be solely responsible for the proper operation and
performance of this equipment. Eco Soil Systems agrees that it will deal
exclusively with Wilbur Ellis western region in marketing these products and
services during the term of this Agreement and will not market the program
independently of Wilbur Ellis western region or seek other distributors, sales
agents, etc., in this territory. All products will be private labeled for Wilbur
Ellis western region with Wilbur Ellis western region and Eco Soil Systems' name
on all bags and containers.
3. ECO SOIL SYSTEMS' RESPONSIBILITIES:
3a. MARKETING: Eco Soil Systems agrees to take all reasonable actions
to co-market Eco Soil Systems' products and services (hereinafter referred to as
the Eco Soil Systems' "program") with Wilbur Ellis western region personnel in
the territory shown above. This includes working with Wilbur Ellis personnel in
identifying prospective accounts, soliciting customers, presenting and
explaining the program, developing formal proposals and cost estimates, and
closing sales.
3b. CUSTOMER SERVICE AND SUPPORT: Eco Soil Systems agrees to take all
reasonable steps to provide the service and support the program requires. In
each sale that includes a soil remediation/microbial-injection system, Eco Soil
Systems will assume complete responsibility and liability for the systems'
performance. The soil remediation/microbial inoculation service includes:
(1) Equipment (the Hydropro 3000) that automatically maintains
a high colony count of beneficial biological products in a closed
container and then injects these products into the irrigation water as
the water is dispersed out onto the course;
(2) Biological products which are dispensed directly into the
irrigation system. These products include, but are not limited to,
various proprietary microbial strains, oxygenators, and food sources
for the microbial strains, and other natural products;
(3) Service and maintenance that is required to install the
system and keep the system functioning in its normal and intended
manner; and
(4) A data base that utilizes regular water, soil, and tissue
samples so that the performance of the system can be monitored. This
data base is updated on a regular basis.
Eco Soil Systems agrees to take all reasonable
measures to insure that the soil remediation/microbial inoculation
system is operating properly.
These measures include:
(a) Initial installation and testing of the equipment to
ensure that it is operating properly;
(b) Regularly scheduled monthly service calls during which a
trained Eco Soil Systems' customer service representative will perform
the following tasks:
(1) inventory product and monitor product use to
ensure that adequate supplies of product are in the holding
and mixing tanks of the equipment until the equipment will be
serviced again;
(2) adjust the rate and mixture of the products that
are dispensed by the equipment so that the system performs at
an acceptable level and adjusts to changing conditions;
(3) perform preventative maintenance on the equipment
so that it continues to function normally; and
(4) construct and regularly update a data base for
the customer based on water, soil, and tissue samples.
(c) Perform any emergency maintenance in the event the
equipment breaks down and is no longer functioning as intended.
All equipment, products, materials, and other supporting items
provided to the golf course for use in the soil remediation/microbial
inoculation system are the property of Eco Soil Systems. The soil
remediation/microbial inoculation contract signed by a golf course is
not a lease of equipment but merely and agreement to provide a
comprehensive service that includes capital equipment, products and
materials. Upon termination of any contract, all such equipment,
products and materials will remain the property of Eco Soil Systems.
3c. NUTRIENT PROGRAM. Eco Soil Systems agrees that its organic granular
fertilizers and liquid nutrients will comply in all respects with their
specifications (or amendments thereto) at the time of each such delivery. Eco
Soil Systems shall not be liable for any consequential damages or for loss,
damage or expense directly or indirectly arising from the use of Product, or
from any other cause. Any Eco Soil Systems' liability is expressly limited to
the replacement of defective product and not for any value added to the
material. Every claim on account of defective product or workmanship or for any
other cause shall be deemed waived by Eco Soil Systems unless made in writing
within 90 days from the date of Wilbur Ellis western region' receipt of product
to which such claim relates. This shall be Wilbur Ellis western region'
exclusive remedy for breach of warranty. In no event shall Eco Soil Systems be
liable for any special, consequential or contingent damages resulting from
breach of warranty, delay of performance or any other default hereunder. Eco
Soil Systems specifically disclaims any liability for products altered in any
way after leaving its control.
Delivery shall occur and risk of loss shall pass to Wilbur Ellis
western region when the products are received at a Wilbur Ellis western region
facility. Eco Soil Systems shall not be responsible for any delays or damages in
shipment.
Prescriptions of all fertilizer products will be based on grass tissue
samples that are analyzed with a near infrared spectrometer in Eco Soil Systems'
mobile laboratories. It will be Eco Soil Systems responsibility to regularly
collect these tissue samples, analyze them with the near infrared spectrometer
and formulate a prescription of fertilizer products that efficiently supplies
the nutrient combinations that are required. Both Wilbur Ellis western region
and Eco Soil Systems will work jointly with the superintendent to ensure that
fertilizers prescribed are applied as per instructions. Eco Soil Systems shall
assume full responsibility and liability for the performance of all liquid
nutrient injection systems that are sold or rented by Eco Soil Systems/Wilbur
Ellis western region during the term of this Agreement, in conjunction with its
nutrient programs. Eco Soil Systems agrees to take all reasonable measures to
ensure that the liquid nutrient injection systems are operating properly. These
measures include:
(A) Initial installation and testing of the equipment to
ensure that it is operating properly; and
(B) Regularly scheduled monthly service calls during which a
trained Eco Soil Systems' customer service representative will perform
the following tasks:
(1) adjust the rate and mixture of products that are
dispensed by the equipment so that the system performs at an
acceptable level and adjusts to changing conditions;
(2) perform preventative maintenance on the equipment
so that it continues to function normally; and
(3) perform any emergency maintenance in the event
the equipment breaks down and is no longer functioning as
intended.
Eco Soil Systems will also be responsible for constructing a
data base that shows the changing conditions in each course's water,
soil and tissue as the program progresses. Copies of this data base
will be sent to Wilbur Ellis western region personnel.
4. WILBUR ELLIS WESTERN REGION RESPONSIBILITIES. Wilbur Ellis western
region agrees to the following:
4a. To purchase certain minimum quantities of product as shown in
Exhibit B. Purchases of a particular product that exceed the minimum shown in
Exhibit B will compensate for shortfalls against the minimum required purchases
of another product.
4b. To take all reasonable actions to co-market the Eco Soil Systems'
program in the territory. This includes:
1. Working with Eco Soil Systems' personnel in
identifying prospective accounts;
2. Soliciting customers;
3. Making presentations;
4. Developing formal proposals and cost estimates; and
5. Closing sales.
4c. To be responsible for billing sales of the Products to the end-user
(the Customer) and collecting any amounts owed from the Customer.
4d. To pay Eco Soil Systems for any product purchased no later than 30
days after delivery of the product.
5. PRICES. Sales prices of Eco Soil Systems products and services to
Wilbur Ellis western region and suggested retail selling prices are in Exhibit A
attached.
6. SOIL REMEDIATION/WATER TREATMENT COMMISSIONS. Wilbur Ellis western
region will take the following commissions out of the monthly water treatment
charge:
(1) 10% of the amount billed for the first three months in
which the customer incurs a monthly fee; and
(2) 20% of the monthly amount billed to the customer
thereafter.
The balance of the monthly water treatment charge will be paid to Eco
Soil Systems, Inc. In the event a water treatment customer defaults on their
payment obligations to Wilbur Ellis western region, and Wilbur Ellis western
region has already remitted to Eco Soil Systems its portion of these charges,
then Wilbur Ellis western region reserves the right to offset future payments to
Eco Soil Systems in the amount of the charges defaulted on by the water
treatment customer.
7. FERTIGATION/AERATION SALES. Wilbur Ellis western region will earn a
commission of 5% on all fertigation and aeration equipment sold by Eco Soil
Systems in the territory during the term of this Agreement.
8. COMPETING PRODUCTS. Wilbur Ellis western region agrees to
discontinue carrying all products which directly compete against the products
shown in Exhibit A. Directly competing products include, but not limited to, the
following granular organic products:
Ringer Greens Super 10-2-6
Ringer Greens 6-1-3
Ringer Turf Restore 10-2-6
Sustane 5-2-4
Competing products also include any foliar nutrients that are expressly
designed for turf and that reasonably match those being sold under the Eco Soil
program. Wilbur Ellis agrees not to bring in new products to compete with these
foliar products or to take existing products and redirect them into the turf
market. Existing products that are competitive with Eco Soil products, and that
are manufactured by Wilbur Ellis, fall outside of this definition of competing
products, providing they are not promoted as substitutes for Eco Soil products.
9. MANUFACTURING. Eco Soil Systems agrees to purchase all liquid
nutrients shown in Appendix A from Wilbur Ellis western region as soon as Wilbur
Ellis western region can demonstrate that products manufactured by Wilbur Ellis
western region are of a similar quality and perform in a similar fashion to the
existing liquids in Eco Soil Systems' product line. Eco Soil Systems will have
no obligation to purchase these liquid nutrients if the cost to Eco Soil Systems
exceeds the cost which Eco Soil Systems presently pays to it suppliers or if
such purchase violates its existing agreements with its suppliers. As of the
date of this Agreement, Eco Soil Systems, to the best of its knowledge, has no
agreements with its suppliers that would preclude it from purchasing liquid
nutrients from Wilbur Ellis western region. Eco Soil Systems agrees to work with
Wilbur Ellis western region to assist it in formulating and manufacturing
product to the extent that this does not violate terms of its existing
agreements with suppliers. Eco Soil Systems agrees to sell all products
manufactured by Wilbur Ellis western region back to Wilbur Ellis western region
at prices which allow Wilbur Ellis western region a minimum 33% mark-up, which
equates to a 25% gross margin.
10. TERMINATION. The parties recognize that prompt and full compliance
with the terms of this Agreement are essential, and the failure to perform
hereunder may be deemed a material breach of this Agreement creating in the
non-breaching party the right to treat the Agreement in default. Upon such
default and after sixty (60) days notice of default and the failure of the
defaulting party to remedy the default within such period, this Agreement may be
deemed terminated by the non-defaulting party, such party then having the right
to pursue such further remedies as it may deem appropriate, at law or otherwise.
In the event of termination, this Agreement shall remain applicable to
any order for Product which Wilbur Ellis western region has previously placed
and which has been accepted by Eco Soil Systems, Inc.
In the event of termination of this Agreement, Wilbur Ellis western
region shall promptly return to Eco Soil Systems all samples, descriptive
literature, or other materials pertaining to Products then remaining in its
possession.
11. MUTUAL PERFORMANCE.
11a. Non-disclosure. Each party, recognizing that it or its agents or
employees may obtain knowledge of confidential matters, trade secrets, and
techniques or other expertise developed by the other, agrees that it will take
all reasonable steps, at its sole expense, to protect said confidential
information, and that no party will divulge said confidential information at any
time, other than disclosures contemplated by the terms for this Agreement,
without prior written consent of the other party.
11b. Results. Each party agrees to promptly make available to one
another any and all results in development and experimentation with the Products
and further agrees not to publish the other party's results without first having
obtained written approval of the party providing the results, which shall not be
unreasonably withheld.
11c. Representatives of Warranties. Each of the parties hereto
represents and warrants as follows:
(1) It is duly organized and existing and in good standing
under applicable state law, and has the requisite authority to own or
operate its properties and assets, and to carry on its business as
presently conducted. Further, it is qualified to do business in
California and in each jurisdiction where failure to be qualified could
materially and adversely affect its business or financial condition.
(2) It has all requisite legal and corporate power to execute
and deliver this Agreement and to carry out and perform its obligations
under the terms of this Agreement, including all appendices hereto.
(3) All corporate actions on the part of the party, its
directors, stockholders or partners necessary for performance of its
obligations hereunder, have been duly and validly taken.
(4) The Agreement constitutes a valid and binding obligation,
enforceable in accordance with its terms, as to the party.
(5) It is not, and will not, by entering into and performing
this Agreement and the obligations contemplated herein, be in violation
of any term of its charter documents, or in any material respect be in
violation of or in default as to any other agreement, judgement or
decree by which it is bound, and to the best of its knowledge is not,
and will not by entering into and performing this Agreement, be in
violation of any applicable order, statute, rule or regulation.
12. MISCELLANEOUS PROVISIONS.
12a. Notices. Any and all notices provided herein shall be in writing
and delivered personally or sent by registered or certified mail with return
receipt requested, and confirmed by telegraph, telex or telefax to the other
party at the address hereinabove set forth, or at such other address as shall be
designated from time to time by the parties. Notice shall be deemed to be
effective upon personal service or transmittal of telegraph, telex or telefax or
upon the date of receipt indicated on the postal proof of delivery, whichever
date is earlier.
12b. Amendments. This instrument contains all of the agreements,
understanding, representations, conditions, warranties, and covenants made
between the parties hereto. Unless set forth herein, neither party shall be
liable for any representations made, and all modifications and amendments hereto
must be in writing and signed by both parties.
12c. Authority to Enter into the Agreement. Each of the parties
represents that it has full power and authority to enter into this Agreement.
12d. Waiver. The failure of either party at any time to require
performance by the other party of any provision hereof shall not affect in any
way the right to require such performance at any time thereafter. Nor shall a
waiver by either party of a breach of any provision hereof be taken or held to
be a waiver of the provision itself.
12e. Separability. Each of the terms of the Agreement is exclusive and
the invalidity of one or more terms shall not void or make voidable any other
terms of the Agreement.
12f. Costs of Default. The parties agree that in the event of a default
of a term or condition of this Agreement, the defaulting party shall be liable
for reasonable attorneys fees and costs in the event of engagement of legal
counsel to represent the non-defaulting party's interests.
12g. Integration. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties and there
are no warranties, representation or agreements among the parties in connection
with the subject matter hereof except as set forth or referred to herein.
12h. Binding Effect and Assignment. This Agreement shall inure to the
benefit of and bind the parties' successors, assigns, transferee, heirs and
personal representatives.
12i. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original, but all of which taken
together shall constitute one and the same document.
12j. Force Majeure. The obligations of either party hereunder shall be
excused by reason of fire, explosion, or flood, or other actions of the
elements, strikes, labor disputes however caused, accidents, acts of public
enemies, lawful rules and regulations or order of any court or any civil or
military authority, loss or shortage of raw materials, supplies or energy
sources or failure of usual means of supply and other causes beyond the
reasonable control of any of the parties.
In the event that any of the parties is prevented by any of the
contingencies of the type set forth is this subparagraph, said party shall be
free of all liability as would otherwise be determined by the requirements of
this Agreement, but only for so long as the circumstances for force majeure
exist. For any causes whatsoever, whether or not beyond the control of Wilbur
Ellis western region or Eco Soil Systems, liability of either for failure or
delay in performance shall not include consequential damages.
12k. Disclaimer of Agency. This Agreement shall not constitute either
party the legal representative or agent of the other, nor shall either party
have the right or authority to assume, create, or incur any liability or any
obligation of any kind, express or implied, against or in the name of or on
behalf of the other party in any matter.
12l. Interpretation. The validity, interpretation, and performance of
this Agreement shall be controlled by and construed under the laws of the State
of California, the state in which this Agreement is accepted.
12m. Assignment. The rights and obligations under this Agreement may
not be assigned by either party to any person, firm or corporation without the
prior written consent of the other party first obtained. Any attempted
assignment without such other party's consent shall be null and void. Except as
limited by the preceding sentence, this Agreement shall be binding upon and
inure to the benefit of the parties hereto, their successors and assigns.
12n. Headings. Paragraph headings are not to be considered part of this
Agreement and are included solely for convenience and are not intended to be
full or accurate descriptions of the content thereof.
12o. Time of Essence. Time is of the essence in this Agreement an the
failure of either party to promptly pay when due any and all payments, or
perform any and all obligations required herein, may be treated by the other
party as a material breach of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in San Diego, California, on the date above appearing.
ECO SOIL SYSTEMS, INC. WILBUR ELLIS COMPANY - WESTERN REGION
10890 THORNMINT ROAD, STE. 200 320 CALIFORNIA STREET
SAN DIEGO, CA 92127 SAN FRANCISCO, CA 94104
/s/ William B. Adams /s/ Frank L. Saviez
- ----------------------- ----------------------------
WILLIAM B. ADAMS FRANK L. SAVIEZ
CHAIRMAN OF THE BOARD AND VICE PRESIDENT
CHIEF EXECUTIVE OFFICER WILBUR-ELLIS COMPANY
P.O. BOX 1286
FRESNO, CA 93715
<TABLE>
<CAPTION>
APPENDIX
NORTHERN CALIFORNIA
TOTAL UNITS COST TOTAL $ (IN 000'S)
<C> <C> <C> <C>
0-0-34 125 tons $430.00/Ton $54.0
6-2-12 100 tons $550.00/Ton $55.0
10-2-12 100 tons $550.00/Ton $55.0
Fertigation Liquids 5000 gals $7.00/Gallon $35.0
Greens & Tees Liquids 11000 gals $11.00/Gallon $121.0
$320.0
LOS ANGELES
0-0-34 258 tons $430.00/Ton $111.0
6-2-12 188 tons $550.00/Ton $103.0
Fertigation Liquids 16,000 gals $7.00/Gallon $112.0
Greens & Tees Liquids 16,000 gals $11.00/Gallon $176.0
$502.0
SAN DIEGO
0-0-34 230 tons $430.00/Ton $99.0
6-2-12 188 tons $550.00/Ton $103.0
Fertigation Liquids 18,000 gals $7.00/Gallon $126.0
Greens & Tees Liquids 16,000 gals $11.00/Gallon $176.0
$504.0
ARIZONA
0-0-34 88 tons $430.00/Ton $38.0
6-2-12 66 tons $550.00/Ton $36.0
Fertigation Liquids 6000 gals $7.00/Gallon $42.0
Greens & Tees Liquids 10,000 gals $11.00/Gallon $110.0
$226.0
GRAND TOTAL WESTERN REGION $1,552.0
</TABLE>
WILBUR-ELLIS COMPANY/WESTERN DIVISION
2803 S. CEDAR AVENUE
FRESNO, CA 93725
P.O. BOX 1286
FRESNO, CA 93715
PHONE: (209) 442-1220
FAX: (209) 442-4089
July 26, 1995
Mr. William B. Adams
ECO Soil Systems
10890 Thornmint Road, Suite 200
San Diego, CA 92127
RE: MARKETING AGREEMENT FOR LINK NUTRIENT LINE
Dear Bill:
The future for both Wilbur-Ellis and ECO Soil Systems lies in our
ability to generate needed revenues required to run our respective businesses.
The following marketing agreement is designed to jointly address the needs of
both companies with regard to the LINK Nutrient Line and a modified Tee to Green
program for northern California. The goal of the agreement set forth below is to
streamline our combined businesses and allow for the strengths of both companies
to grow.
1. Letter Agreement. Upon your execution on the last page, this letter
will constitute a marketing agreement (the "Agreement") between ECO Soil
Systems, Inc. ("Eco") of San Diego and Wilbur-Ellis Company ("Wilbur-Ellis")
operating through its Western Division headquartered in Fresno, California. This
Agreement will begin on the date of your signature, subject to the requirement
that you return a fully executed copy of this Agreement to the undersigned
within three (3) days after the date you sign it and subject to the further
requirement that the date of your signature be not more than ten (10) days after
the date it has been signed by Wilbur-Ellis. This Agreement shall continue until
terminated in accordance with the terms set forth below.
2. Liquid Nutrient Line.
(a) Product. Wilbur-Ellis will formulate all Eco liquid plant
nutrients which are currently distributed by the retail personnel of
Wilbur-Ellis. This new Wilbur-Ellis line of products will be named "LINK." The
LINK line shall initially consist of the products, copies of the labels for
which are attached and collectively marked Addendum 1. At Eco's written request
and written acceptance thereof by Wilbur-Ellis, Wilbur-Ellis will also formulate
liquid plant nutrient products for Eco under Eco's current label and brand
identification for sale outside of Wilbur-Ellis' current sphere of influence.
(b) Formulas. The parties agree that the formulas and
ingredients for the initial line of LINK products shall be those set forth in
the sheets collectively attached hereto as Addendum 2. Wilbur-Ellis and Eco
shall report, and cause their respective personnel to report, any problems
regarding formulas or formulation to Wilbur-Ellis in Fresno as soon as possible
for analysis by Wilbur-Ellis.
(c) Labels. Wilbur-Ellis shall be responsible for the accuracy
of labels and the registration of all products carrying the LINK name. Eco shall
be responsible for the accuracy of all labels and the registration of all
products carrying the Eco brand. Eco shall also be responsible for the supply of
Eco labels to Wilbur-Ellis if Wilbur-Ellis formulates the Eco brand for Eco.
(d) Price. Wilbur-Ellis will suggest the retail price for all
LINK products. Addendum 3 attached hereto sets forth such initial suggested
retail prices for LINK products initially covered by this Agreement.
Wilbur-Ellis will pay to Eco a commission on all pull-through sales of LINK
products. The initial amount of such commission on each LINK product initially
covered by this Agreement is set forth on Addendum 4. Wilbur-Ellis will pay such
commissions to Eco within ten (10) days after the end of each calendar quarter
during the term of this Agreement. If Wilbur-Ellis manufactures branded nutrient
products for Eco for sales by Eco under Eco's label or under the label of a
third party outside the retail arena of Wilbur-Ellis, Eco agrees to pay to
Wilbur-Ellis a price equal to Wilbur-Ellis' internal transfer price. The
internal transfer price of Wilbur-Ellis for the initial products within the LINK
line are set forth on Addendum 5 to this Agreement. Addendum 5 also sets forth
certain additional terms with respect to such transactions, which terms are
incorporated into this Agreement. As noted within Addendum 5, Eco shall pay such
internal transfer price to Wilbur-Ellis within thirty (30) days after billing by
Wilbur-Ellis.
3. Modified Tee to Green Program.
(a) Description. Commencing with the effective date of this
Agreement, Wilbur-Ellis will offer a modified Tee to Green program in the State
of California, north of the Tehachapi mountains (the "Modified Tee to Green
Program"). The participation of the parties in the Modified Tee to Green Program
described in this Agreement differs from the participation of the parties in the
previous Tee to Green program.
(b) Wilbur-Ellis Participation in Modified Tee to Green
Program. Under the Modified Tee to Green Program, Wilbur-Ellis shall:
(i) Solicit Modified Tee to Green Program customers
within the geographical area of such Program;
(ii) Collect, dry and ship, via overnight mail,
tissue samples with work orders to Eco on a quarterly basis;
(iii) Suggest the retail price and/or nutrient
program and be responsible for the participation levels of retail
customers;
(iv) Make quarterly recommendations to retail
customers;
(v) Feature LINK brand nutrients and Eco brand
organic granules in their quarterly recommendations;
(vi) Supply Eco with a monthly readout of LINK brand
liquid materials pulled through the system; and
(vii) Pay to Eco within ten (10) days after the end
of each calendar quarter covered by the terms of this Agreement a
commission on all LINK brand liquid materials pulled through the system
based initially on Addendum 4 hereto and, thereafter, on such
commission as may be agreed upon between the parties on an annual basis
as set forth below.
(c) Eco's Participation in Modified Tee to Green Program.
Under the Modified Tee to Green Program, Eco shall:
(i) Run all tissue samples received from Wilbur-Ellis
immediately;
(ii) Fax and/or mail hard copies to Wilbur-Ellis in
Fresno of the results of such tissue sample runs referred to above
without delay; and
(iii) Bill to Wilbur-Ellis, on a monthly basis,
$10.00 for each tissue sample run, utilizing work orders to detail the
actual branch participating, which amounts Wilbur-Ellis agrees to pay
to Eco within ten (10) days of receiving the bills therefor.
(d) Potential Addition of Southern California at Later Date.
Provided the parties enter into a written and signed addendum to this Agreement
to do so, the Modified Tee to Green Program may be instituted for the State of
California south of the Tehachapi mountains at a later time.
4. Renewal and Termination of Agreement.
(a) Initial Term and Renewal. This Agreement shall have an
initial term which begins on the date described in Paragraph 1 above, and which
terminates on December 31, 1995. This Agreement shall continue for calendar
year0 1996 if, prior to the end of 1995 the parties agree upon the following
items for such calendar year 1996:
(i) The products constituting the LINK product line,
whether different from or the same as the products described in
Paragraph 2(a) above;
(ii) The formulas for and ingredients within the
products constituting the LINK product line, whether different from or
the same as those described in Paragraph 2(b);
(iii) The commissions and internal transfer prices
for LINK and Eco products, whether the same as or different from those
described in Paragraph 2(d) above;
(iv) The commission on LINK brand liquid materials
pulled through the system under the Modified Tee to Green Program,
whether different from or the same as that described in Paragraph
3(b)(7) above; and
(v) Any new or changed obligations of the parties or
features of the Modified Tee to Green Program described above.
If there are no changes to the terms of this
Agreement for calendar year 1996, this Agreement shall, nonetheless,
not renew unless the parties execute a writing to that effect prior to
the end of 1995. This Agreement may be renewed on a calendar year basis
for calendar years after 1996, provided it is renewed in the same
fashion as required for calendar year 1996.
(b) Modifications Prior to Year End. Modifications of any of
the terms of this Agreement may be made prior to the end of a calendar year, but
shall only be effective if executed in writing by both parties.
(c) Continuing Payment Obligation. The termination of this
Agreement at the end of a calendar year or otherwise shall not, however, relieve
any party of obligations for payment or otherwise which have accrued under this
Agreement prior to its termination.
(d) Breach. This Agreement may be terminated by either party
for the material breach of the terms hereof by the other party, provided the
non-breaching party has given notice to the breaching party of the items
constituting the breach and the breaching party has not cured those items within
thirty (30) days after the notice is given. In the event of such termination,
the non-breaching party must give written notice of termination after the
expiration of the period to cure the items constituting the breach. This
Agreement may also be terminated by either party immediately upon the insolvency
or assignment for the benefit of creditors of the other party.
5. Miscellaneous.
(a) Assignment. This Agreement and the rights and obligations
hereunder may be assigned by either party hereto, and such party may delegate
its duties hereunder, provided that such assignment or delegation shall not
relieve the assigning or delegating party of its obligations hereunder.
(b) Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of California.
(c) Notices. All notices hereunder shall be in writing and
shall be deemed given if delivered personally, telecopied (with receipt
confirmed), or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
If to Wilbur-Ellis, to:
Wilbur-Ellis Company/Western Division
2903 S. Cedar Avenue
Fresno, CA 9 3725
(P.O. Box 1286, Fresno, CA 93715)
FAX: 209-442-4089
If to Eco, to:
Eco Soil Systems
10890 Thornmint Road, Suite 200
San Diego, CA 92127
FAX: 619-675-1662
Executed by the parties at the places and on the dates set forth below:
"WILBUR-ELLIS"
Wilbur-Ellis Company
Fresno, California By /s/ Gary Dutto
July 26, 1995 Gary Dutto
Western Division Manager
Accepted and agreed to this 15th day of August, 1995, at San Diego,
California.
"ECO"
Eco Soil Systems, Inc.
By /s/ William B. Adams
William B. Adams
Chief Executive Officer
March 6, 1996
Mr. William B. Adams
Chairman/C . E. O.
Eco Soil Systems
10890 Thornmint Road, Ste. 200
San Diego, CA 92127
Dear Bill:
Based on our discussions concerning the financing of Eco Soil Systems
("Borrower"), and based on our review of the information provided, Imperial Bank
("Bank") is pleased to provide financing as follows. This commitment is subject
to the conditions set forth herein.
1. LINE OF CREDIT
1.1 Availability: A $500,000 Revolving Line of Credit expiring on
April 30, 1997.
1.2 Pricing: Interest on the unpaid principal balance of the line
shall be payable monthly at the rate of two percent (2.0%)
above the Bank's Prime Rate of interest, which is the rate
announced by the Bank's Corporate Headquarters as its Prime
Rate, and which shall very concurrently with any change in
such rate. Interest shall be computed on the basis of actual
number of days during which the principal outstanding is
divided by 360 which, for the purposes of interest
computation, will be considered one year. A facility fee of
$5,000, one percent (1.0%), will be charged upon inception.
1.3 Collateral: First priority security interest in all assets of
the Borrower excluding leased assets.
1.4 Warrants: Concurrently with the execution of the loan
documents, Borrower shall execute and issue to Bank a warrant
with respect to shares of voting common stock of Borrower with
a purchase price representing 12-1/2 % of the total commitment
or $62,500 at the current market value of the Borrower as
mutually agreed between Bank and Borrower on a fully diluted
basis. The warrant shall have a term of 5 years and an initial
exercise price per share to be determined. The warrant shall
include standard and customary issue representations,
warranties and covenants, as well as antidilution provisions,
put provisions, registration rights, and such other provisions
as Bank shall require, all in form and substance satisfactory
to Bank. Bank shall receive on or prior to the closing of the
loan, an opinion of Borrowers counsel with respect to the
warrant, in form and substance satisfactory to Bank.
1.5 Annual 30 day clean up period.
2. CALIFORNIA EXPORT FINANCE (CEFO) LINE
2.1 Availability: A $500,000 Revolving Line of Credit to finance
exports. Availability is based on a CEFO guarantee for 90%
expiring on April 30, 1997.
2.2 Pricing: Interest on the unpaid principal balance of the line
shall be payable monthly at the rate of one and one half
percent (1.5%) above the Bank's Prime Rate of interest, which
is the rate announced by the Bank's Corporate Headquarters as
its Prime Rate, and which shall very concurrently with any
change in such rate. Interest shall be computed on the basis
of actual number of days during which the principal
outstanding is divided by 360 which, for the purposes of
interest computation, will be considered one year. A facility
fee of $5,000, one percent (1.0%), will be charged upon
inception.
2.3 Collateral: First priority security interest in all assets of
the Borrower excluding leased assets.
3. GENERAL CONDITIONS
The extensions of credit would necessarily be subject to the
fulfillment of a number of conditions, including but not limited to the
following:
3.1 The execution and delivery in form and substance acceptable to
Bank, agreements, documents, instruments, financing
statements, consents, evidences of corporate authority,
certificates, insurance certificates, opinions of counsel, and
other such writings to confirm and effectuate the lending
transaction as may be required by Bank and its counsel.
3.2 No material adverse change in the business, operations,
profits, or prospects of Borrower or in the condition of the
assets of the above prior to funding of these financial
accommodations.
3.3 Negotiation and execution of a satisfactory loan agreement
which will include, but not be limited to financial covenants
mutually acceptable to Borrower and Bank.
3.4 Borrower to pay a $250.00 documentation fee.
3.5 All significant deposit accounts of Eco Soil Systems to be
domiciled at Imperial Bank.
3.6 Verification of completion all proposed new sub debt and
equity fundings in the minimum amount of $2,960,000.
3.7 Guarantee of William B. Adams.
REPORTING REQUIREMENTS:
a. Internally prepared monthly financial statements within 30
days of month end. A/R, A/P and Inventory reports to be
provided within 20 days of month end.
b. Annually audited consolidating financial statements from
independent CPA's satisfactory to Bank for Eco Soil Systems to
be provided within 90 days of fiscal year end.
c. Annual financial statement of William B. Adams and Federal Tax
Returns.
We hope this commitment is acceptable to you and request that you execute the
enclosed copy of this letter and return it to us prior to March 15, 1996 at
which time this commitment will expire if unaccepted. Imperial Bank looks
forward to a long and mutually rewarding relationship with your company, and we
hope to assist you in achieving your goals of growth and profitability. Please
do not hesitate to contact us if you have any questions regarding this
commitment.
Sincerely,
IMPERIAL BANK
By:/s/ Chris Woolley By: /s/Jed Harris
Chris Woolley Jed Harris
Senior Vice President Regional Vice President
Accepted and agreed:
Eco Soil Systems
By:______________________
William B. Adams
Date____________________
IMPERIAL BANK 04/03/96
701 B Street
San Diego, California 92101
Subject: CREDIT TERMS AND CONDITIONS
Gentlemen:
To induce you ("Bank") to make loans to Eco Soil Systems, Inc. (herein called
"Borrower"), and in consideration of any loan or loans you, in your sole
discretion, may make to Borrower, Borrower warrants and agrees as follows:
A. Borrower Represents and Warrants that:
1. EXISTENCE AND RIGHTS. Borrower is a corporation. Borrower is duly
organized and existing and in good standing under the laws of the State of
Nebraska, without limit as to the duration of its existence and is authorized
and in good standing to do business in the State of California; Borrower has
powers and adequate authority, rights and franchises to own its property and to
carry on its business as now conducted, and is duly qualified and in good
standing in each State in which the character of the properties owned by it
therein or the conduct of its business makes such qualification necessary; and
Borrower has the power and adequate authority to make and carry out this
Agreement. Borrower has no investment in any other business entity.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of
this Agreement are duly authorized and do not require the consent or approval of
any governmental body or other regulatory authority; are not in contravention of
or in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, or Articles of Association, as the case may
be, and this Agreement is the valid, binding and legally enforceable obligation
of Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it or any of
its property may be bound or affected, and do not cause any lien, charge or
other encumbrance to be created or imposed upon any such property by reason
thereof.
4. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority. Borrower also agrees to notify you in
writing of any future litigation threatened against or affecting borrower.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of 12-31-95,
and the related profit and loss statement for the year ended on that date, a
copy of which has heretofore been delivered to you by Borrower, and all other
statements and data submitted in writing by Borrower to you in connection with
this request for credit are true and correct, and said balance sheet and profit
and loss statement truly present the financial condition of Borrower as of the
date thereof and the results of operations for the period covered thereby, and
has been prepared in accordance with generally accepted accounting principles on
a basis consistently maintained. Since such date there have been no material
adverse changes in the ordinary course of business. Borrower has no knowledge or
any liabilities, contingent or otherwise, at such date not reflected in said
balance sheet, and Borrower has not entered into any special commitments or
substantial contracts which are not reflected in said balance sheet, other than
in the ordinary and normal course of its business, which may have a materially
adverse effect upon its financial condition, operations or business as not
conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the same
are not subject to any liens or encumbrances other than those permitted by
Section C.3 hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state,
local or federal taxes, and, if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
9. REGULATION U. The proceeds of the notes have not been used to
purchase or carry margin stock (as defined within Regulation U of the Board of
Governors of the Federal Reserve system).
B. Borrower agrees that so long as it is indebted to you, under borrowings, or
other indebtedness, it will, unless you shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all
its other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by
appropriate proceedings in such manner as not to cause any materially
adverse effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated
to the extent required by generally accepted accounting practice)
deemed by it adequate with respect thereto.
4. NET WORTH AND WORKING CAPITAL. Maintain a minimum tangible net worth
(meaning the excess of all assets, excluding any value for goodwill, trademarks,
patents, copyrights, proprietary rights, leaseholds, organization expense and
other similar intangible items, over its liabilities) plus subordinated debt of
not less than $1,500,000; maintain net current assets (i.e.;working capital) of
not less than $500,000 and; maintain a ratio of current assets to current
liabilities not less than 1.3 to 1.0; maintain a ratio of debt to tangible net
worth and sub debt not to exceed 2.0 to 1.00; all as computed and determined in
accordance with generally accepted accounting principles on a basis consistently
maintained by Borrower.
5. RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit your representatives to have access to,
and to examine its properties, books and records at all reasonable times during
normal business hours; and furnish you:
(a) As soon as available, and in any event within 30 after the
close of each month of each fiscal year of Borrower, commencing with
the month next ending, a consolidating balance sheet, profit and loss
statement and reconciliation of Borrower's capital accounts as of the
close of such period and covering operations for the portion of
Borrower's fiscal year ending on the last day of such period, all in
reasonable detail and stating in comparative form the figures for the
corresponding date and period in the previous fiscal year, prepared in
accordance with generally accepted accounting principles on a basis
consistently maintained by Borrower and certified by an appropriate
officer of Borrower, subject, however, to year-end audit adjustments;
(b) As soon as available, and in any event within 120 days
after the close of each fiscal year of Borrower, a report of audit of
Company as of the close of and for such fiscal year, all in reasonable
detail and stating in comparative form the figures as of the close of
and for the previous fiscal year, with the unqualified opinion of
accountants satisfactory to you;
(c) Within one hundred twenty (120) days after the end of each
fiscal year of Borrower, a certificate of chief financial officer of
Borrower, stating that Borrower has performed and observed each and
every covenant contained in this Letter to be performed by it and that
no event has occurred and no condition then exists which constitutes an
event of default hereunder or would constitute such an event of default
upon the lapse of time or upon the giving of notice and the lapse of
time specified herein; or, if any such event has occurred or any such
condition exists, specifying the nature thereof;
(d) Promptly after the receipt thereof by Borrower, copies of
any detailed audit reports submitted to Borrower by independent
accountants in connection with each annual or interim audit of the
accounts of Borrower made by such accountants;
(e) Promptly after the same are available, copies of all such
proxy statements, financial statements and reports as Borrower shall
send to its stockholders, if any, and copies of all reports which
Borrower may file with the Securities and Exchange Commission or any
governmental authority at any time substituted therefor;
(f) Accounts Receivable and Accounts Payable Agings within 20
days of month end;
(g) Such other information relating to the affairs of Borrower
as you reasonably may request from time to time;
(h) Guarantor Financial Statement and Tax Return annually; and
(i) Quarterly verification of guarantor's liquid assets.
6. NOTICE OF DEFAULT. Promptly notify the Bank in writing of the
occurrence of any event of default hereunder upon the notice and lapse of time.
C. Borrower agrees that so long as it is indebted to you, it will not, without
your written consent:
1. TYPE OF BUSINESS. Management; make any substantial change in the
character of its business; or make any change in its executive management.
2. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from you and additional
subordinated debt except obligations now existing as shown in the financial
statement dated 12-31-95, excluding those being refinanced by your bank; or sell
or transfer, either with or without recourse, any accounts or notes receivable
or any moneys due to become due.
3. LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage,
pledge, encumbrance, lien or charge of any kind (including the charge upon
property at any time purchased or acquired under conditional sale or other title
retention agreement) upon any asset now owned or hereafter acquired by it, other
than liens for taxes not delinquent and liens in your favor.
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or
advances to any person or other entity other than in the ordinary course and
normal course of its business as now conducted or make any investment in the
securities of any person or other entity other than the United States
Government; or guarantee or otherwise become liable upon the obligation of any
person or other entity, except by endorsement of negotiable instruments for
deposit or collection in the ordinary and normal course of its business.
5. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase
or otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings therefor;
or sell any assets except in the ordinary and normal course of its business as
now conducted; or sell, lease, assign, or transfer any substantial pan of its
business or fixed assets, or any property or other assets necessary for the
continuance of its business as now conducted, including without limitation the
selling of any property or other asset accompanied by the leasing back of the
same. The acquisition of Turf Products Ltd. is permitted.
6. DIVIDENDS, STOCK PAYMENTS. If a corporation, declare or pay any
dividend (other than dividends payable in common stock of Borrower) or make any
other distribution on any of its capital stock now outstanding or hereafter
issued or purchase, redeem or retire any of such stock.
7. CAPITAL EXPENDITURES. Make or incur obligations for capital
expenditures in excess of $500,000 in the period from the date hereof to 4-30-97
in the period from the date in any one fiscal year thereafter.
8. LEASE LIABILITY. Make or incur liability for payments of rent under
leases of real property in excess of $200,000 and personal property in excess of
$500,000 in any one fiscal year.
D. The occurrence of any of the following events of default shall, at your
option, terminate your commitment to lend and make all sums of principal and
interest then remaining unpaid on all Borrower's indebtedness to you immediately
due and payable, all without demand, presentment or notice, all of which are
hereby expressly waived:
1. FAILURE TO PAY NOTE. Failure to pay any installment of principal of
or interest on any indebtedness of Borrower to you.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Letter of Inducement binding upon Borrower.
3. BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be false or misleading in any
material respect.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admit its inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against Borrower or any
of its assets and shall remain unvacated, unbonded or unstayed for a period of
10 days or in any event later than five days prior to the date of any proposed
sale thereunder.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.
E. Miscellaneous Provisions.
1. 30 DAY OUT OF DEBT PERIOD. The Borrower must payoff the Revolving
Line and maintain a minimum 30 consecutive days out of debt in each 12 month
period.
2. CEFO FACILITY. The CEFO facility is available only on CEFO approved
guaranteed transactions. Borrower shall pay all CEFO fees and expenses.
3. GUARANTEE. Both credit facilities are to be guaranteed by William
Adams.
4. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Imperial Bank or any holder of Notes issued hereunder, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this agreement or any note issued in
connection with a loan that Imperial Bank may make hereunder, are cumulative to,
and not exclusive of, any rights or remedies otherwise available.
5. LOAN FEE. The fees payable upon execution of this agreement are
$5,000 on the Revolving Line and $5,000 on the CEFO facility.
ECO SOIL SYSTEMS, INC.
By: William B. Adams
Date: April 9, 1996
EXHIBIT 11.1
ECO SOIL SYSTEMS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED NINE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
1994 1995 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Net loss $(2,816) $(1,836) $ (568) $(1,618) $(1,197) $(2,431)
Average common shares
outstanding 3,563 4,213 4,190 4,986 4,310 5,056
Net effect of dilutive common
share equivalents based on the
treasury stock method -- -- -- -- -- --
Adjustments to reflect
requirements of the Securities
and Exchange Commission
(Effect of SAB 83) 994 994 994 994 994 994
Adjusted shares outstanding 4,557 5,207 5,184 5,980 5,304 6,050
Net loss per share reflecting
requirements of the SEC $ (0.62) $ (0.35) $(0.11) $ (0.27) $ (0.23) $ (0.40)
</TABLE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data," and "Experts" and to the use of our report
dated August 14, 1996 (except for Note 10, as to which the date is September
25, 1996) in the Registration Statement on Form SB-2 and related Prospectus
of Eco Soil Systems, Inc., for the registration of 3,450,000 shares of its
common stock.
ERNST & YOUNG LLP
San Diego, California
November 7, 1996
EXHIBIT 23.3
CONSENT OF BIGELOW & COMPANY, CPA, P.C., INDEPENDENT AUDITORS
We consent to the use of our report dated July 30, 1996, with respect to the
financial statements of Turf Specialty, Inc., as a subsidiary of Eco Soil
Systems, Inc., which financial statements are not included in the
Registration Statement on Form SB-2 and related Prospectus of Eco Soil
Systems, Inc., for the registration of its common stock.
BIGELOW & COMPANY
Certified Public Accountants, P.C.
By:
Marie C. McKay
Certified Public Accountant
November 7, 1996
Manchester, New Hampshire
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated October 3, 1996, with respect to
the financial statements of Turf Products, Ltd. in the Registration Statement
on Form SB-2 and related Prospectus of Eco Soil Systems, Inc. for the
registration of 3,450,000 shares of its common stock.
ERNST & YOUNG LLP
San Diego, California
November 7, 1996
EXHIBIT 23.5
CONSENT OF BIGELOW & COMPANY, CPA, P.C., INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated July 19, 1996, with respect to the financial
statements of Turf Specialty, Inc., included in the Registration Statement on
Form SB-2 and related Prospectus of Eco Soil Systems, Inc., for the
registration of its common stock.
BIGELOW & COMPANY
Certified Public Accountants, P.C.
By:
Marie C. McKay
Certified Public Accountant
November 7, 1996
Manchester, New Hampshire
November 8, 1996
CONSENT OF BROWN MARTIN HALLER & McCLAIN LLP
Brown Martin Haller & McClain LLP consents to reference to the firm under the
caption "Experts" in the Prospectus and in other appropriate portions of the
Registration Statement if, and only if, each such reference is accompanied by
the express qualification that our firm's expertise is limited solely to
intellectual property law matters of Eco Soil Systems and does not extend to any
other legal matters of Eco Soil Systems or to any other aspects of Eco Soil
Systems' business.
/s/ Brown Martin Haller & McClain LLP
Brown Martin Haller & McClain LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1995 AND AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 0 437
<SECURITIES> 0 0
<RECEIVABLES> 1,231 3,191
<ALLOWANCES> 24 83
<INVENTORY> 592 2,059
<CURRENT-ASSETS> 1,875 6,325
<PP&E> 2,239 3,340
<DEPRECIATION> (905) (1,280)
<TOTAL-ASSETS> 3,981 13,979
<CURRENT-LIABILITIES> 3,199 10,200
<BONDS> 0 0
0 0
0 0
<COMMON> 8,535 12,717
<OTHER-SE> 0 167
<TOTAL-LIABILITY-AND-EQUITY> 3,981 13,979
<SALES> 2,425 7,682
<TOTAL-REVENUES> 3,757 9,229
<CGS> 1,604 5,143
<TOTAL-COSTS> 1,980 5,705
<OTHER-EXPENSES> 3,351 5,432
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 262 523
<INCOME-PRETAX> (1,836) (2,431)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,836) (2,431)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,836) (2,431)
<EPS-PRIMARY> (.35) (.40)
<EPS-DILUTED> (.35) (.40)
</TABLE>
