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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------
FORM 10-Q
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
- ---
1934.
For the quarterly period ended June 30, 1999
__ Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ___________ to ___________
Commission File Number: 0-21975
ECO SOIL SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
NEBRASKA 47-0709577
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10740 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
(Address, Including Zip Code, of Principal Executive Offices)
(858) 675-1660
(Registrant's Telephone Number, Including Area Code)
Check whether the Registrant (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 4, 1999, 17,677,526
shares of the Registrant's Common Stock, $.005 par value per share, were
outstanding.
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ECO SOIL SYSTEMS, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and 3
December 31, 1998
Condensed Consolidated Statements of Operations for the Three 4
Months and Six Months Ended June 30, 1999 and June 30, 1998
(unaudited)
Consolidated Statements of Cash Flows for the Six Months Ended 5
June 30, 1999 and June 30, 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results 8
of Operation
Item 3 Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Changes in Securities and Use of Proceeds N/A
Item 3 Defaults Upon Senior Securities N/A
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 18
</TABLE>
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PART I
Item 1. Financial Information
Eco Soil Systems, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,060 $ 3,410
Accounts receivable, net of allowance for doubtful accounts of $1,938 and $1,261
at June 30, 1999 and December 31, 1998, respectively 29,386 13,523
Finished goods inventory 17,769 10,475
Prepaid expenses and other current assets 7,599 6,288
------------ ------------
Total current assets 59,814 33,696
Equipment under construction 2,038 2,823
Equipment under operating leases, net 7,888 8,019
Property and equipment, net 7,420 5,541
Intangible assets, net 14,005 14,571
Other assets 2,271 2,355
------------ ------------
Total assets $ 93,436 $ 67,005
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 35,772 $ 8,037
Accrued expenses 5,673 7,061
Current portion of long-term obligations 10,199 178
------------ ------------
Total current liabilities 51,644 15,276
Long-term obligations, net of current portion 15,262 22,620
Deferred gain on sale/leaseback of building 538 566
Commitments
Shareholders' equity:
Preferred stock
$.005 par value; 5,000,000 shares authorized; none issued and outstanding - -
Common stock 87 85
$.005 par value; 50,000,000 shares authorized; 17,434,043 and
17,064,576 shares issued and outstanding at June 30, 1999 and
December 31, 1998, respectively
Additional paid-in capital 52,499 51,485
Warrants 1,125 958
Notes receivable from shareholders (4) (15)
Accumulated deficit (27,715) (23,970)
------------ ------------
Total shareholders' equity 25,992 28,543
------------ ------------
Total liabilities and shareholders' equity $ 93,436 $ 67,005
------------ ------------
------------ ------------
</TABLE>
See accompanying notes
Note: The balance sheet at December 31, 1998 is derived from the audited
financial statements at that date, but does not include all of the
disclosures required by generally accepted accounting principles.
3
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Eco Soil Systems, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Turf Partners $ 34,164 $ 20,728 $ 45,823 $ 29,130
Agricultural Supply 6,509 6,156 12,102 6,163
----------- ----------- ----------- -----------
Total revenues 40,673 26,884 57,925 35,293
Cost of revenues:
Turf Partners 25,444 14,632 34,696 20,331
Agricultural Supply 4,056 4,530 8,119 4,534
----------- ----------- ----------- -----------
Total cost of revenues 29,500 19,162 42,815 24,865
Gross profit: 11,173 7,722 15,110 10,428
Operating expenses:
Selling, general and administrative 8,681 5,656 16,449 9,801
Research and development 159 68 252 168
Amortization of intangibles 284 275 593 458
Legal settlement 198 - 198 -
----------- ----------- ----------- -----------
Income (loss) from operations 1,851 1,723 (2,382) 1
Interest expense 796 245 1,506 340
Interest income - 130 143 206
----------- ----------- ----------- -----------
Net income (loss) $ 1,055 $ 1,608 (3,745) (133)
----------- ----------- ----------- -----------
Net income (loss) per share of common stock, basic $ 0.06 $ 0.10 $ (0.22) $ (0.01)
----------- ----------- ----------- -----------
Net income (loss) per share of common stock, diluted $ 0.06 $ 0.08 $ (0.22) $ (0.01)
Shares used in calculating net income (loss) per share, basic 17,341 16,665 17,262 16,029
----------- ----------- ----------- -----------
Shares used in calculating net income (loss) per share, diluted 19,080 19,898 17,262 16,029
----------- ----------- ----------- -----------
</TABLE>
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Eco Soil Systems, Inc.
Consolidated Statement of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,745) $ (133)
Adjustments to reconcile net cash provided by/(used in) operating activities: -
Depreciation and amortization 1,753 1,153
Amortization of debt issuance costs and discount
on long-term debt 185 -
Provision for losses on accounts receivable 124 -
Loss/(gain) on sale of property and equipment 97 -
Compensation expense incurred upon issue of stock options/warrants 242 -
Changes in operating assets and liabilities, net of effect of acquired
businesses:
Accounts receivable (15,987) (3,835)
Inventories (7,229) (4,957)
Prepaid expenses and other assets (1,410) (3,113)
Accounts payable 27,735 3,249
Accrued liabilities (1,418) (69)
--------- ---------
Net cash provided by/(used in) operating activities 347 (7,705)
INVESTING ACTIVITIES:
Payments related to acquired businesses, net of cash acquired - (2,321)
Proceeds from the sale of property and equipment 111 -
Purchase of property and equipment (2,314) (787)
Sale of short-term investments - 3,000
Purchase of patents and licenses (16) (25)
--------- ---------
Net cash used in investing activities (2,219) (133)
FINANCING ACTIVITIES:
Advances (to) from shareholders 11 (1,066)
Proceeds from long-term obligations 2,687 5,845
Repayments of long-term obligations (118) (575)
Payments on capital lease obligations - (5)
Net proceeds from issuance of common stock 942 1,839
--------- ---------
Net cash provided by financing activities 3,522 6,038
--------- ---------
Net increase/(decrease) in cash 1,650 (1,800)
Cash and cash equivalents at beginning of period 3,410 3,125
--------- ---------
Cash and cash equivalents at end of period $ 5,060 $ 1,325
--------- ---------
--------- ---------
</TABLE>
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ECO SOIL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of Eco Soil Systems, Inc. (the "Company"), all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results for the three-month and six-month periods ended
June 30, 1999 and 1998 have been made. The results of operations for the
three-month and six-month periods ended June 30, 1999 are not necessarily
indicative of the results to be expected for the full fiscal year. For further
information, refer to the audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
2. NET INCOME/(LOSS) PER SHARE
In accordance with Financial Accounting Standards Board Statement No. 128,
"Earnings per share" ("SFAS 128") basic earnings per share is calculated
by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of the Company, such
as common stock which may be issuable upon exercise of outstanding common
stock options and warrants. These shares are excluded when their effects are
antidilutive.
3. SEGMENT INFORMATION
For purposes of analyzing and understanding the financial statements,
the Company's operations have been classified into the following business
segments:
TURF PARTNERS: This segment enters into contracts with golf courses or
turf maintenance service businesses, or distributors which sell to those
end-user markets to manage the health and productivity of their soil during
the golf season. These contracts require the Company to perform a
comprehensive soil analysis at the beginning of the season, develop a
treatment regimen, install the Company's proprietary system at the customers
site, and provide the microbials throughout the season. This segment also
wholesales and distributes a wide range of traditional chemical and turf
maintenance products and golf course supplies to the above mentioned market.
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AGRICULTURAL SUPPLY: This segment enters into contracts with agricultural
growers to manage the health and productivity of their soil during the course of
the growing season, which requires the Company to perform a comprehensive soil
analysis at the beginning of the season, develop a treatment regimen, install
the Company's proprietary BioJect system at the customer's site, and provide the
microbials and other soil additive products for the customer to use throughout
the season. This segment also distributes a wide range of irrigation and other
agricultural supplies to growers. In 1998, the Company actively commenced its
soil maintenance service business and acquired several distributors or
irrigation and other agricultural supplies, and therefore created this business
segment. Prior to 1998, agricultural operations were insignificant and were not
considered to be a separate segment.
<TABLE>
<CAPTION>
Revenues Segment Profits Segment Assets
---------------------- ----------------------- ----------------------
For the three months ended June 30, As of June 30,
--------------------------------------------------- ----------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Turf Partners $34,164 $20,728 $ 3,456 $ 2,904 $60,948 $45,121
Agricultural Supply 6,509 6,156 984 549 25,507 16,287
Corporate and Other - - (3,385) (1,845) 6,981 6,916
-------- -------- -------- -------- -------- --------
Total $40,673 $26,884 $ 1,055 $ 1,608 $93,436 $68,324
</TABLE>
4. LEGAL SETTLEMENT
In November 1998, the Company executed a term sheet with the Palladin
Group, L.P. ("Palladin") concerning negotiations for a possible investment by
Palladin in certain new classes of securities of the Company which, at the
time, the Company was considering issuing to a certain fund managed by
Palladin. The Company subsequently terminated the negotiations in December
1998. An affiliate of Palladin, Halifax Fund, L.P. ("Halifax"), filed a
lawsuit on or about March 19, 1999 in San Diego Superior Court alleging that
the termination violated duties owed by the Company to Halifax under the term
sheet. The lawsuit sought compensatory damages of approximately $2.6 million
and punitive damages of approximately $12.0 million. In July 1999, the
Company executed Settlement and Release Agreements with Halifax Fund, L.P.,
Palladin Group, L.P., Granite Financial Group, Inc., and Midori Capital
Corporation. These agreements mutually release and discharge all claims
arising from this litigation. The settlement required the Company to pay
termination charges and attorney's fees of $198,000.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this Management's Discussion and
Analysis that are not related to historical results are forward looking
statements. Actual results may differ materially from those projected or implied
in the forward statements. Further, certain forward looking statements are based
upon assumptions of future events, which may not prove to be accurate. These
forward looking statements involve risks and uncertainties including but not
limited to those referred to below. See "Item 5. Other Information.
Factors That Could Affect Future Performance."
This information should be read in conjunction with the financial
statements and notes thereto included in Item 1 of this report for the quarter
ended June 30, 1999. Additionally, the financial statements and notes thereto
and Management's Discussion and Analysis in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 will provide additional information.
In addition to other endeavors, the Company develops, markets and
sells proprietary biological and traditional chemical products to two
principal segments: The turf and golf management market ("Turf Partners") and
the agricultural and crop market ("Ag Supply").
SECOND QUARTER ENDED JUNE 30, 1999 COMPARED TO SECOND QUARTER ENDED JUNE 30,
1998
REVENUES
For the second quarter of 1999, revenues were $40.7 million, an
increase of 51% versus $26.9 million for the second quarter 1998. The increase
in revenues reflects an increase in both Turf Partners and Ag Supply revenues.
For the second quarter of 1999, Turf Partners revenues were $34.2
million, an increase of 65% versus $20.7 million for the second quarter 1998.
The increase in Turf Partners sales occurred in all three operating regions of
the U.S. Proprietary sales for Turf Partners remained consistent during the
second quarter of 1999 and 1998 at $2.1 million, while distributed sales
increased to $32.1 million in the second quarter 1999 from $18.6 million in the
second quarter of 1998. The increase in distributed revenue is due to the
expansion of the Company's turf business. During the second quarter of 1999,
Turf Partners completed the integration of the sales force assumed from the
Scott's Company in December 1998 and completed the stocking of several new
warehouses and the realignment of its distribution networks.
For the second quarter of 1999, Ag Supply revenues were $6.5 million,
an increase of 6%, versus $6.2 million for the second quarter of 1998. Ag Supply
revenues were affected favorably by the acquisitions of Ag Supply de Mexico,
Yuma Sprinkler & Pipe Supply and Riegomex S.A. de C.V. in June 1998. These
acquisitions enabled the Company to expand proprietary sales in Mexico and the
U.S. to $638,000 in the second quarter of 1999 compared to $54,000 in the second
quarter of 1998. Distributed sales for the Ag Supply division decreased to $5.9
million in the second quarter of 1999 from $6.1 million in the second quarter of
1998.
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GROSS PROFIT
For the second quarter of 1999, the Company's gross profit was $11.2
million, an increase of 45% versus $7.7 million for the second quarter of 1998.
The increase in gross profit was due to the increase in both Turf Partners and
Ag Supply revenues. For the second quarter of 1999, the Company's gross margin
was 27% versus 29% during the second quarter of 1998. The decrease in gross
margin was due to the mix of proprietary and distributed sales during the
quarter. Proprietary sales, which carry higher gross margins than distributed
sales, did not grow proportionately to distributed sales during the second
quarter of 1999.
For the second quarter of 1999, the gross profit on Turf Partners
sales was $8.7 million, an increase of 43% versus $6.1 million during the second
quarter of 1998. The increase in gross profit on Turf Partners sales is directly
related to the increase in revenue, as previously discussed. For the second
quarter of 1999, the gross margin on Turf Partners products was 26% versus 29%
during the second quarter of 1998. The decrease in gross margin on Turf Partners
sales was due to a change in the product mix.
For the second quarter of 1999, the gross profit on Ag Supply sales was
$2.5 million, compared to $1.6 million during the second quarter of 1998. The
increase in gross profit on Ag Supply sales was directly related to the increase
in revenue. For the second quarter of 1999, the gross margin on Ag Supply
products was 38% versus 26% during the second quarter of 1998. The increase in
gross margin on Ag Supply sales was due to a change in the product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
For the second quarter of 1999, selling, general and administrative
("SG&A") expense was $8.7 million, an increase of 53% versus $5.7 million during
the second quarter of 1998. The increase in SG&A expense was primarily due to
additional overhead costs associated with the acquisition of Agricultural Supply
in April 1998 and Ag Supply de Mexico, Yuma Sprinkler and Pipe Supply and
Riegomex in June 1998. SG&A expense as a percentage of sales remained consistent
at 21% for the second quarter of 1999 and 1998.
RESEARCH AND DEVELOPMENT EXPENSE
For the second quarter of 1999, research and development ("R&D")
expense was $159,000, an increase of 134% versus $68,000 during the second
quarter of 1998. The increase in R & D expense was due to ongoing analysis and
testing of products for the Ag Supply and Turf Partners markets.
INTEREST EXPENSE
For the second quarter of 1999, interest expense was $796,000, an
increase of 225% versus $245,000 for the second quarter of 1998. The increase in
interest expense reflects an increase in the amount of debt outstanding and
amortization of debt offering cost.
AMORTIZATION EXPENSE
For the second quarter of 1999, amortization expense was $284,000, an
increase of 3% versus $275,000 for the second quarter of 1998. The increase in
amortization expense is due to an increase in the Company's goodwill directly
related to the Company's 1998 acquisitions, offset by $46,000 decrease of
amortization expense related to Turf Products and Turf Makers goodwill, written
off in December 1998.
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NET INCOME
For the second quarter of 1999, net income was $1.1 million or $.06 per
share versus net income of $1.6 million or $.08 per share during the second
quarter of 1998. During the second quarter of 1999, the Company incurred
$198,000 of expense in connection with a litigation settlement. See "Item 1.
Legal Proceedings."
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES
For the first six months of 1999, revenues were $57.9 million, an
increase of 64% versus $35.3 million for the first six months of 1998. The
increase in revenues reflects an increase in both Turf Partners and Ag Supply
revenues.
For the first six months of 1999, Turf Partners revenues were $45.8
million, an increase of 57% versus $29.1 million for the first six months of
1998. The increase in Turf Partners revenues occurred in all three operating
regions of the U.S. Proprietary sales for Turf Partners decreased to $2.4
million during the first six months of 1999 from $3.5 million during the
first six months of 1998. The decrease in proprietary sales was due to a
decrease in BioJect usage as a result of the following: (i) our fall 1998
reorganization impaired sales momentum, (ii) integration of the sales force
assumed from the Scotts Company, (iii) new FreshPack programs taxed our sales
force, while providing customer a cheaper alternative to the BioJect, (iv)
long term customers grew tired waiting on EPA and additional biocontrol
products, (v) customers believed their improved turf, resulting from several
seasons of BioJect programs, could manage without a 1999 program. Distributed
sales increased to $43.4 million in the first six months of 1999 from $25.6
million in the first six months of 1998.
For the first six months of 1999, Ag Supply revenues were $12.1
million, an increase of 96%, versus $6.2 million for the first six months of
1998. Ag Supply revenues were affected favorably by the acquisitions of
Agricultural Supply, Inc. in April 1998 and Yuma Sprinkler & Pipe Supply, and
Riegomex S.A. de C.V. in June 1998. These acquisitions enabled the Company to
expand proprietary sales in Mexico and the U.S. to $837,000 during the first six
months of 1999 compared to $61,000 in the first six months of 1998. Distributed
sales for the Ag Supply division increased to $11.3 million in the first six
months of 1999 from $6.1 million in the first six months of 1998 due to the 1998
acquisitions mentioned above.
GROSS PROFIT
For the first six months of 1999, the Company's gross profit was
$15.1 million, an increase of 45% versus $10.4 million for the first six
months of 1998. The increase in gross profit was due to the increase in both
Turf Partners and Ag Supply revenues. For the first six months of 1999, the
Company's gross margin was 26% versus 30% for the first six months of 1998.
The decrease in gross margin was due to the mix of proprietary and
distributed sales during the first six months of 1999. Proprietary sales,
which carry higher gross margins than distributed sales, did not grow
proportionately to distributed sales during the first six months of 1999.
For the first six months of 1999, the gross profit on Turf Partners
sales was $11.1 million, an increase of 26% versus $8.8 million during the
first six months of 1998. The increase in the gross profit on Turf Partners
sales is directly related to the increase in revenue. For the first six
months of 1999, the
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gross margin on Turf Partners products was 24% versus 30% during first six
months of 1998. The decrease in gross margin on Turf Partners sales was due
to a change in the product mix.
For the first six months of 1999, the gross profit on Ag Supply sales
was $4.0 million, an increase of 145%, compared to $1.6 million during the first
six months of 1998. The increase in the gross profit on Ag Supply sales is
directly related to the increase in revenue, as previously discussed. For the
first six months of 1999, the gross margin on Ag Supply products was 33% versus
26% during the first six months of 1998. The increase in gross margin on Ag
Supply sales was due to a change in the product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
For the first six months of 1999, SG&A expense was $16.4 million, an
increase of 68% versus $9.8 million during the first six months of 1998. The
increase in SG&A expense was primarily due to additional overhead costs
associated with the previously discussed acquisitions. SG&A expense as a
percentage of sales remained consistent at 28%, for the first six months of 1999
and 1998.
RESEARCH AND DEVELOPMENT
For the first six months of 1999, R&D expense was $252,000, an increase
of 50% versus $168,000 during the first six months of 1998. The increase in R&D
expense was due to ongoing analysis and testing of products for the Ag Supply
and golf markets.
INTEREST EXPENSE
For the first six months of 1999 interest expense was $1.5 million, an
increase of 343% versus $340,000 during the first six months of 1998. The
increase in interest expense reflects an increase in the amount of debt
outstanding, and amortization of debt offering cost.
AMORTIZATION EXPENSE
For the first six months of 1999, amortization expense was $593,000, an
increase of 29% versus $458,000 during the first six months of 1998. The
increase in amortization expense is due to an increase in the Company's goodwill
directly related to the previously discussed acquisitions, offset by a $92,000
decrease in amortization expense related to Turf Products and Turf Makers
goodwill written off in December 1998.
NET INCOME
For the six months ended June 30, 1999 net loss was $3.7 million or $.22
per share versus net income of $133,000 or $.01 per share for the six months
ended June 30, 1998. During the six months ended June 30, 1999, the Company
incurred $198,000 of expense in connection with a litigation settlement. See
"Item 1. Legal Proceedings."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations from revenues from sales of its
products, sales of its Common Stock, borrowing from its principal shareholders
and bank financing. The Company's operating and investing activities used cash
of $1.9 million during the first six months of 1999 and $7.8 million during the
first six months of 1998.
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On June 30, 1999, the Company's wholly owned subsidiary, Turf Partners,
Inc., entered into a $25 million line of credit with Coast Business Credit. In
addition, the Company's wholly owned subsidiary Agricultural Supply, Inc.
entered into a $10 million line of credit with First National Bank. For
additional information on these lines of credit see "Item 5. Other Information -
Recent Developments."
On July 31, 1999, the Company obtained a $2.5 million, two-year term
loan from Coast Business Credit. The term loan bears interest at Coast's
prime rate plus 2.25%, payable monthly. One third of the principal must be
repaid in level monthly payments during the second year of the term. The term
loan is secured by substantially all of the assets of the parent company, and
has been guaranteed by Turf Partners. The Company issued a warrant to
purchase 50,000 shares of common stock at an exercise price of $7.81 per
share to Coast in connection with the closing of the term loan transaction.
The Company intends to fund its future operations and growth through a
combination of product revenues, borrowings available under the line of credit,
and public or private debt or equity financing. However, there can be no
assurance that such financing alternatives will be available under favorable
terms, if at all. The Company believes that it has sufficient resources to
finance its operations and future growth for at least the next twelve months.
YEAR 2000
Many currently installed computer systems are coded to accept only two
digit entries in the date code field. These date code fields need to be modified
or upgraded to accept four digit entries to distinguish 21st century dates from
20th century dates. Many organizations are expending significant resources to
modify or upgrade their computer systems for such "Year 2000" compliance. We
presently believe that, with modifications to existing software and conversions
to new software, the Year 2000 problem can be mitigated. However, if such
modifications and conversions are not made, or are not timely completed, the
Year 2000 problem could have a material impact on our operations.
The Year 2000 issue affects our internal systems, including
information technology ("IT") and non-IT systems. We are in the process of
upgrading our existing computer software and IT systems and recognize the
need to ensure our operations will not be adversely impacted by Year 2000
software failures. We rely upon microprocessor-based personal computers and
commercially available applications software. In addition, in the ordinary
course of our product development efforts, we have designed our current
proprietary equipment, consisting of hardware and software, including the
BioJect system itself, to be Year 2000 ready. We are also reviewing our
utility systems (heat, light, telephones, etc.) and other non-IT systems for
the impact of Year 2000. Additionally, should we undertake future
acquisitions, the Year 2000 risks that affect us can be expected to similarly
affect such potential acquisition candidates. We intend to review the systems
of all potential acquisitions for Year 2000 compliance. However, the failure
to correct a material Year 2000 problem either within the Company, within a
vendor or supplier or within a potential acquisition candidate could result
in an interruption in, or a failure of, certain normal business activities or
operations. Such interruptions or failures could materially adversely affect
our business, operating results and financial condition.
We depend on smooth and timely interactions with our vendors, customers
and other third parties. Any unexpected costs or disruption in the operations or
activities of such vendors, customers or other third parties as a result of Year
2000 compliance issues within such entities could materially adversely affect
our business, operating results or financial condition. The Company intends to
take continuous steps to identify Year 2000 problems related to its vendors and
to formulate a system of working with key third-parties, including financial
institutions and utility-providers, to understand their ability to continue
providing services and products through the change to Year 2000.
The cost of our Year 2000 compliance assessment and upgrade is being
funded from current operations. The cost to us of our Year 2000 identifications,
assessment, remediation and testing efforts, as well as costs we currently
expect to be incurred with respect to Year 2000 issues of third parties, is
expected to be approximately
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$20,000. We will continue to consider the likelihood of a material business
interruption due to the Year 2000 issue and, if necessary, implement
appropriate contingency plans. A contingency plan has not been developed for
dealing with the most reasonably likely worst case scenario, and such
scenario has not yet been clearly identified. Since we have adopted a plan to
address these Year 2000 issues, we have not developed a comprehensive
contingency plan should Year 2000 issues fail to be addressed successfully or
in their entirety. However, if we identify significant risks or are unable to
meet our anticipated timeline, we will develop contingency plans as deemed
necessary at that time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's foreign sales are principally to Mexico. All foreign
transactions are denominated in U.S. dollars, therefore, the Company's exposure
to foreign currency fluctuations is minimal.
The Company is exposed to changes in interest rates from its senior
subordinated notes, which are due in full in 2003. A hypothetical 100 basis
point adverse move (decrease) in interest rates along the entire interest rate
yield curve would adversely affect the net fair value of the Notes by
approximately $625,000 as of June 30, 1999.
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November 1998, the Company executed a term sheet with the Palladin
Group, L.P. ("Palladin") concerning negotiations for a possible investment by
Palladin in certain new classes of securities of the Company which, at the time,
the Company was considering issuing to a certain fund managed by Palladin. The
Company subsequently terminated the negotiations in December 1998. An affiliate
of Palladin, Halifax Fund, L.P. ("Halifax"), filed a lawsuit on or about March
19, 1999 in San Diego Superior Court alleging that the termination violated
duties owed by the Company to Halifax under the term sheet. The lawsuit sought
compensatory damages of approximately $2.6 million and punitive damages of
approximately $12.0 million. In July 1999, the Company executed Settlement and
Release Agreements with Halifax Fund, L.P., Palladin Group, L.P., Granite
Financial Group, Inc., and Midori Capital Corporation. These agreements mutually
release and discharge all claims arising from this litigation. The settlement
required the Company to pay termination charges and attorney's fees of $198,000.
From time to time, the Company is involved in legal proceedings, claims
and litigation arising in the ordinary course of business, the outcome of which,
in the opinion of management, would not have a material adverse effect on the
Company.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 4, 1999, the Company held an Annual Meeting of Shareholders at
which the following proposals were voted on by shareholders:
1. Election of two directors for a three-year term to expire at the
2002 Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
Nominee For Against Withheld
---------------- ----------------------------------------------
<S> <C> <C> <C>
William B. Adams 14,679,755 - 125,540
Douglas M. Gloff 14,679,755 - 125,540
</TABLE>
In addition to Mr. Adams and Mr. Gloff, the following directors
continued in office: Fridolin I. Fuckelmayer, S. Bradley Osborn,
Edward C. Ford, William S. Potter and Edward N. Steel.
2. To amend the 1998 Stock Option Plan to increase the number of
shares available for issuance thereunder to 1,600,000.
<TABLE>
<CAPTION>
For Against Abstained Broker Non-Votes
--------------------------------------------------------------
<S> <C> <C> <C>
7,981,295 2,234,569 92,965 4,496,466
</TABLE>
3. To approve the adoption of the 1999 Equity Participation Plan
of the Company and the reservation of 1,600,000 shares of
Common Stock for the issuance thereunder.
<TABLE>
<CAPTION>
For Against Abstained Broker Non-Votes
--------------------------------------------------------------
<S> <C> <C> <C>
7,280,350 2,937,597 90,882 4,496,466
</TABLE>
14
<PAGE>
ITEM 5. OTHER INFORMATION
RECENT DEVELOPMENTS
On June 30, 1999, the Company's wholly owned subsidiaries Turf
Partners, Inc. and Agricultural Supply, Inc. entered into credit agreements with
Coast Business Credit (the "Coast Working Capital Facility") and San Diego-based
First National Bank (the "FNB Working Capital Facility"), respectively. The
Coast Working Capital Facility is a $25 million, three-year credit facility
based upon Turf Partners' eligible inventory and receivables and has an interest
rate of prime rate plus 1.00%. On July 2, 1999, Turf Partners drew down $15.1
million on the facility and the Company paid all amounts due under, and
terminated a line of credit with Imperial Bank. The Company had approximately
$10 million outstanding under a December 14, 1998 Credit Agreement with Imperial
Bank prior to the payoff. The FNB Working Capital Facility is a $10 million,
three-year credit facility based upon Agricultural Supply's eligible inventory
and receivables and has an interest rate of prime plus .25%. On July 2, 1999,
Agricultural Supply drew down $2.2 million on the facility.
The foregoing summary of the terms of the Coast Working Capital
Facility and the FNB Working Capital Facility does not purport to be complete
and is qualified in its entirety by reference to the full text of the Coast
Working Capital Facility and the FNB Working Capital Facility and their
corresponding promissory notes, copies of which are attached hereto as Exhibits
10.3, 10.4 and 10.5 and incorporated herein by reference.
In July 1999, Edward N. Steel joined the Company's board of
directors. Mr. Steel is currently President of Boardroom HomeBuilders, Inc.,
a privately held company that he founded in 1986, specializing in luxury
housing in the New York metropolitan area. Prior to that, Mr. Steel joined
the IBM Corporation in 1975 progressing through various marketing management
positions, including Manager of Strategic Planning for the personnel computer
division. In 1995, Mr. Steel became a partner of E&D I, LLC, which is a land
development and investment firm. Mr. Steel holds a B.A. from the University
of Miami and an MBA from Pace University.
FACTORS THAT COULD AFFECT FUTURE PERFORMANCE
This report contains certain forward looking statements about the
business and financial condition of the Company, including various statements
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The actual results of the Company could differ
materially from any forward looking statements contained herein. The following
information sets forth certain factors that could cause the actual results to
differ materially from those contained in the forward looking statements. For a
more detailed discussion of the factors that could cause actual results to
differ, see "Item 1: Business -- Factors That Could Affect Future Performance"
in the Company's Form 10-K for the fiscal year ended December 31, 1998.
At June 30, 1999, the Company had an accumulated deficit of $27.7
million. 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. The Company's recent losses
have resulted in part from expenditures for product development, U.S. patent
protection and sales and marketing expenses, including the costs of the
Company's recent dealer acquisitions.
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.
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
15
<PAGE>
dealers and distributors. 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.
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. Despite precautions
taken by the Company, 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.
The Company plans to acquire the rights to additional microbial
products. The Company manages limited research and development activity in
its own laboratory, and funds university research 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 Company may be exposed to liability resulting from the commercial
use of its products. Such liability might result from claims made directly by
customers or others manufacturing such products on behalf of the Company. The
Company currently carries a product liability insurance policy with an aggregate
limit of $15 million. 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.
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 Environmental 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.
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 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.
16
<PAGE>
The Company is dependent upon the active participation of William B.
Adams, its Chairman of the Board and Chief Executive Officer, and Douglas M.
Gloff, its President and Chief Operating Officer. The loss of the services of
either of these individuals could have a material adverse effect upon the
Company's future operations. The Company's success depends in large part on its
ability to attract and retain qualified scientific, financial 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.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit:
10.1 Amendment No. 2 to Note and Warrant Purchase Agreement dated as of
June 30, 1999 among the Company, Albion Alliance Mezzanine Fund,
L.P. and Paribas Capital Funding LLC (including form of amended
promissory note).
10.2 Amended and Restated Guaranty Agreement dated as of June 30, 1999
made by Agricultural Supply, Inc., Aspen Consulting Companies,
Inc., Mitigation Services, Inc., Turf Partners, Inc. and Yuma
Acquisition Sub, Inc.
10.3 Loan and Security Agreement dated as of June 30, 1999 by and
between Turf Partners, Inc. and Coast Business Credit.
10.4 Loan Agreement dated as of June 30, 1999 between Agricultural
Supply, Inc., Sistemas y Equipos Agricolas, S.A. de C.V. and
Agricultural Supply de Mexico, S.A. de C.V. and First National
Bank.
10.5 Promissory Note made June 30, 1999 by Agricultural Supply, Inc. in
favor of First National Bank.
27.1 Financial Data Schedule.
No reports on Form 8-K were filed with the SEC during the period ended June 30,
1999.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Eco Soil Systems, Inc.
Date August 16, 1999 By: /s/ William B. Adams
--------------------------------
William B. Adams
Chairman and Chief Executive
Officer
Date August 16, 1999 By: /s/ Mark D. Buckner
--------------------------------
Mark D. Buckner
Chief Financial Officer,
Corporate Secretary,
and Senior Vice President
19
<PAGE>
EXHIBIT 10.1
ECO SOIL SYSTEMS, INC.
10740 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
Dated as of June 30, 1999
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A
AMENDMENT NO. 2 TO
NOTE AND WARRANT PURCHASE AGREEMENT
Ladies and Gentlemen:
Reference is made to the Note and Warrant Purchase Agreement,
dated as of August 25, 1998, as amended by a letter agreement, dated March 31,
1999 (as so amended, the "Note Agreement"), among Eco Soil Systems, Inc., a
Nebraska corporation (the "Company"), and Albion Alliance Mezzanine Fund, L.P.
and Paribas Capital Funding LLC (collectively, the "Purchasers"). The Purchasers
hold 100% of the Notes outstanding under the Note Agreement. Capitalized terms
used herein without definition have the meanings specified therefor in the Note
Agreement.
The Company requests the consent of the Purchasers to certain
amendments of the Notes and the Note Agreement, and the Purchasers are willing
to consent to such amendments, on the terms and subject to the conditions set
forth herein.
The parties agree as follows:
1. AMENDMENTS. 1.1. AMENDMENT OF SECTION 9.3. Section 9.3 of
the Note Agreement is hereby amended and restated to read in its entirety as
follows:
"9.3. PREMIUM TABLE. For the purposes of sections
9.1, 9.2 and 9.8, whenever a premium is required to be paid upon
prepayment of any Note, the applicable premium shall be determined in
accordance with the following table, depending upon the period in which
the date fixed for such prepayment occurs:
<PAGE>
PERIOD PREMIUM
------ -------
Period commending June 30, 1999 and ending
February 29, 2000 8.5%
Period commencing March 1, 2000 and ending August
24, 2001 Make-Whole Premium
Period commending August 25, 2001 and ending
August 24, 2002 3.0%
From and after August 25, 2002 0.0%
1.2. ADDITION OF SECTION 9.8. The Note Agreement is hereby
amended by adding new section 9.8 immediately following section 9.7 thereof:
"9.8. CONTINGENT PREPAYMENT UPON SALE OF EQUITY. In
the event that at any time there shall be Excess Equity Proceeds, then
the Company shall give prompt written notice thereof to each holder of
the Notes, by facsimile transmission or registered mail (and shall
confirm such notice by prompt telephonic advice to an investment
officer of each such holder), which notice shall contain a written,
irrevocable offer by the Company to prepay, on a date specified in such
notice (which date shall be not less than 30 days and not more than 60
days after the date of such notice), the Notes in an aggregate
principal amount equal to the amount of Excess Equity Proceeds. Upon
the acceptance of such offer by such holder mailed to the Company at
least 10 days prior to the date of prepayment specified in the
Company's offer, such prepayment shall be made at the principal amount
of the Notes so prepaid, plus the premium determined in accordance with
section 9.3. Any offer by the Company to prepay the Notes pursuant to
this section 9.8 shall be accompanied by an Officers' Certificate
certifying that the conditions of this section 9.8 have been fulfilled
and specifying the particulars of such fulfillment. If the holder of
any Notes shall accept such offer, the principal amount of such Notes
to be prepaid shall become due and payable on the date specified in
such offer. In the event that there shall have been a partial
prepayment of the Notes under this section 9.8, the Company shall
promptly give notice to the holders of the Notes, accompanied by an
Officers' Certificate setting forth the principal amount of each of the
Notes that was prepaid and
2
<PAGE>
specifying how each such amount was determined."
1.3. AMENDMENT OF SECTIONS 10.2(A), (B) AND (C). Section
10.2(a), (b) and (c) of the Note Agreement are hereby amended and restated to
read in their entirety as follows:
"10.2. FINANCIAL COVENANTS. (a) LIMITATION ON SENIOR
SECURED FUNDED DEBT. The Company will not permit the ratio of (I)
Senior Secured Funded Debt as of each date listed in the table below,
to (II) Consolidated EBITDA for the period of four consecutive fiscal
quarters of the Company ending on such date, to be greater than the
ratio set forth opposite such date in the table below:
<TABLE>
<CAPTION>
QUARTER END DATE RATIO
---------------- -----
<S> <C>
September 30, 1998 3.75 to 1.0
December 31, 1998 3.00 to 1.0
March 31, 1999 3.00 to 1.0
June 30, 1999 6.50 to 1.0
September 30, 1999 3.52 to 1.0
December 31, 1999 3.00 to 1.0
March 31, 2000 3.00 to 1.0
June 30, 2000 3.00 to 1.0
September 30, 2000 3.00 to 1.0
December 31, 2000 3.00 to 1.0
March 31, 2001 2.50 to 1.0
and thereafter
</TABLE>
"(b) LIMITATION ON TOTAL FUNDED DEBT. The Company
will not permit the ratio of (I) total Funded Debt as of each date
listed in the table below, to (II) Consolidated EBITDA for the period
of four consecutive fiscal quarters of the Company ending on such date,
to be greater than the ratio set forth opposite such date in the table
below:
<TABLE>
<CAPTION>
QUARTER END DATE RATIO
---------------- -----
<S> <C>
September 30, 1998 7.00 to 1.0
December 31, 1998 5.00 to 1.0
March 31, 1999 5.00 to 1.0
June 30, 1999 10.55 to 1.0
September 30, 1999 5.30 to 1.0
December 31, 1999 4.50 to 1.0
March 31, 2000 4.50 to 1.0
June 30, 2000 4.50 to 1.0
September 30, 2000 4.50 to 1.0
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
December 31, 2000 4.50 to 1.0
March 31, 2001 3.50 to 1.0
and thereafter
</TABLE>
"(c) MINIMUM INTEREST COVERAGE. The Company will not
permit the ratio of (I) Consolidated EBITDA for the period of four
consecutive fiscal quarters of the Company ending on each date listed
in the table below, to (II) Interest Expense for such period, to be
less than the ratio set forth opposite such date in the table below:
<TABLE>
<CAPTION>
QUARTER END DATE RATIO
---------------- -----
<S> <C>
September 30, 1998 1.60 to 1.0
December 31, 1998 2.00 to 1.0
March 31, 1999 2.50 to 1.0
June 30, 1999 1.10 to 1.0
September 30, 1999 2.33 to 1.0
December 31, 1999 2.50 to 1.0
March 31, 2000 2.50 to 1.0
June 30, 2000 2.50 to 1.0
September 30, 2000 2.50 to 1.0"
and thereafter
</TABLE>
1.4. AMENDMENT OF SECTION 10.3(f). Section 10.3(f) of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"(f) Liens incurred to secure the Debt (other than
subordinated Debt) of the Company and its Subsidiaries outstanding in
compliance with section 10.1; and"
1.5. AMENDMENT OF SECTION 10.4(e). Section 10.4(e) of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"(e) the Company and its Subsidiaries may become and
remain liable with respect to Guaranties of Debt of the Company or any
Subsidiary outstanding in compliance with sections 10.1 and 10.2."
1.5. AMENDMENT OF SECTIONS 10.8(a) AND (b). Sections 10.8(a)
and (b) of the Note Agreement are hereby amended and restated to read in its
entirety as follows:
"(a) directly or indirectly sell, assign, pledge or
otherwise dispose of any shares of stock of
4
<PAGE>
(or warrants, rights or options to acquire stock of) any Subsidiary
except to a Wholly-Owned Subsidiary or a corporation that becomes a
Wholly-Owned Subsidiary upon consummation of the transaction, or as
directors' qualifying shares if required by applicable law; and
except that the Company may pledge shares of stock of its
Subsidiaries to secure Debt outstanding under the Credit Agreement;
"(b) permit any Subsidiary directly or indirectly to
sell, assign, pledge or otherwise dispose of any shares of stock of (or
warrants, rights or options to acquire stock of) any other Subsidiary,
except to the Company or a Wholly-Owned Subsidiary or as directors'
qualifying shares if required by applicable law; and except that the
Company may permit its Subsidiaries to pledge shares of stock of their
respective Subsidiaries to secure Debt outstanding under the Credit
Agreement;"
1.6. AMENDMENT OF SECTION 10.13. Section 10.13 of the Note
Agreement is hereby amended by adding at the end thereof the following sentence:
"Not later than March 1, 2000, the Company shall cause the Mexican
Subsidiaries to execute and deliver to the holders of the Notes a
Guaranty Agreement with respect to the obligations of the Company
hereunder and under the Notes, substantially in the form of Exhibit D,
with such changes to such form as may be appropriate to reflect the
identity and circumstances of the guarantor."
1.7. ADDITIONAL DEFINITIONS. The following defined terms are
hereby added to section 14 of the Note Agreement in the appropriate alphabetical
order:
"AGRICULTURAL SUPPLY: Agricultural Supply, Inc., a
Delaware corporation and a Wholly-Owned Subsidiary of the Company.
"AMENDMENT NO. 1: the letter agreement, dated March
31, 1999, by and between the Company and the Purchasers.
"AMENDMENT NO. 2: Amendment No. 2 to this Agreement,
dated as of June 30, 1999.
5
<PAGE>
"EXCESS EQUITY PROCEEDS: as of any date of
determination, the excess of (A) the aggregate amount of the net cash
proceeds received by the Company from the sale of its stock (other than
pursuant to the exercise of employee stock options or warrants) during
the period from June 30, 1999 to and including the date of
determination, over (B) the amount of Superior Debt of the Company
prepaid (and the related loan commitment permanently reduced) with such
cash proceeds.
"MEXICAN SUBSIDIARIES: Sistemas Y Equipos Agricolas,
S.A. de C.V. and Agricultural Supply de Mexico, S.A. de C.V.,
corporations organized under the laws of Mexico and Wholly-Owned
Subsidiaries of Agricultural Supply.
"PIK NOTES: additional Notes issued from time to time
hereafter pursuant to the Notes, as amended pursuant to Amendment No.
2, in respect of interest on the Notes payable in kind.
"TURF PARTNERS: Turf Partners, Inc. (formerly known
as Turf Acquisition Sub, Inc.), a Delaware corporation and a
Wholly-Owned Subsidiary of the Company."
1.8. AMENDMENT OF CERTAIN DEFINITIONS. The following defined
terms are hereby amended and restated to read in their entirety as follows:
"CREDIT AGREEMENT: collectively, (A) the Loan
Agreement, dated as of June 30, 1999, between Agricultural Supply, the
Mexican Subsidiaries and First National Bank; (B) the Loan Agreement,
dated as of June 30, 1999, between the Mexican Subsidiaries and First
National Bank; (C) the Loan and Security Agreement, dated as of June
30, 1999, between Turf Partners and Coast Business Credit, a California
corporation; and (D) the Loan and Security Agreement, to be dated on or
about June 30, 1999, between the Company and Coast Business Credit, a
California corporation; in each case as amended or supplemented from
time to time.
"DEFAULT PREMIUM: with respect to the acceleration of
the maturity of any Note, a premium determined in accordance with the
following table, depending upon the date of such acceleration:
6
<PAGE>
PERIOD PREMIUM
------
Period commending June 30, 1999 and ending
February 29, 2000 8.5%
Period commencing March 1, 2000 and ending August
24, 2001 Make-Whole Premium
Period commending August 25, 2001 and ending
August 24, 2002 3.0%
From and after August 25, 2002 0.0%
PROVIDED that, in the case of the periods commencing June 30, 1999 and
ending August 24, 2001, the "Make-Whole Premium" will be calculated as
if August 25, 2001 were the final maturity date of the Notes and a
premium of 3% were payable on such maturity date.
"FUNDED DEBT: collectively, Senior Secured Funded
Debt and all other Debt of the Company or a Subsidiary, in excess of
$2,500,000, that is or should be, in accordance with generally accepted
accounting principles, characterized as senior long-term Debt on a
consolidated balance sheet of the Company and its Subsidiaries,
including (A) Debt with a final maturity more than one year after the
creation of thereof, (B) any portion thereof included in current
liabilities and (C) Debt outstanding under a revolving credit or
similar agreement providing for borrowings (and renewals and extensions
thereof) over a period of more than one year, notwithstanding that any
such debt may be payable on demand or within one year after the
creation thereof; but excluding (I) contingent reimbursement
obligations with respect to any letter of credit issued for the account
of the Company or a Subsidiary (unless, and to the extent, such
reimbursement obligations mature as a result of any payment by the
issuer of such letter of credit) and (II) all Debt solely by and
between two or more of the Company and its Subsidiaries.
"GUARANTY AGREEMENT: the Guaranty Agreement, dated as
of August 25, 1998, executed and delivered by the United States
Subsidiaries of the Company, substantially in the form of Exhibit D as
in effect on that date, as amended and restated as of June 30, 1999,
executed and delivered by the Subsidiaries of the
7
<PAGE>
Company, substantially in the form of Exhibit D as amended by
Amendment No. 2 to this Agreement.
"INTEREST EXPENSE: for any period, the total amount
of all charges for the use of funds (whether characterized as interest,
debt service or otherwise) payable during such period with respect to
all Debt of the Company or a Subsidiary (other than Debt solely by or
between two or more of the Company and its Subsidiaries) for such
period, excluding any interest paid during such period by the delivery
of PIK Notes."
1.9. AMENDMENT OF DEFINED TERM "SENIOR SECURED INDEBTEDNESS".
The defined Term "Senior Secured Indebtedness" is hereby deleted and replaced by
the following defined term:
"SENIOR SECURED FUNDED DEBT: Debt of the Company and
its Subsidiaries which would, in accordance with generally accepted
accounting principles, constitute long-term debt and have a security
interest in any of the assets of the Company or any of its
Subsidiaries, including, without limitation, (A) any Debt with a
maturity more than one year after the creation of such Debt, (B) any
portion thereof included in current liabilities and (C) any Debt
outstanding under a revolving credit or similar agreement providing for
borrowings (and any renewals and extensions thereof) over a period of
more than one year, notwithstanding that any such indebtedness may be
payable on demand or within one year after the creation thereof, and
excluding all Debt solely by and between two or more of the Company or
its Subsidiaries."
1.10. REFERENCES TO "NOTES". From and after the effectiveness
of this Amendment No. 2 and the execution and delivery of the amended Notes as
contemplated by section 3.1, any reference to the "Notes" in the Note Agreement
and the Guaranty Agreement shall be deemed to refer to the Notes as amended
pursuant to Amendment No. 1 and Amendment No. 2 and shall be deemed also to
refer to the PIK Notes.
1.11. AMENDMENT OF SCHEDULES AND EXHIBITS. Schedule C and
Exhibits A and D to the Note Agreement are hereby amended and restated to read
in its entirety as set forth in Schedule C and Exhibits A and D, respectively,
attached to this Amendment No. 2.
8
<PAGE>
2. REPRESENTATIONS AND WARRANTIES. 2.1. NO DEFAULTS. The
Company represents and warrants that, as of the date hereof, no condition or
event exists which constitutes an Event of Default or Potential Event of
Default.
2.2. SUBSIDIARIES. Amended Schedule C attached to this
Amendment No. 2 correctly lists as to each Subsidiary on the date of this
Amendment No. 2 (A) its name, (B) the jurisdiction of its incorporation and (c)
the percentage of its issued and outstanding shares owned by the Company or
another Subsidiary (specifying such other Subsidiary). Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own and operate its properties, to carry on its business as now
conducted and as proposed to be conducted, to enter into the Guaranty Agreement
and to carry out the terms of the Guaranty Agreement. All the outstanding shares
of capital stock of each Subsidiary are validly issued, fully paid and
non-assessable, and all such shares indicated in such amended Schedule C as
owned by the Company or by any other Subsidiary are so owned beneficially and of
record by the Company or by such other Subsidiary free and clear of any Lien
except such as are of the character permitted by section 10.3.
3. CONDITIONS TO EFFECTIVENESS. The effectiveness of the
waiver, amendments and other agreements contemplated hereby is subject to the
fulfillment to the satisfaction of the Purchasers of the following conditions:
3.1. AMENDED NOTES. The Company shall have executed and
delivered to each of the Purchasers an amended Note, substantially in the form
set out in Exhibit A, in the principal amount specified opposite each such
Purchaser's name in Schedule A (in each case against surrender by such Purchaser
of the original Note being replaced by such amended Note), and in each case
having attached thereto an amended endorsement of Guaranty executed by the
Subsidiaries of the Company.
3.2. AMENDED GUARANTY AGREEMENT. The United States
Subsidiaries of the Company shall have executed and delivered to each of the
Purchasers an amended Guaranty Agreement, substantially in the form set out in
Exhibit D,
9
<PAGE>
and the Guaranty Agreement as so amended shall be in full force and effect.
3.3. CREDIT AGREEMENT. The several agreements constituting the
"Credit Agreement" as defined in this Amendment No. 2 shall be reasonably
satisfactory in form and substance to the Purchasers. A complete and correct
copy of each such agreement in effect on the effective date hereof shall have
been delivered to the Purchasers, and no other agreements or instruments shall
exist relating to the terms of such borrowings.
3.4. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained herein and in the Note Agreement shall be
correct when made and at the date hereof, except as affected by the consummation
of the transactions contemplated hereby and except to the extent a particular
representation and warranty expressly relates solely to an earlier date.
3.5. NO DEFAULT. As of the date hereof (after giving effect to
the transactions contemplated hereby), no Event of Default or Potential Event of
Default shall have occurred and be continuing.
3.6. CONSENTS, AGREEMENTS. The Company shall have obtained all
other consents and waivers necessary in connection with the transactions
contemplated hereby, and such consents and waivers shall be in full force and
effect on the date hereof. A complete and correct copy of each of such consents
and waivers shall have been delivered to the Purchasers.
3.7. PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
satisfactory to the Purchasers and their special counsel, and the Purchasers and
their special counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
3.8. LEGAL FEES. The Company shall have paid the fees and
disbursements of the Purchasers' special counsel incurred in connection with the
transactions contemplated by this Agreement and set forth in a statement
delivered to the Company on or prior to the date hereof.
10
<PAGE>
3.9. OPINION OF COUNSEL. The Purchasers shall have received
from Latham & Watkins, counsel for the Company, a favorable opinion
substantially in the form set forth in Annex I, addressed to the Purchasers,
dated the effective date of this Amendment No. 2 and otherwise satisfactory in
substance and form to the Purchasers.
4. RATIFICATION. Except as amended hereby, all of the
provisions of the Note Agreement shall remain in full force and effect.
5. MISCELLANEOUS. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, whether so expressed or not. THIS AGREEMENT SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK. The headings in this Agreement are for purposes of reference
only and shall not limit or otherwise affect the meaning hereof. This Agreement
may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.
If the Purchasers are in agreement with the foregoing, please
sign the form of agreement on the accompanying counterparts of this letter and
return one of the same to the Company, whereupon this letter shall become a
binding agreement between the Purchasers and the Company.
Very truly yours,
ECO SOIL SYSTEMS, INC.
By: /s/ Mark Buckner
------------------
11
<PAGE>
The foregoing Amendment is
hereby agreed to as of the
date hereof.
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC,
its General Partner
By: /s/ Peter C. Gummeson
---------------------
Name: Peter C. Gummeson
Title: Senior Vice President
PARIBAS CAPITAL FUNDING LLC
By: /s/ Jeff Youle
----------------
Name: Jeff Youle
Title: Managing Director
12
<PAGE>
EXHIBIT A
ECO SOIL SYSTEMS, INC.
AMENDED SENIOR SUBORDINATED NOTE DUE AUGUST 25, 2003
PPN #278858 A A 3
R- New York, New York
$ August 25, 1998
ECO SOIL SYSTEMS, INC., a Nebraska corporation (the
"Company"), for value received, hereby promises to pay to ________, or
registered assigns, the principal amount of $________ on August 25, 2003, with
interest (computed on the basis of twelve 30-day months) on the unpaid balance
of such principal amount at the Applicable Rate from the date hereof, payable
quarterly on the 25th day of each February, May, August and November after the
date hereof, commencing November 25, 1998, until such unpaid balance shall
become due and payable (whether at maturity or at a date fixed for prepayment or
by declaration or otherwise), and with interest on any overdue principal
(including any overdue prepayment of principal) and premium, if any, and (to the
extent permitted by applicable law) on any overdue interest, at the rate of
2.00% per annum above the Applicable Rate until paid, payable semi-annually as
aforesaid or, at the option of the holder hereof, on demand. Payments of
principal and interest on this Note shall be made in lawful money of the United
States of America at the principal office of The Chase Manhattan Bank, N.A., in
the Borough of Manhattan, the City and State of New York, or at such other
office or agency in such Borough as the Company shall have designated by written
notice to the holder of this Note as provided in the Note and Warrant Purchase
Agreements referred to below.
The term "Applicable Rate" as used herein with respect to any
date on which interest is payable, means an interest rate per annum equal to (A)
for the period from August 25, 1998 to and including June __, 1999, 12.00%, (B)
for the period from June __, 1999 to and including November 25, 1999, 13.00%,
(C) for the period from November 26, 1999 to and including February 25, 2000,
14.00%, (D) for the period from February 26, 2000 to and including May 25, 2000,
14.50%, (E) for the period from May 26, 2000 to and including August 25, 2000,
15.00%, (F) for the period from August 26, 2000 to and including November 25,
2000, 15.50%, and (G) for the period from and after November 26, 2000, 16.00%.
<PAGE>
On any interest payment date commencing May 25, 2000, the
Company shall (unless the Company shall elect otherwise as herein provided),
with respect to any portion of the interest payable on such interest payment
date which is in excess of 14.00% per annum (the "Excess Portion"), in lieu of
the cash payment of the Excess Portion, issue to the holder of this Note an
additional Note having a principal amount equal to the Excess Portion and
otherwise of like tenor to this Note, in full payment of the Excess Portion.
Notwithstanding the foregoing, the Company may, at its election, made by written
notice to the holder hereof given not fewer than five days prior to such
interest payment date, pay the Excess Portion in cash in lieu of the issuance of
an additional Note.
This Note is one of the Company's Amended Senior Subordinated
Notes due August 25, 2003 (the "Notes"), originally issued in the aggregate
principal amount of $15,000,000 on August 25, 1998 and amended on June __, 1999,
pursuant to the Note and Warrant Purchase Agreements, each originally dated as
of August 25, 1998, and amended by Amendment No. 1 thereof, dated as of March
31, 1999, and Amendment No. 2 thereof, dated as of June __, 1999, and as from
time to time further amended, between the Company and certain institutional
investors named therein. The holder of this Note is entitled to the benefits of
such Note and Warrant Purchase Agreements, as from time to time amended, and may
enforce the agreements of the Company contained therein and exercise the
remedies provided for thereby or otherwise available in respect thereof.
This Note is a registered Note and is transferable only upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the holder
hereof or such holder's attorney duly authorized in writing. Reference in this
Note to a "holder" shall mean the person in whose name this Note is at the time
registered on the register kept by the Company as provided in such Note and
Warrant Purchase Agreements and the Company may treat such person as the owner
of this Note for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
The holder of this Note is entitled to the benefits of a
certain Guaranty Agreement, originally dated as of August 25, 1998, by
AGRICULTURAL SUPPLY, INC., ECO
2
<PAGE>
TURF PRODUCTS, INC., MITIGATION SERVICES, INC., TURF ACQUISITION SUB., INC.,
TURF SPECIALTY, INC., and YUMA ACQUISITION SUB., INC., each a Delaware
subsidiary of the Company, and by ASPEN CONSULTING COMPANIES, INC., a
Colorado subsidiary of the Company, and BENHAM CHEMICAL CORPORATION, a
Michigan subsidiary of the Company; and the Amended Guaranty Agreement, dated
as of June __, 1999, by [insert names of current guarantors].
The indebtedness evidenced by this instrument is subordinated
to the prior payment in full of the Superior Debt (as defined in such Note and
Warrant Purchase Agreements) pursuant to, and to the extent provided in, such
Note and Warrant Purchase Agreements.
The Notes are under certain circumstances subject to required
and optional prepayment, in whole or in part, in certain cases with a premium
and in other cases without a premium, all as specified in such Note and Warrant
Purchase Agreements.
In case an Event of Default, as defined in such Note and
Warrant Purchase Agreements, shall occur and be continuing, the unpaid balance
of the principal of this Note may become due and payable in the manner and with
the effect provided in such Note and Warrant Purchase Agreements.
This Note is made and delivered in New York, New York, and
shall be governed by the laws of the State of New York.
ECO SOIL SYSTEMS, INC.
By:
--------------------
Name:
Title:
3
<PAGE>
==============================================================================
AMENDED AND RESTATED GUARANTY AGREEMENT
AGRICULTURAL SUPPLY, INC.
ASPEN CONSULTING COMPANIES, INC.
MITIGATION SERVICES, INC.
TURF PARTNERS, INC.
YUMA ACQUISITION SUB., INC.
--------------------
Dated as of June 30, 1999
--------------------
==============================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. Guaranty.............................................................................................2
1.1. Guaranty of Each of the Guarantors.............................................................2
1.2. Guarantors' Obligations Unconditional..........................................................3
1.3. Full Recourse Obligations......................................................................5
1.4. Waiver.........................................................................................5
1.5. Subrogation....................................................................................6
1.6. Effect of Bankruptcy Proceedings, etc..........................................................6
1.7. Endorsement on Notes...........................................................................7
1.8. Term of Guaranty...............................................................................7
2. Maximum Liability....................................................................................7
3. Subordination........................................................................................8
4. Representations and Warranties.......................................................................8
5. Notices..............................................................................................9
6. Amendments, etc......................................................................................9
7. Submission to Jurisdiction...........................................................................9
8. Survival............................................................................................10
9. Further Assurances..................................................................................10
10. Miscellaneous.......................................................................................10
</TABLE>
<PAGE>
AMENDED AND RESTATED GUARANTY AGREEMENT
AMENDED AND RESTATED GUARANTY AGREEMENT, dated as of June
30, 1999, made by AGRICULTURAL SUPPLY, INC., a Delaware corporation ("ASI"),
ASPEN CONSULTING COMPANIES, INC., a Colorado corporation ("ACC"), MITIGATION
SERVICES, INC., a Delaware corporation ("MSI"), TURF PARTNERS, INC. (formerly
known as Turf Acquisition Sub, Inc.), a Delaware corporation ("TPI"), and
YUMA ACQUISITION SUB., INC., a Delaware corporation ("YAS" and, together with
ASI, ACC, MSI and TPI, the "Guarantors").
W I T N E S S E T H :
WHEREAS, ECO SOIL SYSTEMS, INC., a Nebraska corporation
(the "Company"), entered into separate Note and Warrant Purchase Agreements,
dated as of August 25, 1998 (the "Original Note Agreements"), with the
purchasers referred to in each such agreement (collectively, the
"Purchasers"), providing, among other things, for issuance by the Company of
up to $15,000,000 aggregate principal amount of its 12.00% Senior
Subordinated Notes due 2003 (the "Original Notes") to the Purchasers;
WHEREAS, each of the Guarantors is a wholly-owned
subsidiary of the Company;
WHEREAS, in connection with the issuance of the Original
Notes on August 25, 1998, the Guarantors (together with certain other
wholly-owned subsidiaries of the Company that were subsequently merged into
or consolidated with the one or more of the Guarantor) delivered the Guaranty
Agreement, dated as of August 25, 1999 (the "Original Guaranty");
WHEREAS, the Original Note Agreements were amended by a
letter agreement dated, March 31, 1999, and are being further amended by
Amendment No. 2, dated as of June 30, 1999 (the Original Note Agreements, as
so amended and as they may be further amended or supplemented from time to
time, being referred to hereinafter as the "Note Agreements"); and the
Original Notes are being amended and restated as of June 30, 1999 (the
Original Notes as so amended being referred to hereinafter as the "Notes");
WHEREAS, in connection with the amendments referred to
above, the Purchasers have requested that the
<PAGE>
Guarantors reaffirm the guaranties and agreements contained in the Original
Guaranty and amend and restate the Original Guaranty so as expressly to
guarantee the amounts due and payable by the Company and the other
obligations and covenants of the Company under the Notes and the Note
Agreements as amended as described above; and
WHEREAS, capitalized terms not otherwise defined herein
shall have the meanings specified therefor in the Note Agreements.
NOW, THEREFORE, in consideration of the premises and the
covenants herein contained, the parties hereto agree as follows:
1. GUARANTY. 1.1. GUARANTY OF EACH OF THE GUARANTORS. The
Guarantors, jointly and severally, unconditionally and irrevocably guarantee to
each holder from time to time of any of the Notes:
(a) the due, prompt and complete payment by the Company of
the principal of and interest on, and any other amount due under, the
Notes, when and as the same shall become due and payable (whether at
stated maturity or by prepayment or by declaration or otherwise) in
accordance with the terms of the Notes and of the Note Agreements, and
(b) the due, prompt and faithful performance of, and
compliance with, all obligations, covenants, terms, conditions and
undertakings of the Company contained in the Notes and the Note
Agreements and in any other agreement or document executed by the
Company pursuant to the Note Agreements (the Note Agreements, the
Notes and such other agreements and documents being sometimes
collectively hereinafter referred to as the "Guaranteed Documents",
and the amounts payable by the Company under any of the Guaranteed
Documents and all other obligations of the Company thereunder being
sometimes collectively hereinafter referred to as the "Guaranteed
Obligations").
This guaranty is a guaranty of payment, performance and
compliance and not of collectibility and is in no way conditioned or
contingent upon any attempt to collect from or enforce performance or
compliance by the Company or upon any other event, contingency, circumstance
or condition whatsoever. If for any reason whatsoever the Company shall
-2-
<PAGE>
fail or be unable duly, punctually and fully to pay such amounts as and when
the same shall become due and payable or to perform or comply with any other
Guaranteed Obligation, whether or not such failure or inability shall
constitute an "Event of Default" under any Guaranteed Document, the
Guarantors, without demand, presentment, protest or notice of any kind, will
forthwith pay or cause to be paid such amounts to the holders of the Notes
entitled thereto under the terms of such Guaranteed Document, in lawful money
of the United States, at the place specified in the Note Agreements, or
perform or comply with such Guaranteed Obligations or cause such Guaranteed
Obligations to be performed or complied with, together with interest on any
amount due and owing from the Company at the rate applicable under the
Guaranteed Documents from the date the same becomes due and payable to the
date of payment. The Guarantors, promptly after demand, will reimburse to
each holder of the Notes all costs and expenses of collecting such amounts or
otherwise enforcing the Note Agreements, including, without limitation, the
reasonable fees and expenses of counsel.
1.2. GUARANTORS' OBLIGATIONS UNCONDITIONAL. The obligations
of the Guarantors under this Agreement are primary, absolute and
unconditional obligations of the Guarantors, are not subject to any
counterclaim, set-off, deduction, diminution, abatement, recoupment,
suspension, deferment, reduction or defense based upon any claim the
Guarantors or any other Person may have against the Company or any other
Person, and shall remain in full force and effect without regard to, and
shall not be released, discharged or in any way affected by, any circumstance
or condition whatsoever (whether or not any Guarantor or the Company shall
have any knowledge or notice thereof), including, without limitation, in each
case, to the extent permitted by law:
(a) any amendment of or change in, or waiver of, any of the
Guaranteed Documents;
(b) any furnishing, acceptance or release of, or any defect
in, any security for any of the Guaranteed Obligations;
(c) any failure, omission or delay on the part of the Company
to conform or comply with any term of any of the Guaranteed Documents
or any other instrument or agreement referred to in section 1.1 above,
including,
-3-
<PAGE>
without limitation, failure to give notice to any Guarantor of the
occurrence of a default or an "Event of Default" under any Guaranteed
Document;
(d) any waiver of the payment, performance or observance of
any of the obligations, conditions, covenants or agreements contained
in any Guaranteed Document, or any other waiver, consent, extension,
indulgence, compromise, settlement, release or other action or
inaction under or in respect of any of the Guaranteed Documents or any
other instrument or agreement referred to in section 1.1 above or any
obligation or liability of the Company, or any exercise or
non-exercise of any right, remedy, power or privilege under or in
respect of any such instrument or agreement or any such obligation or
liability;
(e) any failure, omission or delay on the part of the holder
of any of the Notes to enforce, assert or exercise any right, power or
remedy conferred on it in the Note Agreements, or any such failure,
omission or delay on the part of such holder in connection with any
Guaranteed Document, or any other action on the part of such holder;
(f) any voluntary or involuntary bankruptcy, insolvency,
reorganization, arrangement, readjustment, assignment for the benefit
of creditors, composition, receivership, conservatorship,
custodianship, liquidation, marshalling of assets and liabilities or
similar proceedings with respect to the Company, any Guarantor or any
other Person or any of their respective properties or creditors, or
any action taken by any trustee or receiver or by any court in any
such proceeding;
(g) any limitation on the liability or obligations of the
Company or any other Person under any of the Guaranteed Documents, or
any discharge, termination, cancellation, frustration, irregularity,
invalidity or unenforceability, in whole or in part, of any of the
Guaranteed Documents or any other agreement or instrument referred to
in section 1.1 above or any term hereof;
(h) any merger or consolidation of the Company or any
Guarantor into or with any other corporation, or
-4-
<PAGE>
any sale, lease or transfer of any of the assets of the Company or any
Guarantor to any other Person;
(i) any change in the ownership of any shares of capital
stock of the Company, or any change in the corporate relationship
between the Company and any Guarantor, or any termination of such
relationship;
(j) any release or discharge, by operation of law, of any
Guarantor from the performance or observance of any of the Guaranteed
Obligations; or
(k) any other occurrence, circumstance, happening or event
whatsoever, whether similar or dissimilar to the foregoing, whether
foreseen or unforeseen, and any other circumstance which might
otherwise constitute a legal or equitable defense or discharge of the
liabilities of a guarantor or surety or which might otherwise limit
recourse against the Guarantors (other than a defense of payment or
performance).
1.3. FULL RECOURSE OBLIGATIONS. Except as provided herein,
the obligations of the Guarantors set forth herein constitute the full
recourse obligations of each of the Guarantors enforceable against it to the
full extent of all its assets and properties.
1.4. WAIVER. The Guarantors unconditionally waive, to the
extent permitted by applicable law, (A) notice of any of the matters referred
to in section 1.2, (B) notice to the Guarantors of the incurrence of any of
the Guaranteed Obligations, notice to the Guarantors or the Company of any
breach or default by the Company with respect to any of the Guaranteed
Obligations or any other notice that may be required, by statute, rule of law
or otherwise, to preserve any rights of any holder of any of the Notes
against the Guarantors, (c) presentment to or demand of payment from the
Company or the Guarantors with respect to any Note or protest for nonpayment
or dishonor, (D) any right to the enforcement, assertion, exercise or
exhaustion by any holder of any of the Notes of any right, power, privilege
or remedy conferred in the Note Agreements or any other Guaranteed Document
or otherwise, (E) any requirement of diligence on the part of any holder of
any of the Notes, (F) any requirement to mitigate the damages resulting from
any default under any Guaranteed Document, (G) any notice of any sale,
transfer or other disposition of any right or title to or interest in any
Note by any holder thereof or in any
-5-
<PAGE>
other Guaranteed Document, (H) any release of the Guarantors from its
obligations hereunder resulting from any loss by it of its rights of
subrogation hereunder and (I) any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge, release or defense of a
guarantor or surety or which might otherwise limit recourse against the
Guarantors.
1.5. SUBROGATION. Upon the payment in full of all principal
of and interest on the Notes and any other amounts payable by the Company
under the Guaranteed Documents, the Guarantors shall be subrogated to the
rights of the holders of the Notes in respect of any payment or other
obligation with respect to which an amount has been payable by the Guarantors
hereunder. The Guarantors shall not seek to exercise any rights of
subrogation, reimbursement or indemnity arising from payments made by the
Guarantors pursuant to the provisions of this Agreement until the full and
complete payment or performance and discharge of the Guaranteed Obligations.
1.6. EFFECT OF BANKRUPTCY PROCEEDINGS, ETC. (a) This
Guaranty shall continue to be effective or be automatically reinstated, as
the case may be, if at any time any payment made by any Person on account of
any of the sums due any holder of any of the Notes pursuant to the terms of
the Notes, the Note Agreements or any other Guaranteed Document is rescinded
or must otherwise be restored or returned by such holder upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company or any
other Person, or upon or as a result of the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to the
Company or other Person or any substantial part of its property, or
otherwise, all as though such payment had not been made.
(b) If an event permitting the acceleration of the maturity
of the principal amount of the Notes shall at any time have occurred and be
continuing, and such acceleration shall at such time be prevented by reason
of the pendency against the Company or any other Person of any case or
proceeding contemplated by section 1.6(a) then, for the purpose of defining
the obligation of the Guarantors under this Guaranty, the maturity of the
principal amount of the Notes shall be deemed to have been accelerated with
the same effect as if an acceleration had occurred in accordance with the
terms of the Note Agreement, and the Guarantors shall forthwith pay such
principal amount, all accrued and unpaid
-6-
<PAGE>
interest thereon and any other amounts guaranteed hereunder without further
notice or demand.
1.7. ENDORSEMENT ON NOTES. The Guarantors will execute the
guaranty appended to each Note upon the issuance of such Note. If any Note
shall be issued in exchange for or in replacement of any other Note pursuant
to the Note Agreements, the Guarantors will execute on the Note so issued its
guaranty substantially identical to that set forth on the Note so exchanged.
The absence of any such guaranty on any Note shall not, however, affect the
obligations of the Guarantors hereunder.
1.8. TERM OF GUARANTY. This Guaranty and all guarantees,
covenants and agreements of the Guarantors contained herein shall continue in
full force and effect and shall not be discharged until such time as all of
the amounts due under the Notes shall be paid in full.
2. MAXIMUM LIABILITY. The liability of each of the
Guarantors under this Agreement shall not exceed the greater of (A) the net
benefit realized by such Guarantor or any Subsidiary of such Guarantor from
the proceeds of the issuance of the Notes and (B) the greater of (I) 95% of
the Adjusted Net Assets of such Guarantor on the date of this Agreement and
(II) 95% of the Adjusted Net Assets of such Guarantor on the date of any
payment hereunder. For purposes of this Agreement, the term "Adjusted Net
Assets" means, with respect to each of the Guarantors at any date of
determination, the lesser of (X) the amount by which the fair value of the
property and assets of such Guarantor exceeds the total amount of liabilities
(including, without limitation, contingent liabilities but excluding
liabilities under the Guaranteed Documents) of such Guarantor at such date
and (Y) the amount by which the present fair salable value of the property
and assets of such Guarantor at such date exceeds the amount that will be
required to pay the probable liability of such Guarantor on its debts
(excluding the Guaranteed Obligations), as they become absolute and matured.
3. SUBORDINATION. The obligations of the Guarantor
hereunder with respect to the Note Agreements and the Notes (the
"Subordinated Debt") shall be subordinate and junior in right of payment to
all Superior Debt (as defined in section 13.2 of the Note Agreements) to the
extent and in the manner provided in section 13 of each of the Note
Agreements. For purposes of this section 3, all references
-7-
<PAGE>
to the Company in section 13 of the Note Agreement shall be read to include
references to the Company and any Guarantor.
4. REPRESENTATIONS AND WARRANTIES. The Guarantors hereby
jointly and severally represent and warrant as follows:
(a) ORGANIZATION, STANDING, ETC. Each Guarantor is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, and each has
all requisite corporate power and authority to own and operate its
properties, to carry on its business as now conducted and as proposed
to be conducted and to enter into and to carry out the terms of this
Agreement. This Agreement has been duly authorized by all necessary
corporate action on the part of each Guarantor and has been duly
executed and delivered by each Guarantor.
(b) QUALIFICATION. Each Guarantor is duly qualified and in
good standing as a foreign corporation duly authorized to do business
in each jurisdiction (other than the jurisdiction of its
incorporation) in which the nature of its activities or the character
of the properties it owns or leases makes such qualification necessary
and in which the failure so to qualify would have a materially adverse
effect on such Guarantor.
(c) COMPLIANCE WITH OTHER INSTRUMENTS, ETC. The execution,
delivery and performance of this Agreement by each Guarantor will not
result in any violation of or be in conflict with or constitute a
default under any term of its Certificate of Incorporation or By-laws
or other governing instrument, any agreement or instrument to which
such Guarantor is a party or by which it or any of its properties or
assets is bound, or any term of any applicable law, ordinance, rule or
regulation of any governmental authority or any term of any applicable
order, judgment or decree of any court, arbitrator or governmental
authority.
(d) GOVERNMENTAL CONSENTS, ETC. No consent, approval or
authorization of, or declaration or filing with, any governmental
authority on the part of any Guarantor is required for the valid
execution and delivery of this Agreement and the due performance of
the obligations of the Guarantors under this Agreement.
-8-
<PAGE>
5. NOTICES. All notices under the terms and provisions
hereof shall be in writing, and shall be delivered by messenger or overnight
courier or sent by fax or mailed by first-class mail, postage prepaid,
addressed, (A) if to any Purchaser, at the address set forth in Schedule A of
the relevant Note Agreement, or at such other address as a Purchaser shall
from time to time designate in writing to the Company, (B) if to any
Guarantor, to 10890 Thornmint Road, Suite 200, San Diego, California 92127,
619-592-7642 (fax), Attention: Chief Financial Officer, or at such other
address as such Guarantor shall from time to time designate in writing to the
Purchasers. Any notice so addressed shall be deemed to be given when so
delivered or sent or, if mailed, on the third business day after being so
mailed.
6. AMENDMENTS, ETC. No amendment, alteration, modification
or waiver of any term or provision of this Guaranty Agreement, nor consent to
any departure by any Guarantor therefrom, shall in any event be effective
unless the same shall be in writing and signed by the holders of all of the
Notes at the time outstanding, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
7. SUBMISSION TO JURISDICTION. Each Guarantor, for itself
and its successors and assigns, hereby irrevocably (A) agrees that any legal
or equitable action, suit or proceeding against such Guarantor arising out of
or relating to this Agreement or any transaction contemplated hereby or the
subject matter of any of the foregoing may be instituted in any state or
federal court in the State of New York, (B) waives any objection which it may
now or hereafter have to the venue of any action, suit or proceeding, and (C)
irrevocably submits itself to the nonexclusive jurisdiction of any state or
federal court of competent jurisdiction in the State of New York for purposes
of any such action, suit or proceeding. Each Guarantor waives personal
service of process and consents that service of process upon it may be made
by certified or registered mail, return receipt requested, at its address
specified in section 5, and service so made shall be deemed completed on the
third business day after mailing. Nothing contained in this section 7 shall
be deemed to affect the rights of the Purchasers or any subsequent holder of
a Note to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against any Guarantor in any
jurisdiction.
-9-
<PAGE>
8. SURVIVAL. All warranties, representations and covenants
made by the Guarantors herein or in any certificate or other instrument
delivered by it or on its behalf hereunder shall be considered to have been
relied upon by the Purchasers and shall survive the execution and delivery of
this Agreement, regardless of any investigation made by the Purchasers or on
their behalf. All statements in any such certificate or other instrument
shall constitute warranties and representations by the Guarantors hereunder.
9. FURTHER ASSURANCES. Each Guarantor hereby agrees to
execute and deliver all such instruments and take all such action as any
holder of the Notes may from time to time reasonably request in order to
effectuate fully the purposes of this Agreement and to establish and perfect
the rights and remedies intended to be created in favor of the holders of the
Notes hereunder or under any of the Guaranteed Documents.
10. MISCELLANEOUS. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
To the extent permitted by applicable law, each Guarantor hereby waives any
provision of law that renders any provision hereof prohibited or
unenforceable in any respect. The section and paragraph headings in this
Agreement and the table of contents are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions
hereof, and all references herein to numbered sections, unless otherwise
indicated, are to sections in this Agreement. THIS AGREEMENT SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
IN WITNESS WHEREOF, each of the Guarantors has caused this
Guaranty Agreement to be duly executed as of the day and year first above
written.
AGRICULTURAL SUPPLY, INC.
-10-
<PAGE>
By: /s/ Mark Buckner
---------------------------------
Name: Mark Buckner
Title: Secretary
ASPEN CONSULTING COMPANIES,
INC.
By: /s/ Mark Buckner
---------------------------------
Name: Mark Buckner
Title: Secretary
MITIGATION SERVICES, INC.
By: /s/ Mark Buckner
---------------------------------
Name: Mark Buckner
Title: Secretary
TURF PARTNERS, INC.
By: /s/ Mark Buckner
---------------------------------
Name: Mark Buckner
Title: Secretary
YUMA ACQUISITION SUB.,
INC.
By: /s/ Mark Buckner
---------------------------------
Name: Mark Buckner
Title: Secretary
-11-
<PAGE>
Exhibit 10.3
_______________________________________________________________________________
LOAN AND SECURITY AGREEMENT
by and between
TURF PARTNERS, INC.,
a Delaware corporation
and
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank,
a California corporation
Dated as of June ___, 1999
_______________________________________________________________________________
<PAGE>
Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
TABLE OF CONTENTS
-----------------
PAGE
1. DEFINITIONS 1
Account Debtor 1
Affiliate 1
Audit 1
Borrower 1
Borrower's Address 1
Business Day 1
Change of Control 1
Closing Date 2
Coast 2
Code 2
Collateral 2
Credit Limit 2
Default 2
Deposit Account 2
Account Debtor 2
Dollars or $ 2
Early Termination Fee 2
Eligible Inventory 2
Eligible Receivables 2
Equipment 3
Event of Default 3
GAAP 3
General Intangibles 3
Guarantor 4
Inventory 4
Inventory Loans 4
Investment Property 4
Letter of Credit 4
Letter of Credit Sublimit 4
Loan Documents 4
Loans 4
Material Adverse Effect 4
Maturity Date 4
Maximum Dollar Amount 4
Minimum Monthly Interest 4
Tangible Net Worth 4
Obligations 4
Other Terms 5
Permitted Liens 5
Person 5
Prime Rate 5
Receivable Loans 5
Receivables 6
Renewal Date 6
Renewal Fee 6
Solvent 6
Year 2000 Problem 6
2. CREDIT FACILITIES 6
2.1 Loans 6
2.2 Letters of credit 6
3. INTEREST AND FEES 7
3.1 Interest 7
3.2 Fees 7
4. SECURITY INTEREST 7
5. CONDITIONS PRECEDENT 7
5.1 Status of Accounts at Closing 7
5.2 Minimum Availability 9
5.3 Landlord Waivers/Warehouse Waivers 9
5.4 Executed Agreement 9
5.5 Opinion of Borrower's and Guarantor's Counsel 9
5.6 Priority of Coast's Liens 9
5.7 Insurance 9
5.8 Borrower's Existence 9
5.9 Organizational Documents 9
5.10 Taxes 9
5.11 Year 2000 Problem Assessment Certificate 9
5.12 Subordination of Long Term Debt 9
5.13 Management Background Checks 10
5.14 Lockbox/Blocked Account Agreements 11
5.15 Minimum Net Worth 11
5.16 Continuing Guaranty and Stock Pledge from Guarantor 11
5.17 Intercreditor Agreement 11
5.18 Review and Assignment of Leases/Licenses 11
5.19 Due Diligence 11
5.20 Other Documents and Agreements 11
6. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE BORROWER 11
6.1 Existence and Authority 11
6.2 Name; Trade Names and Styles 12
6.3 Place of Business; Location of Collateral 12
6.4 Title to Collateral; Permitted Liens 12
6.5 Maintenance of Collateral 12
6.6 Books and Records 12
6.7 Financial Condition, Statements and Reports 12
6.8 Tax Returns and Payments; Pension Contributions 12
6.9 Compliance with Law 13
6.10 Litigation 13
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Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
6.11 Use of Proceeds 13
6.12 Year 2000 Compliance 13
6.13 Merger of Accounting Systems. 13
6.14 Segregation of Inventory 13
6.15 Assignment of LicensesError! Bookmark not defined.
7. RECEIVABLES. 13
7.1 Representations Relating to Receivables 13
7.2 Representations Relating to Documents
and Legal Compliance 13
7.3 Schedules and Documents Relating to Receivables 15
7.4 Collection of Receivables 15
7.5 Remittance of Proceeds 15
7.6 Disputes 15
7.7 Returns 15
7.8 Verification 16
7.9 No Liability 16
8. ADDITIONAL DUTIES OF THE BORROWER 16
8.1 Financial and Other Covenants 16
8.2 Insurance 16
8.3 Reports 16
8.4 Access to Collateral, Books and Records 16
8.5 Negative Covenants 17
8.6 Litigation Cooperation 18
8.7 Further Assurances 18
9. TERM. 18
9.1 Maturity Date 18
9.2 Early Termination 18
9.3 Payment of Obligations 18
10. EVENTS OF DEFAULT AND REMEDIES. 19
10.1 Events of Default 19
10.2 Remedies 20
10.3 Standards for Determining Commercial Reasonableness 21
10.4 Power of Attorney 21
10.5 Application of Proceeds 23
10.6 Remedies Cumulative 23
11. GENERAL PROVISIONS 23
11.1 Interest Computation 23
11.2 Application of Payments 23
11.3 Charges to Accounts 23
11.4 Monthly Accountings 23
11.5 Notices 24
11.6 Severability 24
11.7 Integration 24
11.8 Waivers 24
11.9 No Liability for Ordinary Negligence 24
11.10 Amendment 24
11.11 Time of Essence 24
11.12 Attorneys Fees, Costs and Charges 24
11.13 Benefit of Agreement 25
11.14 Publicity 25
11.15 Paragraph Headings; Construction 25
11.16 Governing Law; Jurisdiction; Venue 25
11.17 Mutual Waiver of Jury Trial 25
11.18 Confidentiality 26
ii
<PAGE>
Coast
Loan and Security Agreement
BORROWER: TURF PARTNERS, INC.,
A DELAWARE CORPORATION
ADDRESS: 10730 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
DATE: JUNE __, 1999
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
COAST BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a
California corporation, with offices at 12121 Wilshire Boulevard, Suite 1400,
Los Angeles, California 90025, and the borrower named above (the "Borrower"),
whose chief executive office is located at the above address ("Borrower's
Address"). The Schedule to this Agreement (the "Schedule") shall for all
purposes be deemed to be a part of this Agreement, and the same is an
integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 1 below.)
Coast and the guarantor hereunder, Eco Soil Systems, Inc., a Nebraska
corporation anticipate entering into a term loan facility in the approximate
amount of Five Million Dollars ($5,000,000) (the "Term Loan") that will be
guaranteed by the Borrower hereunder. Borrower, Eco Soil Systems, Inc., and
Coast understand that said Term Loan is prospective and does not represent a
binding commitment by Coast to make said Term Loan.
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable or General
Intangible.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"AUDIT" means to inspect, audit and copy Borrower's books and records
and the Collateral.
"BORROWER" has the meaning set forth in the introduction to this
Agreement.
"BORROWER'S ADDRESS" has the meaning set forth in the introduction to
this Agreement.
"BUSINESS DAY" means a day on which Coast is open for business.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time as
a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) (other than the current holders of the
ownership interests in any Borrower) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, as a result of any single transaction, of more than forty percent
(40%) of the total voting power of all classes of stock or other ownership
interests then
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Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
outstanding of Borrower normally entitled to vote in the election
of directors or analogous governing body.
"CLOSING DATE" date of the initial funding under this Agreement.
"COAST" has the meaning set forth in the introduction to this
Agreement.
"CODE" means the Uniform Commercial Code as adopted and in effect in
the State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 4 hereof.
"CREDIT LIMIT" means the maximum amount of Loans that Coast may make to
Borrower pursuant to the amounts and percentages shown on the Schedule.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the
Code.
"DILUTION" to be determined by Coast in its sole discretion, shall
mean, without limitation, the amount of returns, chargebacks, discounts and
other items reducing the outstanding amounts of Receivables.
"DOLLARS OR $" means United States dollars.
"EARLY TERMINATION FEE" means the amount set forth on the Schedule
that Borrower must pay Coast if this Agreement is terminated by Borrower or
Coast pursuant to Section 9.2 hereof.
"ELIGIBLE INVENTORY" means Inventory which Coast, in its good faith
discretion, deems eligible for borrowing, based on such considerations as
Coast may from time to time deem appropriate. Without limiting the fact that
the determination of which Inventory is eligible for borrowing is a matter of
Coast's discretion, Inventory which does not meet the following requirements
will not be deemed to be Eligible Inventory: Inventory which (i) consists of
finished goods, in good, new and salable condition which is not perishable,
not obsolete or unmerchantable, and is not comprised of raw materials, work
in process, packaging materials or supplies; (ii) meets all applicable
governmental standards; (iii) has been manufactured in compliance with the
Fair Labor Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Coast's duly perfected, first priority security interest; and (vi) is
situated at a one of the locations set forth on the Schedule.
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary
course of Borrower's business from the sale of goods or rendition of
services, which Coast, in its good faith discretion, shall deem eligible for
borrowing, based on such considerations as Coast may from time to time deem
appropriate. Eligible Receivables shall not include the following:
(a) Receivables that the Account Debtor has failed to pay
within 60 days of their due date not to exceed 150 days past invoice date or
Receivables with selling terms of more than 90 days with the specific
exceptions that: (a) from March 1 through March 31 of each year, Borrower
will be able to obtain Loans against extended term Receivables invoiced
during August of the prior year, that are otherwise eligible for lending
purposes, in a total amount of Five Million Dollars ($5,000,000) with said
amount decreasing to Three Million Dollars ($3,000,000) for said extended
term Receivables during the period of April 1 through April 30, and (b) from
April 1 through May 15 of each year, Borrower will be able to obtain Loans
against extended term Receivables invoiced during September of the prior
year, that are otherwise eligible for lending purposes, in a total amount of
Five Million Dollars ($5,000,000);
(b) Receivables owed by an Account Debtor or its Affiliates
where twenty-five percent (25%) or more of all Receivables owed by that
Account Debtor (or its Affiliates) are deemed ineligible under clause (a)
above;
(c) Receivables with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Receivables with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and
hold, or other terms by reason of which the payment by the Account Debtor may
be conditional;
(e) Receivables that are not payable in Dollars or with respect
to which the Account Debtor: (i) does not maintain its chief executive
2
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Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
office in the United States, or (ii) is not organized under the laws of the
United States or any State thereof, or (iii) is the government of any foreign
country or sovereign state, or of any state, province, municipality, or other
political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof;
(f) Receivables with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Coast, with the Assignment of
Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the United States
(exclusive, however, of Receivables owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(g) Receivables with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Receivables;
(h) Receivables with respect to an Account Debtor whose total
obligations owing to Borrower exceed ten percent (10%) of all Eligible
Receivables, to the extent of the obligations owing by such Account Debtor in
excess of such percentage;
(i) Receivables with respect to which the Account Debtor is
subject to any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation proceeding, or becomes
insolvent, or goes out of business;
(j) Receivables the collection of which Coast, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Receivables with respect to which the goods giving rise to
such Receivable have not been shipped and billed to the Account Debtor, the
services giving rise to such Receivable have not been performed and accepted
by the Account Debtor, or the Receivable otherwise does not represent a final
sale;
(l) Receivables with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report
or similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a
Notice of Business Activities Report with the applicable division of
taxation, the department of revenue, or with such other state offices, as
appropriate, for the then-current year, or is exempt from such filing
requirement; and
(m) Receivables that represent progress payments or other
advance billings that are due prior to the completion of performance by
Borrower of the subject contract for goods or services.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other goods (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"EVENT OF DEFAULT" means any of the events set forth in Section 10.1
of this Agreement.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, causes of action, corporate or
other business records, Deposit Accounts, investment property, inventions,
designs, drawings, blueprints, patents, patent applications, trademarks and
the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, rights in all litigation presently or
hereafter pending for any cause or claim (whether in contract, tort or
otherwise), and all judgments now or hereafter arising therefrom, all claims
of Borrower against Coast, rights to purchase or sell real or personal
property, rights as a licensor or licensee of any kind, royalties,
3
<PAGE>
Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance,
key man insurance, credit insurance, liability insurance, property insurance
and other insurance), tax refunds and claims, computer programs, discs, tapes
and tape files, claims under guaranties, security interests or other security
held by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"GUARANTOR" means, Eco Soil Systems, Inc., a Nebraska corporation.
"INVENTORY" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease (including
without limitation all raw materials, work in process, finished goods and
goods in transit, and including without limitation all farm products), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with
the manufacture, packing, shipping, advertising, selling or finishing of such
goods, merchandise or other personal property, and all warehouse receipts,
documents of title and other documents representing any of the foregoing.
"INVENTORY LOANS" means the Loans described in Section 2.1(b) of the
Schedule.
"INVESTMENT PROPERTY" has the meaning set forth in Section 9115 of
the Code as in effect as of the date hereof.
"LETTER OF CREDIT" has the meaning set forth in Section 2.2 hereof.
"LETTER OF CREDIT SUBLIMIT" has the meaning set forth in Section 2.2
hereof.
"LOAN DOCUMENTS" means this Agreement, the agreements and documents
listed on Section 5 of the Schedule, and any other agreement, instrument or
document executed in connection herewith or therewith.
"LOANS" has the meaning set forth in Section 2.1 hereof.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations
of Borrower or any subsidiary of Borrower on a consolidated basis but
excluding Borrower's parent and Borrower's nonsubsidiary affiliates from such
consolidated basis, or any guarantor of any of the Obligations, (ii) the
ability of Borrower or any guarantor of any of the Obligations to perform its
obligations under this Agreement (including, without limitation, repayment of
the Obligations as they come due) or (iii) the validity or enforceability of
this Agreement or any other agreement or document entered into by any party
in connection herewith, or the rights or remedies of Coast hereunder or
thereunder.
"MATURITY DATE" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 2 of
the Schedule.
"MINIMUM MONTHLY INTEREST" has the meaning set forth in Section 3 of
the Schedule.
"NET WORTH" means shareholder's equity, PLUS subordinated debt
otherwise permitted hereunder, LESS goodwill. "Goodwill" will be treated on a
consolidated basis at the parent (i.e. Eco Soil) level of Borrower and, as a
result, goodwill at Borrower's level will be $0 at all times.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at
any time owing by Borrower to Coast, whether evidenced by this Agreement or
any note or other instrument or document, whether arising from an extension
of credit, opening of a letter of credit, banker's acceptance, loan, guaranty
(including, without limitation, Borrower's guaranty of Guarantor's
Obligations owing to Coast pursuant to the Term Loan), indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by Coast in Borrower's debts
owing to others), absolute or contingent, due or to become due, including,
without limitation, all interest, charges, expenses, fees, attorneys' fees
(including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and
any other sums chargeable to Borrower under this Agreement or under any other
4
<PAGE>
Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
present or future instrument or agreement between Borrower and Coast.
"OTHER TERMS." All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in
accordance with GAAP. All other terms contained in this Agreement, unless
otherwise indicated, shall have the meanings provided by the Code, to the
extent such terms are defined therein.
"PERMITTED LIENS" means the following:
(a) purchase money security interests in specific items of
Equipment;
(b) leases of specific items of Equipment and technology
(including: (i) capital leases, and (ii) leases of BioJects, related
equipment and related technology and any filings or similar documentation
reasonably appropriate to evidence the parties' obligations and interests
with respect thereto provided that said documentation has been assigned to
Coast);
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in
writing by Coast, which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially
concurrently with this Agreement and liens created hereunder;
(f) liens of materialmen, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above
in clauses (a) or (b) above, provided that any extension, renewal or
replacement lien is limited to the property encumbered by the existing lien
and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase; or
(h) liens in favor of customs and revenue authorities which
secure payment of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent
under clause (d) above, that the holder of the additional security interest
or lien sign an intercreditor agreement on Coast's then standard form,
acknowledge that the security interest is subordinate to the security
interest in favor of Coast, and agree not to take any action to enforce its
subordinate security interest so long as any Obligations remain outstanding,
and that Borrower agree that any uncured default in any obligation secured by
the subordinate security interest shall also constitute an Event of Default
under this Agreement.
"PERSON" means any individual, sole proprietorship, general
partnership, limited partnership, limited liability partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, government, or any agency or political division
thereof, or any other entity.
"PRIME RATE" means the actual "Reference Rate" or the substitute
therefor of the Bank of America NT & SA whether or not that rate is the
lowest interest rate charged by said bank. If the Prime Rate, as defined, is
unavailable, "Prime Rate" shall mean the highest of the prime rates published
in the Wall Street Journal on the first business day of the applicable month,
as the base rate on corporate loans at large U.S. money center commercial
banks.
"RECEIVABLE LOANS" means the Loans described in Section 2.1(a) of
the Schedule.
"RECEIVABLES" means all of Borrower's now owned and hereafter
acquired accounts (whether or not earned by performance), letters of credit,
contract rights, chattel paper, instruments, securities, documents,
securities accounts, security entitlements, commodity contracts, commodity
accounts, investment property and all other forms of obligations at any time
owing to Borrower, all guaranties and other security therefor, all
merchandise returned to or repossessed by Borrower, and all rights of
stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
"RENEWAL DATE" shall mean the Maturity Date if this Agreement is
renewed pursuant to Section 9.1 hereof, and each anniversary thereafter that
this Agreement is renewed pursuant to Section 9.1 hereof.
"RENEWAL FEE" means the fee that Borrower must pay Coast upon
renewal of this Agreement pursuant to Section 9.1 hereof, in the amount set
forth on the Schedule.
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Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
"SOLVENT" means, with respect to any Person on a particular date,
that on such date (a) at fair valuations, all of the properties and assets of
such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it
will, incur debts beyond such Person's ability to pay as such debts mature,
and (e) such Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such Person's
properties and assets would constitute unreasonably small capital after
giving due consideration to the prevailing practices in the industry in which
such Person is engaged. In computing the amount of contingent liabilities at
any time, it is intended that such liabilities will be computed at the amount
that, in light of all the facts and circumstances existing at such time,
represents the amount that reasonably can be expected to become an actual or
matured liability.
"TERM LOAN" means the prospective Five Million Dollars ($5,000,000)
term loan between Guarantor and Coast, which will be guaranteed by Borrower.
Borrower, Guarantor and Coast understand that said Term Loan is prospective
and does not represent a binding commitment by Coast to make said term loan.
"TERM LOAN AND SECURITY AGREEMENT" means, that certain Term Loan and
Security Agreement between Guarantor and Coast to be entered into in
connection with the prospective Term Loan.
"YEAR 2000 PROBLEM" means the risk that computer systems, software
and applications used by a Person may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any
dates after December 31, 1999.
2. CREDIT FACILITIES.
2.1 LOANS. Coast will make loans to Borrower (the "Loans"), in
amounts and in percentages to be determined by Coast in its good faith
discretion, up to the Credit Limit, provided no Default or Event of Default
has occurred and is continuing. In addition, Coast may create reserves
against or reduce its advance rates based upon Eligible Receivables or
Eligible Inventory without declaring a Default or an Event of Default if it
determines that there has occurred a Material Adverse Effect. At all times,
Coast will reserve an amount representing 100% of the accounts payable
obligations owing on consigned inventory located at all of Borrower's
locations including its Turf East location, with the amount and duration of
the reserve to be determined by Coast in its sole and absolute discretion.
2.2 LETTERS OF CREDIT. At the request of Borrower, Coast may, in its
sole discretion, arrange for the issuance of letters of credit for the
account of Borrower (collectively, "Letters of Credit"), by issuing
guarantees to the issuer of the letter of credit or by other means. All
Letters of Credit shall be in form and substance satisfactory to Coast in its
sole discretion. The aggregate face amount of all outstanding Letters of
Credit from time to time shall not exceed the amount shown on the Schedule
(the "Letter of Credit Sublimit"), and with respect to standby letters of
credit shall be reserved 100% and with respect to documentary letters of
credit shall be reserved 45% against Loans which would otherwise be available
hereunder. Borrower shall pay all bank charges for the issuance of Letters of
Credit. Any payment by Coast under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each
Letter of Credit shall have an expiry date no later than thirty (30) days
prior to the Maturity Date. Borrower hereby agrees to indemnify, save, and
hold Coast harmless from any loss, cost, expense, or liability, including
payments made by Coast, expenses, and reasonable attorneys' fees incurred by
Coast arising out of or in connection with any Letters of Credit. Borrower
agrees to be bound by the regulations and interpretations of the issuer of
any Letters of Credit guarantied by Coast and opened for Borrower's account
or by Coast's interpretations of any Letter of Credit issued by Coast for
Borrower's account, and Borrower understands and agrees that Coast shall not
be liable for any error, negligence, or mistake, whether of omission or
commission, in following Borrower's instructions or those contained in the
Letters of Credit or any modifications, amendments, or supplements thereto,
except for liability resulting from Coast's gross negligence or willful
misconduct. Borrower understands that Letters of Credit may require Coast to
indemnify the issuing bank for certain costs or liabilities arising out of
claims by Borrower against such
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Coast Business Credit Loan and Security Agreement
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issuing bank. Borrower hereby agrees to indemnify and hold Coast harmless
with respect to any loss, cost, expense, or liability incurred by Coast under
any Letter of Credit as a result of Coast's indemnification of any such
issuing bank. The provisions of this Agreement, as it pertains to Letters of
Credit, and any other present or future documents or agreements between
Borrower and Coast relating to Letters of Credit are cumulative.
3. INTEREST AND FEES
3.1 INTEREST. All Loans and all other monetary Obligations shall
bear interest at the rate shown on the Schedule, except where expressly set
forth to the contrary in this Agreement. Interest shall be payable monthly,
on the last day of the month. Interest may, in Coast's discretion, be charged
to Borrower's loan account, and the same shall thereafter bear interest at
the same rate as the other Loans. Regardless of the amount of Obligations
that may be outstanding from time to time, Borrower shall pay Coast Minimum
Monthly Interest during the term of this Agreement with respect to the
Receivable Loans and the Inventory Loans in the amount set forth on the
Schedule.
3.2 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Coast and are
deemed fully earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when
due, including, without limitation, Borrower's guaranty of Guarantor's
Obligations owing to Coast pursuant to the Term Loan, Borrower hereby grants
to Coast a security interest in all of Borrower's interest in the following,
whether now owned or hereafter acquired, and wherever located: All
Receivables, Inventory, Equipment, Investment Property, and General
Intangibles, including, without limitation, all of Borrower's Deposit
Accounts, and all money, and all property now or at any time in the future in
Coast's possession (including claims and credit balances), and Borrower's
interests in that certain _________ dated _________, 1999 concerning
Borrower's lease of assets (including BioJects) and license of technology
from Guarantor, and all proceeds of any of the foregoing (including proceeds
of any insurance policies, proceeds of proceeds, and claims against third
parties), all products of any of the foregoing, and all books and records
related to any of the foregoing (all of the foregoing, together with all
other property in which Coast may now or in the future be granted a lien or
security interest, is referred to herein, collectively, as the "Collateral").
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the
satisfaction, in the sole discretion of Coast, at or prior to the first
advance of funds hereunder, of each, every and all of the following
conditions:
5.1 STATUS OF ACCOUNTS AT CLOSING. No accounts payable shall be due
and unpaid one hundred and twenty (120) days past its invoice date except
for: (i) such accounts payable approved by Coast, and (ii) such accounts
payable for which extended terms have been granted by
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the vendor provided such extended terms accounts payable are no more than 45
days past their due dates. Accounts payable which have not been paid pursuant
to the terms of this paragraph and which have not been specifically excepted
will be restricted and reserved for.
5.2 MINIMUM AVAILABILITY. Borrower shall have minimum availability
immediately following the initial funding in the amount set forth on the
Schedule.
5.3 LANDLORD WAIVERS. Coast shall have received duly executed
landlord waivers and access agreements in form and substance satisfactory to
Coast, in Coast's sole and absolute discretion, and, when deemed appropriate
by Coast, in form for recording in the appropriate recording office, with
respect to all leased office locations where Borrower maintains any records.
5.4 EXECUTED AGREEMENT. Coast shall have received this Agreement
duly executed and in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.5 OPINION OF BORROWER'S AND GUARANTOR'S COUNSEL. Coast shall have
received an opinion of Borrower's and Guarantor's counsel, in form and
substance satisfactory to Coast in its sole and absolute discretion.
5.6 PRIORITY OF COAST'S LIENS. Coast shall have received the results
of "of record" searches satisfactory to Coast in its sole and absolute
discretion, reflecting its Uniform Commercial Code filings against Borrower
indicating that Coast has a perfected, first priority lien in and upon all of
the Collateral, subject only to Permitted Liens.
5.7 INSURANCE. Coast shall have received copies of the insurance
binders or certificates evidencing Borrower's compliance with Section 8.2
hereof, including lender's loss payee endorsements.
5.8 BORROWER'S EXISTENCE. Coast shall have received copies of
Borrower's certificate of incorporation and all amendments thereto, and a
Certificate of Good Standing, each certified by the Secretary of State of the
state of Borrower's organization, and dated a recent date prior to the
Closing Date, and Coast shall have received Certificates of Foreign
Qualification for Borrower from the Secretary of State of each state wherein
the failure to be so qualified could have a Material Adverse Effect.
5.9 ORGANIZATIONAL DOCUMENTS. Coast shall have received copies of
Borrower's By-laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing
the execution and delivery of this Agreement and the other documents
contemplated hereby, and authorizing the transactions contemplated hereunder
and thereunder, and authorizing specific officers of Borrower to execute the
same on behalf of Borrower, in each case certified by the Secretary or other
acceptable officer of Borrower as of the Closing Date.
5.10 TAXES. Coast shall have received evidence from Borrower that
Borrower has complied with all tax withholding and Internal Revenue Service
regulations, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.11 YEAR 2000 PROBLEM ASSESSMENT CERTIFICATE. Coast shall have
received a certificate from the relevant officer of Borrower to the effect
that, as the result of a comprehensive assessment undertaken by Borrower of
Borrower's computer systems, software and applications and after due inquiry
made to Borrower's material suppliers, vendors and customers, Borrower knows
of no facts that would cause Borrower to reasonably believe that the Year
2000 Problem will cause a Material Adverse Effect.
5.12 SUBORDINATION OF LONG TERM DEBT. Coast shall have received an
amendment to that certain Senior Subordinated Note and Warrant Purchase
Agreement (the "Note Purchase Agreement") dated ________ between Albion
Alliance Mezzanine Fund and Paribas Capital Funding LLC (the "Purchasers")
and Eco Soil Systems, Inc. wherein the Purchasers agree to subordinate all
obligations under the Purchase Agreement owed to them by Borrower and
Guarantor in favor of the Obligation owing by Borrower and Guarantor to
Coast, with the form and substance of said amendment to be acceptable to
Coast in its sole and absolute discretion.
5.13 MANAGEMENT BACKGROUND CHECKS. Coast shall have received the
results of management background checks, including without limitation, TRWs,
tax lien and litigation searches, LEXIS/nexis searches and such other
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Coast Business Credit Loan and Security Agreement
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5.14 due diligence as Coast may deem necessary on key officers of
Borrower with said background checks to be satisfactory to Coast in its sole
and absolute discretion.
5.15 LOCKBOX/BLOCKED ACCOUNT AGREEMENTS. Prior to the initial
funding, Coast shall have received evidence that all cash remittances of
Borrower shall be collected pursuant to one or more blocked account
agreements in form and substance acceptable to Coast and, prior to December
31, 1999, all cash remittances of Borrower must be collected pursuant to one
or more lockbox agreements in form and substance acceptable to Coast.
5.16 MINIMUM NET WORTH Borrower's Net Worth shall be no less than
Three Million Five Hundred Thousand Dollars ($3,500,000) on the Closing Date.
5.17 CONTINUING GUARANTY AND STOCK PLEDGE FROM GUARANTOR. Coast
shall have received the Continuing Guaranty of Guarantor along with a
Security Agreement - Stock Pledge from Guarantor pledging one hundred percent
(100%) of the issued and outstanding stock held in Borrower, with the form
and content of said agreements to be acceptable to Coast in its sole and
absolute discretion.
5.18 INTERCREDITOR AGREEMENT. Coast shall have received an
Intercreditor Agreement from First National Bank of San Diego ("First
National") wherein, among other things, First National and Coast agree that
Guarantor's guaranties of the obligations owing from Agricultural Supply,
Inc. ("Ag Supply") to First National and from Borrower to Coast,
respectively, shall be on a pari passu unsecured basis with the exceptions
that: (i) Guarantor's guaranty of Ag Supply's obligations to First National
shall be secured by Guarantor's pledge of its stock in Ag Supply, and (ii)
Guarantor's guaranty of Borrower's obligations to Coast shall be secured by
Guarantor's pledge of its stock in Borrower. The form and content of said
Intercreditor Agreement shall be acceptable to Coast in its sole and absolute
discretion.
5.19 REVIEW AND ASSIGNMENT OF LEASES/LICENSES. Coast shall have
received evidence that Borrower's lease of assets (including BioJects) and
license of technology from Guarantor have been memorialized and Coast shall
have the opportunity to review said leases/licenses with the results of said
review to be acceptable to Coast in its sole and absolute discretion.
Additionally, Coast shall have received assignments of said leases/licenses
and their proceeds from Borrower with the form and content of said
assignments to be acceptable to Coast in its sole and absolute discretion.
5.20 DUE DILIGENCE. Coast shall have completed its due diligence
with respect to Borrower.
5.21 OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received such
other agreements, instruments and documents as Coast may require in
connection with the transactions contemplated hereby, all in form and
substance satisfactory to Coast in Coast's sole and absolute discretion, and
in form for filing in the appropriate filing office, including, but not
limited to, those documents listed in Section 5 of the Schedule.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make
Loans, Borrower represents and warrants to Coast as follows, and Borrower
covenants that the following representations will continue to be true, and
that Borrower will at all times comply with all of the following covenants:
6.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be
qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a Material Adverse Effect. The execution,
delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (a) have been duly and validly authorized, (b)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (c) do not violate Borrower's certificate of
incorporation or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (d) do not
constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding upon
Borrower or its property.
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Coast Business Credit Loan and Security Agreement
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6.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in
the heading to this Agreement is its correct name. Listed on the Schedule are
all of Borrower's present trade names. Borrower shall give Coast thirty (30)
days' prior written notice before changing its name or doing business under
any other name. Borrower has complied, and will in the future comply, with
all laws relating to the conduct of business under a fictitious business name.
6.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth
in the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at
the locations set forth on the Schedule. Borrower will give Coast at least
thirty (30) days' prior written notice before opening any additional place of
business, changing its chief executive office, or moving any of the
Collateral to a location other than Borrower's Address or one of the
locations set forth on the Schedule.
6.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will
at all times in the future be, the sole owner of all the Collateral, except
for items of Equipment which are leased by Borrower. The Collateral now is
and will remain free and clear of any and all liens, charges, security
interests, encumbrances and adverse claims, except for Permitted Liens. Coast
now has, and will continue to have, a first-priority perfected and
enforceable security interest in all of the Collateral, subject only to the
Permitted Liens, and Borrower will at all times defend Coast and the
Collateral against all claims of others. None of the Collateral now is or
will be affixed to any real property in such a manner, or with such intent,
as to become a fixture. Borrower is not and will not become a lessee under
any real property lease pursuant to which the lessor may obtain any rights in
any of the Collateral and no such lease now prohibits, restrains, impairs or
will prohibit, restrain or impair Borrower's right to remove any Collateral
from the leased premises. Whenever any Collateral is located upon premises in
which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lienholder, landlord, warehouseman or
otherwise), Borrower shall, whenever requested by Coast, use its best efforts
to cause such third party to execute and deliver to Coast, in form acceptable
to Coast, such waivers and subordinations as Coast shall specify, so as to
ensure that Coast's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. In the event that such
waivers and subordination specified by Coast have not been obtained from such
third parties, Coast will have a continuing right to institute a reserve for
payment of rent and other sums owing to any such third parties or Coast may
make any Collateral located on the premises of any such third party
ineligible for lending purposes. Borrower will keep in full force and effect,
and will comply with all the terms of, any lease of real property where any
of the Collateral now or in the future may be located.
6.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral
in good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
6.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
6.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS . All financial
statements now or in the future delivered to Coast have been, and will be,
prepared in conformity with GAAP (except, in the case of unaudited financial
statements, for the absence of footnotes and subject to normal year-end
adjustments) and now and in the future will fairly reflect the financial
condition of Borrower, at the times and for the periods therein stated.
Between the last date covered by any such statement provided to Coast and the
date hereof, there has been no Material Adverse Effect. Borrower is now and
will continue to be Solvent.
6.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and Borrower has timely paid, and will
timely pay, all foreign, federal, state and local taxes, assessments,
deposits and contributions now or in the future owed by Borrower. Borrower
may, however, defer payment of any contested taxes, provided that Borrower
(i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Coast in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other
steps required to keep the contested taxes from becoming a lien upon any of
the Collateral. As of the date hereof, Borrower is unaware of any claims or
adjustments proposed
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for any of Borrower's prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid, and shall continue
to pay all amounts necessary to fund all present and future pension, profit
sharing and deferred compensation plans in accordance with their terms, and
Borrower has not and will not withdraw from participation in, permit partial
or complete termination of, or permit the occurrence of any other event with
respect to, any such plan which could result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency. Borrower shall, at all times,
utilize the services of an outside payroll service providing for the
automatic deposit of all payroll taxes payable by Borrower.
6.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in
all material respects, with all provisions of all material foreign, federal,
state and local laws and regulations relating to Borrower, including, but not
limited to, the Fair Labor Standards Act, and those relating to Borrower's
ownership of real or personal property, the conduct and licensing of
Borrower's business, and environmental matters.
6.10 LITIGATION. Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
Borrower's knowledge) threatened by or against or affecting Borrower in any
court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in a
Material Adverse Effect. Borrower will promptly inform Coast in writing of
any claim, proceeding, litigation or investigation in the future threatened
or instituted by or against Borrower involving an amount set forth on the
Schedule.
6.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely
for lawful business purposes. Borrower is not purchasing or carrying any
"margin stock" (as defined in Regulation U of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan will be used
to purchase or carry any "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any "margin stock."
6.12 YEAR 2000 COMPLIANCE. As the result of a comprehensive review
and assessment undertaken by Borrower of Borrower's computer systems,
software and applications and after due inquiry made of Borrower's material
suppliers, vendors and customers Borrower represents and warrants that the
Year 2000 problem will not result in a Material Adverse Effect.
6.13 MERGER OF ACCOUNTING SYSTEMS. Borrower and Guarantor shall have
completed the merger of their accounting systems by September 1, 1999.
6.14 SEGREGATION OF INVENTORY. Borrower shall at all times and at
all of its location, including its Turf East location, clearly segregate its
owned inventory from consigned inventory. Additionally, Borrower on its
inventory reporting provided to Coast shall at all times segregate its owned
inventory from consigned inventory.
7. RECEIVABLES
7.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.
7.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE.
Borrower represents and warrants to Coast as follows: All statements made and
all unpaid balances appearing in all invoices, instruments and other
documents evidencing the Receivables are and shall be true and correct and
all such invoices, instruments and other documents and all of Borrower's
books and records are and shall be genuine and in all respects what they
purport to be. All sales and other transactions underlying or giving rise to
each Receivable shall fully comply
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with all applicable laws and governmental rules and regulations. All
signatures and indorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
7.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Coast via facsimile, unless otherwise directed by Coast, at such
locations and at such intervals as Coast may request, transaction reports and
loan requests, schedules of Receivables, and schedules of collections, all on
Coast's standard forms; PROVIDED, HOWEVER, that Borrower's failure to execute
and deliver the same shall not affect or limit Coast's security interest and
other rights in all of Borrower's Receivables, nor shall Coast's failure to
advance or lend against a specific Receivable affect or limit Coast's
security interest and other rights therein. Loan requests received after
10:30 A.M. Los Angeles, California time, will not be considered by Coast
until the next Business Day. Together with each such schedule, or later if
requested by Coast, Borrower shall furnish Coast with copies (or, at Coast's
request, originals) of all contracts, orders, invoices, and other similar
documents, and all original shipping instructions, delivery receipts, bills
of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Receivables, and Borrower warrants the
genuineness of all of the foregoing. Borrower shall also furnish to Coast an
aged accounts receivable trial balance in such form and at such intervals as
Coast shall request. In addition, Borrower shall deliver to Coast the
originals of all instruments, chattel paper, security agreements, guarantees
and other documents and property evidencing or securing any Receivables, upon
receipt thereof and in the same form as received, with all necessary
indorsements, all of which shall be with recourse. Borrower shall also
provide Coast with copies of all credit memos as and when requested by Coast.
7.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to
collect all Receivables, unless and until an Event of Default has occurred
and is continuing. Borrower shall hold all payments on, and proceeds of,
Receivables in trust for Coast, and Borrower shall deliver all such payments
and proceeds to Coast within one (1) Business Day after receipt by Borrower,
in their original form, duly endorsed to Coast, to be applied to the
Obligations in such order as Coast shall determine. Coast may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Coast may specify,
pursuant to a blocked account agreement in such form as Coast may specify.
Coast or its designee may, at any time, notify Account Debtors that Coast has
been granted a security interest in the Receivables.
7.5 REMITTANCE OF PROCEEDS. All proceeds arising from the
disposition of any Collateral shall be delivered to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed
to Coast, to be applied to the Obligations in such order as Coast shall
determine. Borrower agrees that it will not commingle proceeds of Collateral
with any of Borrower's other funds or property, but will hold such proceeds
separate and apart from such other funds and property and in an express trust
for Coast. Nothing in this Section limits the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
7.6 DISPUTES. Borrower shall notify Coast promptly of all material
disputes or claims relating to Receivables. Borrower shall not forgive
(completely or partially), compromise or settle any Receivable for less than
payment in full, or agree to do any of the foregoing, except that Borrower
may do so, provided that: (a) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, and in
arm's length transactions, which are reported to Coast on the regular reports
provided to Coast; (b) no Default or Event of Default has occurred and is
continuing; and (c) taking into account all such discounts settlements and
forgiveness, the total outstanding Loans will not exceed the Credit Limit.
Coast may, at any time after the occurrence and during the continuance of an
Event of Default, settle or adjust disputes or claims directly with Account
Debtors for amounts and upon terms which Coast considers advisable in its
reasonable credit judgment and, in all cases, Coast shall credit Borrower's
Loan account with only the net amounts received by Coast in payment of any
Receivables.
7.7 RETURNS. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor
in the appropriate amount. In the event any attempted return occurs after the
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occurrence of any Event of Default, Borrower shall (a) hold the returned
Inventory in trust for Coast, (b) segregate all returned Inventory from all
of Borrower's other property, (c) conspicuously label the returned Inventory
as subject to Coast's security interest, and (d) immediately notify Coast of
the return of any Inventory, specifying the reason for such return, the
location and condition of the returned Inventory, and on Coast's request
deliver such returned Inventory to Coast.
7.8 VERIFICATION. Coast may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters
relating to the Receivables, by means of mail, telephone or otherwise, either
in the name of Borrower or Coast or such other name as Coast may choose.
7.9 NO LIABILITY. Coast shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or loss
or destruction of, any goods, the sale or other disposition of which gives
rise to a Receivable, or for any error, act, omission or delay of any kind
occurring in the settlement, failure to settle, collection or failure to
collect any Receivable, or for settling any Receivable in good faith for less
than the full amount thereof, nor shall Coast be deemed to be responsible for
any of Borrower's obligations under any contract or agreement giving rise to
a Receivable. Nothing herein shall, however, relieve Coast from liability for
its own gross negligence or willful misconduct.
8. ADDITIONAL DUTIES OF THE BORROWER
8.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times
comply with the financial and other covenants set forth in the Schedule.
8.2 INSURANCE. Borrower shall, at all times insure all of the
tangible personal property Collateral and carry such other business insurance
(including, without limitation, coverage in excess of the highest
consolidated inventory balance reflected in Borrower's financial statements
or reporting provided to Coast, with said coverage amount to be determined by
Coast in its sole discretion), with insurers reasonably acceptable to Coast,
in such form and amounts as Coast may reasonably require, and Borrower shall
provide evidence of such insurance to Coast, so that Coast is satisfied that
such insurance is, at all times, in full force and effect. All liability
insurance policies of Borrower shall name Coast as an additional insured, and
shall provide coverage for environmental related claims and issues, with said
coverage to be acceptable to Coast in its sole and absolute discretion, and
all property casualty and related insurance policies of Borrower shall name
Coast as a loss payee thereon and Borrower shall cause a lender's loss payee
endorsement in form reasonably acceptable to Coast. Upon receipt of the
proceeds of any such insurance, Coast shall apply such proceeds in reduction
of the Obligations as Coast shall determine in its sole discretion, except
that, provided no Default or Event of Default has occurred and is continuing,
Coast shall release to Borrower insurance proceeds with respect to Equipment
totaling less than the amount set forth in Section 8 of the Schedule, which
shall be utilized by Borrower for the replacement of the Equipment with
respect to which the insurance proceeds were paid. Coast may require
reasonable assurance that the insurance proceeds so released will be so used.
If Borrower fails to provide or pay for any insurance, Coast may, but is not
obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Coast copies of all reports made to insurance companies.
8.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in Section 8 of the Schedule, and such other
written reports with respect to Borrower (including budgets, sales
projections, operating plans and other financial documentation), as Coast
shall from time to time reasonably specify.
8.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but
not less frequently than quarterly and on one (1) Business Day's notice,
Coast, or its agents, shall have the right to perform Audits. Coast shall
take reasonable steps to keep confidential all confidential information
obtained in any Audit, but Coast shall have the right to disclose any such
information to its auditors, regulatory agencies, and attorneys, and pursuant
to any subpoena or other legal process. The Audits shall be at Borrower's
expense and the charge for the Audits shall be Seven Hundred Fifty Dollars
($750) per person per day (or such higher amount as shall represent Coast's
then current standard charge for the same), plus reasonable out-of-pocket
expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at
any location other than Borrower's Address, without first notifying Coast of
the same and obtaining the written agreement from such
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Coast Business Credit Loan and Security Agreement
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accounting firm, service bureau or other third party to give Coast the same
rights with respect to access to books and records and related rights as
Coast has under this Loan Agreement. Borrower shall also take all necessary
steps to assure that its material accounting and software, systems and
applications, and those of its accounting firm, service bureau or any other
third party vendor or supplier, will, on a timely basis, adequately and
completely address the Year 2000 Problem in all material respects.
8.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior
written consent, do any of the following:
(a) merge or consolidate with another entity, except in a
transaction in which (i) the owners of the Borrower hold at least fifty
percent (50%) of the ownership interest in the surviving entity immediately
after such merger or consolidation, and (ii) the Borrower is the surviving
entity;
(b) acquire any assets, except (i) in the ordinary course of
business, or (ii) in a transaction or a series of transactions not involving
the payment of an aggregate amount in excess of the amount set forth in
Section 8 of the Schedule;
(c) enter into any other transaction not permitted hereunder
outside the ordinary course of business provided, however, that Borrower's
use and exploitation of the BoiJects and related equipment/technology as
permitted pursuant to the BioJect leases will be deemed to be in the ordinary
course of Borrower's business;
(d) sell or transfer any Collateral, except for: (i) the sale of
finished Inventory in the ordinary course of Borrower's business, (ii) the
sale of obsolete or unneeded Equipment in the ordinary course of business,
and (iii) other sales or transfers the aggregate market value of such
Collateral sold or otherwise disposed of in any year not to exceed Five
Hundred Thousand Dollars ($500,000) and the consideration received for such
Collateral being at least equal to the fair market value of such Collateral
provided: (i) such sales could not reasonably be expected to have a Material
Adverse Effect, and (ii) no Event of Default has occurred and is continuing
or will result from such sales or transfers;
(e) sell Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis wherein the proceeds of all of said
sales exceed ten percent (10%) of Borrower's total sales of any kind during
any monthly period;
(f) make any loans of any money or other assets, except (i)
advances to customers or suppliers in the ordinary course of business, (ii)
travel advances, employee relocation loans and other employee loans and
advances in the ordinary course of business, and (iii) loans to employees,
officers and directors for the purpose of purchasing equity securities of the
Borrower;
(g) incur any debts not permitted hereunder, outside the ordinary
course of business, which would have a Material Adverse Effect;
(h) guarantee or otherwise become liable with respect to the
obligations of another party or entity other than guarantees pursuant to the
Term Loan and guarantees with respect to the Note Purchase Agreement;
(i) pay or declare any dividends or distributions on the
ownership interests in Borrower (except for: (i) dividends or distributions
payable solely in stock form of ownership interests in Borrower), and (ii)
upstreaming of funds to Guarantor in an amount not to exceed 75% of net
income per month; PROVIDED, HOWEVER, that the total of said upstreaming
cannot exceed (y) 75% of period-to-date net income, and (z) 75% of fiscal
year end net income. Said calculation of period-to-date net income will
commence with the month of July, 1999. Notwithstanding the foregoing, any
amounts paid by Borrower to Guarantor as part of the initial funding of Loans
hereunder will not be subject to the limitations of this paragraph including
the upstreaming limitations of this paragraph;
(j) sidestream funds or distributions of any kind to other
subsidiaries of Guarantor;
(k) make any change in Borrower's capital structure which would
have a Material Adverse Effect; or
(l) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section
are only permitted if no Default or Event of Default is continuing or would
occur as a result of such transaction.
8.6 LITIGATION COOPERATION. Should any third-party suit or
proceeding be instituted by or
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Coast Business Credit Loan and Security Agreement
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against Coast with respect to any Collateral or relating to Borrower,
Borrower shall, without expense to Coast, make available Borrower and its
officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
8.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request
by Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully
consummate the transactions contemplated by this Agreement.
9. TERM
9.1 MATURITY DATE. This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be
extended, and this Agreement shall automatically and continuously renew, for
successive additional terms of one year each, unless one party gives written
notice to the other, not less than one hundred twenty (120) days prior to the
Maturity Date or the next Renewal Date, that such party elects to terminate
this Agreement effective on the Maturity Date or such next Renewal Date. If
this Agreement is renewed under this Section 9.1, Borrower shall pay to Coast
a Renewal Fee in the amount shown in Section 3 of the Schedule. The Renewal
Fee shall be due and payable on the Renewal Date and thereafter shall bear
interest at a rate equal to the rate applicable to the Receivable Loans.
9.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast (i) at
any time after the occurrence and during the continuance of an Event of
Default, without notice, effective immediately and (ii) at any time if the
Term Loan is terminated for any reason prior to its respective Maturity Date,
without notice, effective immediately. If this Agreement is terminated by
Borrower or by Coast under this Section 9.2, Borrower shall pay to Coast an
Early Termination Fee in the amount shown in Section 3 of the Schedule. The
Early Termination Fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the rate
applicable to the Receivable Loans.
9.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether
or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if on the Maturity
Date, the Renewal Date, or on any earlier effective date of termination,
there are any outstanding Letters of Credit issued by Coast or issued by
another institution based upon an application, guarantee, indemnity or
similar agreement on the part of Coast, then on such date Borrower shall
provide to Coast cash collateral in an amount equal to the face amount of all
such Letters of Credit plus all interest, fees and costs due or to become due
in connection therewith, to secure all of the Obligations relating to said
Letters of Credit, pursuant to Coast's then standard form cash pledge
agreement. Notwithstanding any termination of this Agreement, all of Coast's
security interests in all of the Collateral and all of the terms and
provisions of this Agreement shall continue in full force and effect until
all Obligations have been paid and performed in full; provided that, without
limiting the fact that Loans are subject to the good faith discretion of
Coast, Coast may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right
or remedy of Coast, nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations have been paid and
performed in full. Upon payment and performance in full of all the
Obligations and termination of this Agreement, Coast shall promptly deliver
to Borrower termination statements, requests for reconveyances and such other
documents as may be required to fully terminate Coast's security interests.
10. EVENTS OF DEFAULT AND REMEDIES
10.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "Event of Default" under this Agreement, and
Borrower shall give Coast immediate written notice thereof:
(a) Any warranty, representation, statement, report or
certificate made or delivered to Coast by Borrower or any of Borrower's
officers, employees or agents, now or in the future, shall be untrue or
misleading and results in a Material Adverse Effect; or
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Coast Business Credit Loan and Security Agreement
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(b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations with respect to Loans
including, but not limited to, principal, interest, fees, costs, and expenses
relating thereto, outstanding at any time shall exceed the Credit Limit
provided, however, that if the excess is solely caused by Coast=s reduction
of advance rates against Eligible Receivables or Eligible Inventory and there
is no other Event of Default that has occurred and continuing, Borrower will
have five days to repay said excess before said excess will automatically
become an Event of Default; or
(d) Borrower shall fail to deliver the proceeds of Collateral to
Coast as provided in Section 7.5 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 8.4 above, or
shall breach any negative covenant set forth in Section 8.5 above; or
(e) Borrower shall fail to comply with the financial covenants
(if any) set forth in the Schedule or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within thirty (30) days after the date
due; or
(g) Any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) is made on all or any part of the
Collateral which is not cured within fifteen (15) days after the occurrence
of the same; or
(h) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien and such
failure could reasonably be expected to have a Material Adverse Effect; or
(i) Borrower breaches any material contract or obligation, which
has or may reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or business
failure of Borrower or any guarantor of any of the Obligations; or
appointment of a receiver, trustee or custodian, for all or any part of the
property of, assignment for the benefit of creditors by, or the commencement
of any proceeding by Borrower or any guarantor of any of the Obligations
under any reorganization, bankruptcy, insolvency, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction, now
or in the future in effect which, with respect only to the commencement of
proceedings against Borrower or any Guarantor, is (i) not timely
controverted, or (ii) not cured by the dismissal thereof within forty-five
(45) days after the date commenced; or
(k) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law
or statute of any jurisdiction, now or in the future in effect, which is (i)
not timely controverted, or (ii) not cured by the dismissal thereof within
forty-five (45) days after the date commenced; or
(l) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of
the foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all
of the Obligations, or any attempt to do any of the foregoing, or
commencement of proceedings by or against any such third party under any
bankruptcy or insolvency law which, with respect only to the commencement of
proceedings against such third party, is (i) not timely controverted, or (ii)
not cured by the dismissal thereof within forty-five (45) days after the date
commenced; or
(n) Borrower or any guarantor of any of the Obligations makes any
payment on account of any indebtedness or obligation which has been
subordinated to the Obligations, other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or
(o) Except as permitted under Section 8.5(a), Borrower shall
suffer or experience
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Coast Business Credit Loan and Security Agreement
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any Change of Control without Coast's prior written consent, which consent
shall be in the discretion of Coast in the exercise of its reasonable
business judgment; or
(p) Borrower shall generally not pay its debts as they become
due, or Borrower shall conceal, remove or transfer any part of its property,
with intent to hinder, delay or defraud its creditors, or make or suffer any
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or
(q) there shall be any Material Adverse Effect.
(r) If an Event of Default, as defined in the Term Loan and
Security Agreement, has occurred.
Coast may cease making any Loans or extending any credit hereunder during any
of the above cure periods.
10.2 REMEDIES. Upon the occurrence, and during the continuance, of
any Event of Default, Coast, at its option, and without notice or demand of
any kind (all of which are hereby expressly waived by Borrower), may do any
one or more of the following:
(a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to
be immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;
(c) Take possession of any or all of the Collateral wherever it
may be found, and for that purpose Borrower hereby authorizes Coast without
judicial process to enter onto any of Borrower's premises without
interference to search for, take possession of, keep, store or remove any of
the Collateral, and remain on the premises or cause a custodian to remain on
the premises in exclusive control thereof, without charge for so long as
Coast deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; PROVIDED, HOWEVER,
that should Coast seek to take possession of any of the Collateral by Court
process, Borrower hereby irrevocably waives:
(i) any bond and any surety or security relating
thereto required by any statute, court rule or otherwise as an incident to
such possession;
(ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof;
(iii) and any requirement that Coast retain possession
of, and not dispose of, any such Collateral until after trial or final
judgment;
(d) Require Borrower to assemble any or all of the Collateral and
make it available to Coast at places designated by Coast which are reasonably
convenient to Coast and Borrower, and to remove the Collateral to such
locations as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge. Coast is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling
any Collateral and Borrower's rights under all licenses and all franchise
agreements shall inure to Coast's benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral, in
its condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other
than oral announcement at the time scheduled for sale. Coast shall have the
right to conduct such disposition on Borrower's premises without charge, for
such time or times as Coast deems reasonable, or on Coast's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
Coast may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition. Any sale or other disposition of
Collateral shall not relieve
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Coast Business Credit Loan and Security Agreement
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Borrower of any liability Borrower may have if any Collateral is defective as
to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's
sole discretion, to grant extensions of time to pay, compromise claims and
settle Receivables and the like for less than face value; and
(h) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the
preparation thereof or referring thereto.
All attorneys' fees, expenses, costs, liabilities and obligations
incurred by Coast (including attorneys' fees and expenses incurred in
connection with bankruptcy) with respect to the foregoing shall be due from
the Borrower to Coast on demand. Coast may charge the same to Borrower's loan
account, and the same shall thereafter bear interest at the same rate as is
applicable to the Receivable Loans. Without limiting any of Coast's rights
and remedies, from and during the occurrence of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an
additional three percent per annum.
10.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower
and Coast agree that a sale or other disposition (collectively, "sale") of
any Collateral which complies with the following standards will conclusively
be deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7)
days prior to the sale, and, in the case of a public sale, notice of the sale
is published at least seven (7) days before the sale in a newspaper of
general circulation in the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general,
non-specific terms;
(c) The sale is conducted at a place designated by Coast, with or
without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00
p.m. Los Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's check
or wire transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast may
(but is not obligated to) direct any prospective purchaser to ascertain
directly from Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and selling
the Collateral, in its discretion, if they are commercially reasonable.
10.4 POWER OF ATTORNEY. Borrower grants to Coast an irrevocable
power of attorney coupled with an interest, authorizing and permitting Coast
(acting through any of its employees, attorneys or agents) at any time, at
its option, but without obligation, with or without notice to Borrower, and
at Borrower's expense, to do any or all of the following, in Borrower's name
or otherwise, but Coast agrees to exercise the following powers in a
commercially reasonable manner:
(a) Execute on behalf of Borrower any documents that Coast may,
in its sole discretion, deem advisable in order to perfect and maintain
Coast's security interest in the Collateral, or in order to exercise a right
of Borrower or Coast, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other present and future
agreements;
(b) After and during the continuance of an Event of Default,
execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or to lease
(as lessor or lessee) any real or personal property which is part of Coast's
Collateral or in which Coast has an interest;
(c) After and during the continuance of an Event of Default,
execute on behalf of Borrower, any invoices relating to any Receivable, any
draft against any Account Debtor and any notice to any Account Debtor, any
proof of claim in bankruptcy, any Notice of Lien, claim of
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Coast Business Credit Loan and Security Agreement
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mechanic's, materialmen's or other lien, or assignment or satisfaction of
mechanic's, materialmen's or other lien;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come
into Coast's possession;
(e) Endorse all checks and other forms of remittances received by
Coast;
(f) After and during the continuance of an Event of Default, pay,
contest or settle any lien, charge, encumbrance, security interest and
adverse claim in or to any of the Collateral, or any judgment based thereon,
or otherwise take any action to terminate or discharge the same;
(g) After and during the continuance of an Event of Default,
grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and
other documents in connection therewith;
(h) After and during the continuance of an Event of Default, pay
any sums required on account of Borrower's taxes or to secure the release of
any liens therefor, or both;
(i) After and during the continuance of an Event of Default,
settle and adjust, and give releases of, any insurance claim that relates to
any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any
books or records belonging to, or relating to, Borrower to give Coast the
same rights of access and other rights with respect thereto as Coast has
under this Agreement; and
(k) After and during the continuance of an Event of Default, take
any action or pay any sum required of Borrower pursuant to this Agreement and
any other present or future agreements.
Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees
and expenses incurred pursuant to bankruptcy) with respect to the foregoing
shall be added to and become part of the Obligations, and shall be payable on
demand. Coast may charge the foregoing to Borrower's loan account and the
foregoing shall thereafter bear interest at the same rate applicable to the
Receivable Loans. In no event shall Coast's rights under the foregoing power
of attorney or any of Coast's other rights under this Agreement be deemed to
indicate that Coast is in control of the business, management or properties
of Borrower. Borrower shall pay, indemnify, defend, and hold Coast and each
of its officers, directors, employees, counsel, agents, and attorneys-in-fact
(each, an "Indemnified Person") harmless (to the fullest extent permitted by
law) from and against any and all claims, demands, suits, actions,
investigations, proceedings, and damages, and all attorneys fees and
disbursements and other costs and expenses actually incurred in connection
therewith (as and when they are incurred and irrespective of whether suit is
brought), at any time asserted against, imposed upon, or incurred by any of
them in connection with or as a result of or related to the execution,
delivery, enforcement, performance, and administration of this Agreement and
any other Loan Documents or the transactions contemplated herein, and with
respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities").
Borrower shall have no obligation to any Indemnified Person hereunder with
respect to any Indemnified Liability that a court of competent jurisdiction
finally determines to have resulted from the gross negligence or willful
misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations.
10.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of
any sale of the Collateral shall be applied by Coast first to the costs,
expenses, liabilities, obligations and attorneys' fees incurred by Coast in
the exercise of its rights under this Agreement, second to the interest due
upon any of the Obligations, and third to the principal of the Obligations,
in such order as Coast shall determine in its sole discretion. Any surplus
shall be paid to Borrower or other persons legally entitled thereto; Borrower
shall remain liable to Coast for any deficiency. If, Coast, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Coast
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Coast Business Credit Loan and Security Agreement
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shall have the option, exercisable at any time, in its sole discretion, of
either reducing the Obligations by the principal amount of purchase price or
deferring the reduction of the Obligations until the actual receipt by Coast
of the cash therefor.
10.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Coast shall have all the other rights and remedies
accorded a secured party in equity, under the Code, and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Coast and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise
by Coast of one or more of its rights or remedies shall not be deemed an
election, nor bar Coast from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Coast to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been indefeasibly paid and performed.
11. GENERAL PROVISIONS
11.1 INTEREST COMPUTATION. In computing interest on the Obligations,
all checks, wire transfers and other items of payment received by Coast
(including proceeds of Receivables and payment of the Obligations in full)
shall be deemed applied by Coast on account of the Obligations two (2)
Business Days after receipt by Coast of immediately available funds, and, for
purposes of the foregoing, any such funds received in the bank account
designated by Coast during Coast's normal business hours, shall be deemed
received on the day they are received PROVIDED, HOWEVER, if in the future
Coast's standard operating procedure should change, for a majority of Coast's
borrowers by number, with respect to deeming items of payment received on the
same day as they are received during normal business hours, Borrower agrees
to abide by such change. Coast shall be entitled to charge Borrower's account
for such two (2) Business Days of "clearance" or "float" at the rate(s) set
forth in Section 3 of the Schedule on all checks, wire transfers and other
items received by Coast, regardless of whether such two (2) Business Days of
"clearance" or "float" actually occur, and shall be deemed to be the
equivalent of charging two (2) Business Days of interest on such collections.
This across-the-board two (2) Business Day clearance or float charge on all
collections is acknowledged by the parties to constitute an integral aspect
of the pricing of Coast's financing of Borrower. Coast shall not, however, be
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to Coast in its sole discretion, and Coast may charge
Borrower's loan account for the amount of any item of payment which is
returned to Coast unpaid.
11.2 APPLICATION OF PAYMENTS. Subject to Section 7.5 hereof, all
payments with respect to the Obligations may be applied, and in Coast's sole
discretion reversed and re-applied, to the Obligations, in such order and
manner as Coast shall determine in its sole discretion.
11.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to
Borrower's Loan account, in which event they will bear interest from the date
due to the date paid at the same rate applicable to the Loans.
11.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with
an account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
11.5 NOTICES. All notices to be given under this Agreement shall be
in writing and shall be given either personally or by reputable private
delivery service or by regular first-class mail, facsimile or certified mail
return receipt requested, addressed to Coast or Borrower at the addresses
shown in the heading to this Agreement, or at any other address designated in
writing by one party to the other party. Notices to Coast shall be directed
to the Commercial Finance Division, to the attention of the Division Manager
or the Division Credit Manager. All notices shall be deemed to have been
given upon delivery in the case of notices personally delivered, faxed (at
time of confirmation of transmission), or at the expiration of one (1)
Business Day following delivery to the private delivery service, or two (2)
Business Days following the deposit thereof in the United States mail, with
postage prepaid.
20
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Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
11.6 SEVERABILITY. Should any provision of this Agreement be held by
any court of competent jurisdiction to be void or unenforceable, such defect
shall not affect the remainder of this Agreement, which shall continue in
full force and effect.
11.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. THERE
ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES
WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS
SIGNED BY THE PARTIES IN CONNECTION HEREWITH.
11.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or
any other present or future agreement between Borrower and Coast shall not
waive or diminish any right of Coast later to demand and receive strict
compliance therewith. Any waiver of any Default shall not waive or affect any
other Default, whether prior or subsequent, and whether or not similar. None
of the provisions of this Agreement or any other agreement now or in the
future executed by Borrower and delivered to Coast shall be deemed to have
been waived by any act or knowledge of Coast or its agents or employees, but
only by a specific written waiver signed by an authorized officer of Coast
and delivered to Borrower. Borrower waives demand, protest, notice of protest
and notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time
held by Coast on which Borrower is or may in any way be liable, and notice of
any action taken by Coast, unless expressly required by this Agreement.
11.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast shall be liable for any claims,
demands, losses or damages, of any kind whatsoever, made, claimed, incurred
or suffered by Borrower or any other party through the ordinary negligence of
Coast, or any of its directors, officers, employees, agents, attorneys or any
other Person affiliated with or representing Coast, but nothing herein shall
relieve Coast from liability for its own gross negligence or willful
misconduct.
11.10 AMENDMENT. The terms and provisions of this Agreement may not
be waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
11.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower and Coast of each and every obligation under this Agreement.
11.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse
Coast for all attorneys' fees (including attorneys' fees and expenses
incurred pursuant to bankruptcy) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Coast, pursuant to,
or in connection with, or relating to this Agreement (whether or not a
lawsuit is filed), including, but not limited to, any attorneys' fees and
costs (including attorneys' fees and expenses incurred pursuant to
bankruptcy) Coast incurs in order to do the following: prepare and negotiate
this Agreement and the documents relating to this Agreement; obtain legal
advice in connection with this Agreement or Borrower; enforce, or seek to
enforce, any of its rights; prosecute actions against, or defend actions by,
Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy;
file or prosecute any probate claim, bankruptcy claim, third-party claim, or
other claim; examine, audit, copy, and inspect any of the Collateral or any
of Borrower's books and records; protect, obtain possession of, lease,
dispose of, or otherwise enforce Coast's security interest in, the
Collateral; and otherwise represent Coast in any litigation relating to
Borrower. If either Coast or Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its costs and attorneys' fees (including
attorneys' fees and expenses incurred pursuant to bankruptcy), including (but
not limited to) attorneys' fees and costs incurred in the enforcement of,
execution upon or defense of any order, decree, award or judgment. Borrower
shall also pay Coast's standard charges for returned checks and for wire
transfers, in effect from time to time. All attorneys' fees, costs and
charges (including attorneys' fees and expenses incurred pursuant to
bankruptcy) and other fees, costs and charges to which Coast may be entitled
21
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Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
pursuant to this Agreement may be charged by Coast to Borrower's loan account
and shall thereafter bear interest at the same rate as the Receivable Loans.
11.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall
be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Coast;
provided, however, that Borrower may not assign or transfer any of its rights
under this Agreement without the prior written consent of Coast, and any
prohibited assignment shall be void. No consent by Coast to any assignment
shall release Borrower from its liability for the Obligations. Coast may
assign its rights and delegate its duties hereunder without the consent of
Borrower. Coast reserves the right to syndicate all or a portion of the
transaction created herein or sell, assign, transfer, negotiate, or grant
participations in all or any part of, or any interest in Coast's rights and
benefits hereunder. In connection with any such syndication, assignment or
participation, Coast may disclose all documents and information which Coast
now or hereafter may have relating to Borrower or Borrower's business. To the
extent that Coast assigns its rights and obligations hereunder to a third
Person, Coast thereafter shall be released from such assigned obligations to
Borrower.
11.14 PUBLICITY. Coast and Borrower are hereby authorized, at their
own expense, to issue appropriate press releases and to cause a tombstone to
be published announcing the consummation of this transaction and the
aggregate amount thereof.
11.15 PARAGRAPH HEADINGS CONSTRUCTION. Paragraph headings are only
used in this Agreement for convenience. Borrower and Coast acknowledge that
the headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe,
limit, define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between
the parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or Borrower under any
rule of construction or otherwise.
11.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all
acts and transactions hereunder and all rights and obligations of Coast and
Borrower shall be governed by the internal laws of the State of California,
without regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California,
and that the exclusive venue therefor shall be Los Angeles County; (b)
consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or
any other method permitted by law; and (c) waives any and all rights Borrower
may have to object to the jurisdiction of any such court, or to transfer or
change the venue of any such action or proceeding.
11.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY
CONDUCT, ACTS OR OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
COAST OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.
11.18 CONFIDENTIALITY. Coast will maintain the confidentiality of
any non public information marked as confidential and relating to the
business operations and methodology of Borrower and financial performance of
Borrower ("Borrower Information") provided to Coast solely by the Borrower as
required under the terms of this Agreement, and will not disclose Borrower
Information to any person, other than employees, agents, attorneys or
accountants of Coast. Coast will not disclose Borrower Information to any
other party unless, prior to such disclosure, Coast obtains an executed
acknowledgment binding such party to maintain the confidentiality of the
information, prohibiting its disclosure except for the purposes permitted
under this Agreement, and agreeing that the information may not be used to
compete with the Borrower in any way. In the event Coast receives a subpoena
or other process for any Borrower Information, it will immediately
22
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Coast Business Credit Loan and Security Agreement
_______________________________________________________________________________
give notice in writing of the subpoena or other process, including a copy
thereof, to Borrower.
BORROWER:
TURF PARTNERS, INC.,
a Delaware corporation
By /s/ William B. Adams
------------------------------------
Chairman of the Board
By /s/ Mark Buckner
------------------------------------
Secretary or Assistant Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank,
a California corporation
By /s/ John Steiner
------------------------------------
Title: Vice President
------------------------------------
23
<PAGE>
EXHIBIT 10.4
=============================================================================
TERM LOAN AND SECURITY AGREEMENT
by and between
ECO SOIL SYSTEMS, INC.,
a Nebraska corporation
and
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank,
a California corporation
Dated as of July ____, 1999
=============================================================================
<PAGE>
COAST BUSINESS CREDIT TERM LOAN AND SECURITY AGREEMENT
_____________________________________________________________________________
TABLE OF CONTENTS
PAGE
1. DEFINITIONS....................................1
Affiliate.............................1
Audit.................................1
Borrower..............................1
Borrower's Address....................1
Business Day..........................1
Change of Control.....................1
Closing Date..........................1
Coast.................................1
Code..................................1
Collateral............................1
Debt..................................1
Debt Service Coverage Ratio...........2
Default...............................2
Deposit Account.......................2
Dollars or $..........................2
Earn Out Obligations..................2
EBITDA................................2
Equipment.............................2
Event of Default......................2
Excess Cash Flow......................
GAAP..................................2
General Intangibles...................2
Guarantor.............................2
Inventory.............................2
Loan Amount...........................3
Loan and Security Agreement...........3
Loan Documents........................3
Material Adverse Effect...............3
Maturity Date.........................3
Net Worth.............................3
Obligations...........................3
Other Terms...........................3
Permitted Liens.......................3
Person................................4
Early Termination Fee.................4
Prime Rate............................4
Receivables...........................4
Revolving Loan........................4
Solvent...............................4
Term Loan.............................4
Year 2000 Problem.....................4
2. CREDIT FACILITIES..............................4
2.1 Term Loan.............................4
3. INTEREST AND FEES..............................4
3.1 Interest..............................5
3.2 Fees..................................5
4. SECURITY INTEREST..............................5
5. CONDITIONS PRECEDENT...........................5
5.1 Status of Accounts at Closing.........5
5.2 Landlord Waivers......................5
5.3 Executed Agreement....................5
5.4 Opinion of Borrower's and
Guarantor's Counsel...................5
5.5 Priority of Coast's Liens.............5
5.6 Insurance.............................6
5.7 Borrower's Existence..................6
5.8 Organizational Documents..............6
5.9 Taxes.................................6
5.10 Year 2000 Problem Assessment
Certificate...........................6
5.11 Subordination of Long Term Debt.......6
5.12 Management Background Checks..........6
5.13 Minimum Net Worth.....................6
5.14 Common Stock Warrant..................6
5.15 Continuing Guaranty From Guarantor....6
5.16 Intercreditor Agreement...............6
5.17 Assignment of Leases/Licenses.........7
5.18 Due Diligence.........................7
5.19 Other Documents and Agreements........7
6. REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE BORROWER......................7
6.1 Existence and Authority...............7
6.2 Name; Trade Names and Styles..........7
6.3 Place of Business; Location of
Collateral............................7
6.4 Title to Collateral; Permitted Liens..7
6.5 Maintenance of Collateral.............8
6.6 Books and Records.....................8
6.7 Financial Condition, Statements and
Reports...............................8
6.8 Tax Returns and Payments; Pension
Contributions.........................8
6.9 Compliance with Law...................8
6.10 Litigation............................8
6.11 Use of Proceeds.......................8
6.12 Year 2000 Compliance..................8
6.13 Merger of Accounting Systems..........8
6.14 Assignment of Licenses................9
6.15 Copyright.............................9
7. ADDITIONAL DUTIES OF THE BORROWER..............9
7.1 Financial and Other Covenants.........9
7.2 Insurance.............................9
7.3 Reports...............................9
7.4 Access to Collateral, Books and
Records...............................9
7.5 Negative Covenants...................10
7.6 Litigation Cooperation...............11
7.7 Further Assurances...................11
8. TERM..........................................11
8.1 Maturity Date........................11
8.2 Early Termination....................11
8.3 Payment of Obligations...............11
9. EVENTS OF DEFAULT AND REMEDIES................11
9.1 Events of Default....................11
9.2 Remedies.............................12
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COAST BUSINESS CREDIT TERM LOAN AND SECURITY AGREEMENT
_____________________________________________________________________________
9.3 Standards for Determining
Commercial Reasonableness............13
9.4 Power of Attorney....................14
9.5 Application of Proceeds..............15
9.6 REMEDIES CUMULATIVE..................15
10. GENERAL PROVISIONS............................15
10.1 Interest Computation.................15
10.2 Application of Payments..............15
10.3 Charges to Accounts..................16
10.4 Monthly Accountings..................16
10.5 Notices..............................16
10.6 Severability.........................16
10.7 Integration..........................16
10.8 Waivers..............................16
10.9 No Liability for Ordinary Negligence.16
10.10 Amendment............................16
10.11 Time of Essence......................16
10.12 Attorneys Fees, Costs and Charges....16
10.13 Benefit of Agreement.................17
10.14 Publicity............................17
10.15 Paragraph Headings; Construction.....17
10.16 Governing Law; Jurisdiction; Venue...17
10.17 Mutual Waiver of Jury Trial..........17
10.18 Confidentiality......................18
10.19 Sales of Equity by Borrower..........18
ii
<PAGE>
_____________________________________________________________________________
COAST
TERM LOAN AND SECURITY AGREEMENT
BORROWER: ECO SOIL SYSTEMS, INC.,
A NEBRASKA CORPORATION
ADDRESS: 10740 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
DATE: JULY ______, 1999
THIS TERM LOAN AND SECURITY AGREEMENT is entered into on the above date
between COAST BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"),
a California corporation, with offices at 12121 Wilshire Boulevard, Suite
1400, Los Angeles, California 90025, and the borrower named above (the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address"). The Schedule to this Agreement (the "Schedule") shall
for all purposes be deemed to be a part of this Agreement, and the same is an
integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 1 below.)
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"AUDIT" means to inspect, audit and copy Borrower's books and records
and the Collateral.
"BORROWER" has the meaning set forth in the introduction to this
Agreement.
"BORROWER'S ADDRESS" has the meaning set forth in the introduction to
this Agreement.
"BUSINESS DAY" means a day on which Coast is open for business.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) (other than the current holders of the
ownership interests in any Borrower) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, as a result of any single transaction, of more than forty percent
(40%) of the total voting power of all classes of stock or other ownership
interests then outstanding of any Borrower normally entitled to vote in the
election of directors or analogous governing body.
"CLOSING DATE" means the date of the funding of the Term Loan under
this Agreement.
"COAST" has the meaning set forth in the introduction to this Agreement.
"CODE" means the Uniform Commercial Code as adopted and in effect in
the State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 4 hereof.
"DEBT" means, as of the date of determination, the sum, but without
duplication, of any and all of Borrower's: (i) indebtedness heretofore or
hereafter created, issued, incurred or assumed by such Borrower (directly or
indirectly) for or in respect of money borrowed; and (ii) obligations for the
deferred purchase
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Coast Business Credit Term Loan and Security Agreement
_____________________________________________________________________________
price of property or services. Notwithstanding the foregoing, Debt shall not
include Earn Out Obligations.
"DEBT SERVICE COVERAGE RATIO" means the ratio, in any fiscal quarter,
whose numerator is EBITDA MINUS cash capital expenditures MINUS cash tax
expenses, and whose denominator is all principal payments on Debt PLUS all
cash interest payments on Debt PLUS all capital lease payments. This ratio
will include the consolidated cash flow of Borrower and its subsidiaries.
Notwithstanding the foregoing, Debt shall not include Earn Out Obligations.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"DOLLARS OR $" means United States dollars.
"EARN OUT OBLIGATIONS" means, any obligations of Borrower or a
subsidiary of Borrower incurred in connection with the acquisition of
businesses or assets and the amount of which is based upon post-acquisition
performance of the Borrower, a subsidiary of the Borrower or business or
assets acquired in connection with the acquisition.
"EBITDA" means, in any fiscal period, Borrower's consolidated net
income or net loss (other than extraordinary or non-recurring gains of
Borrower for such period), PLUS (i) the amount of all cash interest expense,
income tax expense, depreciation expense and amortization expense of Borrower
for such period, on a consolidated basis, and PLUS OR MINUS (as the case may
be) (ii) any other non-cash charges which have been added or subtracted, as
the case may be, in calculating Borrower's consolidated net income for such
period. Future acquisitions by Borrower or a subsidiary of Borrower of a
going concern through either an asset or stock purchase will be included in
such calculation of EBITDA on a proforma basis.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other goods (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"EVENT OF DEFAULT" means any of the events set forth in Section 9.1 of
this Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, causes of action, corporate or
other business records, Deposit Accounts, investment property, inventions,
designs, drawings, blueprints, patents, patent applications, trademarks and
the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, rights in all litigation presently or
hereafter pending for any cause or claim (whether in contract, tort or
otherwise), and all judgments now or hereafter arising therefrom, all claims
of Borrower against Coast, rights to purchase or sell real or personal
property, rights as a licensor or licensee of any kind, royalties, telephone
numbers, proprietary information, purchase orders, and all insurance policies
and claims (including without limitation life insurance, key man insurance,
credit insurance, liability insurance, property insurance and other
insurance), tax refunds and claims, computer programs, discs, tapes and tape
files, claims under guaranties, security interests or other security held by
or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"GUARANTOR" means, Turf Partners, Inc., a Delaware corporation.
"INVENTORY" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease (including
without limitation all raw materials, work in process, finished goods and
goods in transit, and including without limitation all farm products), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with
the manufacture, packing, shipping, advertising, selling or finishing of such
goods, merchandise or other personal property, and all warehouse receipts,
documents of title and other documents representing any of the foregoing.
2
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Coast Business Credit Term Loan and Security Agreement
_____________________________________________________________________________
"INVESTMENT PROPERTY" has the meaning set forth in Section 9115 of the
Code as in effect as of the date hereof.
"LOAN AMOUNT" means Two Million Five Hundred Thousand Dollars
($2,500,000).
"LOAN AND SECURITY AGREEMENT" means, that certain Loan and Security
Agreement between Guarantor and Coast entered into or to be entered into in
connection with the Revolving Loan.
"LOAN DOCUMENTS" means this Agreement, the agreements and documents
listed on Section 5 of the Schedule, and any other agreement, instrument or
document executed in connection herewith or therewith.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations
of Borrower or any subsidiary of Borrower on a consolidated basis but
excluding any nonsubsidiary affiliates of Borrower from such consolidated
basis, (ii) the ability of Borrower or any guarantor of any of the
Obligations to perform its obligations under this Agreement (including,
without limitation, repayment of the Obligations as they come due) or (iii)
the validity or enforceability of this Agreement or any other agreement or
document entered into by any party in connection herewith, or the rights or
remedies of Coast hereunder or thereunder.
"MATURITY DATE" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
8.1 and 8.2 hereof.
"NET WORTH" means shareholder's equity, PLUS subordinated debt
otherwise permitted hereunder, LESS goodwill. "Goodwill" will be treated on a
consolidated basis to include Borrower's subsidiaries.
"OBLIGATIONS" means all present and future loans, advances, debts,
liabilities, obligations, guaranties (other than that certain Continuing
Guaranty executed by Borrower which guaranties the Revolving Loan),
covenants, duties and indebtedness at any time owing by Borrower to Coast,
whether evidenced by this Agreement or any note or other instrument or
document, whether arising from an extension of credit, opening of a letter of
credit, banker's acceptance, loan, guaranty, indemnification or otherwise,
whether direct or indirect (including, without limitation, those acquired by
assignment and any participation by Coast in Borrower's debts owing to
others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorneys' fees (including
attorneys' fees and expenses incurred in bankruptcy), expert witness fees,
audit fees, letter of credit fees, collateral monitoring fees, closing fees,
facility fees, termination fees, minimum interest charges and any other sums
chargeable to Borrower under this Agreement or under any other present or
future instrument or agreement between Borrower and Coast.
"OTHER TERMS." All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in
accordance with GAAP. All other terms contained in this Agreement, unless
otherwise indicated, shall have the meanings provided by the Code, to the
extent such terms are defined therein.
"PERMITTED LIENS" means the following:
(a) purchase money security interests in specific items of
Equipment;
(b) leases of specific items of Equipment, technology and
intellectual property including capital leases;
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in
writing by Coast, which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially
concurrently with this Agreement and liens created hereunder;
(f) liens of materialmen, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above
in clauses (a) or (b) above, provided that any extension, renewal or
replacement lien is limited to the property encumbered by the existing lien
and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase; or
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Coast Business Credit Term Loan and Security Agreement
_____________________________________________________________________________
(h) liens in favor of customs and revenue authorities which
secure payment of customs duties in connection with the importation of goods.
Nothing herein shall restrict Borrower's: (i) leases of BioJects,
related equipment and related technology (including all use and possessory
rights created/permitted pursuant to the leases of BioJects), and (ii)
licenses of intellectual property rights related to the production of
microbials, in the ordinary course of its business. Coast will have the right
to require, as a condition to its consent under clause (d) above, that the
holder of the additional security interest or lien sign an intercreditor
agreement on Coast's then standard form, acknowledge that the security
interest is subordinate to the security interest in favor of Coast, and agree
not to take any action to enforce its subordinate security interest so long
as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, general
partnership, limited partnership, limited liability partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, government, or any agency or political division
thereof, or any other entity.
"PREPAYMENT FEE" means the amount set forth on the Schedule that
Borrower must pay Coast if this Term Loan is prepaid in full by Borrower or
Coast pursuant to Section 8.2 hereof.
"PRIME RATE" means the actual "Reference Rate" or the substitute
therefor of the Bank of America NT & SA whether or not that rate is the
lowest interest rate charged by said bank. If the Prime Rate, as defined, is
unavailable, "Prime Rate" shall mean the highest of the prime rates published
in the Wall Street Journal on the first business day of the applicable month,
as the base rate on corporate loans at large U.S. money center commercial
banks.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities
accounts, security entitlements, commodity contracts, commodity accounts,
investment property and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, all merchandise
returned to or repossessed by Borrower, and all rights of stoppage in transit
and all other rights or remedies of an unpaid vendor, lienor or secured party.
"REVOLVING LOAN" means the revolving loan between Guarantor and Coast,
pursuant to the Loan and Security Agreement which is guaranteed by Borrower.
"SECURED TERM PROMISSORY NOTE" means that certain Secured Term
Promissory Note of even date herewith evidencing the Term Loan.
"SOLVENT" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it
will, incur debts beyond such Person's ability to pay as such debts mature,
and (e) such Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such Person's
properties and assets would constitute unreasonably small capital after
giving due consideration to the prevailing practices in the industry in which
such Person is engaged. In computing the amount of contingent liabilities at
any time, it is intended that such liabilities will be computed at the amount
that, in light of all the facts and circumstances existing at such time,
represents the amount that reasonably can be expected to become an actual or
matured liability.
"TERM LOAN" means the Loan described in Section 2.1 of the Schedule.
"YEAR 2000 PROBLEM" means the risk that computer systems, software and
applications used by a Person may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any dates after
December 31, 1999.
2. CREDIT FACILITIES.
2.1 TERM LOAN. Coast will make a term loan to Borrower in the Loan
Amount (the "Term Loan").
3. INTEREST AND FEES.
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Coast Business Credit Term Loan and Security Agreement
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3.1 INTEREST. The Term Loan and all other monetary Obligations shall
bear interest at the rate shown on the Schedule, except where expressly set
forth to the contrary in this Agreement. Interest shall be payable monthly,
on the last day of the month.
3.2 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Coast and are
deemed fully earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when
due, Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and
wherever located: All Receivables, Inventory, Equipment, Investment Property,
and General Intangibles, including, without limitation, all of Borrower's
Deposit Accounts, and all money, and all property now or at any time in the
future in Coast's possession (including claims and credit balances), and
Borrower's interests in those two certain Equipment Leases both dated June
30, 1999 concerning Borrower's lease of assets and license of technology to
Guarantor and Agricultural Supply, Inc., a Delaware corporation,
respectively, and all proceeds of any of the foregoing (including proceeds of
any insurance policies, proceeds of proceeds, and claims against third
parties), all products of any of the foregoing, and all books and records
related to any of the foregoing (all of the foregoing, together with all
other property in which Coast may now or in the future be granted a lien or
security interest, is referred to herein, collectively, as the "Collateral").
Notwithstanding the foregoing provisions of this Section 4, such grant of a
security interest shall not extend to, and the term "Collateral" shall not
include the capital stock held by Borrower in Agricultural Supply, Inc. and
Guarantor, and shall not include the following (collectively, the
"Non-Assignable General Intangibles"): any rights in any General Intangibles
representing rights under agreements between the Borrower and any other party
(other than agreements between the Borrower and Guarantor), which are now or
hereafter held by the Borrower as lessee, licensee or otherwise, to the
extent that (i) such General Intangibles are not assignable or capable of
being encumbered as a matter of law or under the terms of the agreement
applicable thereto (but solely to the extent that any such restriction shall
be enforceable under applicable law), without the consent of the other party
thereto and (ii) such consent has not been obtained; PROVIDED, HOWEVER, that
the Non-Assignable General Intangibles shall not, in any event, include the
following and the foregoing grant of security interest shall extend to, and
the term Collateral shall include the following: (a) all of Borrower's rights
under present and future agreements with Guarantor, and (b) any and all
proceeds of Non-Assignable General Intangibles to the extent that the
assignment or encumbering of such proceeds is not so restricted and (c) upon
any such other applicable party's consent with respect to any such
Non-Assignable General Intangibles being obtained, thereafter such General
Intangibles as well as any and all proceeds thereof that might theretofore
have been excluded from such grant of a security interest and the term
Collateral. In the event that an Event of Default shall have occurred and be
continuing, the Borrower shall use all reasonable efforts to obtain the
consents of any such other party as may be required from time to time by
Coast in writing.
5. CONDITIONS PRECEDENT
The obligation of Coast to make the Term Loan is subject to the
satisfaction, in the sole discretion of Coast, at or prior to the Closing
Date, of each, every and all of the following conditions:
5.1 STATUS OF ACCOUNTS AT CLOSING. No accounts payable shall be due
and unpaid one hundred and twenty (120) days past its invoice date unless
approved by Coast in its sole discretion.
5.2 LANDLORD WAIVERS. Coast shall have received duly executed
landlord waivers and access agreements in form and substance satisfactory to
Coast, in Coast's sole and absolute discretion, and, when deemed appropriate
by Coast, in form for recording in the appropriate recording office, with
respect to all leased locations where Borrower maintains any equipment. In
the event that such waivers and subordinations specified by Coast have not
been obtained from such third parties, Coast will have a continuing right to
institute a reserve for payment of rent and other sums owing to any such
third parties.
5.3 EXECUTED AGREEMENT. Coast shall have received this Agreement and
the Secured Term Promissory Note duly executed and in form and substance
satisfactory to Coast in its sole and absolute discretion.
5.4 OPINION OF BORROWER'S AND GUARANTOR'S COUNSEL. Coast shall have
received an opinion of Borrower's and Guarantor's counsel, in form and
substance satisfactory to Coast in its sole and absolute discretion.
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Coast Business Credit Term Loan and Security Agreement
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5.5 PRIORITY OF COAST'S LIENS. Coast shall have received the results
of "of record" searches satisfactory to Coast in its sole and absolute
discretion, reflecting its Uniform Commercial Code filings against Borrower
indicating that Coast has a perfected, first priority lien in and upon all of
the Collateral, subject only to Permitted Liens.
5.6 INSURANCE. Coast shall have received copies of the insurance
binders or certificates evidencing Borrower's compliance with Section 7.2
hereof, including lender's loss payee endorsements.
5.7 BORROWER'S EXISTENCE. Coast shall have received copies of
Borrower's articles of incorporation and all amendments thereto, and a
Certificate of Good Standing, each certified by the Secretary of State of the
state of Borrower's organization, and dated a recent date prior to the
Closing Date, and Coast shall have received Certificates of Foreign
Qualification for Borrower from the Secretary of State of each state wherein
the failure to be so qualified could have a Material Adverse Effect.
5.8 ORGANIZATIONAL DOCUMENTS. Coast shall have received copies of
Borrower's By-laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing
the execution and delivery of this Agreement and the other documents
contemplated hereby, and authorizing the transactions contemplated hereunder
and thereunder, and authorizing specific officers of Borrower to execute the
same on behalf of Borrower, in each case certified by the Secretary or other
acceptable officer of Borrower as of the Closing Date.
5.9 TAXES. Coast shall have received evidence from Borrower that
Borrower has complied with all tax withholding and Internal Revenue Service
regulations, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.10 YEAR 2000 PROBLEM ASSESSMENT CERTIFICATE. Coast shall have
received a certificate from the relevant officer of Borrower to the effect
that, as the result of a comprehensive assessment undertaken by Borrower of
Borrower's computer systems, software and applications and after due inquiry
made to Borrower's material suppliers, vendors and customers, Borrower knows
of no facts that would cause Borrower to reasonably believe that the Year
2000 Problem will cause a Material Adverse Effect.
5.11 SUBORDINATION OF LONG TERM DEBT. Coast shall have received an
amendment to that certain Senior Subordinated Note and Warrant Purchase
Agreement (the "Note Purchase Agreement") dated June 30, 1999, between Albion
Alliance Mezzanine Fund and Paribas Capital Funding LLC (the "Purchasers")
and Eco Soil Systems, Inc. wherein the Purchasers agree to subordinate all
obligations under the Note Purchase Agreement owed to them by Borrower and
Guarantor in favor of the Obligation owing by Borrower and Guarantor to Coast
with said Amendment to be in form and substance acceptable to Coast in its
sole and absolute discretion. Borrower will be allowed to make quarterly
interest payments pursuant to the terms of the Note Purchase Agreement so
long as: (i) an Event of Default has not occurred and is continuing, and (ii)
Borrower is in compliance with all terms, conditions and obligations owing to
Coast pursuant to the Loan Documents. Except as provided in Section 10.19, no
payments of principal will be allowed on said debt.
5.12 MANAGEMENT BACKGROUND CHECKS. Coast shall have received the
results of management background checks, including without limitation, TRWs,
tax lien and litigation searches, LEXIS/NEXUS searches and such other due
diligence as Coast may deem necessary on key officers of Borrower with said
background checks to be satisfactory to Coast in its sole and absolute
discretion.
5.13 MINIMUM NET WORTH. Borrower's Net Worth shall be no less than
Fifteen Million Dollars ($15,000,000) on the Closing Date.
5.14 COMMON STOCK WARRANT. Coast shall have received a duly executed
Common Stock Warrant from Borrower, for the purchase of Borrower's stock, in
form and substance acceptable to Coast in its sole and absolute discretion.
5.15 CONTINUING GUARANTY FROM GUARANTOR. Coast shall have received the
Continuing Guaranty of Guarantor.
5.16 INTERCREDITOR AGREEMENT. Coast shall have received an
Intercreditor Agreement from First National Bank of San Diego ("First
National") wherein, among other things, First National agrees that Borrower
may enter into this Agreement and obtain the Term Loan and First National and
Coast agree that Borrower's guaranties of the obligations owing from
Agricultural Supply, Inc. ("Ag Supply") to First National and from Guarantor
to Coast, respectively, shall be on a pari passu unsecured basis with the
exceptions that: (i) Borrower's guaranty of Ag Supply's obligations to First
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Coast Business Credit Term Loan and Security Agreement
_____________________________________________________________________________
National shall be secured by Borrower's pledge of its stock in Ag Supply, and
(ii) Borrower's guaranty of Guarantor's obligations to Coast shall be secured
by Borrower's pledge of 100% of the stock of Guarantor. The form and content
of said Intercreditor Agreement shall be acceptable to Coast in its sole and
absolute discretion.
5.17 ASSIGNMENT OF LEASES/LICENSES. Coast shall have received
assignments of Borrower's interest in those two certain Equipment Leases
dated June 30, 1999 between Borrower and Guarantor and Borrower and
Agricultural Supply, Inc., which will include assignment of all proceeds of
said leases, with the form and content of said assignments to be acceptable
to Coast in its sole and absolute discretion.
5.18 DUE DILIGENCE. Coast shall have completed its due diligence with
respect to Borrower.
5.19 OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received such
other agreements, instruments and documents as Coast may require in
connection with the transactions contemplated hereby, all in form and
substance satisfactory to Coast in Coast's sole and absolute discretion, and
in form for filing in the appropriate filing office, including, but not
limited to, those documents listed in Section 5 of the Schedule.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make the
Term Loan, Borrower represents and warrants to Coast as follows, and Borrower
covenants that the following representations will continue to be true, and
that Borrower will at all times comply with all of the following covenants:
6.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be
qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a Material Adverse Effect. The execution,
delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (a) have been duly and validly authorized, (b)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (c) do not violate Borrower's articles of
incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (d) do not
constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding upon
Borrower or its property.
6.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in
the heading to this Agreement is its correct name. Listed on the Schedule are
all prior names of Borrower and all of Borrower's present and prior trade
names. Borrower shall give Coast thirty (30) days' prior written notice
before changing its name or doing business under any other name. Borrower has
complied, and will in the future comply, with all laws relating to the
conduct of business under a fictitious business name.
6.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth
in the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at
the locations set forth on the Schedule. Borrower will give Coast at least
thirty (30) days' prior written notice before opening any additional place of
business, changing its chief executive office, or moving any of the
Collateral except for the movement of BioJects in the ordinary course of
business to a location other than Borrower's Address or one of the locations
set forth on the Schedule.
6.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will
at all times in the future be, the sole owner of all the Collateral, except
for items of Equipment, technology and intellectual property which are
leased/licensed by Borrower. The Collateral now is and will remain free and
clear of any and all liens, charges, security interests, encumbrances and
adverse claims, except for Permitted Liens. Coast now has, and will continue
to have, a first-priority perfected and enforceable security interest in all
of the Collateral, subject only to the Permitted Liens, and Borrower will at
all times defend Coast and the Collateral against all claims of others. None
of the Collateral now is or will be affixed to any real property in such a
manner, or with such intent, as to become a fixture. Borrower is not and will
not become a lessee under any real property lease pursuant to which the
lessor may obtain any rights in any of the Collateral and no such lease now
prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's
right to remove any Collateral from the leased premises. Whenever any
Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lienholder,
landlord, warehouseman or
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Coast Business Credit Term Loan and Security Agreement
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otherwise), Borrower shall, whenever requested by Coast, use its best efforts
to cause such third party to execute and deliver to Coast, in form acceptable
to Coast, such waivers and subordinations as Coast shall specify, so as to
ensure that Coast's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. In the event that such
waivers and subordinations specified by Coast have not been obtained from
such third parties, Coast will have a continuing right to institute a reserve
for payment of rent and other sums owing to any such third parties. Borrower
will keep in full force and effect, and will comply with all the terms of,
any lease of real property where any of the Collateral now or in the future
may be located.
6.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral
in good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
6.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
6.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to Coast have been, and will be,
prepared in conformity with GAAP (except, in the case of unaudited financial
statements, for the absence of footnotes and subject to normal year-end
adjustments) and now and in the future will fairly reflect the financial
condition of Borrower, at the times and for the periods therein stated.
Between the last date covered by any such statement provided to Coast and the
date hereof, there has been no Material Adverse Effect. Borrower is now and
will continue to be Solvent.
6.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and Borrower has timely paid, and will
timely pay, all foreign, federal, state and local taxes, assessments,
deposits and contributions now or in the future owed by Borrower. Borrower
may, however, defer payment of any contested taxes, provided that Borrower
(i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Coast in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other
steps required to keep the contested taxes from becoming a lien upon any of
the Collateral. As of the date hereof, Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which could result
in additional taxes becoming due and payable by Borrower. Borrower has paid,
and shall continue to pay all amounts necessary to fund all present and
future pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not and will not withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental
agency. Borrower shall, at all times, utilize the services of an outside
payroll service providing for the automatic deposit of all payroll taxes
payable by Borrower.
6.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in
all material respects, with all provisions of all material foreign, federal,
state and local laws and regulations relating to Borrower, including, but not
limited to, the Fair Labor Standards Act, and those relating to Borrower's
ownership of real or personal property, the conduct and licensing of
Borrower's business, and environmental matters.
6.10 LITIGATION. Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
Borrower's knowledge) threatened by or against or affecting Borrower in any
court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in a
Material Adverse Effect. Borrower will promptly inform Coast in writing of
any claim, proceeding, litigation or investigation in the future threatened
or instituted by or against Borrower involving an amount set forth on the
Schedule.
6.11 USE OF PROCEEDS. All proceeds of the Term Loan shall be used
solely for lawful business purposes. Borrower is not purchasing or carrying
any "margin stock" (as defined in Regulation U of the Board of Governors of
the Federal Reserve System) and no part of the proceeds of the Term Loan will
be used to purchase or carry any "margin stock" or to extend credit to others
for the purpose of purchasing or carrying any "margin stock."
6.12 YEAR 2000 COMPLIANCE. As the result of a comprehensive review and
assessment undertaken by Borrower of Borrower's computer systems, software
and applications and after due inquiry made of
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Coast Business Credit Term Loan and Security Agreement
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Borrower's material suppliers, vendors and customers Borrower represents and
warrants that the Year 2000 problem will not result in a Material Adverse
Effect.
6.13 MERGER OF ACCOUNTING SYSTEMS. Borrower and Guarantor shall have
completed the merger of their accounting systems by September 1, 1999.
6.14 ASSIGNMENT OF LICENSES. Within six (6) months of the Closing
Date, Borrower shall provide Coast with duly executed agreements from third
parties wherein such third parties agree to the assignment of Borrower's
license rights to Coast of certain intellectual property used in conjunction
with Borrower's equipment. Coast in its sole and absolute discretion will
determine which rights in intellectual property are to be assigned and the
form and substance of said assignments are to be acceptable to Coast in its
sole and absolute discretion.
6.15 COPYRIGHTS. Within 60 days of the Closing Date and, if not
achievable within said time period, within a reasonable time period utilizing
Borrower's best efforts, Coast shall have received satisfactory evidence that
Borrower has registered its copyrights with the United States Copyright
Office and Coast shall have been provided with a duly executed security
agreement with respect to such copyrights, with said security agreement to be
in form and substance acceptable to Coast in its sole and absolute discretion.
7. ADDITIONAL DUTIES OF THE BORROWER
7.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
7.2 INSURANCE. Borrower shall, at all times insure all of the
tangible personal property Collateral and carry such other business
insurance, with insurers reasonably acceptable to Coast, in such form and
amounts as Coast may reasonably require, and Borrower shall provide evidence
of such insurance to Coast, so that Coast is satisfied that such insurance
is, at all times, in full force and effect. All liability insurance policies
of Borrower shall name Coast as an additional insured, and shall provide
coverage for environmental related claims and issues, with said coverage to
be acceptable to Coast in its sole and absolute discretion, and all property
casualty and related insurance policies of Borrower shall name Coast as a
loss payee thereon and Borrower shall cause a lender's loss payee endorsement
in form reasonably acceptable to Coast. Upon receipt of the proceeds of any
such insurance, Coast shall apply such proceeds in reduction of the
Obligations as Coast shall determine in its sole discretion, except that,
provided no Default or Event of Default has occurred and is continuing, Coast
shall release to Borrower insurance proceeds with respect to Equipment
totaling less than the amount set forth in Section 8 of the Schedule, which
shall be utilized by Borrower for the replacement of the Equipment with
respect to which the insurance proceeds were paid. Coast may require
reasonable assurance that the insurance proceeds so released will be so used.
If Borrower fails to provide or pay for any insurance, Coast may, but is not
obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Coast copies of all reports made to insurance companies.
7.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in Section 8 of the Schedule, and such other
written reports with respect to Borrower (including budgets, sales
projections, operating plans and other financial documentation), as Coast
shall from time to time reasonably specify.
7.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but
not less frequently than quarterly and on one (1) Business Day's notice,
Coast, or its agents, shall have the right to perform Audits. Coast shall
take reasonable steps to keep confidential all confidential information
obtained in any Audit, but Coast shall have the right to disclose any such
information to its auditors, regulatory agencies, and attorneys, and pursuant
to any subpoena or other legal process. The Audits shall be at Borrower's
expense and the charge for the Audits shall be Seven Hundred Fifty Dollars
($750) per person per day (or such higher amount as shall represent Coast's
then current standard charge for the same), plus reasonable out-of-pocket
expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at
any location other than Borrower's Address, without first notifying Coast of
the same and obtaining the written agreement from such accounting firm,
service bureau or other third party to give Coast the same rights with
respect to access to books and records and related rights as Coast has under
this Loan Agreement. Borrower shall also take all necessary steps to assure
that its material accounting and software, systems and applications, and
those of its accounting firm, service bureau or any other third party vendor
or supplier, will, on a timely basis, adequately and completely address the
Year 2000 Problem in all material respects.
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Coast Business Credit Term Loan and Security Agreement
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7.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior
written consent, do any of the following:
(a) merge or consolidate with another entity, except in a
transaction in which (i) the owners of the Borrower hold at least fifty
percent (50%) of the ownership interest in the surviving entity immediately
after such merger or consolidation, and (ii) the Borrower is the surviving
entity;
(b) other than the presently pending acquisition of assets by
Borrower from AgraBio, acquire any assets, except (i) in the ordinary course
of business, or (ii) in a transaction or a series of transactions not
involving the payment of an aggregate amount in excess of the amount set
forth in Section 7 of the Schedule except that payments in the form of stock
of Borrower will not be subject to the limitations of this paragraph so long
as such payments in the form of stock of Borrower do not cause a Change of
Control;
(c) enter into any other transaction not permitted hereunder
outside the ordinary course of business provided, however, that Borrower's
use and exploitation of the BioJects and related equipment/technology as
permitted pursuant to the BioJect leases will be deemed to be in the ordinary
course of Borrower's business;
(d) sell or transfer any Collateral, except for: (i) the sale
of obsolete or unneeded Equipment in the ordinary course of business; (ii)
other sales or transfers the aggregate market value of such Collateral sold
or otherwise disposed of in any year not to exceed Three Hundred Thousand
Dollars ($300,000) and the consideration received for such Collateral being
at least equal to the fair market value of such Collateral provided: (y) such
sales could not reasonably be expected to have a Material Adverse Effect, and
(z) no Event of Default has occurred and is continuing or will result from
such sales or transfers; and (iii) the sale of BioJects for a minimum sale
price of Twelve Thousand Five Hundred Dollars ($12,500) for "in-service"
BioJects and Seven Thousand Five Hundred Dollars ($7,500) for "in-storage"
BioJects, so long as an amount equal to the minimum sale price for any such
sale is applied as a prepayment to the Term Loan pursuant to Section 8.2
below. Any amounts in excess of the minimum sale price can be retained by
Borrower;
(e) store any Inventory or other Collateral with any
warehouseman or other third party provided, however, that Borrower's use and
exploitation of the BioJects and related equipment/technology as permitted
pursuant to the BioJect leases will not be restricted;
(f) other than that certain existing loan between Borrower and
Agricultural Supply, Inc. in the amount of $7,700,000 plus any additional
amounts relating to the transfer of BioJects, make any loans of any money or
other assets, except (i) advances to customers or suppliers in the ordinary
course of business, (ii) travel advances, employee relocation loans and other
employee loans and advances in the ordinary course of business, and (iii)
loans to employees, officers and directors for the purpose of purchasing
equity securities of the Borrower;
(g) incur any debts not permitted hereunder, outside the
ordinary course of business, which would have a Material Adverse Effect;
(h) guarantee or otherwise become liable with respect to the
obligations of another party or entity other than the guaranty of the
Revolving Loan and guaranty of the obligations owing from Ag Supply to First
National as discussed herein;
(i) pay or declare any dividends or distributions on the
ownership interests in Borrower (except for dividends or distributions
payable solely in stock form of ownerships interests in Borrower);
(j) receive an upstream of funds from Guarantor in an amount
exceeding 75% of the net income per month of Guarantor; PROVIDED, HOWEVER,
that the total of said upstreaming cannot exceed (y) 75% of period-to-date
net income, and (z) 75% of fiscal year end net income of Guarantor. Said
calculation of period-to-date net income will commence with the month of
July, 1999. Notwithstanding the foregoing, any amounts paid by Guarantor to
Borrower as part of the initial funding of the Revolving Loan will not be
subject to the limitations of this paragraph;
(k) make any change in Borrower's capital structure which would
have a Material Adverse Effect; or
(l) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this
Section are only permitted if no Default or Event of Default is continuing or
would occur as a result of such transaction.
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Coast Business Credit Term Loan and Security Agreement
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7.6 LITIGATION COOPERATION. Should any third-party suit or proceeding
be instituted by or against Coast with respect to any Collateral or relating
to Borrower, Borrower shall, without expense to Coast, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Coast may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
7.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request
by Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully
consummate the transactions contemplated by this Agreement.
8. TERM.
8.1 MATURITY DATE. This Agreement shall continue in effect until the
Maturity Date.
8.2 PREPAYMENT. Borrower may prepay the Term Loan in whole or in part
prior to the Maturity Date as follows effective three (3) Business Days after
written notice of intent to prepay is given to Coast by Borrower. Any
prepayment of the Term Loan in part but not in full will be applied to
installments on the Secured Term Promissory Note in inverse order of
maturity. At any time if the Revolving Loan is paid off and/or terminated for
any reason prior to its respective Maturity Date, the Term Loan shall become
immediately due and payable without notice, effective immediately. If the
Term Loan is prepaid by Borrower in full under this Section 8.2, at a time
when the Revolving Loan is paid off and the Loan and Security Agreement is
terminated for any reason, Borrower shall pay to Coast a Prepayment Fee in
the amount shown in Section 3 of the Schedule. The Prepayment Fee shall be
due and payable on the effective date of prepayment and thereafter shall bear
interest at a rate equal to the rate applicable to the Term Loan.
Notwithstanding the foregoing, there will be no prepayment fee if the Term
Loan and all other Obligations hereunder are prepaid in full prior to the
Maturity Date and the Revolving Loan is not prepaid and the Loan and Security
Agreement is not terminated prior to its maturity date as described in the
Loan and Security Agreement.
8.3 PAYMENT OF OBLIGATIONS. The Term Loan shall be payable in
installments as provided in the Secured Term Promissory Note. Notwithstanding
any termination of this Agreement, all of Coast's security interests in all
of the Collateral and all of the terms and provisions of this Agreement shall
continue in full force and effect until all Obligations have been paid and
performed in full. No termination shall in any way affect or impair any right
or remedy of Coast, nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations have been paid and
performed in full. Upon payment and performance in full of all the
Obligations and termination of this Agreement, Coast shall promptly deliver
to Borrower termination statements, requests for reconveyances and such other
documents as may be required to fully terminate Coast's security interests.
9. EVENTS OF DEFAULT AND REMEDIES.
9.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower
shall give Coast immediate written notice thereof:
(a) Any warranty, representation, statement, report or
certificate made or delivered to Coast by Borrower or any of Borrower's
officers, employees or agents, now or in the future, shall be untrue or
misleading and results in a Material Adverse Effect; or
(b) Borrower shall fail to pay when due the Term Loan or any
interest thereon (which failure to pay interest is not cured within five (5)
days after the date due) or any other monetary Obligation; or
(c) Borrower shall fail to give Coast access to its books and
records or Collateral as provided in Section 7.4 above, or shall breach any
negative covenant set forth in Section 7.5 above; or
(d) Borrower shall fail to comply with the financial covenants
(if any) set forth in the Schedule or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured; or
(e) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within thirty (30) days after the date
due; or
(f) Any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) is made on all or any part of the
Collateral which is not cured within fifteen (15) days after the occurrence
of the same; or
(g) any default or event of default occurs under any obligation
secured by a Permitted Lien,
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which is not cured within any applicable cure period or waived in writing by
the holder of the Permitted Lien and such failure could reasonably be
executed to have a Material Adverse Effect; or
(h) Borrower breaches any material contract or obligation,
which has or may reasonably be expected to have a Material Adverse Effect; or
(i) Dissolution, termination of existence, insolvency or
business failure of Borrower or any guarantor of any of the Obligations; or
appointment of a receiver, trustee or custodian, for all or any part of the
property of, assignment for the benefit of creditors by, or the commencement
of any proceeding by Borrower or any guarantor of any of the Obligations
under any reorganization, bankruptcy, insolvency, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction, now
or in the future in effect which, with respect only to the commencement of
proceedings against Borrower or any Guarantor, is (i) not timely
controverted, or (ii) not cured by the dismissal thereof within forty-five
(45) days after the date commenced; or
(j) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law
or statute of any jurisdiction, now or in the future in effect, which is (i)
not timely controverted, or (ii) not cured by the dismissal thereof within
forty-five (45) days after the date commenced; or
(k) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of
the foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or
(l) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all
of the Obligations, or any attempt to do any of the foregoing, or
commencement of proceedings by or against any such third party under any
bankruptcy or insolvency law which, with respect only to the commencement of
proceedings against such third party, is (i) not timely controverted, or (ii)
not cured by the dismissal thereof within forty-five (45) days after the date
commenced; or
(m) Borrower or any guarantor of any of the Obligations makes
any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations, other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or
(n) Except as permitted under Section 7.5(a), Borrower shall
suffer or experience any Change of Control without Coast's prior written
consent, which consent shall be in the discretion of Coast in the exercise of
its reasonable business judgment; or
(o) Borrower shall generally not pay its debts as they become
due, or Borrower shall conceal, remove or transfer any part of its property,
with intent to hinder, delay or defraud its creditors, or make or suffer any
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or
(p) there shall be any Material Adverse Effect; or
(q) if an Event of Default, as defined in the Loan and Security
Agreement, has occurred.
9.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one
or more of the following:
(a) Cease extending credit to Borrower under this Agreement or
any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations
to be immediately due, payable and performable, notwithstanding any deferred
or installment payments allowed by any instrument evidencing or relating to
any Obligation;
(c) Take possession of any or all of the Collateral wherever it
may be found, and for that purpose Borrower hereby authorizes Coast without
judicial process to enter onto any of Borrower's premises without
interference to search for, take possession of, keep, store or remove any of
the Collateral, and remain
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on the premises or cause a custodian to remain on the premises in exclusive
control thereof, without charge for so long as Coast deems it reasonably
necessary in order to complete the enforcement of its rights under this
Agreement or any other agreement; PROVIDED, HOWEVER, that should Coast seek
to take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives:
(i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession;
(ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and
(iii) any requirement that Coast retain possession of, and
not dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral
and make it available to Coast at places designated by Coast which are
reasonably convenient to Coast and Borrower, and to remove the Collateral to
such locations as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge. Coast is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling
any Collateral and Borrower's rights under all licenses and all franchise
agreements shall inure to Coast's benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other
than oral announcement at the time scheduled for sale. Coast shall have the
right to conduct such disposition on Borrower's premises without charge, for
such time or times as Coast deems reasonable, or on Coast's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
Coast may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition. Any sale or other disposition of
Collateral shall not relieve Borrower of any liability Borrower may have if
any Collateral is defective as to title or physical condition or otherwise at
the time of sale;
(g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's
sole discretion, to grant extensions of time to pay, compromise claims and
settle Receivables and the like for less than face value; and
(h) Demand and receive possession of any of Borrower's federal
and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto.
All attorneys' fees, expenses, costs, liabilities and obligations
incurred by Coast (including attorneys' fees and expenses incurred in
connection with bankruptcy) with respect to the foregoing shall be due from
the Borrower to Coast on demand. Coast may charge the same to Borrower's loan
account, and the same shall thereafter bear interest at the same rate as is
applicable to the Term Loan. Without limiting any of Coast's rights and
remedies, from and during the occurrence of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an
additional three percent per annum.
9.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7)
days prior to the sale, and, in the case of a public sale, notice of the sale
is published at least seven (7) days before the sale in a
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Coast Business Credit Term Loan and Security Agreement
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newspaper of general circulation in the county where the sale is to be
conducted;
(b) Notice of the sale describes the collateral in general,
non-specific terms;
(c) The sale is conducted at a place designated by Coast, with
or without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00
p.m., Los Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's check
or wire transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast
may (but is not obligated to) direct any prospective purchaser to ascertain
directly from Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and
selling the Collateral, in its discretion, if they are commercially
reasonable.
9.4 POWER OF ATTORNEY. Borrower grants to Coast an irrevocable power
of attorney coupled with an interest, authorizing and permitting Coast
(acting through any of its employees, attorneys or agents) at any time, at
its option, but without obligation, with or without notice to Borrower, and
at Borrower's expense, to do any or all of the following, in Borrower's name
or otherwise, but Coast agrees to exercise the following powers in a
commercially reasonable manner:
(a) Execute on behalf of Borrower any documents that Coast may,
in its sole discretion, deem advisable in order to perfect and maintain
Coast's security interest in the Collateral, or in order to exercise a right
of Borrower or Coast, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other present and future
agreements;
(b) After and during the continuance of an Event of Default,
execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or to lease
(as lessor or lessee) any real or personal property which is part of Coast's
Collateral or in which Coast has an interest;
(c) After and during the continuance of an Event of Default,
execute on behalf of Borrower, any invoices relating to any Receivable, any
draft against any account debtor and any notice to any account debtor, any
proof of claim in bankruptcy, any notice of lien, claim of mechanic's,
materialman's or other lien, or assignment or satisfaction of mechanic's,
materialman's or other lien;
(d) After and during the continuance of an Event of Default,
take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Coast's
possession;
(e) After and during the continuance of an Event of Default,
endorse all checks and other forms of remittances received by Coast;
(f) After and during the continuance of an Event of Default,
pay, contest or settle any lien, charge, encumbrance, security interest and
adverse claim in or to any of the Collateral, or any judgment based thereon,
or otherwise take any action to terminate or discharge the same;
(g) After and during the continuance of an Event of Default,
grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and
other documents in connection therewith;
(h) After and during the continuance of an Event of Default,
pay any sums required on account of Borrower's taxes or to secure the release
of any liens therefor, or both;
(i) After and during the continuance of an Event of Default,
settle and adjust, and give releases of, any insurance claim that relates to
any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any
books or records belonging to, or relating to, Borrower to give Coast the
same rights of access and other rights with respect thereto as Coast has
under this Agreement; and
(k) After and during the continuance of an Event of Default,
take any action or pay any sum required of Borrower pursuant to this
Agreement and any other present or future agreements.
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Coast Business Credit Term Loan and Security Agreement
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Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees
and expenses incurred pursuant to bankruptcy) with respect to the foregoing
shall be added to and become part of the Obligations, and shall be payable on
demand. Coast may charge the foregoing to Borrower's loan account and the
foregoing shall thereafter bear interest at the same rate applicable to the
Term Loan. In no event shall Coast's rights under the foregoing power of
attorney or any of Coast's other rights under this Agreement be deemed to
indicate that Coast is in control of the business, management or properties
of Borrower. Borrower shall pay, indemnify, defend, and hold Coast and each
of its officers, directors, employees, counsel, agents, and attorneys-in-fact
(each, an "Indemnified Person") harmless (to the fullest extent permitted by
law) from and against any and all claims, demands, suits, actions,
investigations, proceedings, and damages, and all attorneys fees and
disbursements and other costs and expenses actually incurred in connection
therewith (as and when they are incurred and irrespective of whether suit is
brought), at any time asserted against, imposed upon, or incurred by any of
them in connection with or as a result of or related to the execution,
delivery, enforcement, performance, and administration of this Agreement and
any other Loan Documents or the transactions contemplated herein, and with
respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities").
Borrower shall have no obligation to any Indemnified Person hereunder with
respect to any Indemnified Liability that a court of competent jurisdiction
finally determines to have resulted from the gross negligence or willful
misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations.
9.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of
any sale of the Collateral pursuant to Coast's exercise of its remedies shall
be applied by Coast first to the costs, expenses, liabilities, obligations
and attorneys' fees incurred by Coast in the exercise of its rights under
this Agreement, second to the interest due upon any of the Obligations, and
third to the principal installments on the Term Loan in inverse order of
maturity. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; Borrower shall remain liable to Coast for any deficiency.
If, Coast, in its sole discretion, directly or indirectly enters into a
deferred payment or other credit transaction with any purchaser at any sale
of Collateral, Coast shall have the option, exercisable at any time, in its
sole discretion, of either reducing the Obligations by the principal amount
of purchase price or deferring the reduction of the Obligations until the
actual receipt by Coast of the cash therefor.
9.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Coast shall have all the other rights and remedies
accorded a secured party in equity, under the Code, and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Coast and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise
by Coast of one or more of its rights or remedies shall not be deemed an
election, nor bar Coast from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Coast to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been indefeasibly paid and performed.
10. GENERAL PROVISIONS
10.1 INTEREST COMPUTATION. In computing interest on the Obligations,
all checks, wire transfers and other items of payment received by Coast
(including payment of the Obligations in full) shall be deemed applied by
Coast on account of the Obligations after receipt by Coast of immediately
available funds, and, for purposes of the foregoing, any such funds received
in the bank account designated by Coast during Coast's normal business hours,
shall be deemed received on the day they are received PROVIDED, HOWEVER, if
in the future Coast's standard operating procedure should change, for a
majority of Coast's borrowers by numbers, with respect to deeming items of
payment received on the same day they are received during normal business
hours, Borrower agrees to abide by such change. Coast shall not, however, be
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to Coast in its sole discretion, and Coast may charge
Borrower's loan account for the amount of any item of payment which is
returned to Coast unpaid.
10.2 APPLICATION OF PAYMENTS. All payments with respect to the
Obligations may be applied, and in Coast's sole discretion reversed and
reapplied, to the Obligations, in such order and manner as Coast shall
determine in its sole discretion
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10.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to
Borrower's Loan account, in which event they will bear interest from the date
due to the date paid at the same rate applicable to the Term Loan.
10.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
10.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, facsimile or certified mail return
receipt requested, addressed to Coast or Borrower at the addresses shown in
the heading to this Agreement, or at any other address designated in writing
by one party to the other party. Notices to Coast shall be directed to the
Commercial Finance Division, to the attention of the Division Manager or the
Division Credit Manager. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, faxed (at time of
confirmation of transmission), or at the expiration of one (1) Business Day
following delivery to the private delivery service, or two (2) Business Days
following the deposit thereof in the United States mail, with postage prepaid.
10.6 SEVERABILITY. Should any provision of this Agreement be held by
any court of competent jurisdiction to be void or unenforceable, such defect
shall not affect the remainder of this Agreement, which shall continue in
full force and effect.
10.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement with respect to the Term Loan between
Coast and supersede all prior and contemporaneous negotiations and oral
representations and agreements, all of which are merged and integrated in
this Agreement. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR
AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR
IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES IN CONNECTION HEREWITH.
10.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or
any other present or future agreement between Borrower and Coast shall not
waive or diminish any right of Coast later to demand and receive strict
compliance therewith. Any waiver of any Default shall not waive or affect any
other Default, whether prior or subsequent, and whether or not similar. None
of the provisions of this Agreement or any other agreement now or in the
future executed by Borrower and delivered to Coast shall be deemed to have
been waived by any act or knowledge of Coast or its agents or employees, but
only by a specific written waiver signed by an authorized officer of Coast
and delivered to Borrower. Borrower waives demand, protest, notice of protest
and notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time
held by Coast on which Borrower is or may in any way be liable, and notice of
any action taken by Coast, unless expressly required by this Agreement.
10.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast shall be liable for any claims,
demands, losses or damages, of any kind whatsoever, made, claimed, incurred
or suffered by Borrower or any other party through the ordinary negligence of
Coast, or any of its directors, officers, employees, agents, attorneys or any
other Person affiliated with or representing Coast, but nothing herein shall
relieve Coast from liability for its own gross negligence or willful
misconduct.
10.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
10.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower and Coast of each and every obligation under this Agreement.
10.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast
for all attorneys' fees (including attorneys' fees and expenses incurred
pursuant to bankruptcy) and all filing, recording, search, title insurance,
appraisal, audit, and other costs incurred by Coast, pursuant to, or in
connection with, or relating
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to this Agreement (whether or not a lawsuit is filed), including, but not
limited to, any attorneys' fees and costs (including attorneys' fees and
expenses incurred pursuant to bankruptcy) Coast incurs in order to do the
following: prepare and negotiate this Agreement and the documents relating to
this Agreement; obtain legal advice in connection with this Agreement or
Borrower; enforce, or seek to enforce, any of its rights; prosecute actions
against, or defend actions by, Account Debtors; commence, intervene in, or
defend any action or proceeding; initiate any complaint to be relieved of the
automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy
claim, third-party claim, or other claim; examine, audit, copy, and inspect
any of the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Coast's security
interest in, the Collateral; and otherwise represent Coast in any litigation
relating to Borrower. If either Coast or Borrower files any lawsuit against
the other predicated on a breach of this Agreement, the prevailing party in
such action shall be entitled to recover its costs and attorneys' fees
(including attorneys' fees and expenses incurred pursuant to bankruptcy),
including (but not limited to) attorneys' fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgment. Borrower shall also pay Coast's standard charges for returned
checks and for wire transfers, in effect from time to time. All attorneys'
fees, costs and charges (including attorneys' fees and expenses incurred
pursuant to bankruptcy) and other fees, costs and charges to which Coast may
be entitled pursuant to this Agreement may be charged by Coast to Borrower's
loan account and shall thereafter bear interest at the same rate as the Term
Loan.
10.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that Borrower may not assign or transfer any of its rights under
this Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
Borrower from its liability for the Obligations. Coast may assign its rights
and delegate its duties hereunder without the consent of Borrower. Coast
reserves the right to syndicate all or a portion of the transaction created
herein or sell, assign, transfer, negotiate, or grant participations in all
or any part of, or any interest in Coast's rights and benefits hereunder. In
connection with any such syndication, assignment or participation, Coast may
disclose all documents and information which Coast now or hereafter may have
relating to Borrower or Borrower's business. To the extent that Coast assigns
its rights and obligations hereunder to a third Person, Coast thereafter
shall be released from such assigned obligations to Borrower.
10.14 PUBLICITY. Coast and Borrower are hereby authorized, at their own
expense, to issue appropriate press releases and to cause a tombstone to be
published announcing the consummation of this transaction and the aggregate
amount thereof.
10.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only
used in this Agreement for convenience. Borrower and Coast acknowledge that
the headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe,
limit, define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between
the parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or Borrower under any
rule of construction or otherwise.
10.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts
and transactions hereunder and all rights and obligations of Coast and
Borrower shall be governed by the internal laws of the State of California,
without regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California,
and that the exclusive venue therefor shall be Los Angeles County; (b)
consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or
any other method permitted by law; and (c) waives any and all rights Borrower
may have to object to the jurisdiction of any such court, or to transfer or
change the venue of any such action or proceeding.
10.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT,
ACTS OR OMISSIONS OF COAST OR BORROWER OR ANY OF
17
<PAGE>
Coast Business Credit Term Loan and Security Agreement
_____________________________________________________________________________
THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH COAST OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
10.18 CONFIDENTIALITY. Coast will maintain the confidentiality of any
non-public information marked as confidential and relating to the business
operations and methodology of Borrower and financial performance of Borrower
("Borrower Information") provided to Coast solely by the Borrower as required
under the terms of this Agreement, and will not disclose Borrower Information
to any person, other than employees, agents, attorneys or accountants of
Coast. Coast will not disclose Borrower information to any other party
unless, prior to such disclosure, Coast obtains an executed acknowledgment
binding such party to maintain the confidentiality of the information,
prohibiting its disclosure except for the purposes permitted under this
Agreement, and agreeing that the information may not be used to compete with
the Borrower in any way. In the event Coast receives a subpoena or other
process for any Borrower Information, it will immediately give notice in
writing of the subpoena or other process, including a copy thereof, to
Borrower.
10.19 SALES OF EQUITY BY BORROWER. The proceeds from any sales of
equity by Borrower (other than pursuant to (A) the exercise of (i) warrants
outstanding as of the date hereof, (ii) stock options issued pursuant to the
Borrower's 1992 Stock Option Plan, the Borrower's 1996 Director's Stock
Option Plan, the Borrower's 1998 Stock Option Plan, or the Borrower's 1999
Equity Participation Plan and (iii) other stock options outstanding as of the
date hereof or (B) Earn Out Obligations), at the option of Coast, will be
used to prepay the obligations owing to Coast by Borrower prior to the
prepayment of any obligations owing to any subordinated lenders, including
without limitation, the obligations owing by Borrower to the Purchasers under
the Note Purchase Agreement.
BORROWER:
ECO SOIL SYSTEMS, INC.,
A Nebraska corporation
By______________________________________
President or Vice President
By______________________________________
Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
By_______________________________________
Title:___________________________________
18
<PAGE>
_____________________________________________________________________________
COAST
SCHEDULE TO
TERM LOAN AND SECURITY AGREEMENT
BORROWER: ECO SOIL SYSTEMS, INC.,
A NEBRASKA CORPORATION
ADDRESS: 10740 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
DATE: JULY ____, 1999
This Schedule forms an integral part of the Term Loan and Security Agreement
between Coast Business Credit, a division of Southern Pacific Bank, a
California corporation, and the above-borrower of even date.
=============================================================================
SECTION 2 - CREDIT FACILITIES
SECTION 2.1 - TERM LOAN: A Term Loan in the total amount of
Two Million Five Hundred Thousand
Dollars ($2,500,000) (the "Term
Loan"). During the first year
following the Closing Date, the Term
Loan will be payable $69,444.44
principal per month plus accrued
interest and, during the second year
following the Closing Date, the Term
Loan will be payable $138,888.88
principal per month plus accrued
interest.
=============================================================================
SECTION 3 - INTEREST AND FEES
SECTION 3.1 - INTEREST RATE: A rate equal to the Prime Rate plus
2.25% per annum, calculated on the
basis of a 360-day year for the
actual number of days elapsed. The
interest rate applicable to the Term
Loan shall be adjusted monthly as of
the first day of each month, and the
interest to be charged for each
month shall be based on the highest
Prime Rate in effect during the
prior month, but in no event shall
the rate of interest charged on the
Term Loan in any month be less than
8% per annum.
SECTION 3.2 - LOAN FEE: One-half percent (.50%) of the Loan
Amount payable on the Closing Date
with an additional one-quarter
percent (.25%) of the Loan Amount to
be paid on the first anniversary of
the Closing Date, with all said fees
to be fully earned on the Closing
Date. The fees payable pursuant to
this provision will survive
notwithstanding an Early Termination
of this Agreement pursuant to
Section 8.2 of this Agreement.
19
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Coast Business Credit Term Loan and Security Agreement
_____________________________________________________________________________
SECTION 8.2 - PREPAYMENT FEE: Subject to the provisions set forth
in Section 8.2 of the Agreement, an
amount equal to five percent (5%) of
the Loan Amount (as defined in the
Schedule), if termination occurs
within fifteen (15) months following
the Closing Date; and one percent
(1%) of the Loan Amount, if
termination occurs anytime
thereafter and before the Maturity
Date.
=============================================================================
SECTION 5 - CONDITIONS PRECEDENT
SECTION 5.14 - OTHER DOCUMENTS
AND AGREEMENTS: 1. Continuing Guaranty of Turf
Partners, Inc.;
2. UCC-1 financing statements,
fixture filings and termination
statements;
3. Security Agreements (including
those covering copyrights,
patents and trademarks);
4. Landlord waivers and access
agreements;
5. Opinion Letter of Borrower's and
Guarantor's counsel;
6. Amendment to Note Purchase
Agreement;
7. Intercreditor Agreement from First
National;
8. Collateral Assignment of Asset and
Technology Leases/Licenses (Turf
Partners);
9. Collateral Assignment of Asset and
Technology Leases/Licenses
(Agricultural Supply); and
10. Common Stock Warrant.
=============================================================================
SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.2 - PRIOR NAMES OF
BORROWER: None.
SECTION 6.2 - PRIOR TRADE NAMES
OF BORROWER: Turf Partners.
SECTION 6.2 - EXISTING TRADE NAMES
OF BORROWER: None.
SECTION 6.3 - OTHER LOCATIONS AND
ADDRESSES: See Schedule 6.3 attached hereto.
20
<PAGE>
Coast Business Credit Term Loan and Security Agreement
_____________________________________________________________________________
SECTION 6.10 - MATERIAL ADVERSE
LITIGATION: In November 1998, the Company
executed a term sheet with the
Palladin Group, L.P. ("Palladin")
concerning negotiations for a
possible investment by Palladin in
certain new classes of securities
of the Company which, at the time,
the Company was considering
issuing to a certain fund managed by
Palladin. The Company subsequently
terminated the negotiations in
December 1998. An affiliate of
Palladin, Halifax Fund, L.P.
("Halifax"), filed a lawsuit on or
about March 19, 1999 in San Diego
Superior Court alleging that the
termination violated duties owed
by the Company to Halifax under the
term sheet. The lawsuit seeks
compensatory damages of
approximately $2.6 million and
punitive damages of approximately
$12.0 million. The Company
disputes Halifax's claim and
intends to vigorously defend itself
against the lawsuit.
SECTION 6.10 - FUTURE CLAIMS AND
LITIGATION: Borrower will promptly inform Coast
in writing of any claim, proceeding,
litigation or investigation in the
future threatened or instituted by
or against Borrower involving any
single claim of Two Hundred Thousand
Dollars ($200,000) or more, or
involving Six Hundred Thousand
Dollars ($600,000) or more in the
aggregate.
=============================================================================
SECTION 7 - ADDITIONAL DUTIES OF BORROWER
SECTION 7.1 - OTHER PROVISIONS: 1. Borrower's ongoing Net Worth
shall be no less than Fifteen
Million Dollars ($15,000,000) at
all times.
2. Borrower's ongoing Debt Service
Coverage Ratio measured at the
end of Borrower's 2nd and 3rd
calendar quarters of 1999 shall
be at least 1.10 to 1.00 and
thereafter, at the end of all
future calendar quarters of
Borrower, said ratio shall be
1.10 to 1.00 based on a trailing
four quarter basis, with all
calculations of said ratio to be
determined by Coast in its sole
and absolute discretion.
SECTION 7.2 - INSURANCE: Subject to the limitations set forth
in Section 8.2 of the Agreement, Coast
shall release to Borrower insurance
proceeds with respect to Equipment
totaling less than Two Hundred
Thousand Dollars ($200,000).
SECTION 7.3 - REPORTING: Borrower shall provide Coast with the
following:
1. Monthly accounts payable agings,
aged by invoice date, and
outstanding or held check
registers within ten (10) days
after the end of each month.
2. Monthly consolidating and
consolidated internally prepared
financial statements for Borrower
and all subsidiaries, as soon as
available, and in any event
within thirty (30) days after the
end of each month.
3. Quarterly consolidating and
consolidated internally prepared
financial statements for Borrower
and all subsidiaries, as soon as
available, and in any event
within forty-five (45) days after
the end of each fiscal quarter of
Borrower.
4. Annual consolidating and
consolidated financial statements
for Borrower and all
subsidiaries, as soon as
available, and in any event
21
<PAGE>
Coast Business Credit Term Loan and Security Agreement
_____________________________________________________________________________
within ninety (90) days following
the end of Borrower's fiscal
year, containing the unqualified
opinion of, and audited by, an
independent certified public
accountant reasonably acceptable
to Coast.
5. A monthly detailed listing of the
BioJect machines which will
include, among other things, the
location of said machines, to be
provided within ten (10) days
after the end of each month.
SECTION 7.5 - NEGATIVE COVENANTS
(ACQUIRED ASSETS): Five Hundred Thousand Dollars
($500,000) annually.
=============================================================================
SECTION 8 - TERM
SECTION 8.1 - MATURITY DATE: The date on which the last regularly
scheduled monthly payment on the Term
Loan is due according to the payment
schedule set forth in Section 2.1 of
this Schedule.
22
<PAGE>
EXHIBIT 10.5
LOAN AGREEMENT
Borrower: AGRICULTURAL SUPPLY, INC. Lender: FIRST NATIONAL BANK
SISTEMAS Y EQUIPOS Corporate Banking
AGRICOLAS, S.A. de C.V. P.O. Box 85625 (CS#51)
AGRICULTURAL SUPPLY DE San Diego, CA 92186-5625
MEXICO, S.A. de C.V.
310 State Place
Escondido, CA 92029
- --------------------------------------------------------------------------------
THIS LOAN AGREEMENT ("Agreement") between AGRICULTURAL SUPPLY, INC. ("ASI"),
SISTEMAS Y EQUIPOS AGRICOLAS, S.A. de C.V. ("Sistemas") and AGRICULTURAL
SUPPLY DE MEXICO, S.A. de C.V. ("ASM") (collectively, "Borrower") and FIRST
NATIONAL BANK ("Lender") is made and executed on the following terms and
conditions. Borrower has applied to Lender for a commercial loan or loans and
other financial accommodations, including those which may be described on any
exhibit or schedule attached to this Agreement. All such loans and financial
accommodations are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a)
in granting, renewing, or extending any Loan, Lender is relying upon
Borrower's representations, warranties, and agreements, as set forth in this
Agreement; (b) the renewing, or extending of any Loan by Lender at all times
shall be subject to Lender's sole judgment and discretion; and (c) all such
Loans shall be and shall remain subject to the following terms and conditions
of this Agreement.
TERM. This Agreement shall be effective as of June 30, 1999, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
ACCOUNT. The word "Account" means a Domestic Account or a Foreign Account.
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADVANCE. The word "Advance" means a disbursement of Loan funds under this
Agreement.
BIOJECT LEASE. The words "BioJect Lease" mean any lease, whether now
existing or entered into in the future, of a Bioject machine or other
related equipment between Eco Soil Systems, Inc., ASI's parent corporation
("ESSI"), as lessor, and Borrower or a subsidiary of Borrower as lessee.
BORROWER. The word "Borrower" means ASI, Sistemas and ASM.
BORROWING BASE. The words "Borrowing Base" mean the total availability
under the Line of Credit, which shall be the lesser of the combined
Domestic Borrowing Base and Foreign Borrowing Base or the $10,000,000.00
commitment, subject to the limitations listed below. Notwithstanding the
foregoing, the maximum borrowing availability shall be limited to
$5,000,000.00 until such time as Lender has accepted a participant lender
to purchase the excess commitment above $5,000,000.00 and Lender has
received physical possession of the stock certificates evidencing the
shares of ASI serving as collateral for the obligations of ESSI under its
Guaranty.
The Foreign Borrowing Base shall be calculated as 90% of Eligible Foreign
Accounts.
The Domestic Borrowing Base shall be calculated as 80% of Eligible Domestic
Accounts plus 50% of Eligible Inventory.
BUSINESS DAY. The words "Business Day" mean a day on which commercial
banks are open for business in the State of California.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted by Borrower or any Guarantor as collateral
security for a Loan, whether real or personal property, whether granted
directly or indirectly, whether granted now or in the future, and whether
granted in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien or
title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created
by law, contract, or otherwise. The word "Collateral" includes without
limitation all collateral described below in the section titled
"COLLATERAL."
DEBT. The word "Debt" means all of Borrower's liabilities, excluding
Subordinated Debt.
DOMESTIC ACCOUNT. The word "Domestic Account" means a trade account,
account receivable, or other right to payment for goods sold or services
rendered owing to ASI, Yuma Acquisition Subsidiary, Inc. ("Yuma"), a
wholly-owned subsidiary of ASI and one of the Guarantor's of ASI's
obligations hereunder, or to a third party grantor acceptable to Lender.
EARN OUT OBLIGATIONS. The words "Earn Out Obligations" mean any obligation
of Borrower or a subsidiary of Borrower incurred in connection with
Permitted Acquisitions and the amount of which is based upon
post-acquisition performance of Borrower, a subsidiary of Borrower or the
business or assets acquired in connection with the Permitted Acquisition.
ELIGIBLE ACCOUNTS. Subject to the exclusions set forth below, the words
"Eligible Accounts" mean, at any time, all Domestic Accounts and Foreign
Accounts which contain selling terms and conditions reasonably acceptable
to Lender. The net amount of any Eligible Account against which Borrower
may borrow shall exclude all returns, discounts, credits, and offsets of
any nature. Unless
<PAGE>
LOAN AGREEMENT 2
LOAN NO 5641298123 (CONTINUED)
- --------------------------------------------------------------------------------
otherwise agreed to by Lender in writing, Eligible Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an officer,
an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary
of, or affiliated with or related to Borrower or its shareholders,
officers, or directors.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the
Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a
resident of the United States, are not payable in U.S. Dollars or,
with respect to Accounts of ASI or Yuma, are not collectible in the
U.S., except to the extent such Accounts are supported by insurance
(i.e. are insured under the Export Credit Insurance Policy), bonds or
other assurances satisfactory to Lender.
(e) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower or a Foreign Subsidiary.
(f) Accounts which are subject to dispute, counterclaim, or setoff.
(g) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account
Debtor.
(h) Accounts with respect to which Lender, in its reasonable
discretion, deems the creditworthiness or financial condition of the
Account Debtor to be unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief under
any provision of any state or federal bankruptcy, insolvency, or
debtor-in-relief acts; or who has had appointed a trustee, custodian,
or receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or
fails generally to pay its debts (including its payrolls) as such
debts become due.
(j) Accounts with respect to which the Account Debtor is the United
States government or any department or agency of the United States.
(k) With respect to Domestic Accounts, Accounts which have not been
paid in full within 90 days from the invoice date. Credit balances
over 90 days from the invoice date shall be added back to the
ineligible amount. The entire balance of the Accounts of any single
Account Debtor will be ineligible whenever the portion of such
Accounts which has not been paid within 90 days from the respective
invoice date is in excess of 25% of the total amount outstanding on
such Accounts.
(l) With respect to Domestic Accounts and Foreign Accounts, that
portion of the Accounts of any single Account Debtor which exceeds 10%
of all Domestic Accounts or Foreign Accounts, as applicable.
(m) With respect to the Foreign Accounts, any Account not allowed,
insured and approved by the Export Credit Insurance Policy. In
addition, ineligible Foreign Accounts shall include but not be limited
to Accounts greater than 60 days past the due date, contra accounts,
finance charges, related/affiliated accounts not approved for
Insurance (i.e. for stocking), prepaid/COD Accounts, government, bill
and hold, consignment, accounts payable outside the U.S. or other
ineligibles as defined by the Export Credit Insurance Policy. Credit
balances over 60 days past due will be added back to calculate the
ineligible amount. The Foreign Subsidiaries shall be co-applicants
under the Export Credit Insurance Policy.
(n) With respect to Foreign Accounts, the cross-age rule set forth in
clause (k) above will not be applied unless required by the terms of
the Export Credit Insurance Policy.
ELIGIBLE DOMESTIC ACCOUNT. The words "Eligible Domestic Account" mean an
Eligible Account that is a Domestic Account.
ELIGIBLE FOREIGN ACCOUNT. The words "Eligible Foreign Account" mean an
Eligible Account that is a Foreign Account.
ELIGIBLE INVENTORY. The words "Eligible Inventory" mean, at any time, all
of ASI's and Yuma's Inventory except:
(a) Inventory which is not owned by ASI or Yuma free and clear of all
security interests, liens, encumbrances, and claims of third parties.
(b) Inventory which Lender, in its reasonable discretion, deems to be
obsolete, unsalable, damaged, defective, or unfit for further
processing.
(c) Inventory stored outside the United States, and those consignment
goods or goods upon which there is a filed purchase-money security
interest by the supplier. Any reserves for obsolescence will be
deducted from gross Eligible Inventory before applying the advance
rate.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include, without
limitation, any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
EXPIRATION DATE. The words "Expiration Date" mean the date of termination
of Lender's commitment to lend under this Agreement.
FOREIGN ACCOUNT. The words "Foreign Account" mean a trade account, account
receivable, or other right to payment for goods sold or services rendered
owing to Sistemas or ASM.
FOREIGN SUBSIDIARY. The words "Foreign Subsidiary" mean each of Sistemas
and ASM.
GRANTOR. The word "Grantor" means and includes, without limitation, each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation Borrower and
any Guarantor granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes: (a) (with respect to
the Obligations of ASI), ESSI, Yuma, Agro Mex, Inc. and Agro Mex
International, Inc., and (b) (with respect to the Obligations of Sistemas
and ASM), ASI, ESSI, Agro Mex, Inc. and Agro Mex International, Inc.,
together with any other guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
<PAGE>
LOAN AGREEMENT 3
LOAN NO 5641298123 (CONTINUED)
- --------------------------------------------------------------------------------
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, as well as all claims by Lender against
Borrower, relating to or arising from the Loans; whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a guarantor,
surety, or otherwise; whether recovery upon such Indebtedness may be or
hereafter may become barred by any statute of limitations; and whether such
Indebtedness may be or hereafter may become otherwise unenforceable.
INVENTORY. The word "Inventory" means all of Borrower's and Yuma's raw
materials, finished goods, merchandise, parts and supplies, of every kind
and description, and goods held for sale or lease or furnished under
contracts of service in which Borrower or Yuma now has or hereafter
acquires any right, whether held by Borrower, Yuma or others, and all
documents of title, warehouse receipts, bills of lading, and all other
documents of every type covering all or any part of the foregoing.
Inventory includes inventory temporarily out of Borrower's or Yuma's
custody or possession and all returns on Accounts.
LENDER. The word "Lender" means FIRST NATIONAL BANK, its successors and
assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
LIQUID ASSETS. The words "Liquid Assets" mean ASI's cash on hand plus
readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower under this Agreement or the Related Documents, whether now or
hereafter existing, and however evidenced, including without limitation
those loans and financial accommodations described herein or described on
any exhibit or schedule attached to this Agreement from time to time.
NOTE. The word "Note" or "Notes" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing Borrower's Loan
obligations in favor of Lender, as well as any substitute, replacement or
refinancing note or notes therefor.
PERMITTED ACQUISITIONS. The words "Permitted Acquisitions" mean
acquisitions (including acquisitions by way of merger, consolidation or
amalgamation) by Borrower or a subsidiary of Borrower of the capital stock,
other equity interest or all or substantially all of the assets of any
entity whose business reasonably relates to or is synergistic with the
general business activities of Borrower and its subsidiaries as conducted
as of the date hereof.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent;
(d) purchase money liens or purchase money security interests upon or in
any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement
or liens permitted to be incurred under the paragraph of this Agreement
titled "ADDITIONAL INDEBTEDNESS AND LIENS"; (e) liens and security
interests which, as of the date of this Agreement, have been disclosed to
and approved by Lender; and (f) those liens and security interests which
in the aggregate constitute an immaterial and insignificant monetary amount
with respect to the consolidated net value of the assets of Borrower and
its subsidiaries.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, pledge
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing, executed in
connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest as security for the Indebtedness.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986, as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender, including, without limitation, that certain Guaranty Agreement
dated as of August 25, 1998 executed by ASI, Yuma and certain other
affiliated entities in favor of the Purchasers (as defined therein) of
certain Note and Warrant Purchase Agreements dated as of the same date.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the
aggregate amount of such Advances outstanding at any time does not exceed the
Borrowing Base. Within the foregoing limits, Borrower may borrow, partially
or wholly prepay, and reborrow under this Agreement as follows:
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered
by Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with, subject to Permitted Liens,
first lien priority and shall be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and be in
full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of the Accounts and Inventory, and any books,
records, and operations of Borrower and the Foreign Subsidiaries, and
Lender shall be satisfied as to their condition; provided, however,
such audits shall occur no more frequently than once per month.
<PAGE>
LOAN AGREEMENT 4
LOAN NO 5641298123 (CONTINUED)
- --------------------------------------------------------------------------------
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due
and payable.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the most recent compliance
certificate called for in the paragraph below titled "Compliance
Certificate."
MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested
either orally or in writing by authorized persons. Lender may, but need
not, require that all oral requests be confirmed in writing. Each Advance
shall be conclusively deemed to have been made at the request of and for
the benefit of Borrower: (a) when credited to any deposit account of
Borrower maintained with Lender or (b) when advanced in accordance with
the instructions of an authorized person. Lender, at its option, may set a
cutoff time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount
of the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay to
Lender an amount equal to the difference between the outstanding principal
balance of the Advances and the Borrowing Base. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid principal amount
of all Advances then outstanding and all accrued unpaid interest, together
with all other applicable fees, costs and charges, if any, not yet paid.
FACILITY CHARGE. Borrower recognizes that Lender has incurred and will
continue to incur certain costs and expenses in connection with
establishing, maintaining, servicing, and administering the credit
facility. To ensure that Lender is able to recover such costs and
expenses, Borrower agrees that, notwithstanding any other provision of this
Agreement, any Note or the Related Documents, Lender shall be entitled to
collect the following facility charge, which Borrower hereby promises and
agrees to pay: BORROWER SHALL BE ASSESSED AN ANNUALIZED NON-USE FEE OF
0.250% PAYABLE QUARTERLY IN ARREARS ON THE AVERAGE UNUSED BALANCE OF THE
LINE OF CREDIT.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the Line of Credit.
Lender shall provide Borrower with periodic statements of Borrower's
account, which statements shall be considered to be correct and
conclusively binding on Borrower unless Borrower notifies Lender to the
contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender under the
Related Documents, Borrower shall grant to Lender Security Interests in the
Collateral described in the Security Agreements executed by Borrower,
including without limitation Borrower's present and future Domestic Accounts,
general intangibles, and Inventory. Lender's Security Interests in the
Collateral shall be continuing liens and shall include the proceeds and
products of the Collateral, including without limitation the proceeds of any
insurance. With respect to the Collateral, Borrower agrees and represents
and warrants to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such
financing statements and to take whatever other actions are requested by
Lender to perfect and continue Lender's Security Interests in the
Collateral. Upon request of Lender, Borrower will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Borrower will note Lender's interest upon any and all Collateral if not
delivered to Lender for possession by Lender. Contemporaneous with the
execution of this Agreement, Borrower will execute one or more UCC
financing statements and any similar statements as may be required by
applicable law, and will file such financing statements and all such
similar statements in the appropriate location or locations. Borrower
hereby appoints Lender as its irrevocable attorney-in-fact for the purpose
of executing any documents necessary to perfect or to continue any Security
Interest in the Collateral. Lender may at any time, and without further
authorization from Borrower, file a carbon, photograph, facsimile, or other
reproduction of any financing statement for use as a financing statement.
Borrower will reimburse Lender for all expenses for the perfection,
termination, and the continuation of the perfection of Lender's Security
Interest in the Collateral. Borrower promptly will notify Lender of any
change in Borrower's name including any change to the fictitious business
names of Borrower. Borrower also promptly will notify Lender of any change
in Borrower's Social Security Number or Employer Identification Number.
Borrower further agrees to notify Lender in writing prior to any change in
address or location of Borrower's principal governance office or should
Borrower merge or consolidate with any other entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings. With respect to the Inventory,
Borrower agrees to keep and maintain such records as Lender may require,
including without limitation information concerning Eligible Inventory and
records itemizing and describing the kind, type, quality, and quantity of
Inventory, Borrower's Inventory costs and selling prices, and the daily
withdrawals and additions to Inventory. The following is an accurate and
complete list of all locations at which Borrower keeps or maintains
business records concerning the Accounts and Inventory: 310 STATE PLACE,
ESCONDIDO, CA 92029, 1435 SIMPSON WAY, ESCONDIDO, CA 92029, 1433 SIMPSON
WAY, ESCONDIDO, CA 92029, 2310 MARCONI COURT, SAN DIEGO, CA 92173, 2600
COLUMBUS ROAD, DEMING, NM 88030-6712, 1300 N. MARIPOSA RANCH ROAD, #1,
NOGALES, AZ 85621-4522, 2291 E. PALO VERDE, YUMA, AZ 85365, GUADALAJARA
STORE, CALLE ASESORES #5781, COLONIA ARCOS DE GUADALUPE, GUADALAJARA,
JALISCO, MEXICO 45000; MATRIZ (CORPORATE OFFICE): OBREGON #2000 ESQ. CON
CALLE 20, COLONIA EMPLEADOS, ENSENADA, B.C. NORTE, MEXICO; CULIACAN STORE:
CARRETERA A NAVOLATO NO. 8929, COLONIA AEROPUERTO, CULIACAN, SINALOA,
MEXICO; H. COBORCA STORE: CALLE OBREGON ENTRE JALISCO Y VERACRUZ S/N,
COLONIA INDUSTRIAL, H. COBORCA, SONORA, MEXICO; LOS MOCHIS STORE: BLVD.
ROSENDO G. CATRO, #285 OTE., LOS MOCHIS, SINOLOA, MEXICO; VICENTE GUERRERO
STORE: CARRETERA TRANSPENINSULAR KM. 173+100, COLONIA VICENTE GUERRERO,
ENSENADA, B.C. NORTE, MEXICO 22920; CD. DELICIAS STORE: AVENIDA RIO
CONCHOS ORIENTE NO., 601, ESQUINA, COLONIA CENTRO, CD. DELICIAS, CHIHUAHUA,
MEXICO; OBREGON OFFICE: AVE. NAINARI Y YUCATON #294, DEPARTAMENTO 36,
OBREGON, SONORA, MEXICO; HERMOSILLO STORE: BLVD. GARCIA MORALES NO. 340-3,
COLONIA EL LLANO, HERMOSILLO, SONORA, MEXICO.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of
Accounts and Inventory and Eligible Accounts and Eligible Inventory, in
form and substance reasonably satisfactory to Lender. Thereafter Borrower
shall execute and deliver to Lender such supplemental schedules of Eligible
Accounts and Eligible Inventory and such other matters and information
relating to the Accounts and Inventory as Lender may request. Supplemental
schedules shall be delivered according to the following schedule: Borrowing
Base Certificate, agings of all Accounts
<PAGE>
LOAN AGREEMENT 5
LOAN NO 5641298123 (CONTINUED)
- --------------------------------------------------------------------------------
and Accounts Payable, and Inventory listing on a monthly basis within 30
days following each month end. Borrower will provide Lender with a
listing of all Accounts, including name, address and telephone number
for each account, on an annual basis within 30 days of each year end.
In addition, Borrower will include a summary of purchase orders/invoices
to back Foreign Accounts. Reports shall include a separate accounting
of Foreign Accounts and Domestic Accounts including evidence of Export
Credit Insurance and monthly Compliance Certificates called for in the
paragraph below titled "Compliance Certificate." The Borrowing Base
Certificate described above shall set forth a calculation of the
Borrowing Base as of the effective date of such Borrowing Base
Certificate reasonably acceptable to Lender, and, unless Lender notifies
Borrower within 10 Business Days of Lender's receipt of a Borrowing Base
Certificate that Lender does not accept the calculation of the Borrowing
Base set forth in such Borrowing Base Certificate, the Borrowing Base
set forth therein shall be deemed to be the applicable Borrowing Base
for Advances of Loans until delivery to Lender of the next succeeding
Borrowing Base Certificate.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns or agents shall have the right at any reasonable time
and at Borrower's expense to inspect, examine, and audit Borrower's records
and to confirm with Account Debtors the accuracy of such Accounts;
provided, however, such actions shall occur no more frequently than once
per month.
REPRESENTATIONS AND WARRANTIES CONCERNING INVENTORY. With respect to the
Inventory, Borrower represents and warrants to Lender: (a) All Inventory
represented by Borrower to be Eligible Inventory for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Inventory; (b) All Inventory values listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; (c) The
value of the Inventory will be determined on a consistent accounting basis;
(d) Except as agreed to the contrary by Lender in writing, all Eligible
Inventory is now and at all times hereafter will be in Borrower's physical
possession and shall not be held by others on consignment, sale on
approval, or sale or return; (e) Except as reflected in the Inventory
schedules delivered to Lender, all Eligible Inventory is now and at all
times hereafter will be of good and merchantable quality, free from
defects; (f) Eligible Inventory is not now and will not at any time
hereafter be stored with a bailee, warehouseman, or similar party without
Lender's prior written consent, and, in such event, Borrower will
concurrently at the time of bailment cause any such bailee, warehouseman,
or similar party to issue and deliver to Lender, in form acceptable to
Lender, warehouse receipts in Lender's name evidencing the storage of
Inventory; and (g) Lender, its assigns or agents shall have the right at
any reasonable time and at Borrower's expense to inspect and examine the
Inventory and to check and test the same as to quality, quantity, value,
and condition; provided, however, such actions shall occur no more
frequently than once per month.
REMITTANCE ACCOUNT. Borrower agrees that Lender may at any time require
Borrower to institute procedures whereby the payments and other proceeds of
the Domestic Accounts shall be paid by the Account Debtors under a
remittance account or lock box arrangement with Lender, or Lender's agent,
or with one or more financial institutions designated by Lender. Borrower
further agrees that, if no Event of Default exists under this Agreement,
any and all of such funds received under such a remittance account or lock
box arrangement shall, at Lender's sole election and discretion, either be:
(a) paid or turned over to Borrower; (b) deposited into one or more
accounts for the benefit of Borrower (which deposit accounts shall be
subject to a security assignment in favor of Lender); (c) deposited into
one or more accounts for the joint benefit of Borrower and Lender (which
deposit accounts shall likewise be subject to a security assignment in
favor of Lender); (d) paid or turned over to Lender to be applied to the
Indebtedness in such order and priority as Lender may determine within its
sole discretion; or (e) any combination of the foregoing as Lender shall
determine from time to time. Borrower further agrees that, should one or
more Events of Default exist, any and all funds received under such a
remittance account or lock box arrangement shall be paid or turned over to
Lender to be applied to the Indebtedness, again in such order and priority
as Lender may determine within its sole discretion.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. ASI is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware,
Sistemas and ASM are corporations duly organized, validly existing, and in
good standing under the laws of the United Mexican States, and Borrower is
validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under: (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
PROPERTIES. Except for Permitted Liens, Borrower owns and has good title
to all of Borrower's properties free and clear of all Security Interests,
and has not executed any security documents or financing statements
relating to such properties.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq.,
<PAGE>
LOAN AGREEMENT 6
LOAN NO 5641298123 (CONTINUED)
- --------------------------------------------------------------------------------
Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or
Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. Except as disclosed to and acknowledged by Lender in writing,
Borrower represents and warrants that: (a) During the period of
Borrower's ownership of the properties, there has been no use,
generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no
knowledge of, or reason to believe that there has been: (i) any use,
generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on, under, about
or from the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower
nor any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of,
or release any hazardous waste or substance on, under, about or from any
of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous
substances. Borrower hereby: (a) releases and waives ay future claims
against Lender for indemnity or contribution in the event Borrower
becomes liable for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender against any and all claims,
losses, liabilities, damages, penalties, and expenses which Lender may
directly or indirectly sustain or suffer resulting from a breach of this
section or as a consequence of any use, generation, manufacture,
storage, disposal, release or threatened release of a hazardous waste or
substance on the properties. The provisions of this section, including
the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and
shall not be affected by Lender's acquisition of any interest in any of
the properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not, other than Permitted Liens, entered into or granted any
Security Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Notes, that would be prior or
that may in any way be superior to Lender's Security Interests and rights
in and to such Collateral.
BINDING EFFECT. This Agreement, the Notes, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Notes and
all of the Related Documents to which Borrower is a party are binding upon
Borrower as well as upon Borrower's successors, representatives and
assigns, and are legally enforceable in accordance with their respective
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and: (a) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (b) Borrower has not withdrawn from any such
plan or initiated steps to do so, (iii) no steps have been taken to
terminate any such plan, and (c) there are no unfunded liabilities other
than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. ASI's place of business, or
ASI's chief executive office, if ASI has more than one place of business,
is located at 310 State Place, Escondido, CA 92029. Unless any Borrower
has designated otherwise in writing, this location is also the office or
offices where Borrower keeps its records concerning the Collateral.
YEAR 2000. Borrower warrants and represents that all software utilized in
the conduct of Borrower's business will have appropriate capabilities and
compatibility for operation to handle calendar dates falling on or after
January 1, 2000, and all information pertaining to such calendar dates, in
the same manner and with the same functionality as the software does
respecting calendar dates falling on or before December 31, 1999. Further,
Borrower warrants and represents that the data-related user interface
functions, data-fields, and data-related program instructions and functions
of the software include the indication of the century.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of: (a) all material
adverse changes in Borrower's financial condition, and (b) all existing and
all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor which
could materially affect the financial condition of Borrower and the
Guarantors in the aggregate.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times; provided, however, such audits and examinations shall
occur no more frequently than once per month.
<PAGE>
LOAN AGREEMENT 7
LOAN NO 5641298123 (CONTINUED)
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year, a
consolidated balance sheet and income statement of Borrower and its
subsidiaries for the year ended, audited by a certified public accountant
satisfactory to Lender, and, as soon as available, but in no event later
than forty-five (45) days after the end of each fiscal quarter, a
consolidated balance sheet and income statement of Borrower and its
subsidiaries for the period ended, prepared and certified as correct to the
best knowledge and belief by Borrower's chief financial officer or other
officer or person acceptable to Lender. All financial reports required to
be provided under this Agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's and its subsidiaries financial condition
and business operations as Lender may reasonably request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios (measured with respect to Borrower and its subsidiaries on a
consolidated basis):
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less
than $6,500,000.00.
NET WORTH RATIO. Maintain a ratio of Total Debt to Tangible Net Worth
of less than 2.00 TO 1.00.
CURRENT RATIO. Maintain a ratio of Current Assets to Current
Liabilities in excess of 1.15 TO 1.00.
EBITDA to Fixed Charges Ratio. Maintain a ratio of EBITDA to Fixed
Charges of 1.50 TO 1.00
The following provisions shall apply for purposes of determining compliance
with the foregoing financial covenants and ratios: Such financial covenants
and ratios will be calculated by Borrower as of the last day of each fiscal
quarter, and such calculations shall be delivered to Lender pursuant to a
Compliance Certificate (as required to be delivered by the paragraph above
titled "Collateral Schedules") within 30 days after the end of each fiscal
quarter. For the purpose of this Agreement, Tangible Net Worth shall be
calculated as net worth plus Subordinated Debt, less net intangible assets.
Total Debt for this calculation shall be defined as total Debt less
Subordinated Debt.
EBITDA TO FIXED CHARGES is calculated as the ratio of EDITDA, less cash
taxes, on a trailing four quarterly basis, to total Fixed Charges.
EDITDA shall be defined as net earnings before interest, taxes,
depreciation and amortization.
FIXED CHARGES shall be generally defined as the sum of: (i) current portion
of long term debt ("CPLTD"), (ii) permitted lease payments (excluding
payments by ASI to ESSI under the terms of the BioJect Leases), (iii)
interest expense, including imputed interest on capital leases, and (iv)
maintenance level capital expenditures, all of which shall be calculated on
a pro-rata basis for the number of quarters used in the measurement period.
Except as provided above, all computations made to determine compliance
with the requirements contained in this paragraph shall be made in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may reasonably require with
respect to Borrower's properties and operations, in form, amounts,
coverages and with insurance companies reasonably acceptable to Lender.
Borrower, upon request of Lender, will deliver to Lender from time to time
the policies or certificates of insurance in form reasonably satisfactory
to Lender, including stipulations that coverages will not be cancelled or
diminished without at least ten (10) days' prior written notice to Lender.
Each insurance policy also shall include an endorsement providing that
coverage in favor of Lender will not be impaired in any way by any act,
omission or default of Borrower or any other person. In connection with
all policies covering assets in which Lender holds or is offered a security
interest for the Loans, Borrower will provide Lender with such loss payable
or other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition,
upon request of Lender (however not more often than annually), Borrower
will have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
Guaranties of the Loans in favor of Lender, executed by the Guarantors
named below, on Lender's forms, and in the amounts and under the conditions
spelled out in those guaranties.
<TABLE>
<CAPTION>
GUARANTORS AMOUNT
---------- ------
<C> <C>
ESSI (WITH RESPECT TO ALL OBLIGATIONS OF BORROWER) UNLIMITED
ASI (WITH RESPECT TO THE OBLIGATIONS OF SISTEMAS AND ASM) UNLIMITED
YUMA (WITH RESPECT TO ALL OBLIGATIONS OF BORROWER) UNLIMITED
AGRO MEX, INC. (WITH RESPECT TO ALL OBLIGATIONS OF BORROWER) UNLIMITED
AGRO MEX INTERNATIONAL, INC. (WITH RESPECT TO ALL OBLIGATIONS OF BORROWER) UNLIMITED
</TABLE>
SUBORDINATION. Prior to disbursement of any Loan proceeds, deliver to
Lender a subordination agreement on Lender's forms, executed by Borrower's
creditor named below, subordinating all of Borrower's indebtedness to such
creditor, or such lesser amount as may be agreed to by Lender in writing,
and any security interests in collateral securing that indebtedness to the
Loans and Security Interests of Lender.
<PAGE>
LOAN AGREEMENT 8
LOAN NO 5641298123 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME OF CREDITOR AMOUNT
---------------- ------
<S> <C>
ESSI $7,500,000
</TABLE>
OTHER AGREEMENTS. Comply in all material respects with all terms and
conditions of all other agreements relating to indebtedness in excess of
$100,000 in the aggregate, whether now or hereafter existing, between
Borrower and any other party and notify Lender immediately in writing of
any default in connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing. Lender hereby consents to the distribution by Borrower of an
amount not to exceed $2,000,000 in Loan proceeds to ESSI at the Loan
closing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as: (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense. Any such inspections or other Lender actions pursuant to the
foregoing shall occur no more frequently than once per month.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
monthly as required by the paragraph above titled "Collateral Schedules"
and at the time of each disbursement of Loan proceeds with a certificate
executed by Borrower's chief financial officer, or other officer or person
acceptable to Lender, certifying that the representations and warranties
set forth in this Agreement are true and correct as of the date of the
certificate and further certifying that, as of the date of the certificate,
no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Comply in all respects with all
federal, state and local environmental protection laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, security agreements, financing statements, instruments, documents
and other agreements as Lender or its attorneys may reasonably request to
evidence and secure the Loans pursuant to the Security Documents and to
perfect all Security Interests in Collateral.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application thereof
by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements
or other obligations which would: (a) increase the cost to Lender for
extending or maintaining the credit facilities to which this Agreement
relates, (b) reduce the amounts payable to Lender under this Agreement or the
Related Documents, or (c) reduce the rate of return on Lender's capital as a
consequence of Lender's obligations with respect to the credit facilities to
which this Agreement relates, then Borrower agrees to pay Lender such
additional amounts as will compensate Lender therefor, within five (5)
Business Days after Lender's written demand for such payment, which demand
shall be accompanied by an explanation of such imposition or charge and a
calculation in reasonable detail of the additional amounts payable by
Borrower, which explanation and calculations shall be conclusive in the
absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while
this Agreement is in effect, Borrower shall not, without the prior written
consent of Lender:
INDEBTEDNESS AND LIENS. Except as permitted by and subject to the
paragraphs titled "Continuity of Operations", "Loans, Acquisitions and
Guaranties" and "Additional Indebtedness and Liens" below: (a) Except for
trade debt incurred in the normal course of business and indebtedness to
Lender contemplated by this Agreement, create, incur or assume indebtedness
for borrowed money, including capital leases, (b) except as allowed as a
Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a
security
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interest in, or encumber any of Borrower's assets (provided Borrower may
sell, lease or transfer its assets so long as it is not out of the
ordinary course of business), or (c) sell with recourse any of Borrower's
Accounts, except to Lender.
CONTINUITY OF OPERATIONS. Except as permitted by and subject to the
paragraph titled "Loans, Acquisitions and Guaranties" below: (a) Engage in
any business activities substantially different than those in which
Borrower is presently engaged, (b) cease operations, liquidate, merge,
transfer, acquire or consolidate with any other entity, dissolve or
transfer or sell Collateral out of the ordinary course of business;
provided, however: (i) Borrower may sell Collateral if such Collateral has
become obsolete, worn out or outdated, and (ii) Borrower may merge or
consolidate with wholly-owned subsidiaries of ESSI, so long as ASI is the
surviving entity, (c) subject to the paragraph below titled "Limitations on
Loans, Distributions, Dividends and Salaries," pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
on its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income tax
payments to satisfy their liabilities under federal and state law which
arise solely from their status as shareholders of a Subchapter S
Corporation because of their ownership of shares of stock of Borrower, or
(d) purchase or retire any of Borrower's outstanding shares or alter or
amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets other than in the ordinary course of business, (b) purchase,
create or acquire any interest in any other enterprise or entity, or (c)
incur any obligation as surety or guarantor other than in the ordinary
course of business or if such obligation is Subordinated Debt; except, in
each such case: (i) extension of trade credit to customers or advances to
employees in the ordinary course of business, (ii) Liquid Assets, (iii)
purchase and acquisition of capital stock of existing subsidiaries,
provided such capital stock is pledged to Lender as security for the
Indebtedness (iv) loans and advances to the Foreign Subsidiaries, (v)
Permitted Acquisitions, provided that the total consideration paid in
connection with all Permitted Acquisitions does not exceed $1,000,000 per
individual acquisition or $3,000,000 in the aggregate in any calendar year,
and no Event of Default shall have occurred and be continuing at the time
of such Permitted Acquisition nor any event which, with the giving of
notice or the passage of time, or both, could constitute such an Event of
Default, or (vi) Indebtedness and Guaranties pursuant to the Related
Documents.
CESSATION OF ADVANCES. Lender shall have no obligation to make Loan Advances or
to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under
the terms of this Agreement or any of the Related Documents or any other
agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any
Guarantor becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt, and such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving any of the
foregoing shall be entered; (c) there occurs a material adverse change in the
financial condition of Borrower and its subsidiaries on a consolidated basis, or
in the financial condition of ESSI, or in the value of the Collateral securing
the Loans or any material item thereof; or (d) any Guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the
Loan or any other loan with Lender.
PRIMARY BANKING RELATIONSHIP. ASI and Yuma shall maintain their Primary Banking
Relationships with Lender, defined as the preponderance of their deposit
accounts, balances and loan activity.
INSPECTION. First National Bank or a third party designated by First National
Bank, may conduct examinations of Borrower's books and records, semi-annually or
as deemed reasonably necessary by Lender; provided such examinations shall occur
no more frequently than once per month. All costs, including all third party
costs, associated with the examinations shall be charged directly to Borrower.
EXPORT CREDIT INSURANCE. Borrower shall cause the Foreign Eligible Accounts to
be insured as to principal and interest and in a form and content acceptable to
Lender by an Export Credit Insurance Policy and shall comply with all terms,
conditions and provisions of such Insurance to be complied with by Borrower and
the Foreign Subsidiaries.
CORPORATE GUARANTOR FINANCIAL INFORMATION. ESSI shall provide Lender with
ESSI's annual Form 10-K as soon as available but in no event later than ninety
(90) days after the end of the applicable fiscal year, audited by a certified
public accountant reasonably satisfactory to Lender. Borrower and each
Guarantor other than ESSI shall provide Lender with, as soon as available but in
no event later than thirty (30) days after the end of each calendar month, such
entity's monthly internally prepared financial statements. As soon as
available but in no event later than forty-five (45) days after the end of each
quarter, ESSI shall provide Lender with its Form 10-Q. In addition, ESSI shall
provide Lender with a signed copy of its current year federal income tax return
upon filing, together with all tax returns filed on behalf of Borrower and all
other Guarantors. Should ESSI, Borrower or any other Guarantor file for an
extension of time to file its federal income tax return, a copy of the extension
shall be provided to Lender immediately upon filing.
UPSTREAMING PAYMENTS. In addition to the permitted distribution to ESSI at the
Loan closing of an amount not to exceed $2,000,000, ASI shall have the right to
upstream profits to ESSI, in an amount not to exceed fifty percent (50%) of
ASI's annual "Net Profit After Tax plus Depreciation and Amortization"
(NPAT+DA), of which thirty percent (30%) of such amount may be distributed to
ESSI monthly. Notwithstanding the foregoing, Lender, ASI and ESSI agree to
adjust the upstream payment on a quarterly basis, if necessary, to comply with
the fifty percent (50%) annual limitation, based on the most recent Form 10-Q.
The remaining twenty percent (20 %) will be held back from the monthly payment
until the annual audited financial statements are completed and the final
payment of the holdback amount is approved in writing by Lender. All upstream
payments to ESSI will reduce Subordinated Debt owed to ESSI, if any, with all
other upstream payments being treated as dividends.
In addition to the foregoing distributions, ASI shall be permitted to pay to
ESSI all required payments on: (a) accounts payable to ESSI, generated from the
purchases of inventory from ESSI by ASI in the ordinary course of business, as
per terms of sale to ASI, and (b) BioJect Leases entered into in the ordinary
course of business.
SUBORDINATED DEBT. Prior to the closing of the Loan, Lender, ASI and ESSI will
mutually agree upon the amounts owing to ESSI by ASI, which amounts shall be
treated as Subordinated Debt hereunder, to be repaid to ESSI at the closing of
the Loan or in subsequent payments.
Notwithstanding the foregoing, ASI may make cash repayments to ESSI applicable
to Subordinated Debt only if in compliance with all terms, conditions, and
covenants of this Agreement and the Related Documents, but not in excess of the
fifty percent (50%) of NPAT+DA upstream payment limitation described above.
PROFITABILITY. Borrower shall maintain consolidated net profit after tax
annually at all times as measured in accordance with GAAP ("General Accepted
Accounting Principles"). In addition, Borrower and its subsidiaries, on a
consolidated basis, may not have
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more than two consecutive quarterly losses per fiscal year.
LIMITATIONS ON LOANS, DISTRIBUTIONS, DIVIDENDS AND SALARIES. Except as
permitted by and subject to the paragraphs titled "Continuity of Operations" and
"Loans, Acquisitions and Guaranties" above, Borrower shall not declare or pay
any cash dividends or other distributions with respect to its capital stock, or
make any loans or cash payments to ESSI or its officers, directors, or
affiliates except: (a) Salaries and bonuses payable in the ordinary course of
business, (b) directors' fees not exceeding $10,000.00 per year, plus reasonable
out-of-pocket expenses related to the attendance of Board Meetings, and (c)
payments as described in the "Upstreaming Payments" provision, subject to the
limitations stated herewith. Any payments or loans beyond these limitations
will require the express written consent of Lender.
ADDITIONAL INDEBTEDNESS AND LIENS. In addition to the foregoing "Indebtedness
and Liens" provision, without the prior written consent of Lender, Borrower
shall not incur additional borrowed money or liens except for: (a) purchase
money liens securing indebtedness not exceeding $300,000 in the aggregate in any
fiscal year; (b) indebtedness with respect to BioJect Leases and any liens or
similar documentation with respect thereto reasonably necessary to evidence the
parties' rights and obligations under the BioJect Leases, (c) liens for capital
leases of equipment, fixtures or other personal property, which together provide
for aggregate lease payments of not more than $200,000 per fiscal year, (d)
indebtedness acquired in connection with Permitted Acquisitions or liens
securing such indebtedness, in an amount not to exceed $500,000 per calendar
year; provided that such liens secure only the assets so acquired, (e)
indebtedness and liens relating to Earn Out Obligations arising in connection
with Permitted Acquisitions, and (f) indebtedness which as of the date of this
Agreement has been disclosed to Lender in writing.
BORROWER FINANCIAL STATEMENTS. In addition to the foregoing "Financial
Statements" provision, ESSI and Borrower (including Borrower's subsidiaries on a
consolidated basis) shall provide Lender with annual projections within thirty
(30) days after each fiscal year end. In addition, ESSI and, if applicable,
Borrower shall provide Lender with a CPA Management Letter within thirty (30)
days after each fiscal year end.
COMPLIANCE CERTIFICATE. Notwithstanding the foregoing "Compliance Certificate"
provision, Borrower shall submit a compliance certificate with quarterly and
annual financials.
RIGHT OF SETOFF. Borrower authorizes Lender, to the extent permitted by
applicable law after the occurrence and during the continuance of any Event of
Default, to charge or setoff all sums owing on the Indebtedness against any and
all of Borrower's accounts with Lender (whether checking, savings, or any other
account), including without limitation all accounts held jointly with a third
party and all accounts Borrower may open in the future, excluding however all
IRA and Keogh accounts, and all trust accounts.
BIOJECT LEASES. Notwithstanding anything to the contrary contained in this
Agreement or in any of the Related Documents, Borrower's use and exploitation of
the BioJects and related equipment/technology in the ordinary course of business
as permitted by the Bioject Leases shall not be restricted in any way
whatsoever.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment on the
Loans or other Indebtedness within five (5) days following the date such
payment is due.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other material term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower,
and such proceeding or petitions shall continue undismissed for 60 days, or
an order or decree approving any of the foregoing shall be entered.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any Collateral securing the Indebtedness, or by any
governmental agency, and such proceeding shall continue undismissed for 60
days or an order or decree approving any of the foregoing shall be entered.
This includes a garnishment, attachment, or levy on or of any of Borrower's
deposit accounts with Lender. However, this Event of Default shall not
apply if there is a good faith dispute by Borrower or Grantor, as the case
may be, as to the validity or reasonableness of the claim which is the
basis of the creditor or forfeiture proceeding, and if Borrower or Grantor
gives Lender written notice of the creditor or forfeiture proceeding and
furnishes reserves or a surety bond for the creditor or forfeiture
proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness, or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness. Lender, at its option,
may, but shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's and its
subsidiaries' consolidated financial condition including, without
limitation, Borrower and its subsidiaries, on a consolidated basis,
incurring two (2) consecutive quarterly net losses in any fiscal year.
RIGHT TO CURE. If any default, other than a failure to make any payment on
Indebtedness hereunder, is curable and if Borrower or
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Grantor, as the case may be, has not been given a notice of a similar
default within the preceding twelve (12) months, it may be cured (and no
Event of Default will have occurred) if Borrower or Grantor, as the case
may be, after receiving written notice from Lender demanding cure of
such default: (a) cures the default within thirty (30) days, or (b) if
the cure requires more than thirty (30) days, immediately initiates
steps which Lender deems in Lender's reasonable discretion to be
sufficient to cure the default and thereafter continues and completes
all reasonable and necessary steps sufficient to produce compliance as
soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents immediately will terminate (including any obligation to make Loan
Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights
and remedies provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall
not exclude pursuit of any other remedy, and an election to make expenditures
or to take action to perform an obligation of Borrower or of any Grantor
shall not affect Lender's right to declare a default and to exercise its
rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER
AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
SAN DIEGO COUNTY, THE STATE OF CALIFORNIA. LENDER AND BORROWER HEREBY
WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER.
(INITIAL HERE /S/ MB) THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender, in the aggregate amount of $5,000,000. Lender may
provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower
hereby waives any rights to privacy it may have with respect to such
matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners of
such interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all rights of offset or
counterclaim that it may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of any
such participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender. Lender
agrees to use diligent efforts to obtain such Loan participation.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
reasonable expenses, including without limitation reasonable attorneys'
fees, incurred in connection with the preparation, execution, enforcement,
modification and collection of this Agreement or in connection with the
Loans made pursuant to this Agreement. Lender may pay someone else to help
collect the Loans and to enforce this Agreement, and Borrower will pay that
amount. This includes, subject to any limits under applicable law,
Lender's reasonable attorneys' fees and Lender's other legal expenses,
whether or not there is a lawsuit, including reasonable attorneys' fees for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other
sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to ASI will constitute notice to
all Borrowers. For notice purposes, Borrower will keep Lender informed at
all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. Under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
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WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Borrower, or between Lender and
any Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the reasonable
discretion of Lender.
SEPARATE LOANS. The parties acknowledge that notwithstanding the
classification of ASI, Sistemas and ASM collectively as Borrower in this
Agreement, ASI is the sole payor under the terms of the Note executed by
ASI in favor of Lender (the "ASI Note"), and Sistemas and ASM are the sole
payors under the terms of the Note (Pagare) executed by Sistemas and ASM in
favor of Lender (the "Pagare"). The repayment obligations of ASI with
respect to the Pagare Note arise solely by virtue of ASI's status as
Guarantor thereof.
PAGARE INTEREST RATE OPTION. Notwithstanding the absence of a reference to
the Libor Option in the Pagare, Sistemas and ASM shall have the same rights
to elect alternative interest rates with respect to Loan Advances under the
Pagare as are granted to ASI under the ASI Note, subject to the Advance
Limitations and other restrictions and limitations set forth in the ASI
Note.
PAGARE DEMAND PROVISION. Notwithstanding that the terms of the Pagare
provide that the Pagare shall be payable on demand, so long as no Event of
Default has occurred and is continuing under the terms of this Agreement,
the Pagare or any of the other Related Documents, no demand for the
repayment of principal shall be made by Lender under the terms of the
Pagare until June 30, 2001, the maturity date of the ASI Note, at which
time the entire unpaid principal balance of the Pagare, all accrued and
unpaid interest thereon and all other amounts due under the terms of this
Agreement and the other Related Documents shall be immediately due and
payable.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JUNE 30, 1999.
BORROWER:
AGRICULTURAL SUPPLY, INC.
BY: /s/ MARK BUCKNER (SEAL)
------------------------------------------
AUTHORIZED SIGNATORY
ATTEST:
/s/ MARK BUCKNER (Corporate Seal)
- ---------------------------------------------
Secretary or Assistant Secretary
SISTEMAS Y EQUIPOS AGRICOLAS, S.A. DE C.V.
By: (SEAL)
------------------------------------------
AUTHORIZED SIGNATORY
AGRICULTURAL SUPPLY DE MEXICO, S.A. DE C.V.
By: (SEAL)
------------------------------------------
AUTHORIZED SIGNATORY
LENDER:
FIRST NATIONAL BANK
By: /s/ [ILLEGIBLE]
------------------------------------------
Authorized Officer
<PAGE>
EXHIBIT 10.6
PROMISSORY NOTE
- --------------------------------------------------------------------------------
BORROWER: AGRICULTURAL SUPPLY, INC. LENDER: FIRST NATIONAL BANK
310 STATE PLACE CORPORATE BANKING
ESCONDIDO, CA 92029 P.O. BOX 85625 (LA#59)
SAN DIEGO, CA 92186-5625
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $5,000,000.00 INITIAL RATE: 8.00% DATE OF NOTE: JUNE 30, 1999
PROMISE TO PAY. AGRICULTURAL SUPPLY, INC., A DELAWARE CORPORATION ("BORROWER")
PROMISES TO PAY TO FIRST NATIONAL BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF
THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF FIVE MILLION & 00/100
DOLLARS ($5,000,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST
ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL
PLUS ALL ACCRUED UNPAID INTEREST ON JUNE 30, 2001. IN ADDITION, BORROWER WILL
PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING AUGUST 1,
1999, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH
AFTER THAT. The annual interest rate for this Note is computed on a 365/360
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the Prime Rate (the "Prime
Index"). This is the rate Lender announces from time to time as its Prime Rate,
which generally is the rate Lender charges, or would charge, on 90-day unsecured
loans to the most creditworthy corporate customers. This rate may not be the
lowest rate available from Lender at any given time. Lender will tell Borrower
the current Prime Index rate upon Borrower's request. Borrower understands that
Lender may make loans based on other rates as well. The interest rate change
will not occur more often than each day. THE PRIME INDEX CURRENTLY IS 7.750%.
THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE
WILL BE AT A RATE OF 0.250 PERCENTAGE POINTS OVER THE PRIME INDEX, RESULTING IN
AN INITIAL RATE OF 8.00%. NOTICE: Under no circumstances will the interest rate
on this Note be more than the maximum rate allowed by applicable law.
PREPAYMENT PENALTY; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees
and other prepaid finance charges are earned fully as of the date of the loan
and will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
MINIMUM INTEREST CHARGE OF $100.00. UPON PREPAYMENT OF THIS NOTE, LENDER IS
ENTITLED TO THE FOLLOWING PREPAYMENT PENALTY: UPON ANY PREPAYMENT OF A LIBOR
OPTION BALANCE UNDER THIS NOTE, BORROWER WILL BE SUBJECT TO BREAKAGE COSTS FOR
LIBOR OPTIONS AS A PREPAYMENT PENALTY. Other than Borrower's obligation to pay
any minimum interest charge and prepayment penalty, Borrower may pay all or a
portion of the amount owed earlier than the date it is due. Early payments will
not, unless agreed to by Lender in writing, relieve Borrower of Borrower's
obligation to continue to make payments of accrued unpaid interest. Rather, they
will reduce the principal balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT OR $10.00,
WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if upon the occurrence and during the
continuance of any "Event of Default" as defined in that certain Loan Agreement
between Lender and Borrower dated as of the date hereof (the "Loan Agreement").
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. The paragraph titled "Right of Setoff" contained in the Loan
Agreement by this reference is made a part of this Note just as if such
paragraph had been fully set forth in this Note.
LINE OF CREDIT. This Note references a revolving line of credit provided to
Borrower by Lender pursuant to this Note and the Loan Agreement. All provisions,
terms and conditions of the Loan Agreement by this reference are made a part of
this Note just as if such provisions, terms and conditions had been fully set
forth in this Note.
INTEREST RATE OPTIONS. THE FOLLOWING INTEREST RATE OPTIONS ARE AVAILABLE UNDER
THIS AGREEMENT:
(A) Default Rate Option. The interest rate margin and Prime Index described in
the "Variable Interest Rate" paragraph above (the "Default Rate").
(B) Libor Option. The interest rate under this option is subject to change from
time to time based upon changes in the Libor Index (defined below). The interest
rate applied will be at a rate of 275 basis points over the Libor Index, but not
less than an interest rate of 7.75% per annum and will be fixed for a period of
three months. For purposes of this paragraph, the Libor Index will be based upon
London Interbank Offered Rates (LIBOR) as published in the Wall Street Journal
Money Rates Section, utilizing the three month rate (the "Libor Index"). The
Libor Index is not necessarily the lowest rate charged by Lender on its loans.
If the Libor Index becomes unavailable during the term of this loan, Lender may
designate the Prime Index as a substitute after notice to Borrower. Lender will
tell Borrower the current Libor Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate charged will not be changed more often than each quarter, on the
first day of the month. Advances under the Libor Option
<PAGE>
PROMISSORY NOTE
Loan No. 5641298123 (CONTINUED) Page 2
- --------------------------------------------------------------------------------
are subject to "Advance Limitations".
Provided Borrower is not in default under this Note, Borrower may designate in
advance which of the above interest rate indices shall be applicable to all or
any portion of the principal balance under this Note. In the absence of any such
designation the Default Rate will be in effect. Thereafter, unpaid principal
balances under this Note may be converted (at the end of an interest period if
the Libor Index is used to determine the interest rate therefor) to another of
the above interest rate Options, or continued for an additional interest period,
when applicable, as designated by Borrower in advance; and in the absence of
sufficient advance designation as to conversion to or continuation of a Libor
Index, the Libor Index shall be converted to the Prime Index. Notwithstanding
the foregoing, a Libor Index may not be elected for any principal balance under
this Note, nor may any conversion to or continuation of a Libor Index be
elected, if the interest period thereof would extend beyond the maturity date of
this Note. All payments with respect to principal shall be allocated first to
principal bearing interest at the Default Rate and then to principal bearing
interest under the Libor Option.
ADVANCE LIMITATIONS. Advances priced under the Libor Option must be a minimum of
$500,000.00 each and increasing in increments of $100,000.00 above $500,000.00.
LENDER'S RIGHTS. An exhibit, titled "LENDER'S RIGHTS," is attached to this Note
and by this reference is made a part of this Note just as if all the provisions,
terms and conditions of the Exhibit had been fully set forth in this Note.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this Note, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this Note without the consent of or notice to anyone other
than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
AGRICULTURAL SUPPLY, INC.
BY: /s/ MARK BUCKNER (SEAL)
-----------------------------------------------
AUTHORIZED SIGNATORY
ATTEST:
/s/ MARK BUCKNER (CORPORATE SEAL)
- --------------------------------------------------
SECRETARY OR ASSISTANT SECRETARY
<PAGE>
EXHIBIT 99.1
For information contact:
Mark D. Buckner, Chief Financial Officer
Ann R. Strobel, Manager of Investor Relations
Eco Soil Systems, Inc. 619/675-1660
or, Philip L. Thomas
The P.L. Thomas Group 312/906-8060
ECO SOIL SECURES $25 MILLION LINE OF CREDIT
RANCHO BERNARDO, CA, JULY 8, 1999 -- Eco Soil Systems, Inc. (Nasdaq: ESSI)
announced a $25 million revolving line of credit for its wholly owned subsidiary
Turf Partners, Inc. This three-year credit facility is with Coast Business
Credit, a division of Southern Pacific Bank, and borrowings under this facility
are based upon Turf Partners' inventory and receivables with an interest rate of
prime rate plus 1.00%.
Mark D. Buckner, chief financial officer, commented, "The Coast facility
replaces Eco Soil's existing $10 million secured line of credit and will better
serve Turf Partners' financing requirements given its significant growth and
success in servicing the golf industry. This new line offers Turf Partners
working capital financing and allows the purchase of inventory needed to meet
the high demand in the important summer season of May through September. The
Coast facility will support our working capital requirements at Turf Partners
for the foreseeable future and may improve operating margins by achieving vendor
discounts for volume purchases and early payments."
Coast Business Credit (CBC) provides revolving lines of credit and term loans
for growing companies in a broad variety of industries. CBC has over 45 years of
experience in lending and commercial finance, including financing over 275
companies in the last three years.
Eco Soil develops, markets and sells proprietary biological and traditional
chemical products that provide solutions for a wide variety of turf and crop
maintenance problems in the golf and agricultural industries. Their
proprietary products evolve from the BioJect-Registered Trademark-, a
patented and EPA-approved device that cultures and dispenses biological
products through irrigation systems. These products, along with standard turf
maintenance products, are sold to nearly 40% of America's golf courses
through Eco Soil's Turf Partners subsidiary, and are sold to the agricultural
market, along with irrigation products, through its Agricultural Supply
subsidiary. Eco Soil's Internet site address is HTTP://WWW.ECOSOIL.COM.
THE STATEMENTS CONTAINED IN THIS RELEASE THAT ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. MANAGEMENT
WISHES TO CAUTION THE READER THAT THESE FORWARD-LOOKING STATEMENTS ARE ONLY
PREDICTIONS; ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY AS A RESULT OF RISKS
FACING THE COMPANY, INCLUDING THOSE LISTED UNDER THE CAPTION "FACTORS THAT MAY
AFFECT FUTURE PERFORMANCE" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED
APRIL 7, 1999.
* * * *
<PAGE>
For information contact:
Mark D. Buckner, Chief Financial Officer
Ann R. Strobel, Manager of Investor Relations
Eco Soil Systems, Inc. 858/675-1660
or, Philip L. Thomas
The P.L. Thomas Group 312/906-8060
ECO SOIL SECURES $10 MILLION CREDIT LINE
RANCHO BERNARDO, CA, JULY 23, 1999 -- Eco Soil Systems, Inc. (Nasdaq: ESSI)
announced that it has obtained a $10 million revolving line of credit for its
wholly owned subsidiary Agricultural Supply, Inc. This two-year formula based
revolving credit facility is with San Diego-based First National Bank.
Mark D. Buckner, chief financial officer, commented, "The new FNB facility will
support our working capital requirements at Agricultural Supply in the near
term, and will also allow us to expand our business with several new product
offerings. In the United States, we will be able to expand our entry into the
irrigation pipe rental business. And, in Mexico, we anticipate the FNB
relationship will provide certain customers the opportunity to finance their
Agricultural Supply purchases. We look forward to pursuing both of these
marketing initiatives at Agricultural Supply, along with the expansion of our
core business of selling irrigation systems and agriculture solutions utilizing
our BioJect-Registered Trademark- technology."
San Diego based First National Bank (FNB) is a diversified commercial lender
with over $540 million in assets. FNB offers a comprehensive range of corporate
banking products and services with a strategic focus on Mexican commerce.
Eco Soil develops, markets and sells proprietary biological and traditional
chemical products that provide solutions for a wide variety of turf and crop
maintenance problems in the golf and agricultural industries. Their
proprietary products evolve from the BioJect-Registered Trademark-, a
patented and EPA-approved device that cultures and dispenses biological
products through irrigation systems. These products, along with standard turf
maintenance products, are sold to nearly 40% of America's golf courses
through Eco Soil's Turf Partners subsidiary, and are sold to the agricultural
market, along with irrigation products, through its Agricultural Supply
subsidiary. Eco Soil's Internet site address is HTTP://WWW.ECOSOIL.COM.
THE STATEMENTS CONTAINED IN THIS RELEASE THAT ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. MANAGEMENT
WISHES TO CAUTION THE READER THAT THESE FORWARD-LOOKING STATEMENTS ARE ONLY
PREDICTIONS; ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY AS A RESULT OF RISKS
FACING THE COMPANY, INCLUDING THOSE LISTED UNDER THE CAPTION "FACTORS THAT MAY
AFFECT FUTURE PERFORMANCE" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED
APRIL 7, 1999.
* * * *
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 5,060 5,060
<SECURITIES> 0 0
<RECEIVABLES> 29,386 29,386
<ALLOWANCES> 1,938 1,938
<INVENTORY> 17,769 17,769
<CURRENT-ASSETS> 59,814 59,814
<PP&E> 17,346 17,346
<DEPRECIATION> 5,758 5,758
<TOTAL-ASSETS> 93,436 93,436
<CURRENT-LIABILITIES> 51,644 51,644
<BONDS> 0 0
0 0
0 0
<COMMON> 87 87
<OTHER-SE> 25,905 25,905
<TOTAL-LIABILITY-AND-EQUITY> 93,436 93,436
<SALES> 40,673 57,925
<TOTAL-REVENUES> 40,673 57,925
<CGS> 29,500 42,815
<TOTAL-COSTS> 29,500 42,815
<OTHER-EXPENSES> 9,077 17,170
<LOSS-PROVISION> 47 124
<INTEREST-EXPENSE> 796 1,506
<INCOME-PRETAX> 1,055 (3,745)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 1,055 (3,745)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,055 (3,745)
<EPS-BASIC> .06 .22
<EPS-DILUTED> .06 .22
</TABLE>
