<PAGE>
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ECO SOIL SYSTEMS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$60,000,000
------------------------------------------------------------------------
(5) Total fee paid:
$12,000
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
$8,400
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Schedule 14A
------------------------------------------------------------------------
(3) Filing Party:
Eco Soil Systems, Inc.
------------------------------------------------------------------------
(4) Date Filed:
May 24, 2000
------------------------------------------------------------------------
<PAGE>
ECO SOIL SYSTEMS, INC.
10740 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
----------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [__________], 2000
TO THE SHAREHOLDERS OF ECO SOIL SYSTEMS, INC.:
Notice is hereby given that the Annual Meeting of the
Shareholders of Eco Soil Systems, Inc. ("Eco Soil"), will be held at Eco
Soil's corporate offices located at 10740 Thornmint Road, San Diego,
California 92127 on [__________], [__________], 2000 at [_:__] [p.m.][a.m.]
for the following purposes:
1. To consider and vote upon the approval of an Amended and Restated
Asset Purchase Agreement, dated April 5, 2000, as amended by the First
Amendment to Amended and Restated Asset Purchase Agreement, dated as of
June 9, 2000 (the "Amendment"), by and among Eco Soil, its subsidiary Turf
Partners, Inc. ("Turf Partners") and J.R. Simplot Company ("Simplot") as
amended, the "Purchase Agreement"), pursuant to which Turf Partners will
sell substantially all of its assets to Simplot (the "Asset Sale"). The
full text of the Purchase Agreement and the Amendment are included as
Annex A and Annex B, respectively, to the attached proxy statement and
incorporated herein by reference.
2. To elect one director for a three-year term to expire at the 2003
Annual Meeting of Shareholders. The present Board of Directors of Eco
Soil has nominated and recommends for election as director the following
person:
Edward N. Steel
3. To transact such other business as may be properly brought before
the Annual Meeting or any adjournment thereof.
ECO SOIL'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PURCHASE
AGREEMENT, HAS DETERMINED THAT THE ASSET SALE IS IN THE BEST INTERESTS OF ECO
SOIL AND ITS SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE PURCHASE AGREEMENT AND THE ASSET SALE. ECO SOIL'S BOARD
OF DIRECTORS ALSO RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE NOMINEE FOR
DIRECTOR SET FORTH IN THE ATTACHED PROXY STATEMENT.
The Board of Directors has fixed the close of business on
June 5, 2000 as the record date for the determination of shareholders
entitled to notice of and to vote at the Annual Meeting. A list of such
shareholders will be open to the examination of any shareholder at the Annual
Meeting and, during normal business hours, from [__________], 2000 to the
date of the Annual Meeting at the offices of Eco Soil Systems, Inc., 10740
Thornmint Road, San Diego, California 92127.
Accompanying this Notice is a Proxy. WHETHER OR NOT YOU EXPECT TO BE
AT THE ANNUAL MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY. If you plan to attend the Annual Meeting and wish to vote your
shares personally, you may do so at any time before the Proxy is voted.
All shareholders are cordially invited to attend the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Dennis Sentz
SECRETARY
San Diego, California
[__________], 2000
<PAGE>
ECO SOIL SYSTEMS, INC.
10740 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION..............................................................................................
SUMMARY...................................................................................................
QUESTIONS AND ANSWERS ABOUT THE ASSET SALE................................................................
RISK FACTORS..............................................................................................
THE ANNUAL MEETING........................................................................................
General...............................................................................................
Matters to be Considered at the Annual Meeting........................................................
Record Date...........................................................................................
Voting and Revocation of Proxies......................................................................
Vote Required.........................................................................................
Solicitation of Proxies; Expenses.....................................................................
Board Recommendation..................................................................................
PROPOSAL NO. 1: THE ASSET SALE...........................................................................
Background of the Asset Sale..........................................................................
Reasons for the Asset Sale............................................................................
Purchase Price........................................................................................
Assets to be Sold.....................................................................................
Use of Proceeds.......................................................................................
The Closing of the Asset Sale.........................................................................
Representations and Warranties........................................................................
Survival of Representations and Warranties and Indemnification........................................
Conditions of the Asset Sale..........................................................................
Termination...........................................................................................
No Solicitation.......................................................................................
Fees and Expenses.....................................................................................
No Payment, Dividend or Distribution to Holders of Common Stock.......................................
Certain Tax Consequences of the Asset Sale............................................................
Accounting Treatment of the Asset Sale................................................................
Opinion of Eco Soil's Financial Advisor...............................................................
Conduct of Business...................................................................................
Other Agreements with Simplot.........................................................................
Where You Can Find Additional Information.............................................................
Dissenter's Rights....................................................................................
i
<PAGE>
Board Recommendation..................................................................................
Pro Forma Consolidated Financial Information..........................................................
PROPOSAL NO. 2: ELECTION OF DIRECTORS....................................................................
General...............................................................................................
Information Regarding Directors.......................................................................
Board Recommendation..................................................................................
Board Meetings and Committees.........................................................................
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF ECO SOIL..........................................................
EXECUTIVE COMPENSATION AND OTHER INFORMATION..............................................................
Executive Compensation; Stock Option Grants; Option Exercises.........................................
Employment Agreements.................................................................................
Compensation Plans....................................................................................
Compensation Committee Interlocks and Insider Participation...........................................
Certain Transactions..................................................................................
Compensation Committee Report on Executive Compensation...............................................
PERFORMANCE GRAPH.........................................................................................
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................
GENERAL...................................................................................................
Independent Auditors..................................................................................
Section 16(a) Beneficial Ownership Reporting Compliance...............................................
Shareholder Proposals.................................................................................
Annual Report.........................................................................................
Other Matters.........................................................................................
ANNEX A: AMENDED AND RESTATED ASSET PURCHASE AGREEMENT...................................................
ANNEX B: FIRST AMENDMENT TO AMENDED AND RESTATED ASSET PURCHASE AGREEMENT................................
ANNEX C: FORM OF SHAREHOLDER VOTING AGREEMENT............................................................
ANNEX D: OPINION OF CIBC WORLD MARKETS CORP..............................................................
ANNEX E: NEBRASKA DISSENTER'S RIGHTS STATUTES............................................................
</TABLE>
ii
<PAGE>
ECO SOIL SYSTEMS, INC.
10740 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
-----------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [__________], 2000
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of Eco
Soil Systems, Inc., a Nebraska corporation ("Eco Soil"), in connection with
the solicitation of proxies by Eco Soil's Board of Directors from holders of
outstanding shares of common stock, $0.005 par value per share, of Eco Soil
for use at the Annual Meeting of the Shareholders of Eco Soil to be held on
[__________], [__________], 2000 at [_:__] [p.m.][a.m.], and any adjournments
thereof (the "Annual Meeting").
At the Annual Meeting, you will be asked to consider and vote upon
the following matters:
1. To consider and vote upon the approval of an Amended and Restated
Asset Purchase Agreement, dated April 5, 2000, as amended by the First
Amendment to Amended and Restated Asset Purchase Agreement, dated as of
June 9, 2000 (the "Amendment"), by and among Eco Soil, its subsidiary
Turf Partners, Inc. ("Turf Partners") and J.R. Simplot Company ("Simplot")
(as amended, the "Purchase Agreement") pursuant to which Turf Partners
will sell substantially all of its assets to Simplot (the "Asset Sale").
The full text of the Purchase Agreement and the Amendment are included
as Annex A and Annex B, respectively, to the attached proxy statement
and incorporated herein by reference.
2. To elect one director for a three-year term to expire at the 2003
Annual Meeting of Shareholders. The present Board of Directors of Eco
Soil has nominated and recommends for election as director the following
person:
Edward N. Steel
3. To transact such other business as may be properly brought before
the Annual Meeting or any adjournment thereof.
ECO SOIL'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PURCHASE
AGREEMENT, HAS DETERMINED THAT THE ASSET SALE IS IN THE BEST INTERESTS OF ECO
SOIL AND ITS SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE PURCHASE AGREEMENT AND THE ASSET SALE. ECO SOIL'S BOARD
OF DIRECTORS ALSO RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE NOMINEE FOR
DIRECTOR SET FORTH BELOW.
1
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED IN THIS PROXY
STATEMENT AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU.
TO UNDERSTAND THE ASSET SALE MORE FULLY AND FOR A MORE COMPLETE DESCRIPTION OF
THE LEGAL TERMS OF THE ASSET SALE, YOU SHOULD READ CAREFULLY THE ENTIRE PROXY
STATEMENT AND THE OTHER DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU
CAN FIND ADDITIONAL INFORMATION" ON PAGE [___] OF THIS PROXY STATEMENT.
THE ANNUAL MEETING
Time, Date and Place: The Annual Meeting will be held at Eco
Soil's corporate offices at
10740 Thornmint Road, San Diego,
California 92127 on [__________],
[__________], 2000 at [_:__]
[p.m.][a.m.].
Record Date: Shareholders of record of Eco Soil's
common stock as of the close of business
on June 5, 2000 will be entitled to
vote at the meeting.
Purpose: 1. To consider and vote upon the
approval of an Amended and Restated
Asset Purchase Agreement, dated April
5, 2000, as amended by the First
Amendment to Amended and Restated
Asset Purchase Agreement, dated
as of June 9, 2000 (the "Amendment"),
by and among Eco Soil, its subsidiary
Turf Partners, Inc. ("Turf Partners")
and J.R. Simplot Company ("Simplot"),
pursuant to which Turf Partners will
sell substantially all of its assets
to Simplot (the "Asset Sale").
2. To elect one director for a
three-year term to expire at the 2003
Annual Meeting of Shareholders.
3. To transact such other business as
may be properly brought before the
Annual Meeting or any adjournment
thereof.
Board Recommendation: Eco Soil's Board of Directors has
unanimously approved the Purchase
Agreement, has determined that the
Asset Sale is in the best interests
of Eco Soil and its shareholders and
recommends that shareholders vote FOR
approval and adoption of the Purchase
Agreement and the Asset Sale. Eco Soil's
Board of Directors also recommends that
shareholders vote FOR the nominee for
director set forth below.
Required Vote: The Purchase Agreement and the Asset Sale
must be approved by the holders of a
majority of the outstanding shares of Eco
Soil common stock. Abstentions and
broker non-votes will be counted as votes
against the approval and adoption of the
Purchase Agreement and the Asset Sale.
The nominee for election to Eco Soil's
Board of Directors receiving the highest
number of affirmative votes of the shares
present in person or represented by proxy
and entitled to vote shall be elected as
director.
THE ASSET SALE
Assets to be Sold: Turf Partners will sell to Simplot
substantially all of the assets it uses
in the operation of its business. See
"Proposal No. 1 - The Asset Sale - Assets
to be Sold" on page [__].
Purchaser: The purchaser of the assets of Turf
Partners will be the J.R. Simplot
Company, a Nevada corporation
("Simplot"), headquartered at 999
2
<PAGE>
Main Street, Suite 1300, Boise, Idaho,
83702. Simplot is a privately held
corporation engaged in the business of
food processing, fertilizer
manufacturing, agriculture and related
business. Simplot may assign its rights
under the Purchase Agreement to a
subsidiary, so long as Simplot remains
obligated to perform its obligations
under the Purchase Agreement.
Purchase Price: Simplot has agreed to purchase Turf
Partners' assets for a purchase price of
$23,000,000. Simplot will pay the
purchase price, net of an amount in
respect of certain expenses incurred by
Eco Soil in connection with the Asset
Sale, to Turf Partners at the closing
of the Asset Sale, which is expected to
occur in late July 2000. Simplot also
will assume Turf Partners' liabilities
associated with its existing vendor
payables, contracts and leases, and will
assume amounts outstanding under Turf
Partners' credit facility with Coast
Business Credit.
On the closing of the Asset Sale,
Eco Soil will use a portion of the
purchase price to repay all amounts
outstanding on the $3,000,000
loan to be made by Simplot to Eco Soil
and Turf Partners pursuant to the Term
Loan Agreement executed between Eco
Soil, Turf Partners and Simplot on
April 12, 2000.
See "Proposal No. 1 - The Asset Sale -
Purchase Price" on page [_].
Other Agreements with Simplot: The Purchase Agreement calls for Eco Soil
and Simplot to enter into separate
agreements pursuant to which Simplot will
sell Eco Soil proprietary products into
turf and agricultural markets and
commence field trials of Eco Soil's
proprietary products on its potato
fields. Under the agreement relating to
agricultural markets, Eco Soil's
proprietary products would be distributed
through Simplot's Soilbuilders
organization.
In connection with the execution of the
Amendment, Eco Soil, Turf Partners and
Simplot also agreed to the terms of a
Corporate Management Agreement, pursuant
to which Simplot will manage the
business of Turf Partners pending the
closing of the Asset Sale. A form of the
Shareholder Voting Agreement is attached
to this Proxy Statement as Annex C.
In addition, as an inducement to Simplot
to enter into the Amendment, the members
of Eco Soil's Board of Directors entered
into Shareholder Voting Agreements,
pursuant to which they agreed to vote
their shares of Eco Soil common stock in
favor of the Purchase Agreement and the
Asset Sale. A form of the Shareholder
Voting Agreement is attached to this
Proxy Statement as Annex C.
See "Proposal No. 1 - The Asset Sale -
Other Agreements With Simplot" on
page [ ].
Opinion of Eco Soil's In connection with its approval of the
Financial Advisor Purchase Agreement and the Asset Sale,
Eco Soil's Board of Directors
received an opinion of Eco Soil's
financial advisor, CIBC World Markets
Corp., as to the fairness, from a
financial point of view, to Eco Soil of
the consideration to be received in the
Asset Sale. The full text of CIBC World
Markets' written opinion dated
June 9, 2000 is attached to this Proxy
Statement as Annex D. We encourage you to
read this opinion carefully in its
entirety for a description of the
assumptions made, matters considered and
limitations
3
<PAGE>
on the review undertaken. CIBC WORLD
MARKETS' OPINION IS ADDRESSED TO ECO
SOIL'S BOARD OF DIRECTORS AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER AS TO HOW TO VOTE WITH
RESPECT TO MATTERS RELATING TO THE
ASSET SALE.
Reasons for the Sale: Eco Soil's Board of Directors chose to
recommend the Purchase Agreement and
Asset Sale because it views the Asset
Sale as beneficial to Eco Soil and its
shareholders for several reasons,
including the increased financial
flexibility it will provide Eco Soil
through the addition of working
capital and reduction of debt while
expanding the turf and agricultural
markets for Eco Soil's proprietary
products.
In reaching its decision to recommend and
approve the Purchase Agreement and the
Asset Sale, Eco Soil's Board of Directors
considered, among other things, the
financial performance and future
prospects of the Turf Partners business,
current economic and market conditions in
the agricultural supply industry, and the
price and other terms of the Asset Sale.
See "Proposal No. 1 - The Asset Sale -
Reasons for the Asset Sale" on page [_].
Conduct of Business After After the Asset Sale, Eco Soil will
the Assets Sale: continue to develop, market and sell
proprietary biological products that
provide solutions for a wide variety of
turf and crop problems in the golf and
agricultural industries. Eco Soil has
developed a portfolio of microbial
programs to be applied via standard spray
procedures in the case of the FreshPack
-TM- product line, or through Eco Soil's
patented BioJect-Registered Trademark-
system. These naturally occurring
microbes complement or reduce the need
for many chemical products currently
used in golf and agricultural markets.
After the Asset Sale, Eco Soil also
will continue to market and sell
traditional chemical products and other
supplies in agricultural markets.
Use of Proceeds: Eco Soil plans to use a portion of the
proceeds to fund transaction expenses
related to the Asset Sale. Eco Soil
intends to use the remaining proceeds
of the Asset Sale to repay long-term
indebtedness of Eco Soil, including to
repay a $3,000,000 loan to be made by
Simplot to Eco Soil prior to closing,
and for Eco Soil's working capital
purposes.
Dissenters Rights: Nebraska law provides dissenters rights
to shareholders in transactions involving
the sale or exchange of all, or
substantially all, of the property of a
corporation other than in the usual and
regular course of business if the
shareholder is entitled to vote on the
sale or exchange. As described below,
Eco Soil's Board of Directors has
determined that since the Asset Sale may
qualify as a sale of all or substantially
all of Eco Soil's assets, the prudent
course was to seek shareholder approval
of the Purchase Agreement and the Asset
Sale. If (i) the Asset Sale is deemed to
be a sale of all or substantially all of
Eco Soil's asset, (ii) you do not vote
for the Asset Sale and (iii) you comply
with the procedures required by the
Nebraska Business Corporation Law you may
have the right to receive payment for the
fair value of your shares. See "Proposal
No. 1 - The Asset Sale - Dissenter's
Rights" on page [_].
Retention of Certain The Purchase Agreement provides that some
Assets: of Turf Partners' assets will not be sold
to Simplot in the Asset Sale. In
addition, Simplot will have the option
to exclude certain of Turf Partners'
leases from the
4
<PAGE>
Asset Sale. Eco Soil does not expect
any of the retained assets to have a
material adverse effect on its future
results of operations or financial
condition.
The Closing: The closing of the Asset Sale is
expected to occur two business days
following the satisfaction or waiver of
all of the conditions to each party's
obligations under the Purchase Agreement,
or on another date as the parties
mutually agree. It is currently
anticipated that the closing will occur
in late July 2000.
Closing Conditions: The Purchase Agreement contains closing
conditions that are customary to
transactions similar to the Asset Sale,
including approval of the shareholders of
Eco Soil, expiration of the applicable
waiting periods under the HSR Act and the
receipt of third-party consents. See
"Proposal No. 1 - The Asset Sale -
Conditions of the Asset Sale" on page
[__].
Termination: The Purchase Agreement may be terminated
under certain circumstances set forth in
the Purchase Agreement, including by
mutual written consent of Turf Partners
or Simplot, by either party upon a
material breach by the other party,
and in certain circumstances,
by Turf Partners or Simplot if the
Closing has not occurred on or
before August 31, 2000. See "Proposal
No. 1 - The Asset Sale - Termination of
the Asset Sale" on page [__].
Certain Federal Income Tax Turf Partners will recognize gain or loss
Consequences: for federal income tax purposes on the
sale of the Turf Partners business in the
Asset Sale. Turf Partners' gain or loss
will be determined based upon the amount
of purchase price (increased by the
liabilities of Turf Partners properly
accrued as of the Closing Date, to the
extent assumed by Simplot) allocated to
each asset and Turf Partners' tax basis
for each asset. To the extent that the
purchase price (as increased) allocated
to an asset exceeds its tax basis, Turf
Partners will recognize gain on the
disposition of the asset, and vice versa.
Because Turf Partners will be included in
Eco Soil's consolidated federal income
tax return for the taxable year that
includes the sale, all gains and losses
recognized by Turf Partners will be
included on Eco Soil's federal income tax
return for the taxable year that includes
the sale. The Asset Sale may also result
in state or local, income, franchise,
sales, use or other tax liabilities in
state or local tax jurisdictions in which
Turf Partners files returns.
Holders of Eco Soil common stock will not
recognize any gain or loss due to the
Asset Sale. However, if a shareholder
chooses to sell his or her shares or to
exercise dissenters' rights if available,
that shareholder may owe taxes at that
time. Shareholders are encouraged to
contact their own tax advisor.
Accounting Treatment of the The Asset Sale will be accounted for as
Sale: a sale of assets transaction.
5
<PAGE>
Payments to Holders of Holders of Eco Soil common stock will not
Shares of Eco Soil receive any payment as a
Common Stock: result of the Asset Sale. Any
determination to pay dividends or other
payments to Eco Soil shareholders in the
future will be at the discretion of Eco
Soil's Board of Directors and will
depend upon numerous factors, including
Eco Soil's results of operations,
financial condition, capital requirements
and contractual restrictions.
Interests of Certain Persons All of Eco Soil's executive officers and
in the Asset Sales: directors own shares of Eco Soil common
stock and/or options to purchase shares
of Eco Soil common stock and, to that
extent, their interest in the sale is the
same as that of other shareholders of Eco
Soil.
6
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE ASSET SALE
Q: WHO IS SOLICITING MY PROXY?
A: The Board of Directors of Eco Soil Systems, Inc.
Q: WHY IS THE ECO SOIL BOARD OF DIRECTORS RECOMMENDING THE ASSET SALE?
A: After considering a number of factors, including the financial
performance and future prospects of the Turf Partners business, current
economic and market conditions in the turf products industry, and the
price and other terms of the Asset Sale, Eco Soil's Board of Directors
determined that the Asset Sale is in the best interests of Eco Soil and
its shareholders. See "Proposal No. 1 - The Asset Sale - Reasons for the
Asset Sale" on page [_].
Q: WHEN DO YOU EXPECT THE ASSET SALE TO BE COMPLETED?
A: We are working toward completing the sale as quickly as possible. We
expect the sale to occur two business days following the satisfaction or
waiver of all of the conditions to the sale, including approval of the
shareholders of Eco Soil, expiration of the applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the receipt of third-party consents and the
absence of any material adverse change in the Turf Partners business. If
necessary or desirable, Eco Soil, Turf Partners and Simplot may agree to
a later date. We currently expect to complete the sale in late July 2000.
Q: WHAT WILL ECO SOIL RECEIVE FOR THE ASSETS IT IS SELLING TO SIMPLOT?
A: Simplot has agreed to purchase the assets for a purchase price of
$23,000,000. Simplot also will assume Turf Partners' liabilities
associated with its existing vendor payables, contracts and leases,
and will assume amounts outstanding under Turf Partners' credit facility
with Coast Business Credit. See "Proposal No. 1 - The Asset
Sale - Purchase Price" on page [_].
Q. HOW AND WHEN WILL THIS MONEY BE PAID TO ECO SOIL?
A. Simplot will pay the $23,000,000 Purchase Price to Turf Partners
by wire transfer, net of an amount in respect of certain expenses
incurred by Eco Soil in connection with the Asset Sale, on the closing
of the Asset Sale. On the closing of the Asset Sale, Eco Soil will use
a portion of the purchase price to repay all amounts outstanding on the
$3,000,000 loan to be made by Simplot to Eco Soil and Turf Partners
pursuant to the Term Loan Agreement executed between Eco Soil, Turf
Partners and Simplot on April 12, 2000. See "Proposal No. 1 -
The Asset Sale - Purchase Price" on page [_].
Q: WHAT WILL ECO SOIL'S BUSINESS BE FOLLOWING THE ASSET SALE?
A: Eco Soil will continue to develop, market and sell proprietary biological
products that provide solutions for a wide variety of turf and crop
problems in the golf and agricultural industries. Eco Soil has developed
a portfolio of microbial programs to be applied via
7
<PAGE>
standard spray procedures in the case of the FreshPack-TM- product
line, or through Eco Soil's patented BioJect-Registered Trademark-
system. These naturally occurring microbes complement or reduce the
need for many chemical products currently used in golf and
agricultural markets. After the Asset Sale, Eco Soil also will
continue to market and sell traditional chemical products and other
supplies in agricultural markets.
Q: WHAT WILL ECO SOIL DO IF THE ASSET SALE IS NOT APPROVED BY THE
SHAREHOLDERS?
A: If Eco Soil's shareholders do not approve the Purchase Agreement and the
Asset Sale, Eco Soil will continue to supply proprietary and traditional
chemical products to golf courses through the Turf Partners distribution
channel. Eco Soil, however, will have an acute need for additional
capital if the transaction is not consummated. Eco Soil may not be
successful in obtaining additional financing on acceptable terms or at
all, which would materially adversely affect Eco Soil's ability to meet
its business objectives and continue as a going concern.
If Eco Soil were unable to secure such financing, it would at a minimum
be forced to revise its 2000 operating plan. In addition, if Eco Soil
does not repay in full by July 31, 2000 its Senior Subordinated Notes due
2003, it will be obligated to issue to the holders of the notes a number
of shares equal to five percent of Eco Soil's then-outstanding common
stock on a fully diluted basis. If Eco Soil does not receive the
contemplated proceeds of the Asset Sale, it will not have sufficient
resources to repay the notes.
In addition, Eco Soil has received a notice from the Nasdaq Stock Market
that its net tangible assets at December 31, 1999 did not meet Nasdaq's
$4,000,000 net tangible assets requirement for continued listing on the
Nasdaq National Market. Accordingly, Nasdaq has advised Eco Soil that it
is reviewing Eco Soil's eligibility for continued listing. In
correspondence with Nasdaq, Eco Soil has indicated that completion of the
Asset Sale will bring Eco Soil back into compliance with Nasdaq's net
tangible assets requirement. If the Asset Sale is not completed, Eco Soil
may not succeed in maintaining its Nasdaq listing. If Eco Soil's stock is
delisted, the price of the common stock would, in all likelihood,
decline. In addition, it would be an event of default under Eco Soil's
Convertible Subordinated Debentures if Eco Soil's shares where delisted
from Nasdaq.
Q: WILL I RECEIVE ANY PAYMENT AS A RESULT OF THE ASSET SALE?
A: No, you will not receive any payment as a result of the Asset Sale. We
will use the net proceeds to repay long-term indebtedness of Eco Soil and
for Eco Soil's working capital purposes.
Q: CAN I STILL SELL MY SHARES OF ECO SOIL COMMON STOCK?
A: Yes, neither the Purchase Agreement nor the Asset Sale will affect your
right to sell or otherwise transfer your shares of Eco Soil common stock.
Q: WHO MUST APPROVE THE PURCHASE AGREEMENT AND ASSET SALE?
A: In addition to the approvals by the Simplot Board of Directors, the Turf
Partners Board of Directors and the Eco Soil Board of Directors, which
have already been obtained, the Purchase Agreement and the Asset Sale
must be approved by the holders of Eco Soil common stock.
Q: WHY ARE ECO SOIL'S SHAREHOLDERS VOTING ON THE SALE OF ASSETS OF ONE OF
ECO SOIL'S SUBSIDIARIES?
A. Section 21-21,136 of the Business Corporation Act of Nebraska requires
shareholder approval of a sale of all, or substantially all, of the
property of a corporation. Since the Turf Partners business represents
38% of Eco Soil's consolidated assets based on Eco Soil's March
31, 1999 balance sheet, Eco Soil's Board of Directors determined that
the Asset Sale may qualify as a sale of all or substantially all of Eco
Soil's assets and that the most prudent course was to seek shareholder
approval of the Purchase Agreement and the Asset Sale.
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Q: WHAT IS THE REQUIRED SHAREHOLDER VOTE TO APPROVE THE PURCHASE AGREEMENT
AND ASSET SALE?
A: The affirmative vote of the holders of a majority of the outstanding
shares of Eco Soil's common stock is required to approve the Purchase
Agreement and the Asset Sale.
Q: WHAT DO I NEED TO DO NOW?
A: We urge you to read this proxy statement carefully, including the
annexes, and consider how the Asset Sale affects you as a shareholder.
You may also want to review the documents referenced under "Where You Can
Find Additional Information" on page [___].
Q: HOW DO I VOTE?
A: You should indicate on your proxy card how you want to vote, and sign and
mail your proxy card in the enclosed return envelope as soon as possible
so that your shares may be represented at the Annual Meeting. If you sign
and mail a proxy that does not indicate how you want to vote, your proxy
will be voted for approval of the Purchase Agreement and the Asset Sale.
Q: IF MY SHARES ARE HELD IN A BROKERAGE ACCOUNT, WILL BROKER VOTE MY SHARES
FOR ME?
A: No, your broker will not vote your shares for you unless you provide
instructions on how to vote. It is important that you follow the
directions provided by your broker regarding how to instruct your broker
to vote your shares.
Q: MAY I CHANGE MY VOTE?
A: Yes, you may change your vote at any time before your proxy is voted at
the Annual Meeting. To change your vote, simply send a written revocation
or a later-dated, completed and signed proxy card before the Annual
Meeting or attend the Annual Meeting and vote in person.
Q: WHEN AND WHERE IS THE ANNUAL MEETING?
A: The Annual Meeting will be held at Eco Soil's corporate offices located
at 10740 Thornmint Road, San Diego, California 92127 on [__________],
[__________], 2000 at [_:__] [p.m.][a.m.].
Q: WILL I OWE ANY FEDERAL INCOME TAX AS A RESULT OF THE ASSET SALE?
A: No, you will not owe any federal income as a result of the Asset Sale.
However, if you choose to sell your shares or to exercise dissenters'
rights if available, you may owe taxes at that time.
Q: WILL I HAVE DISSENTERS' RIGHTS?
A: If (i) the Asset Sale is deemed to be a sale of all or substantially
all of Eco Soil's assets, (ii) you do not vote for the Asset Sale and
(iii) you comply with the procedures required by the Nebraska Business
Corporation Law you may have the right to receive payment for the fair
value of your shares.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have questions about the sale, please call Ann Strobel, in Eco
Soil's Investor Relations office, at (858) 675-1660.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS RELATING TO
THE ASSET SALE BEFORE YOU DECIDE WHETHER TO VOTE OR APPROVE THE PURCHASE
AGREEMENT AND THE ASSET SALE. YOU SHOULD ALSO CONSIDER THE OTHER INFORMATION IN
THE PROXY STATEMENT AND THE ADDITIONAL INFORMATION IN ECO SOIL'S OTHER REPORTS
ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION AND IN THE OTHER DOCUMENTS
INCORPORATED BY REFERENCE IN THE PROXY STATEMENT. SEE "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE [___].
AFTER THE ASSET SALE, ECO SOIL WILL HAVE A MORE NARROWED FOCUS OF BUSINESS.
After the sale of the Turf Partners business, Eco Soil will be
substantially smaller. It is expected that a large portion of Eco Soil's sales
will be generated through the sale and distribution of its proprietary products
to turf and agricultural markets, as well as irrigation products through its
Agricultural Supply distribution network. The agricultural products and supply
business does not historically represent a large portion of Eco Soil's business
or revenues. The growth of Eco Soil's sales of proprietary and other products in
agricultural markets depend heavily upon the strength of the domestic and
international agricultural economies. If these economies weaken, demand for Eco
Soil's proprietary and other products may decline and its business or future
financial results could suffer. Eco Soil also intends to sell its proprietary
products into turf markets through Simplot's distribution channels, including
those acquired from Eco Soil in the Asset Sale, pursuant to the distribution
agreements contemplated in the Purchase Agreement. There can be no assurance
that the sale of Eco Soil's products through Simplot's distribution channels
will result in sales equal to those historically recorded by Turf Partners.
THERE IS CURRENTLY NO PLAN TO DISTRIBUTE ANY OF THE PROCEEDS OF THE ASSET SALE
TO SHAREHOLDERS OF ECO SOIL.
Eco Soil intends to repay certain indebtedness of Eco Soil and pay
various transaction related costs from the gross proceeds of the Asset Sale. In
connection with the Asset Sale, Eco Soil does not currently intend to adopt a
plan of liquidation to distribute to its shareholders any portion of the net
proceeds from the Asset Sale after paying the expenses described above. No
assurance can be given that any plan of liquidation will ever be adopted or that
any distribution will ever be made to Eco Soil's shareholders from the proceeds
of the Asset Sale. Prior to any distribution to Eco Soil's shareholders, Eco
Soil's Board of Directors will consider the facts and circumstances existing at
that time to determine whether a distribution is in the best interest of Eco
Soil and its shareholders at that time, and the timing and amount of any such
distribution.
THE PURCHASE AGREEMENT WILL EXPOSE ECO SOIL TO CONTINGENT LIABILITIES.
Under the Purchase Agreement, Eco Soil has agreed to indemnify Simplot
for the breach of Eco Soil's representations and warranties contained in the
Purchase Agreement and for other matters. See "Proposal No. 1-The Asset Sale -
Survival of Representations and Warranties and Indemnification." For example, an
indemnification claim by Simplot might result if representations by Eco Soil
about the Turf Partners business made in the Purchase Agreement are later proved
to be materially incorrect. Significant indemnification claims by Simplot could
materially and adversely affect Eco Soil's financial condition and results of
operations.
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ECO SOIL HAS A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT, AND MAY
NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE.
At March 31, 2000, Eco Soil had an accumulated deficit of $48.4
million. Eco Soil's loss before interest, depreciation and amortization for the
quarter ended March 31, 2000 was $3.0 million. Eco Soil has historically
experienced losses due to significant expenditures for product development,
sales, marketing and administrative costs, as well as amortization costs
associated with Eco Soil's acquisitions of turf and agricultural products
dealers.
IF ECO SOIL IS UNABLE TO SUCCESSFULLY ENTER NEW MARKETS, ITS BUSINESS WILL BE
ADVERSELY AFFECTED.
Sales of Eco Soil's proprietary products recently have declined. These
products remain in the early stages of market introduction and are subject to
the risks inherent in the commercialization of new product concepts,
particularly with respect to agricultural applications. There can be no
assurance that Eco Soil's efforts to increase sales of proprietary products to
turf and agricultural crop and ornamental markets will prove successful, that
marketing partnerships will be established and will become successful, or that
Eco Soil's intended customers will purchase its systems and products instead of
competing products. In addition, there can be no assurance that Eco Soil will be
able to obtain significant customer satisfaction or market share with its
proprietary products. Failure to reverse the decline in sales of proprietary
products would have a material adverse effect on Eco Soil's business, financial
condition and results of operations.
ECO SOIL HAS AN ACUTE NEED FOR ADDITIONAL CAPITAL, AND THE REPORT OF ITS
INDEPENDENT ACCOUNTANTS ACCOMPANYING ITS FINANCIAL STATEMENTS CONTAINS AN
EXPLANATORY PARAGRAPH REGARDING ECO SOIL'S ABILITY TO CONTINUE AS A GOING
CONCERN.
Primarily because of Eco Soil's history of operating losses and because
it may not be able to satisfy financial covenants contained in its long-term
debt instruments, there is substantial doubt about Eco Soil's ability to
continue as a going concern unless it is able to obtain additional financing.
Eco Soil anticipates that without additional financing it would likely run out
of cash to fund its operations during the third quarter of 2000. In addition to
the Purchase Agreement, Eco Soil has entered into a Term Loan Agreement dated as
of April 12, 2000 with Simplot, under which Simplot has agreed to loan Eco Soil
$3,000,000, upon satisfaction of various closing conditions. The loan would
provide working capital to Turf Partners pending the closing of the Asset Sale.
Eco Soil currently does not have any arrangements to obtain other
sources of financing. Eco Soil also cannot give you any assurance that the
Asset Sale will be completed. In the event that the Asset Sale is not
consummated, Eco Soil will need to obtain additional financing to repay its
outstanding long-term debt and to finance continuing operating losses. Eco
Soil also will need additional capital to continue commercialization of its
products, to support testing of its products and the other costs associated
with obtaining governmental approval, and for marketing of its products. Eco
Soil may not be successful in obtaining additional financing on acceptable
terms or at all, which would result in a material adverse effect on its
ability to meet its business objectives and continue as a going concern. If
Eco Soil were unable to secure such financing, it would at a minimum be
forced to revise its 2000 operating plan. Eco Soil also would be forced to
delay the expansion of its business, sell some of its assets or refinance or
restructure its debt, any of which could have a material adverse effect on
Eco Soil's business, prospects and financial condition.
ECO SOIL MAY NOT SATISFY ALL OF THE APPLICABLE FINANCIAL COVENANTS IN ITS DEBT
DOCUMENTS, AND IF ECO SOIL DOES NOT MEET THESE COVENANTS, IT WOULD BE IN DEFAULT
AND ITS OBLIGATIONS COULD BE DECLARED IMMEDIATELY DUE AND PAYABLE.
Eco Soil has received a term loan and its subsidiaries have received
lines of credit from financial institutions, and Eco Soil has received debt
financing from institutional investors through the issuance of convertible
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debentures and senior subordinated notes. The loan documents to which Eco Soil
and its subsidiaries are parties, including the senior subordinated notes,
contain restrictions on Eco Soil's activities and financial covenants with which
Eco Soil and its subsidiaries must comply. Among other things, the financial
covenants require Eco Soil and its subsidiaries to satisfy net worth
requirements, debt service coverage ratios and other financial tests. In the
past, Eco Soil has obtained waivers and an amendment of the senior subordinated
notes to remain in compliance with the financial covenants and avoid default.
For example, for the quarter ended September 30, 1999, Eco Soil's failure to
comply with these covenants resulted in a default under the senior subordinated
notes, which was subsequently waived by the note holders. There can be no
assurance that Eco Soil and its subsidiaries will satisfy all of the applicable
financial covenants in future quarters. To the extent Eco Soil or any of its
subsidiaries does not satisfy these requirements, Eco Soil would be in default
and its obligations could be declared immediately due and payable. To avoid a
default, Eco Soil may be required to obtain waivers from third parties, which
might not be granted. A default on indebtedness from one lender could result in
the acceleration of indebtedness from other lenders. In addition, Eco Soil also
can give no assurance that its cash flow and capital resources will be
sufficient to repay its indebtedness or that Eco Soil will be successful in
obtaining alternate financing. In the event Eco Soil or any of its subsidiaries
is unable to repay their debts, Eco Soil may be forced to delay the expansion of
its business, sell some of its assets, obtain additional equity capital or
refinance or restructure its debt, any of which could have a material adverse
effect on Eco Soil's business, prospects and financial condition.
RESTRICTIONS IN ECO SOIL'S CONVERTIBLE DEBENTURES AND WARRANTS PURCHASE
AGREEMENT MAY IMPAIR ITS ABILITY TO RAISE ADDITIONAL EQUITY CAPITAL.
Eco Soil's agreement with the holders of its 7% Senior Convertible
Debentures prohibits Eco Soil from selling any shares of its capital stock or
securities convertible into shares of its capital stock for a period of 180
days after January 24, 2000 except (i) pursuant to the exercise of
outstanding warrants, or options issued pursuant to any shareholder-approved
stock option plan, (ii) to any strategic partner, the purpose of which is not
primarily to raise money, or (iii) the sale of shares of common stock at a
price of not less than $2.50 per share with warrant coverage of up to 40% for
aggregate proceeds of up to $3,500,000. In addition, until 12 months after
January 24, 2000, Eco Soil must give such holders (i) a right of first
refusal to purchase shares of Eco Soil's capital stock or capital stock
equivalents on the same terms on which Eco Soil is prepared to sell them to
other investors and (ii) if such holders do not exercise their right of first
refusal, the further right to exchange their convertible debentures and
warrants for an equivalent dollar amount of the new securities Eco Soil
offers. These restrictions may impair Eco Soil's ability to raise equity
capital on satisfactory terms, if at all - particularly during the first 180
days after January 24, 2000. During such 180-day period, Eco Soil would be
able to sell equity securities only pursuant to one of the exceptions listed
above or with the consent of the holders of its convertible debentures. Eco
Soil's inability to raise needed funds would have a material adverse effect
on its business, financial condition and results of operations.
IF ECO SOIL FAILS TO MANAGE GROWTH EFFECTIVELY, ITS BUSINESS MAY SUFFER.
Eco Soil has experienced significant growth. This growth has placed,
and will continue to place, significant strains on Eco Soil's resources. Eco
Soil's ability to manage future growth, should it occur, will require Eco Soil
to implement and continually expand operational and financial systems, recruit
additional employees and train and manage both current and new employees. In
particular, Eco Soil's success depends in large part on its ability to attract
and retain qualified technical, sales, financial and management personnel. Eco
Soil faces competition for these persons from other companies, academic
institutions, government entities and other organizations. No assurance can be
given that Eco Soil will be successful in recruiting or retaining personnel of
the requisite caliber or in adequate numbers to enable it to conduct its
business as it proposes to be conducted.
IF ECO SOIL FAILS TO SUCCESSFULLY IMPLEMENT AND MAINTAIN ITS SALES AND
DISTRIBUTION NETWORK, IT MAY BE UNABLE TO SELL SUFFICIENT PRODUCTS TO MAKE A
PROFIT.
Eco Soil distributes and sells its products through distributors and
dealers it has acquired and through independent dealers and distributors.
Achieving the anticipated benefits of such acquisitions will depend on a variety
of factors, including whether the integration of such dealers and distributors
with Eco Soil's organization can be accomplished in an efficient and effective
manner and whether the acquired sales force can effectively sell its
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proprietary products. Any failure to identify future hires or acquisition
candidates properly, any large expenditures on acquisitions that prove to be
unprofitable or any difficulties encountered in selling Eco Soil's
proprietary products through the existing distribution system could have a
material adverse effect on its business, financial condition and results of
operations.
PATENTS AND OTHER PROPRIETARY RIGHTS PROVIDE UNCERTAIN PROTECTION OF ECO SOIL'S
PROPRIETARY INFORMATION AND ITS INABILITY TO PROTECT A PATENT OR OTHER
PROPRIETARY RIGHT MAY IMPACT ECO SOIL'S BUSINESS AND OPERATING RESULTS.
Eco Soil's success will depend in large measure upon its ability to
obtain and enforce patent protection for Eco Soil's proprietary products,
maintain confidentiality of its trade secrets and know-how and operate
without infringing upon the proprietary rights of third parties. Eco Soil has
been granted three U.S. patents for the technology relating to the
BioJect-Registered Trademark- system. Eco Soil does not have foreign patent
protection with respect to the claims covered by the two U.S. patents issued
in 1993, and Eco Soil is precluded from obtaining these foreign rights due to
the expiration of the period for filing such claims. However, in connection
with a U.S. patent granted in 1995, Eco Soil applied for foreign patent
protection with respect to the BioJect-Registered Trademark- system in
selected countries. To date, Eco Soil has successfully patented the
technology relating to the BioJect-Registered Trademark- system in several of
these foreign countries. In addition, Eco Soil has registered a number of
trademarks used in its business, including "BioJect" and "FreshPack" and has
applied for registration of a number of additional trademarks. Eco Soil also
relies on trade secrets and proprietary know-how. Eco Soil generally enters
into confidentiality and nondisclosure agreements with its employees and
consultants and attempts to control access to and distribution of its
confidential documentation and other proprietary information.
Despite the precautions described above, it may be possible for a third
party to copy or otherwise use Eco Soil's products or technology without
authorization, or to develop similar products or technology independently. No
assurance can be given that Eco Soil's patent or trademark applications will be
granted, that the way Eco Soil protects its proprietary rights will be adequate
or that its competitors will not independently develop similar or competing
products. Furthermore, there can be no assurance that Eco Soil is not infringing
other parties' rights. If any of Eco Soil's patents are infringed upon or if a
third party alleges that Eco Soil is violating their proprietary rights, Eco
Soil may not have sufficient resources to prosecute a lawsuit to defend its
rights. In addition, an adverse determination in any litigation could subject
Eco Soil to significant liabilities to third parties, require Eco Soil to seek
licenses from or pay royalties to third parties or prevent Eco Soil from
manufacturing, selling or using its products, any of which could have a material
adverse effect on its business, financial condition and results of operations.
Even if Eco Soil prevailed in litigation to protect its intellectual property
rights, this litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on Eco Soil's business,
financial condition and results of operations.
ECO SOIL DEPENDS ON THIRD PARTY CONTRACT MANUFACTURERS AND SUPPLIERS.
Eco Soil currently does not have any manufacturing capability and
relies on third parties to manufacture its products and components. Eco Soil has
more than one supplier for the manufacture of most of its products and
components; however, Eco Soil obtains some products or components from only one
source. Although Eco Soil believes that it will be able to contract production
with alternate suppliers, no assurance can be given that this will be the case
or that the need to contract with additional suppliers will not delay Eco Soil's
ability to have its products and components manufactured. No assurance can be
given that existing or future manufacturers will meet Eco Soil's requirements
for quality, quantity and timeliness, and any such failure could have a material
adverse effect on its business, financial condition and results of operations.
ECO SOIL MAY BE UNABLE TO ACQUIRE RIGHTS TO ADDITIONAL MICROBIAL PRODUCTS.
Eco Soil plans to obtain the rights to additional microbial products.
Eco Soil currently does not engage in its own research and development with
respect to the discovery of microbial products. As a result, Eco Soil seeks to
license or acquire rights to microbial products discovered by others. No
assurance can be given that Eco Soil will be successful in obtaining licenses
for, or otherwise acquiring rights to, additional microbial products on
acceptable
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terms, or at all. If Eco Soil fails to acquire rights to additional products
Eco Soil's business, financial condition and results of operations could be
materially adversely affected.
THE MICROBIOLOGICAL COLLECTIONS ECO SOIL ACQUIRED FROM AGRIUM OR MAY ACQUIRE IN
THE FUTURE MAY NOT RESULT IN MARKETABLE PRODUCTS.
In September of 1999, Eco Soil acquired the Agricultural Biological
Division (AgBio) of Canadian-based Agrium, Inc. Among other things, the
acquisition included a microbiological collection in excess of 2,500 unique
biocontrol and growth-promoting microorganisms. Eco Soil has increased its
research and development efforts to determine which microbes will be suitable
for distribution through the BioJect-Registered Trademark- system or as a new
FreshPack-TM-product. Eco Soil may not be successful, however, in identifying
microbes that will be suitable for commercial deployment or in creating
products comprised of these microbes. Even if Eco Soil does identify product
candidates, EPA approval of the products will be needed to market them as
pesticides. In order to market a microbial product as a pesticide, Eco Soil
must obtain EPA approval of a particular product containing that microbe,
including EPA approval of the claims made in the product label and the method
of application. In addition, if a microbe is sold as a pesticide for use on
crops, Eco Soil must also seek to have a tolerance level set by the EPA which
would define the acceptable limit on the amount of microbes that could be
present on a given raw agricultural commodity at the time of harvest.
Registration of microbial products as pesticides is a lengthy and expensive
process that may or may not result in EPA approval. Also, third parties may
develop superior products or have proprietary rights that preclude us from
marketing our products. If research and testing is not successful or
regulatory approval is not obtained, Eco Soil may be unable to sell products
based on the microbes obtained from Agrium or any other microbes.
POTENTIAL PRODUCT LIABILITY OR ENVIRONMENTAL CLAIMS COULD ADVERSELY AFFECT ECO
SOIL'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Eco Soil may be exposed to product liability or environmental liability
resulting from the commercial use of its products. Eco Soil currently carries
liability insurance, which covers, among other things, product liability and
environmental liability. A product liability, environmental or other claim with
respect to uninsured liabilities or in excess of insured liabilities could have
a material adverse effect on Eco Soil's business, financial condition and
results of operations.
Eco Soil has obtained insurance of such types and in such amounts as
Eco Soil believes is necessary, including casualty insurance and workers'
compensation insurance. However, Eco Soil is exposed to certain risks that are
not covered by its insurance policies and its policies are subject to limits,
exceptions and qualifications. Consequently, no assurance can be given that any
losses will be covered by insurance, that any covered losses will be fully
insured against or that any claim Eco Soil makes will be approved for payment by
the insurer.
ECO SOIL IS SUBJECT TO ENVIRONMENTAL LIABILITY.
The federal government and some states have laws imposing liability 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. Eco Soil also is subject to certain other federal
environmental laws, including the National Environmental Policy Act, the Toxic
Substance Control Act, the Resource Conservation and Recovery Act, the Clean Air
Act and the Clean Water Act and their state equivalents and may be subject to
other present and potential future federal, state or local regulations. As noted
above, Eco Soil maintains insurance for environmental claims which might result
from the release of its products into the environment, but there can be no
assurance that any losses covered by insurance will be adequately covered. Thus,
a claim for environmental liability could have a material adverse effect on Eco
Soil's business, financial condition and results of operations.
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ECO SOIL'S PRODUCTS ARE SUBJECT TO GOVERNMENTAL REGULATIONS AND APPROVALS.
Eco Soil is subject to laws and regulations administered by federal,
state and foreign governments, including those requiring registration or
approval of fertilizers, pesticides, water treatment products and product
labeling. Some of Eco Soil's current products are subject to regulation by the
EPA, the USDA and by certain state environmental and agricultural departments.
Prior to 1998, Eco Soil had only one registered pesticide with the EPA, BACILLUS
THURINGIENSIS, and had marketed it as well as other microbial products only as
soil inoculants. In 1998, Eco Soil received two EPA approvals. First, Eco Soil
registered PSEUDOMONAS AUREOFACIENS TX-1 (Spot-less-TM-) with the EPA as a
biofungicide for use in turf across the United States and received EPA approval
of the BioJect as a means of application of the microbe. Second, Eco Soil
received EPA approval to use XANTHOMONAS CAMPESTRIS pv poaannua (Xpo) as a
bioherbicide in experimental use permit trials for use in turf across the United
States. Eco Soil is in the final process of receiving EPA approval on
PSEUDOMONAS HORORAPHIS, STRAIN 63-28 (AtEze-TM-) for use as a biofungicide on
greenhouse and agricultural plants. No assurance can be given that Eco Soil will
obtain EPA approval for sales of additional microbial products as biopesticides.
In order to market a microbe as a pesticide, Eco Soil must obtain EPA approval
of a particular product containing that microbe, including EPA approval of the
claims made in the product label and the method of application. Registration of
Eco Soil's microbial products as pesticides likely will be a lengthy and
expensive process that may or may not result in EPA approval. Without the
desired EPA approvals, Eco Soil will not be able to market such unregistered
microbes as pesticides, and its sales efforts will be limited to discussions of
the soil inoculant features of the microbe. If the EPA determines that a
microbial product has no significant commercially valuable use other than use as
a pesticide, however, Eco Soil will be precluded from selling the product
entirely unless it is approved by the EPA.
In addition, if Eco Soil intends to sell a microbe as a pesticide for
use on crops, Eco Soil must also seek to have a tolerance level set by the EPA
which would define the acceptable limit on the amount of microbes that could be
present on a given raw agricultural commodity (food crop) at the time of
harvest. Eco Soil also may petition the EPA for tolerance exemptions that would
not limit the residues of the microbial products on crops. If the EPA does not
issue a tolerance exemption, Eco Soil would be required to obtain a separate
tolerance for each food product on which it intends to make its microbial
pesticides available for use. As a result, Eco Soil would incur costly
application fees for each tolerance. No assurance can be given that Eco Soil
will be successful in seeking such tolerances or tolerance exemptions, and any
failure to obtain such tolerances or exemptions would prevent Eco Soil from
selling microbes as pesticides for use on crops.
Eco Soil may be subject to regulation in foreign countries. Compliance
with such requirements likely would result in additional cost to Eco Soil and
delays in introducing its products in such foreign countries.
Compliance with EPA and state environmental regulations as well as
other laws and regulations will increase Eco Soil's costs and time necessary to
allow it to operate successfully and may affect it in other ways not currently
foreseeable. In addition, more stringent requirements for regulation or
environmental controls may be imposed, which could have a material adverse
effect on Eco Soil's business, financial condition and results of operations.
THE INDUSTRY IN WHICH ECO SOIL COMPETES IS EXTREMELY COMPETITIVE AND IF ECO SOIL
IS NOT ABLE TO COMPETE EFFECTIVELY ITS BUSINESS MAY SUFFER.
The BioJect-Registered Trademark- system and Eco Soil's
FreshPack-TM- products compete against traditional chemical insecticides and
fungicides, chemical soil penetrants, acid injection systems and the direct,
manual application of cultured microbial products. Many of Eco Soil's
competitors have substantially greater financial, technical and personnel
resources than Eco Soil does. Eco Soil's competitors include such
well-established companies as Novartis Corporation, Rhone-Poulenc AG Company,
the Dow Chemical Company, O.M. Scotts & Sons, Inc., Lesco, Inc., and The Toro
Company, as well as a number of smaller local and regional competitors. Eco
Soil competes against traditional technologies on the basis of its delivery
mechanism and bioaugmentation expertise. Eco Soil believes that the long-term
competitiveness of the BioJect-Registered Trademark- system may be affected
by the timing and extent of Eco Soil's penetration into golf and agricultural
markets compared to the market penetration achieved by companies offering
competing products for microbial distribution. This timing, in turn, will be
based on the effectiveness with which
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Eco Soil or the competition can complete product testing and approval
processes and supply products to the marketplace. Competition among microbial
distribution products is expected to be based on, among other things, product
effectiveness, safety, reliability, cost, market capability and patent
protection.
In markets for traditional chemical products, Eco Soil competes against
well-established distributors of such products. Many of these competitors have
substantially greater financial, technical and personnel resources than Eco Soil
and include such companies as Lesco, Inc., Terra Companies, Inc., Con-Agra, Inc.
and Wilbur-Ellis Company. Eco Soil competes with distributors of traditional
chemical products on the basis of price, name recognition, convenience and
customer service.
ECO SOIL'S BUSINESS IS DEPENDENT IN LARGE PART UPON THE GROWTH AND CONTINUED
POPULARITY OF GOLF.
Although Eco Soil believes that golf markets will continue to grow,
a decrease in the number of golfers, reduced participation rates or reduced
consumer spending on golf could have a material adverse effect on Eco Soil's
golf course customers and, in turn, on Eco Soil. Specifically, the success of
efforts to attract and retain members at private country clubs and the number
of rounds played at public golf courses historically have been dependent upon
discretionary spending by consumers, which may be adversely affected by
general and regional economic conditions. In addition, the construction of
additional golf courses is dependent upon growth in the number of golfers. If
customer tastes or economic conditions cause golf courses to reduce their
budgets or slow the development of additional golf courses, Eco Soil may see
a correlative decrease in sales of the BioJect-Registered Trademark- system
and Eco Soil's other products.
ECO SOIL'S EFFORTS TO SELL ITS PROPRIETARY PRODUCTS FOR USE IN MICRO IRRIGATION
AND GREENHOUSE APPLICATIONS MIGHT NOT PROVE SUCCESSFUL.
Eco Soil began selling its proprietary products to growers who will
apply them to crops using micro irrigation methods. In addition, Eco Soil has
formed a strategic relationship with Cebeco Seeds Group to sell its proprietary
products in European greenhouse markets. Eco Soil's proprietary products have
not been widely applied using micro irrigation methods or in greenhouses and Eco
Soil may not achieve significant market share in these markets. No assurances
can be given that Eco Soil's revenues from sales of its proprietary products for
application using micro irrigation methods or in greenhouses will exceed the
sales, marketing and development costs Eco Soil has incurred in an effort to
penetrate these markets.
ECO SOIL'S EFFORTS TO SELL ITS PRODUCTS OUTSIDE THE UNITED STATES HAVE HAD
LIMITED SUCCESS TO DATE AND MAY NOT BE SUCCESSFUL IN THE FUTURE.
Eco Soil has devoted substantial resources to developing markets for
its products outside the United States, particularly in Mexico. In addition, Eco
Soil's strategic relationship with Cebeco Seeds Group calls for Eco Soil to sell
its proprietary products to the European greenhouse markets. To date, Eco Soil's
operations outside the United States have generated limited revenues, which have
not been sufficient to cover its costs in seeking to penetrate foreign markets.
While Eco Soil is continuing to explore opportunities to sell its products
outside the United States, no assurance can be given that Eco Soil will be
successful. Eco Soil's international sales efforts are subject to risks
associated with operations in foreign countries that may increase its costs,
lengthen its sales cycle and require significant management attention. These
risks include:
- fluctuations in currency exchange rates, which may make Eco
Soil's products more expensive;
- general economic conditions in international markets;
- political risks;
- additional costs of compliance with local regulations,
including costs associated with unexpected changes in
regulatory requirements resulting in unanticipated costs and
delays;
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- tariffs, export controls and other trade barriers; and
- longer accounts receivable payment cycles and difficulties in
collecting accounts receivable.
The costs related to Eco Soil's international operations could adversely affect
its operations and financial results in the future.
ECO SOIL'S STOCK PRICE HAS BEEN AND WILL CONTINUE TO BE VOLATILE.
Eco Soil's common stock currently is quoted on the Nasdaq National
Market. The market price of Eco Soil's common stock could be subject to
significant fluctuations in response to operating results and other factors. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. These fluctuations, as well as general
economic and market conditions, may adversely affect the market price of Eco
Soil's common stock. In addition, in the event the listing of the common stock
were discontinued for any reason, the liquidity and price of Eco Soil's common
stock would be adversely affected.
ECO SOIL MAY NOT MEET NASDAQ'S NET TANGIBLE ASSETS REQUIREMENT FOR CONTINUED
LISTING ON THE NASDAQ NATIONAL MARKET.
Eco Soil has received a notice from the Nasdaq Stock Market that its
net tangible assets at December 31, 1999 did not meet Nasdaq's $4,000,000 net
tangible assets requirement for continued listing on the Nasdaq National
Market. Accordingly, Nasdaq has advised Eco Soil that it is reviewing Eco
Soil's eligibility for continued listing. For Nasdaq purposes, net tangible
assets equal total assets minus total liabilities minus goodwill minus
redeemable securities. Based on a review of Eco Soil's Annual Report on Form
10-K, Nasdaq calculated Eco Soil's net tangible assets at December 31, 1999
to be $3,044,089. If Nasdaq were to apply the same calculation to Eco Soil's
March 31, 2000 balance sheet, its net tangible assets would be even less.
Nasdaq asked Eco Soil to submit a specific plan to achieve and sustain
compliance with all Nasdaq National Market listing requirements. On May 23,
2000, Eco Soil submitted such a plan, in which Eco Soil outlined,
among other things, how completion of the Asset Sale would bring Eco Soil
back into compliance with the net tangible assets requirement. To date, Eco
Soil has not received any correspondence from Nasdaq responding to this plan.
If Nasdaq determines that Eco Soil's plan does not adequately address
Nasdaq's concerns, Nasdaq may immediately send a formal notice of deficiency
and commence the delisting process. If Nasdaq were to begin delisting
proceedings against Eco Soil, it could reduce the level of liquidity
currently available to Eco Soil's shareholders. If Eco Soil's common stock
were delisted, the price of the common stock would, in all likelihood,
decline. In addition, it would be an event of default under Eco Soil's
Convertible Subordinated Debentures if Eco Soil's shares were delisted from
Nasdaq.
If Eco Soil's common stock is delisted from the Nasdaq National Market,
Eco Soil could apply to have the common stock quoted on the Nasdaq SmallCap
Market. The Nasdaq SmallCap Market has a similar set of criteria for initial and
continued quotation. Eco Soil may not, however, meet the requirements for
initial or continued quotation on the Nasdaq SmallCap Market. If Eco Soil were
not able to meet the requirements of the Nasdaq SmallCap Market, trading of its
common stock could be conducted on an electronic bulletin board established for
securities that do not meet the Nasdaq SmallCap Market listing requirements, in
what is commonly referred to as the "pink sheets."
ECO SOIL'S OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND ANY FAILURE TO
MEET FINANCIAL EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND
RESULT IN A DECLINE IN ITS STOCK PRICE.
Eco Soil's operating results vary from quarter to quarter as a
result of seasonality and various factors. Virtually all of Eco Soil's
customers are located in the Northern Hemisphere and purchase greater
quantities of microbes and distributed products during the spring, summer and
fall months. As a result of low customer activity during the winter, Eco Soil
typically markets the BioJect-Registered Trademark- system during the fourth
and first quarters. As a result of these marketing efforts, Eco Soil
typically receives orders during the first and second quarters and installs
BioJect-Registered Trademark- systems during the second and third quarters.
BioJect-Registered Trademark- revenues generally occur in the second and
third quarters of the year. Because of this sales cycle, Eco Soil expects to
recognize a significant portion of its revenues during its
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second and third quarters. Operating expenses have tended to be independent
of the quarterly sales cycle. As a result, operating expenses generally
represent a higher percentage of sales in the first and fourth quarters as
compared to the second or third quarters, and Eco Soil may experience losses
in the first and fourth quarters. Accordingly, results for any quarter are
not necessarily indicative of results for any future period. The sales cycle
for the BioJect-Registered Trademark- system also makes it difficult to
predict the number of BioJect-Registered Trademark- systems that will be
employed and the quantity of microbial products that Eco Soil will sell until
it receives orders during the first half of the year. Sales of Eco Soil's
products also depend to some extent on the severity of weather patterns in
the geographic areas it serves. Given these factors, it is difficult for Eco
Soil to accurately predict the level of demand for its products.
It is likely that in one or more future quarters Eco Soil's financial
results will fall below the expectations of analysts and investors. If this
happens, the trading price of Eco Soil's common stock would likely decrease.
Many of the factors that cause Eco Soil's quarter to quarter financial results
to be unpredictable are largely beyond Eco Soil's control.
LOSS OF KEY PERSONNEL COULD HURT ECO SOIL'S BUSINESS.
Eco Soil is dependent upon the active participation of William B.
Adams, the chairman of Eco Soil's Board of Directors and its chief executive
officer. The loss of the services of Mr. Adams could have a material adverse
effect upon Eco Soil's business, financial condition and results of operations.
Eco Soil has entered into an employment agreement with Mr. Adams, which provides
for his continued employment with Eco Soil through December 31, 2000. Eco Soil
does not have key person life insurance on any of its key employees.
A SMALL NUMBER OF SHAREHOLDERS MAY BE ABLE TO EXERCISE EFFECTIVE CONTROL OVER
ECO SOIL.
As of June 9, 2000, Eco Soil's current principal shareholders and
management owned more than 20% of the outstanding shares of Eco Soil's common
stock, assuming the exercise of all outstanding options and warrants held by
them and no exercise of options or warrants held by others. Accordingly, even
though Eco Soil currently has cumulative voting, the current principal
shareholders and management, if voting in concert, may have the ability to
effectively control the election of a majority of Eco Soil's directors or any
other major decisions involving Eco Soil's assets or Eco Soil.
ECO SOIL HAS A LARGE NUMBER OF OUTSTANDING WARRANTS AND OPTIONS, WHICH COULD
HARM ITS ABILITY TO ACQUIRE ADDITIONAL CAPITAL.
As of December 31, 1999, there were 7,073,291 shares of common stock
subject to issuance pursuant to options and warrants Eco Soil previously issued.
Holders of warrants and options are likely to exercise them when, in all
likelihood, Eco Soil could obtain additional capital on terms more favorable
than those provided by the warrants and options. While the warrants and options
are outstanding, they may adversely affect the terms on which Eco Soil can
obtain additional capital.
ANTI-TAKEOVER PROVISIONS OF ECO SOIL'S CHARTER AND NEBRASKA LAW COULD LIMIT THE
ABILITY OF ANOTHER PARTY TO ACQUIRE ECO SOIL, WHICH COULD CAUSE ECO SOIL'S STOCK
PRICE TO DECLINE.
Certain provisions of Eco Soil's articles of incorporation, including
provisions creating a staggered Board of Directors, and certain provisions of
Nebraska law, including the Nebraska Shareholders Protection Act, could have the
effect of deterring or delaying a takeover or other change in control of Eco
Soil, could deny shareholders the receipt of a premium on their common stock and
could result in a decline in the market price of Eco Soil's common stock. In
addition, Eco Soil's Board of Directors is authorized, without any action by Eco
Soil's shareholders, to issue up to 5,000,000 shares of authorized but
undesignated preferred stock and to fix the powers, preferences, rights and
limitations of this preferred stock or any class or series thereof. Persons
acquiring preferred stock could have preferential rights with respect to voting,
liquidation, dissolution or dividends over existing shareholders.
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ABSENCE OF DIVIDENDS COULD REDUCE ECO SOIL'S ATTRACTIVENESS TO INVESTORS.
Eco Soil has never paid or declared any cash dividends on its common
stock and does not intend to pay dividends on its common stock in the
foreseeable future. Eco Soil is currently prohibited from paying dividends by
the terms of a loan agreement it has with Coast Business Credit. Eco Soil
intends to retain any earnings for use in the operation and expansion of Eco
Soil's business.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT.
This proxy statement contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include statements relating to Eco Soil or its
operations that are preceded by terms such as "expects," "believes,"
"anticipates," "intends" and other similar words. These forward-looking
statements are not guarantees of future performance and involve known and
unknown risks and uncertainties that may cause Eco Soil's actual results,
performance or achievements to differ materially from the results,
performance or achievements expressed in, or implied by, these
forward-looking statements. Important factors that Eco Soil believes might
cause such differences include: Eco Soil's reliance on Turf Partners'
business for a substantial portion of its business, the cyclicality and
competitiveness of Eco Soil's industry, the potential for substantial
fluctuations in Eco Soil's results of operations and its need for additional
capital. In assessing forward-looking statements contained herein, you are
urged to read carefully all cautionary statements contained in this proxy
statement.
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THE ANNUAL MEETING
GENERAL
The Board of Directors of Eco Soil Systems, Inc., a Nebraska
corporation ("Eco Soil") is soliciting the enclosed Proxy for use at the
Annual Meeting of Shareholders of Eco Soil to be held on [_________], 2000
(the "Annual Meeting"), and at any adjournments thereof. This Proxy Statement
will be first sent to shareholders on or about [_________], 2000.
As of [__________], 2000, [__________] shares of Eco Soil's common
stock, $.005 par value per share, were outstanding, representing the only
voting securities of Eco Soil. Each share of Eco Soil's common stock is
entitled to one vote.
Eco Soil's mailing address is 10740 Thornmint Road, San Diego,
California 92127.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, you will be asked to consider and vote upon the
following matters:
1. To consider and vote upon the approval of an Amended and Restated
Asset Purchase Agreement, dated April 5, 2000, as amended by the First
Amendment to Amended and Restated Asset Purchase Agreement, dated as of
June 9, 2000 (the "Amendment"), by and among Eco Soil, its subsidiary Turf
Partners, Inc. ("Turf Partners") and J.R. Simplot Company ("Simplot") (as
amended, the "Purchase Agreement") pursuant to which Turf Partners will
sell substantially all of its assets to Simplot (the "Asset Sale"). The
full text of the Purchase Agreement and the Amendment are included as
Annex A and Annex B, respectively, to this proxy statement and
incorporated herein by reference.
2. To elect one director for a three-year term to expire at the 2003 Annual
Meeting of Shareholders. The present Board of Directors of Eco Soil has
nominated and recommends for election as director the following person:
Edward N. Steel
3. To transact such other business as may be properly brought before
the Annual Meeting or any adjournment thereof.
Section 21-21,136 of the Business Corporation Act of Nebraska requires
shareholder approval of a sale of all, or substantially all, of the property of
a corporation. Since the Turf Partners business represents 38% of Eco Soil's
consolidated assets based on Eco Soil's March 31, 2000 balance sheet, Eco
Soil's Board of Directors determined that the Asset Sale may qualify as a sale
of all or substantially all of Eco Soil's assets and that the most prudent
course was to seek shareholder approval of the Purchase Agreement and the Asset
Sale.
RECORD DATE
Shareholders of record at the close of business on June 5, 2000
(the "Record Date") will be entitled to notice of and to vote at the Annual
Meeting or any adjournments thereof.
VOTING AND REVOCATION OF PROXIES
Votes cast by Proxy or in person at the Annual Meeting will be
counted by the persons appointed by Eco Soil to act as Inspectors of Election
for the Annual Meeting. The Inspectors of Election will treat shares
represented by Proxies that reflect abstentions or include "broker non-votes"
as shares that are present and entitled to vote for purposes of determining
the presence of a quorum. Abstentions or "broker non-votes" do not constitute
a vote "for" or "against" any matter and thus will be disregarded in the
calculation of "votes," and will effectively be counted as votes cast against
the approval and adoption of the Purchase Agreement and the Asset
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Sale. Any unmarked Proxies, including those submitted by brokers or nominees,
will be voted in favor of the nominee of the Board of Directors, as indicated
in the accompanying Proxy card.
As an inducement to Simplot to enter into the Amendment, all of
Eco Soil's directors have entered into Shareholder Voting Agreements pursuant
to which they have agreed to vote their shares of Eco Soil common stock in
favor of the Asset Sale. A form of the Shareholder Voting Agreement is attached
to this Proxy Statement as Annex C.
A Proxy may be revoked by written notice to the Secretary of Eco Soil
at any time prior to the Annual Meeting, by executing a later dated Proxy or by
attending the Annual Meeting and voting in person.
UNLESS CONTRARY INSTRUCTIONS ARE INDICATED ON THE PROXY, ALL SHARES
REPRESENTED BY VALID PROXIES RECEIVED PURSUANT TO THIS SOLICITATION (AND NOT
REVOKED BEFORE THEY ARE VOTED) WILL BE VOTED FOR THE ASSET SALE AND FOR THE
ELECTION OF THE BOARD'S NOMINEE FOR DIRECTOR. As to any other business which
may properly come before the Annual Meeting and be submitted to a vote of the
shareholders, Proxies received by the Board of Directors will be voted in
accordance with the best judgment of the holders thereof.
SOLICITATION OF PROXIES; EXPENSES
Eco Soil will bear the cost of solicitation of Proxies. In addition to
the use of mails, Proxies may be solicited by personal interview, telephone or
telegraph, by officers, directors, and other employees of Eco Soil. Eco Soil
will also request persons, firms, and corporations holding shares in their
names, or in the names of their nominees, which are beneficially owned by
others to send or cause to be sent Proxy material to, and obtain Proxies from,
such beneficial owners and will reimburse such holders for their reasonable
expenses in so doing. Eco Soil has retained Morrow & Company, Inc. for
assistance in connection with the solicitation of proxies for the Annual
Meeting at a cost of approximately $6,500.
BOARD RECOMMENDATION
Eco Soil's Board of Directors has unanimously approved the Purchase
Agreement, has determined that the Asset Sale is in the best interests of Eco
Soil and its shareholders and recommends that shareholders vote FOR approval
and adoption of the Purchase Agreement and the Asset Sale. Eco Soil's Board of
Directors also recommends that shareholders vote FOR the nominee for director
set forth below.
PROPOSAL 1
THE ASSET SALE PROPOSAL
BACKGROUND OF THE ASSET SALE
Eco Soil continually evaluates its strategic focus and reviews its
progress in meeting organizational goals. Since the establishment of its Turf
Partners and Agricultural Supply subsidiaries, Eco Soil has sought to expand
each of their product distribution networks and product offerings.
In an effort to expand the products offered by Turf Partners through
its distribution network, Kevin Lyons, Jack Wilson, Nick Spardy, Dave
Schermerhorn and Alex Cannon, Turf Partners' Chief Executive Officer, Chief
Financial Officer and regional managers, held discussions with Wayne Burk and
Don Johnson, the Chief Executive Officer and marketing manager of Simplot's
Best-Registered Trademark- Fertilizer Division in late spring of 1999. These
discussions centered on possible distribution opportunities for Simplot
fertilizer through Turf Partners' distribution network in the Midwest,
Southwest, Southeast and East. Discussions between the parties continued
throughout the summer of 1999. By the fall of 1999, Simplot concluded that
Turf Partners was best suited to distribute its fertilizer in these regions.
Bill Adams and Doug Gloff, representatives of Turf Partners, met
with representatives of Simplot in early October 1999 and discussed a
distribution agreement that would allow Turf Partners to distribute Simplot's
Best-Registered Trademark- and Jacklin-Registered Trademark- brand
fertilizers throughout Turf Partners' trade areas. At this meeting, Ray Sasso
and Tom Stoesser, representatives of Simplot, also discussed the expansion of
the companies' relationship, including a proposal that Simplot make an equity
investment in Eco Soil, a proposal that Simplot provide expanded distribution
opportunities
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for Turf Partners' and Agricultural Supply's products in Simplot's nationwide
network of retail agricultural stores, and an agreement by Simplot to perform
trials of Eco Soil's BioJect-Registered Trademark- system on its potato fields.
Later in October 1999, Eco Soil and Simplot executed the
distribution agreement relating to Simplot's Best-Registered Trademark- and
Jacklin-Registered Trademark- brand fertilizers. The parties also signed a
letter of intent providing for additional involvement by Agricultural Supply
in the companies' relationship and a commitment for Simplot to make an equity
investment in Eco Soil. Eco Soil announced the signing of the distribution
agreement and the parties' intent to begin trials of the BioJect-Registered
Trademark- system on commercial potato production and waste water reclamation.
During November and December 1999, Bill Adams and Mark Buckner, Eco
Soil's Chief Executive Officer and Chief Financial Oficer, met with Ray Sasso,
Tom Stoesser and Christine Nicholas, Simplot's representatives, and held
numerous additional meetings focussed on Simplot's investment in Eco Soil.
During these meetings, Mr. Sasso informed Eco Soil of Simplot's desire to
acquire all of Turf Partners from Eco Soil. Mr. Adams responded that Eco Soil
felt that 1999 was not a good barometer of Turf Partners' value and that Eco
Soil was not interested in such a transaction at that time.
At Turf Partners' Annual Sales Meeting held in January 2000,
representatives of Turf Partners presented the Simplot team to the Turf
Partners sales force, describing Simplot's potential investment in Eco Soil. At
the meeting, the parties discussed their mutual interest in completing the
investment transaction and aggressively marketing and distributing Simplot's
products in Turf Partners' distribution network.
At meetings held on January 24 and 25, 2000, Eco Soil and Simplot
agreed to the terms of a second letter of intent, which reflected Simplot's
proposed acquisition of $20 million in shares of a newly issued class of
preferred stock of Eco Soil that would be convertible into common stock of
either Eco Soil or Turf Partners. The letter of intent set forth the terms of
definitive documents to govern the investment, which would include (i) an
agreed upon value for Turf Partners of six times Turf Partners 2000 EBITDA
from the sale of Turf Partners' distributed products, (ii) Simplot receiving
an option to acquire, under certain circumstances, additional equity
ownership of Turf Partners, (iii) an agreement between the parties relating
to the operation of Turf Partners pending the sale of its stock to Simplot,
(iv) an agreement between the parties relating to the distribution of Eco
Soil's proprietary products by Turf Partners and through Simplot's
distribution channels and (v) an agreement by Simplot to test Eco Soil's
BioJect-Registered Trademark- system on its potato fields. The letter of
intent called for the transactions to close at the end of March 2000.
On February 8, 2000, Eco Soil and Simplot issued a joint press
release announcing the letter of intent, the plan for a broadened
distribution agreement relating to the sales of Eco Soil proprietary products
through Simplot's distribution channels and for an agreement relating to
Simplot's field trials of Eco Soil's BioJect-Registered Trademark- system.
At the Golf Course Superintendents Association of America meetings
held on February 18 and 19, 2000, Bill Adams, Doug Gloff and Nick Spardy and
Wayne Burk, Doyle Jacklin and Tom Stoesser, representatives of Turf Partners
and Simplot, respectively, continued their discussions, focussing on the
appropriate territories to be covered by the distribution agreement, timing
of the arrangements as well as the competitive impacts of the transactions,
and necessary discussions to be held the next day with representatives of the
Anderson Company. Mr. Adams, Mr. Gloff and Mr. Spardy met with Mike Anderson,
Rick Anderson and Matt Anderson, the Anderson's management team, to discuss
the possible distribution of both product lines from Simplot and the Anderson
Company.
Between March 7 and 9, 2000, Ray Sasso and Bill Adams met and
discussed Simplot's desire to acquire Turf Partners outright or at least
majority control of Turf Partners rather than Simplot making an equity
investment in Eco Soil. Simplot cited concerns about Eco Soil's financial
viability as its reasons for backing away from the structure described in the
letter of intent. Bill Adams and Mark Buckner of Eco Soil proposed a valuation
analysis based on Turf Partners 2000 EBITDA, which the parties used as the
basis for their discussion in March 2000. Upon further evaluation of the
proposal, Mr. Sasso informed Eco Soil during telephone conference calls that
Simplot was not inclined to purchase a portion of Turf Partners pending
approval by Eco Soil's shareholders of the sale of the entire subsidiary. Mr.
Sasso also informed Eco Soil's representatives that Simplot would acquire Turf
Partners only through an asset purchase transaction, not a stock purchase or
merger.
Latham & Watkins, counsel to Eco Soil and Turf Partners, circulated
a draft Asset Purchase Agreement to the management of both companies on March
13, 2000. Following negotiations of the document by representatives of
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Simplot, Eco Soil and Turf Partners, the management of Eco Soil, Turf
Partners and Simplot approved and executed a revised draft Asset Purchase
Agreement on March 27, 2000, pending approval of the Boards of Directors of
Eco Soil and Turf Partners. On March 28, 2000, Eco Soil announced the signing
of a definitive agreement.
Under the definitive agreement executed on March 27, 2000, Simplot
agreed to purchase Turf Partners' assets for an amount equal to six (6) times
Turf Partners' 2000 earnings before interest, taxes, depreciation and
amortization, commonly referred to as EBITDA, from the sale of its
distributed products, less certain balance sheet adjustments. Simplot agreed
to make a down payment of $20,000,000 at the closing of the Asset Sale. The
down payment was subject to adjustment based on Turf Partners' net tangible
assets at June 30, 2000, the EBITDA generated by Turf Partners during the
first six months of 2000, Turf Partners' ability to meet certain financial
tests using its June 30, 2000 balance sheet and the amount outstanding
under Turf Partners' credit facility with Coast Business Credit (the "Coast
Loan"). Simplot agreed to pay the balance of the purchase price on March 1,
2001. The final payment was subject to adjustment based on a final
determination of the specified financial tests and the average outstanding
balance under the Coast Loan during 2000. Simplot also agreed to assume Turf
Partners' liabilities associated with its existing vendor payables, contracts
and leases and the amount outstanding under the Coast Loan.
Eco Soil's Board of Directors met on March 28, 2000 to discuss and
approve the Asset Purchase Agreement. Representatives of Latham & Watkins
discussed the terms of the Asset Purchase Agreement with Eco Soil's Board and
responded to questions about the agreement. Also at this meeting,
representatives of CIBC World Markets reviewed with the Eco Soil Board of
Directors its financial analysis of the consideration to be received by Eco
Soil in the Asset Sale. The Eco Soil Board of Directors then discussed with its
advisors the fact that the proposed Asset Purchase Agreement did not permit Eco
Soil to respond to an unsolicited bid to acquire all of Eco Soil and the risks
associated with the absence of such a provision. Following discussions, the Eco
Soil Board approved the Asset Purchase Agreement and the Asset Sale, subject to
further negotiation of a provision permitting Eco Soil, in the exercise of its
fiduciary duties, to respond to an unsolicited acquisition proposal for the
company and subject to receipt of CIBC World Markets' opinion. The Turf
Partners Board of Directors also approved the Asset Purchase Agreement, on
the same terms as the Eco Soil Board of Directors on March 28, 2000.
During the week following the meeting of the Eco Soil Board, the
parties held further discussions relating to amending the Asset Purchase
Agreement in a way that would allow Eco Soil to participate in negotiations
with any third party that might in the future submit an unsolicited proposal
to acquire all of Eco Soil. On April 5, 2000, the parties executed an Amended
and Restated Asset Purchase Agreement, and CIBC World Markets rendered to the
Eco Soil Board of Directors its opinion to the effect that, as of that date
and based on and subject to the matters described in its opinion, the
consideration to be received by Eco Soil in the Asset Sale was fair, from a
financial point of view, to Eco Soil.
Messrs. Adams and Sasso met several times between May 22 and
May 30, 2000 to discuss the status of the Asset Sale. During the course of
these meetings, they discussed the impact that Eco Soil's and Turf Partners'
difficulty in obtaining adequate working capital was having on Turf Partners'
ability to generate EBITDA, and the effect the absence of working capital
would have on the ultimate purchase price Simplot would pay for Turf
Partners' assets. The parties ultimately agreed that the lack of working
capital would reduce Turf Partners' 2000 EBITDA and therefore reduce the
purchase price to be received by Turf Partners below the range originally
contemplated by the parties.
On May 30, 2000, representatives of Eco Soil, Turf Partners and
Simplot agreed to revise the Purchase Agreement (i) to provide for a fixed
purchase price of $23,000,000 to be paid in cash at the closing of the Asset
Sale and (ii) to eliminate Turf Partners' rights to terminate the Purchase
Agreement if it did not obtain adequate working capital. Simplot agreed that
the revisions would not eliminate its agreement to assume Turf Partners'
liabilities in the Asset Sale, as contemplated by the Purchase Agreement.
In addition to the modifications to the Purchase Agreement, the
discussions between the parties in late May 2000 also resulted in the
following:
- Simplot agreed to revise the conditions to its obligations
under the Term Loan Agreement executed between Eco Soil, Turf
Partners and Simplot on April 12, 2000 to arrange a letter of
credit to secure Eco Soil's obligations under the Coast
Loan so that Eco Soil can use the assets previously
securing that loan to obtain additional working capital from
another lender;
- Simplot agreed to revise the conditions to its obligations to
lend Eco Soil $3,000,000 pursuant to the Term Loan Agreement
executed between Eco Soil, Turf Partners and Simplot on
April 12, 2000;
- Simplot and Eco Soil agreed to the final terms of the supply
and distribution and field trial agreements called for by the
Purchase Agreement;
- Simplot and Eco Soil agreed to the terms of a Corporate
Management Agreement pursuant to which Simplot will manage the
day-to-day operations of Turf Partners pending the closing of the
Asset Sale; and
- Eco Soil's directors agreed to enter into Shareholder Voting
Agreements pursuant to which they have agreed to vote their
shares of Eco Soil common stock in favor of the Asset Sale.
A draft First Amendment to Amended and Restated Asset Purchase
Agreement was circulated to the parties on June 1, 2000. Following
negotiations of the terms of the Agreement by representatives of Eco Soil,
Turf Partners and Simplot, the managements of Eco Soil, Turf Partners and
Simplot agreed to the terms of a revised draft First Amendment to Amended and
Restated Asset Purchase Agreement on June 9, 2000.
Eco Soil's Board of Directors met on June 9, 2000 to discuss and
approve the Amendment. Representatives of Latham & Watkins discussed the
terms of the Amendment with Eco Soil's Board of Directors and responded to
questions about its effect on the terms of the Asset Sale. Also at the
meeting, representatives of CIBC World Markets reviewed with Eco Soil's
Board of Directors its financial analysis with respect to the revised
consideration in the Asset Sale and rendered its opinion to the Eco Soil Board
of Directors to the effect that, as of that date and based on
and subject to the matters described in its opinion, the revised consideration
to be received by Eco Soil in the Asset Sale was fair, from a financial point of
view, to Eco Soil. Following the discussions, the Eco Soil Board of
Directors approved the Amendment and the Asset Sale, as modified by the
Amendment, and resolved to recommend that Eco Soil's shareholders approve
them. Turf Partners' Board of Directors also approved the Amendment and the
Asset Sale, as modified by the Amendment.
REASONS FOR THE ASSET SALE
Eco Soil's Board of Directors chose to recommend the Purchase
Agreement and Asset Sale because it views the Asset Sale as beneficial to Eco
Soil and its shareholders for several reasons, including the increased
financial flexibility it will provide Eco Soil through the addition of working
capital and reduction of debt while expanding the turf and agricultural markets
for Eco Soil's proprietary products.
In reaching its decision to recommend and approve the Purchase
Agreement and the Asset Sale, Eco Soil's Board of Directors consulted with its
advisors and considered a number of factors, including the following:
- Information regarding the financial performance, business
operations, capital requirements and future prospects of Eco Soil
and the Turf Partners business. The Board reviewed the likelihood
of realizing a long-term value equal to or greater than the value
offered by Simplot if the Turf Partners business was not sold.
The Board determined that the ability to obtain such value would
depend on numerous factors, many of which were speculative,
uncertain and out of Eco Soil's control. These factors include
the need for significant capital investments in the Turf Partners
business and the volatile nature of the turf products industry.
In light of these uncertainties, the Board determined that the
interests of Eco Soil's shareholders were better served by the
sale of the Turf Partners business to Simplot.
- The terms of the Purchase Agreement, including the price, the
proposed structure of the Asset Sale and Simplot's financial
strength, the fact that financing is not a condition to the Asset
Sale and the fact that the Purchase Agreement requires that Eco
Soil and Simplot enter into distribution agreements whereby Eco
Soil's proprietary products will be distributed and sold into turf
and agricultural markets through Simplot's nationwide network of
retail stores.
- The process engaged by Eco Soil's management in evaluating the
Asset Sale, which included discussions with several parties
regarding potential strategic investments or acquisitions of Eco
Soil and/or Turf Partners, and the view of Eco Soil's Board of
Directors that it was unlikely that a superior offer for the Turf
Partners business would arise and be consummated.
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- A review of alternatives to a sale of the Turf Partners business,
including alternative sources of financing and alternative
strategic partnerships arrangements, and the time, costs and
capital expenditure requirements associated with each alternative.
- CIBC World Markets' financial presentation and its written
opinion as to the fairness, from a financial point of view and as
of the date of the opinion, to Eco Soil of the consideration to
be received by Eco Soil in the Asset Sale, as described below
under the caption "Opinion of Eco Soil's Financial Advisor."
- That the Purchase Agreement permits Eco Soil to participate in
negotiations with any third party that has submitted an
unsolicited proposal to acquire all of Eco Soil and, if the Board
determines that its fiduciary duties require, permits the Board
to withdraw its recommendation to the shareholders of Eco Soil to
vote in favor of the Asset Sale.
The foregoing addresses the material information and factors
considered by Eco Soil's Board of Directors in its consideration of the Asset
Sale. In view of the variety of factors and the amount of information
considered, Eco Soil's Board of Directors did not find it practicable to
provide specific assessments of, quantify or otherwise assign relative weights
to the specific factors considered in reaching its determination. The
determination to recommend that Eco Soil's shareholders approve the Purchase
Agreement and the Asset Sale was made after consideration of all of the factors
taken as a whole. In addition, individual members of the Board may have given
different weights to different factors.
PURCHASE PRICE
Simplot has agreed to purchase Turf Partners' assets for a purchase
price of $23,000,000. Simplot will pay the purchase price to Turf Partners by
wire transfer, net of an amount in respect of certain expenses incurred by Eco
Soil in connection with the Asset Sale, on the closing of the Asset Sale, which
is expected to occur in late July 2000. Simplot also will assume Turf Partners'
liabilities associated with its existing vendor payables, contracts and
leases, and will assume amounts outstanding under the Coast Loan.
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ASSETS TO BE SOLD
Except as provided below, Turf Partners will sell to Simplot all of
the right, title and interest in the business, properties, assets and rights of
any kind, whether tangible or intangible, real or personal that are used
primarily in Turf Partners' business whether owned by Turf Partners or in which
Turf Partners has an interest. The following assets will not be sold to Simplot:
- any right, title or interest of Turf Partners in any
BioJect-Registered Trademark- systems;
- any right, title or interest of Turf Partners in any intellectual
property relating to BioJect-Registered Trademark- systems,
FreshPack-TM- products, CleanRack products and other proprietary
products;
- all licenses, permits, approvals, authorizations, consents of, or
filings with, any governmental authority, or any other person,
necessary or desirable for the conduct of the Turf Partners'
business, to the extent not transferable;
- all claims of any kind against any person or entity arising out
of or relating to the assets not to be sold to Simplot in the
Asset Sale;
- all intercompany receivables of Turf Partners which are owed by
Eco Soil or any affiliate of Eco Soil or Turf Partners;
- all of Turf Partners' real property leases that Simplot elects
not to assume, as provided by the Purchase Agreement; and
- all employee benefit plans of Eco Soil or Turf Partners and all
assets relating to those employee benefit plans.
Simplot may assign its rights under the Purchase Agreement to a
subsidiary, so long as Simplot remains obligated to perform its obligations
under the Purchase Agreement.
USE OF PROCEEDS
Eco Soil plans to use a portion of the proceeds to fund transaction
expenses related to the Asset Sale. Eco Soil estimates that the expenses
incurred in connection with the Asset Sale (including accounting, legal,
financial advisory services, filing and printing fees) will aggregate
approximately $1.6 million. Eco Soil intends to use the remaining proceeds
of the Asset Sale to repay the $3,000,000 loan that Simplot intends to make
to Eco Soil and Turf Partners pursuant to a Term Loan Agreement dated as of
April 12, 2000 among Simplot, Eco Soil and Turf Partners, to repay long-term
indebtedness of Eco Soil and for Eco Soil's working capital purposes.
THE CLOSING OF THE ASSET SALE
The closing is expected to occur two business days following the
satisfaction or waiver of all of the conditions to each party's obligations
under the Purchase Agreement, or on another date as the parties mutually agree.
It is currently anticipated that the closing will occur in late July 2000.
REPRESENTATIONS AND WARRANTIES
The Purchase Agreement contains various representations and warranties
of Turf Partners and Eco Soil related to, among other things, corporate
organization and similar corporate matters; authorization and enforceability of
the Purchase Agreement; government approvals and filings; contracts;
obligations and commitments; litigation; employees and labor matters;
compliance with law; ownership, title to and condition of the tangible assets;
registrations; permits, approvals and similar consents; tax matters; insurance;
accounts receivable; inventory and compliance with environmental laws.
The Purchase Agreement contains various representations and warranties
of Simplot related to, among other things, corporate organization and similar
corporate matters; authorization and enforceability of the Purchase Agreement;
requisite consents and approvals and brokers.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION
All representations and warranties of the parties contained in the
Purchase Agreement will survive the closing of the Asset Sale for a period of
one year following the closing of the Asset Sale, except that the
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representations and warranties made by Turf Partners relating to employee
benefits plans, tax matters and compliance with environmental laws survive
until the expiration of the applicable statutes of limitations.
Eco Soil and Turf Partners have agreed to indemnify Simplot and its
affiliates and subsidiaries from and against all losses, damages, claims and
expenses incurred in connection with, arising out of or incident to:
- the breach of any representation or warranty made by Eco Soil or
Turf Partners in or pursuant to the Purchase Agreement;
- the breach of any covenant or agreement by Turf Partners in or
pursuant to the Purchase Agreement;
- the liabilities excluded from the Asset Sale; or
- any liability imposed upon Simplot by reason of its status as
transferee of Turf Partners' assets and the Turf Partners
business.
Simplot has agreed to indemnify Eco Soil, Turf Partners and their
respective affiliates and subsidiaries from and against all losses, damages,
claims and expenses incurred in connection with, arising out of or incident to:
- the breach of any representation or warranty made by Simplot in
or pursuant to the Purchase Agreement;
- the breach of any covenant or agreement by Simplot in or pursuant
to the Purchase Agreement; or
- after the closing of the Asset Sale, any liability assumed by
Simplot in the Asset Sale.
Under the Purchase Agreement, Simplot may withhold and set off against
any amounts otherwise due Turf Partners any amount by which Turf Partners is
obligated to indemnify Simplot under the Purchase Agreement. Each party will
not be liable for any indemnification claim under the Purchase Agreement until
either the amount of any individual claim exceeds $100,000 or the amount of all
claims exceed $200,000.
CONDITIONS OF THE ASSET SALE
Turf Partners' obligations to consummate the Asset Sale are subject to
the satisfaction or waiver of some conditions, including the following:
- the representations of Simplot being true and correct in all
material respects as of the closing of the Asset Sale;
- Simplot having performed and satisfied in all material respects
all agreements and covenants required to be performed by it prior
to or on the closing of the Asset Sale;
- receipt of all permits, consents, approvals and waivers of
governmental authorities and other parties necessary for the
consummation of the Asset Sale, including the expiration of the
waiting periods under the HSR Act;
- the release of specified liens covering some of Turf Partners'
assets;
- Simplot having executed separate agreements assuming the Turf
Partners liabilities to be assumed in the Asset Sale; calling for
Simplot to sell Eco Soil's proprietary products into turf and
agricultural markets through its retail distribution network and
calling for Simplot to perform field trials of Eco Soil's
BioJect-Registered Trademark- system on its potato fields; and
- the shareholders of Eco Soil having approved the Purchase
Agreement and the Asset Sale.
Simplot's obligations to consummate the Asset Sale are subject to the
satisfaction or waiver of some conditions, including the following:
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- the representations of Turf Partners being true and correct in all
material respects as of the closing of the Asset Sale;
- Turf Partners having performed and satisfied in all material
respects all agreements and covenants required to be performed by
it prior to or on the closing of the Asset Sale;
- receipt of all permits, consents, approvals and waivers of
governmental authorities and other parties necessary for the
consummation of the Asset Sale, including the expiration of the
waiting periods under the HSR Act;
- the release of specified liens covering some of Turf Partners'
assets;
- the shareholders of Eco Soil having approved the Purchase
Agreement and the Asset Sale.
TERMINATION OF THE ASSET SALE
The Purchase Agreement may be terminated at any time prior to the
closing of the Asset Sale: (a) by mutual written consent of Turf Partners or
Simplot; (b) by Simplot upon a material breach in Turf Partners'
representations and warranties or in Turf Partners or Eco Soil's covenants,
or the failure, or the occurrence of an event that would result in the
failure of any condition to Simplot's obligations to consummate the
transaction; (c) by Turf Partners upon a material breach in Simplot's
representations and warranties or covenants, or the failure, or the
occurrence of an event that would result in the failure of any condition to
Turf Partners and Eco Soil's obligations to consummate the transaction and
(d) by either party if the closing of the Asset Sale does not occur on or
before August 31, 2000 (unless the other party has the right to terminate the
Purchase Agreement pursuant to (b) or (c) above, as the case may be).
NO SOLICITATION
The Purchase Agreement prohibits Eco Soil from soliciting,
negotiating, encouraging or responding to any inquiries or proposals related to
the acquisition of the Turf Partners assets or the Turf Partners business.
However, the Purchase Agreement permits Eco Soil to participate in negotiations
with any third party that has submitted an unsolicited proposal to acquire all
of Eco Soil and, if the Board determines that its fiduciary duties require, the
Purchase Agreement permits the Board to withdraw its recommendation to the
shareholders of Eco Soil to vote in favor of the Asset Sale. If the Board
withdraws its recommendation to vote in favor of the transaction following
negotiations with a third party regarding an unsolicited proposal to acquire
Eco Soil, the Purchase Agreement requires that Eco Soil pay Simplot (a) a
break-up fee in the amount of $250,000 plus Simplot's actual expenses incurred
in respect to its environmental due diligence, and (b) a fee equal to five
percent (5%) of the acquisition price offered by a third party attributable to
the assets of Turf Partners. The Purchase Agreement requires that such fee is
to be paid upon the earlier of (i) a mutual agreement between Eco Soil, Turf
Partners and Simplot to terminate the Purchase Agreement in light of the
transaction related to the acquisition of all of Eco Soil; (ii) upon
termination of the Purchase Agreement by Simplot pursuant to the rights
described in (b) and (d) of "Termination of the Asset Sale" above; or (iii) the
date of the Annual Meeting, if Eco Soil's shareholders fail to approve the
Purchase Agreement and the Asset Sale,
FEES AND EXPENSES
Turf Partners, Eco Soil and Simplot are required to pay their own
legal, accounting, out-of-pocket and other expenses incident to the Purchase
Agreement and to any action taken by such party in preparation for carrying the
Purchase Agreement into effect; provided, however, that Turf Partners has
agreed to reimburse Simplot for one half of the filing fee required under the
HSR Act.
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NO PAYMENT, DIVIDEND OR DISTRIBUTION TO HOLDERS OF COMMON STOCK
The shareholders of Eco Soil will not receive any payments, whether
as a dividend or distribution in liquidation, as a result of the Asset Sale.
Any determination to pay dividends in the future will be at the discretion of
Eco Soil's Board of Directors and will be dependent upon Eco Soil's results
of operations, financial condition, capital requirements, contractual
restrictions and other factors deemed relevant by the Board of Directors. The
Board of Directors does not intend to declare dividends in the foreseeable
future, but instead intends to retain earnings, if any, for use in Eco Soil's
business.
CERTAIN TAX CONSEQUENCES OF THE SALE
The following summary describes the principal United States federal
income tax consequences of the Asset Sale. This summary is based upon the
Internal Revenue Code of 1986, as amended to the date of this proxy statement
(the "Code"), existing and proposed United States Treasury Regulations
promulgated under the Code, published rulings, administrative pronouncements
and judicial decisions, changes to which could affect the tax consequences
described in this offer (possibly on a retroactive basis).
CONSEQUENCES TO TURF PARTNERS. Turf Partners will recognize gain or
loss for federal income tax purposes on the sale of the Turf Partners
business in the Asset Sale. Turf Partners' gain or loss will be determined
based upon the amount of purchase price (increased by the liabilities of Turf
Partners properly accrued as of the closing of the asset sale, to the extent
assumed by Simplot) allocated to each asset and Turf Partners' tax basis for
each asset. To the extent that the purchase price (as increased) allocated to
an asset exceeds its tax basis, Turf Partners will recognize gain on the
disposition of the asset, and vice versa. Because Turf Partners will be
included in Eco Soil's consolidated federal income tax return for the taxable
year that includes the sale, all gains and losses recognized by Turf Partners
will be included on Eco Soil's federal income tax return for the taxable year
that includes the sale. The Asset Sale may also result in state or local,
income, franchise, sales, use or other tax liabilities in state or local tax
jurisdictions in which Turf Partners files returns.
CONSEQUENCES TO ECO SOIL'S SHAREHOLDERS. Holders of Eco Soil common
stock will not recognize any gain or loss due to the Asset Sale. However, if
a shareholder chooses to sell his or her shares or to exercise dissenters'
rights if available, that shareholder may owe taxes at that time.
Shareholders are encouraged to contact their own tax advisor.
ACCOUNTING TREATMENT OF THE SALE
The Asset Sale will be accounted for as a sale of assets transaction.
OPINION OF ECO SOIL'S FINANCIAL ADVISOR
Eco Soil engaged CIBC World Markets to act as its exclusive
financial advisor in connection with the Asset Sale. On March 28, 2000, at a
meeting of Eco Soil's Board of Directors held to evaluate the Purchase
Agreement and the Asset Sale, CIBC World Markets reviewed with Eco Soil's
Board of Directors its financial analysis of the consideration to be received
in the Asset Sale. On April 5, 2000, the date on which the Amended and
Restated Asset Purchase Agreement was executed, CIBC World Markets delivered
to Eco Soil's Board of Directors a written opinion to the effect that, as of
the date of the opinion and based on and subject to the matters described in
its opinion, the consideration to be received in the Asset Sale was fair,
from a financial point of view, to Eco Soil. On June 9, 2000, at a meeting
of Eco Soil's Board of Directors held to evaluate the revised terms of the
Asset Sale, CIBC World Markets rendered to Eco Soil's Board of Directors an
oral opinion, confirmed by delivery of a written opinion dated June 9, 2000,
to the effect that, as of that date and based on and subject to the matters
described in its opinion, the revised consideration to be received in the
Asset Sale was fair, from a financial point of view, to Eco Soil. In
connection with its opinion dated June 9, 2000, CIBC World Markets updated
its analyses performed in connection with its earlier opinion and reviewed
the assumptions on which the analyses were based and the factors considered
in connection with its opinion.
The full text of CIBC World Markets' written opinion dated June 9,
2000, which describes the assumptions made, matters considered and
limitations on the review undertaken, is attached as Annex D and is
incorporated herein by reference. CIBC WORLD MARKETS' OPINION IS ADDRESSED TO
ECO SOIL'S BOARD OF DIRECTORS, RELATES ONLY THE FAIRNESS, FROM A FINANCIAL
POINT OF VIEW, TO ECO SOIL OF THE CONSIDERATION TO BE RECEIVED BY ECO SOIL IN
THE ASSET SALE, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER
AS TO HOW TO VOTE WITH RESPECT TO MATTERS RELATING TO THE
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ASSET SALE. THE SUMMARY OF CIBC WORLD MARKETS' OPINION DESCRIBED BELOW IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF ITS OPINION.
In arriving at its opinion, CIBC World Markets:
- reviewed the Purchase Agreement;
- reviewed audited financial statements for Eco Soil for the
fiscal years ended December 31, 1997, December 31, 1998 and
December 31, 1999;
- reviewed unaudited financial statements for Eco Soil for the
fiscal quarter ended March 31, 1999;
- reviewed financial projections for Turf Partners' business
prepared by the management of Eco Soil;
- held discussions with the senior management of Eco Soil with
respect to Eco Soil, Turf Partners' business and their
prospects for future growth, including the near-term liquidity
needs of, and capital resources available to, Eco Soil and
Turf Partners' business;
- reviewed and analyzed publicly available financial data for
companies with operations CIBC World Markets deemed comparable
to Turf Partners' business;
- reviewed and analyzed publicly available information for
transactions that CIBC World Markets deemed comparable to the
Asset Sale;
- reviewed public information concerning Turf Partners'
business; and
- performed other analyzes and reviewed other information as it
deemed appropriate.
In rendering its opinion, CIBC World Markets relied on and assumed,
without independent verification or investigation, the accuracy and
completeness of all of the financial and other information provided to or
discussed with it by Eco Soil and its employees, representatives and
affiliates. With respect to forecasts of the future financial condition and
operating results of Turf Partners' business provided to or discussed with
CIBC World Markets, CIBC World Markets assumed, at the direction of Eco
Soil's management, without independent verification or investigation, that
the forecasts were reasonably prepared on bases reflecting the best available
information, estimates and judgments of the management of Eco Soil. In
addition, Eco Soil's management advised CIBC World Markets that, on or before
the closing of the Asset Sale, Eco Soil and Simplot, or their affiliates,
would enter into agreements providing for, among other things, the
distribution, sale and testing by Simplot of Eco Soil's proprietary
products and transitional services to be provided to Simplot by Eco Soil. To
the extent material to CIBC World Markets' analysis, CIBC World Markets
assumed, with Eco Soil's consent, that the transactions contemplated by those
agreements would be consummated in accordance with the terms discussed with CIBC
World Markets by Eco Soil's management.
CIBC World Markets did not make or obtain any independent
evaluations or appraisals of the assets or liabilities, contingent or
otherwise, of Turf Partners' business. CIBC World Markets expressed no
opinion as to the underlying valuation, future performance or long-term
viability of Turf Partners' business. In connection with its engagement, CIBC
World Markets was not requested to, and did not, solicit third party
indications of interest with respect to the acquisition of all or a part of
Turf Partners' business. CIBC World Markets' opinion was necessarily based on
the information available to CIBC World Markets and general economic,
financial and stock market conditions and circumstances as they existed and
could be evaluated by CIBC World Markets on the date of its opinion. Although
subsequent developments may affect its opinion, CIBC World Markets does not
have any obligation to update, revise or reaffirm its opinion. Eco Soil
imposed no other instructions or limitations on CIBC World Markets with
respect to the investigations made or the procedures followed by it in
rendering its opinion.
This summary is not a complete description of CIBC World Markets'
opinion to Eco Soil's Board of Directors or the financial analyses performed
and factors considered by CIBC World Markets in connection with its opinion.
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most
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appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, a fairness
opinion is not readily susceptible to summary description. CIBC World Markets
believes that its analyses and this summary must be considered as a whole and
that selecting portions of its analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
processes underlying CIBC World Markets' analyses and opinion.
In performing its analyses, CIBC World Markets considered industry
performance, general business, economic, market and financial conditions and
other matters existing as of the date of its opinion, many of which are
beyond the control of Eco Soil. No company, business or transaction used in
such analyses as a comparison is identical to Eco Soil, Turf Partners'
business or the Asset Sale, and an evaluation of the results of those
analyses is not entirely mathematical. Rather, the analyses involve complex
considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
analyzed.
The estimates contained in CIBC World Markets' analyses and the
ranges of valuations resulting from any particular analysis are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, CIBC World Markets' analyses
and estimates are inherently subject to substantial uncertainty.
CIBC World Markets' opinion and financial analyses were only one of
many factors considered by Eco Soil's Board of Directors in its evaluation of
the Asset Sale and should not be viewed as determinative of the views of Eco
Soil's Board of Directors or management with respect to the Asset Sale or the
consideration payable in the Asset Sale. The type and amount of consideration
payable in the Asset Sale was determined through negotiation between Eco Soil
and Simplot. Although CIBC World Markets provided financial advice to Eco
Soil during the course of negotiations, the decision to enter into the Asset
Sale was solely that of Eco Soil's Board of Directors.
The following is a summary of the material financial analyses
presented by CIBC World Markets to Eco Soil's Board of Directors in
connection with its opinion dated June 9, 2000.
SELECTED COMPANIES ANALYSIS. CIBC World Markets compared financial
and stock market information for Eco Soil and the following nine selected
publicly held companies in the turf products industry:
- AG Services of America, Inc. - Terra Industries Inc.
- The Andersons, Inc. - The Toro Company
- Central Garden & Pet Company - U.S. Home & Garden Inc.
- LESCO, Inc. - Verdant Brands, Inc.
- The Scotts Company
CIBC World Markets reviewed enterprise values, calculated as equity market
value, plus debt, less cash, as multiples of, among other things, latest 12
months and estimated calendar years 2000 and 2001 EBITDA. CIBC World Markets
then applied selected multiples of latest 12 months and estimated calendar
years 2000 and 2001 EBITDA derived from the selected companies to
corresponding financial data of Turf Partners' business. Estimated calendar
year 2000 EBITDA data was not considered meaningful due to operating losses
of Turf Partners' business for this operational measure. All multiples were
based on closing stock prices on June 8, 2000. Estimated financial data for
the selected companies were based on publicly available research analysts'
estimates and estimated financial data for Turf Partners' business, including
amounts related to the estimated consideration to be received by Eco Soil in
the Asset Sale, were based on internal estimates of the management of Eco
Soil. This analysis indicated an implied enterprise reference range for Turf
Partners business' of approximately $12,309,000 to $20,710,000, as compared
to the estimated consideration, including assumption of the Coast Loan and
other liabilities of Eco Soil, to be received by Eco Soil in the Asset Sale
of $39,862,000.
SELECTED TRANSACTIONS ANALYSIS. CIBC World Markets reviewed the
purchase prices and implied transaction multiples in the following three
selected transactions in the turf products industry:
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<TABLE>
<CAPTION>
Acquiror Target
-------- ------
<S> <C>
- Cenex/Land O'Lakes Agronomy Company Terra Industries Inc. (Distribution Business)
- The Scotts Company Monsanto Company (Consumer Lawn and Garden
Businesses)
- U.S. Home & Garden Inc. Weatherly Consumer Products Group, Inc.
</TABLE>
CIBC World Markets reviewed enterprise values in the selected transactions as
multiples of, among other things, latest 12 months EBITDA. CIBC World Markets
then applied selected multiples of latest 12 months EBITDA derived from the
selected transactions to corresponding financial data of Turf Partners'
business. All multiples for the selected transactions were based on publicly
available information at the time of announcement of the relevant transaction
and estimated financial data for Turf Partners' business, including amounts
related to the estimated consideration to be received by Eco Soil in the
Asset Sale, were based on internal estimates of the management of Eco Soil.
This analysis indicated an implied enterprise reference range for Turf
Partners' business of approximately $15,929,000 to $26,442,000, as compared
to the estimated consideration, including assumption of the Coast Loan and other
liabilities of Eco Soil, to be received by Eco Soil in the Asset Sale of
$39,862,000.
OTHER FACTORS. In rendering its opinion, CIBC World Markets also
reviewed and considered other factors, including:
- historical market prices and trading volumes of Eco Soil
common stock and the relationship between movements in Eco
Soil common stock, movements in an index comprised of the
common stock of the selected companies and movements in the
S&P Mid-Cap 400 Index; and
- selected research analysts' reports on Eco Soil.
MISCELLANEOUS. Eco Soil has agreed to pay CIBC World Markets for its
financial advisory services upon completion of the Asset Sale an aggregate
fee of $1.15 million. In addition, Eco Soil has agreed to reimburse CIBC World
Markets for its reasonable out-of-pocket expenses, including reasonable fees
and expenses of its legal counsel, and to indemnify CIBC World Markets and
related parties against liabilities, including liabilities under the federal
securities laws, relating to, or arising out of, its engagement.
Eco Soil selected CIBC World Markets based on CIBC World Markets'
reputation, expertise and familiarity with Eco Soil. CIBC World Markets is an
internationally recognized investment banking firm and, as a customary part
of its investment banking business, is regularly engaged in valuations of
businesses and securities in connection with acquisitions and mergers,
underwritings, secondary distributions of securities, private placements and
valuations for other purposes. CIBC World Markets and its affiliates have in
the past provided services to Eco Soil unrelated to the proposed Asset Sale,
for which services CIBC World Markets and its affiliates have received
compensation. In the ordinary course of business, CIBC World Markets and its
affiliates may actively trade the securities of Eco Soil for their own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
CONDUCT OF BUSINESS
After the Asset Sale, Eco Soil will continue to develop, market and
sell proprietary biological products that provide solutions for a wide
variety of turf and crop problems in the golf and agricultural industries.
Eco Soil has developed a portfolio of microbial programs to be applied via
standard spray procedures in the case of the FreshPack-TM- product line, or
through Eco Soil's patented BioJect-Registered Trademark- system. These
naturally occurring microbes complement or reduce the need for many chemical
products currently used in golf and agricultural markets. After the Asset
Sale, Eco Soil also will continue to market and sell traditional chemical
products and other supplies in agricultural markets
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OTHER AGREEMENTS WITH SIMPLOT
The Purchase Agreement calls for Eco Soil and Simplot to enter into
separate agreements pursuant to which Simplot will sell Eco Soil's
proprietary products into turf and agricultural markets and commence field
trials of Eco Soil's proprietary products on its potato fields. Under the
agreement relating to agricultural markets, Eco Soil's proprietary products
would be distributed through Simplot's Soilbuilders organization.
In connection with the execution of the Amendment, Eco Soil, Turf
Partners and Simplot also agreed to the terms of a Corporate Management
Agreement, pursuant to which Simplot will manage the day-to-day business of
Turf Partners pending the closing of the Asset Sale. The Corporate Management
Agreement will provide Simplot the right to take the following actions:
- Designate a Chief Financial Officer and general manager of
Turf Partners that will oversee the day-to-day operation of
Turf Partners;
- Maintain direct supervisions of Turf Partners employees;
- Enter into contracts in the name of Turf Partners in the
ordinary course of business; and
- Advance working capital to Turf Partners on terms that do
not violate existing agreements of Turf Partners.
In addition, as an inducement to Simplot to enter in to the
Amendment, the members of Eco Soil's Board of Directors entered into
Shareholder Voting Agreements, pursuant to which they agreed to vote their
shares of Eco Soil common stock in favor of the Purchase Agreement and the
Asset Sale. A form of the Shareholder Voting Agreement is attached to this
Proxy Statement as Annex C.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Eco Soil files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that Eco
Soil files at the Securities and Exchange Commissions public reference rooms
in Washington, D.C., New York and Chicago, Illinois. Please call the
Securities and Exchange Commission at 1-800-SEC 0330 for further information
on the public reference rooms. Securities and Exchange Commission filings are
also available to the public from commercial document retrieval services and
at the Web site maintained by the Securities and Exchange Commission at
"http://www.sec.gov."
DISSENTER'S RIGHTS
The Asset Sale may be deemed a sale by Eco Soil of all, or
substantially all, of its assets under Section 21-21,136 of the Business
Corporation Act of Nebraska. Pursuant to Sections 21-20,137 through 21-20,150
of the Business Corporation Act of Nebraska, shareholders of Eco Soil have
the right to dissent from the a sale of all, or substantially all, of the
property of a corporation other than in the usual and regular course of
business if shareholders of the corporation are entitled to vote on the sale.
Such rights and the procedures established for protection of such rights are
attached to this proxy as Annex E.
Any shareholder wishing to dissent and obtain payment for his or her
shares must (a) deliver to Eco Soil, before the vote is taken, written notice
of his or her intent to demand payment for his or her shares if the proposed
action is effectuated, and (b) not vote his or her shares in favor of the
proposed action. A shareholder who fails in either respect will lose his or
her right to payment.
All notices to Eco Soil regarding the exercise of dissenters' rights
must be received by Eco Soil prior to the vote to approve the Purchase
Agreement and the Asset Sale, either by mail, hand delivery or otherwise. Eco
Soil will accept written notice of dissent as its offices located at 10740
Thornmint Road, San Diego, California 92127 up to the close of business the
day before the Annual Meeting an by hand delivery at the Annual Meeting, up
to the time the vote is taken.
BOARD RECOMMENDATION
ECO SOIL'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PURCHASE
AGREEMENT, HAS DETERMINED THAT THE ASSET SALE IS IN THE BEST INTERESTS OF ECO
SOIL AND ITS SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE PURCHASE AGREEMENT AND THE ASSET SALE.
32
<PAGE>
PRO FORMA CONDENSED FINANCIAL INFORMATION
AS OF MARCH 31, 2000
THE FOLLOWING UNAUDITED PRO FORMA CONDENSED BALANCE SHEET GIVES EFFECT TO THE
PROPOSED ASSET SALE OF TURF PARTNERS, INC. AND RETIREMENT OF THE LONG TERM
DEBT OF ECO SOIL SYSTEMS, INC. AND SHOWS THE BALANCE SHEET THAT WOULD REMAIN
AT MARCH 31, 2000.
ECO SOIL SYSTEMS, INC
PROFORMA CONDENSED BALANCE SHEET
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
TURF PARTNERS PRO FORMA
CONSOLIDATED NET ASSETS SOLD ADJUSTMENTS PRO FORMA
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH $ 1,224,266 - $ 1,224,266
ACCOUNTS RECEIVABLE, NET 23,361,526 $ (18,012,466) 5,349,060
INVENTORIES 15,880,696 (10,240,812) 5,639,884
OTHER CURRENT ASSETS 5,605,067 (1,245,024) 4,360,043
-----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 46,071,555 (29,498,303) 16,573,253
FIXED ASSETS, NET 19,217,385 (1,571,889) 17,645,496
GOODWILL, NET 12,731,703 - (7,496,181) 2 5,235,524
OTHER ASSETS 576,832 (282,470) 294,262
DEBT ISSUANCE COSTS 6,982,773 (158,192) (4,196,072) 2 2,628,509
OTHER INTANGIBLE ASSETS, NET 1,343,045 - 1,343,045
-----------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 21,634,353 (440,662) 9,501,440
-----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 86,923,293 $ (31,510,854) $ 43,720,189
=============================================================================================================================
ACCOUNTS PAYABLE $ 26,364,074 $ (14,726,322) $ (3,400,000) 1 $ 8,237,754
DEFERRED REVENUE 374,508 - 374,508
LONG TERM DEBT, CURRENT 40,256,878 (14,757,913) (15,000,000) 1 10,498,966
CAPITAL LEASES, CURRENT 127,541 (67,430) 60,111
ACCRUED EXPENSES 4,393,797 (1,747,145) 2,646,651
-----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 71,516,798 (31,298,810) 21,817,990
TOTAL LONG TERM LIABILITIES 2,229,364 (212,044) 2,017,320
-----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 73,746,162 (31,510,854) 23,835,310
-----------------------------------------------------------------------------------------------------------------------------
TOTAL EQUITY 13,177,131 6,707,747 1&2 19,884,878
-----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & EQUITY $ 86,923,293 $ (31,510,854) $ 43,720,189
=============================================================================================================================
</TABLE>
SEE NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED).
THE FOLLOWING ADJUSTMENTS HAVE BEEN MADE TO REFLECT THE PRO FORMA EFFECT
OF THE ASSET SALE AND RETIREMENT OF LONG TERM DEBT AS IF THOSE
TRANSACTIONS WERE CONSUMMATED AS OF MARCH 31, 2000.
# NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET:
--------------------------------------------------------------------------
1 TO REFLECT THE NET CASH PROCEEDS FROM THE SALE AND IT'S USE TO PAY OFF
ECO SOIL'S LONG TERM DEBT AS FOLLOWS:
<TABLE>
<S> <C>
CASH PROCEEDS FROM SALE $ 23,000,000
REPAY LONG TERM DEBT (15,000,000)
REPAY SIMPLOT ADVANCE (3,000,000)
EXPENSES OF SALE (1,600,000)
---------------------------------------------------------
NET CASH TO ACCOUNTS PAYABLE $ 3,400,000
2 TO REFLECT THE BOOK GAIN ON THE SALE AFTER RELATED WRITEOFFS AND EXPENSES:
CASH PROCEEDS FROM SALE $ 23,000,000
PROJECTED NET ASSET VALUE --
WRITE OFF GOODWILL (7,496,181)
EXPENSES OF SALE (1,600,000)
---------------------------------------------------------
GAIN ON SALE $ 13,903,819
</TABLE>
3 NO FEDERAL TAX PAYMENTS ARE ATTRIBUTED TO THE GAIN DUE TO THE EXISTENCE OF
NET OPERATING LOSS CARRYFORWARDS. THERE MAY BE STATE AND OTHER TAXES
ACCRUING ON THE TRANSACTION IN SELECTED STATES THAT ARE NOT REFLECTED
ABOVE.
33
<PAGE>
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000 (UNAUDITED).
THE FOLLOWING UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS GIVE EFFECT TO THE PROPOSED ASSET SALE OF TURF PARTNERS, INC.
AND RETIREMENT OF LONG TERM DEBT OF ECO SOIL SYSTEMS, INC. THE PRO FORMA
REFLECTS THE SALE OF SELECTED ASSETS AND ASSUMPTION OF RELATED LIABILITIES
AND RETIREMENT OF LONG TERM DEBT ASSUMING THE TRANSACTION HAD TAKEN EFFECT
ON JANUARY 1, 1999.
ECO SOIL SYSTEMS, INC
PROFORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
TURF PARTNERS PRO FORMA
CONSOLIDATED BUSINESS SOLD ADJUSTMENTS # PRO FORMA
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES
PROPRIETARY PRODUCTS $ 1,291,810 $ - $ 1,291,810
DISTRIBUTED PRODUCTS 17,098,856 (12,175,087) 4,923,769
----------------------------------------------------------------------------------------------------------- ------------------
TOTAL REVENUES 18,390,666 (12,175,087) 6,215,579
COST OF REVENUES
PROPRIETARY PRODUCTS 820,226 820,226
DISTRIBUTED PRODUCTS 12,648,650 (8,870,578) 3,778,072
----------------------------------------------------------------------------------------------------------- ------------------
TOTAL COST OF REVENUES 13,468,876 (8,870,578) 4,598,298
GROSS PROFIT 4,921,790 (3,304,509) 1,617,281
GROSS MARGIN 26.8% 27.1% 26.0%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,381,362 (4,153,181) (1,604,778) 1 2,623,403
DEPRECIATION 292,312 (116,261) 176,051
AMORTIZATION OF INTANGIBLE ASSETS 293,330 (151,848) 141,482
----------------------------------------------------------------------------------------------------------- ------------------
INCOME (LOSS) FROM OPERATIONS (4,045,214) (1,116,781) (1,323,655)
GAIN ON SALE OF TURF PARTNERS' ASSETS 13,903,819 2 13,903,819
INTEREST EXPENSE 2,010,574 (372,392) (4,549,145) 3 (2,910,963)
----------------------------------------------------------------------------------------------------------- ------------------
NET INCOME (LOSS) $ (6,055,788) $ (1,489,173) $ (9,669,201)
</TABLE>
# NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS:
--------------------------------------------------------------------------
1 ECO SOIL'S SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ATTRIBUTED TO TURF
PARTNERS' BUSINESS FOR THREE MONTHS ENDED MARCH 31, 2000.
2 GAIN ON SALE OF TURF PARTNERS' ASSETS AS IF CONSUMMATED ON JANUARY 1,
2000.
3 ASSUMES LONG TERM DEBT OF $15,000,000 AT 14% INTEREST PER ANNUM WAS
RETIRED FOR THE ENTIRE THREE MONTH PERIOD PLUS AMORTIZATION OF DEBT
ISSUANCE COSTS OF $289,332 AND WRITE OFF OF UNAMORTIZED DEBT ISSUANCE
COSTS AS OF JANUARY 1, 2000 OF $3,734,813.
ECO SOIL SYSTEMS INC
PROFORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
TURF PARTNERS PRO FORMA
CONSOLIDATED BUSINESS SOLD ADJUSTMENTS # PRO FORMA
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES
PROPRIETARY PRODUCTS $ 7,489,741 $ - $ 7,489,741
DISTRIBUTED PRODUCTS 116,041,572 (91,333,287) 24,708,285
---------------------------------------------------------------------------------------------------------- ------------------
TOTAL REVENUES 123,531,313 (91,333,287) 32,198,026
COST OF REVENUES
PROPRIETARY PRODUCTS 5,715,827 - 5,715,827
DISTRIBUTED PRODUCTS 91,208,865 (72,585,879) 18,622,986
---------------------------------------------------------------------------------------------------------- ------------------
TOTAL COST OF REVENUES 96,924,692 (72,585,879) 24,338,813
GROSS PROFIT 26,606,621 (18,747,408) 7,859,213
GROSS MARGIN 21.5% 20.5% 24.4%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 38,816,699 (17,796,901) (10,652,489) 4 10,367,309
DEPRECIATION 1,077,091 (448,042) 629,049
AMORTIZATION OF INTANGIBLE ASSETS 1,154,615 (614,612) 540,003
---------------------------------------------------------------------------------------------------------- ------------------
INCOME (LOSS) FROM OPERATIONS (14,441,784) (112,147) (3,677,148)
GAIN ON THE SALE OF TURF PARTNERS, INC.'S ASSETS 13,903,819 5 13,903,819
INTEREST EXPENSE 3,964,352 (755,474) (3,883,803) 6 (674,925)
---------------------------------------------------------------------------------------------------------- ------------------
NET INCOME (LOSS) (18,406,136) (867,621) 10,901,596
</TABLE>
# NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS:
---------------------------------------------------------------------------
4 ECO SOIL'S SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ATTRIBUTED TO TURF
PARTNERS' BUSINESS FOR THE YEAR 1999.
5 REFLECTS THE GAIN ON THE SALE OF TURF PARTNERS' ASSETS AS IF CONSUMMATED
JANUARY 1, 1999.
6 ASSUMES LONG TERM DEBT OF $15,000,000 AT 14% INTEREST PER ANNUM WAS RETIRED
FOR THE ENTIRE ONE YEAR PERIOD PLUS AMORTIZATION OF DEBT ISSUANCE COSTS OF
$315,933 IN 1999 AND WRITEOFF OF UNAMORTIZED DEBT ISSUANCE COSTS AT
JANUARY 1, 1999 OF $1,467,870.
34
<PAGE>
PROPOSAL 2
ELECTION OF DIRECTORS
GENERAL
The Board of Directors currently consists of six members. The size
of the Board of Directors will be reduced to five members immediately prior
to the Annual Meeting, however, pursuant to a resolution duly adopted by the
Board in accordance with Eco Soil's bylaws. Eco Soil's Articles of
Incorporation provide for the classification of the Board of Directors into
three classes, as nearly equal in number as possible, with staggered terms of
office and provides that upon the expiration of the term of office for a
class of directors, nominees for such class shall be elected for a term of
three years or until their successors are duly elected and qualified. At this
meeting, one nominee for director is to be elected as a Class I director. The
nominee is Edward N. Steel. The Class II and Class III directors have one
year and two years, respectively, remaining on their terms of office. If no
contrary indication is made, proxies in the accompanying form are to be voted
for such nominee or, in the event any such nominee is not a candidate or is
unable to serve as a director at the time of the election (which is not
currently expected), for any nominee who shall be designated by the Board of
Directors to fill such vacancy. Mr. Steel is a member of the present Board of
Directors.
In July 1999, pursuant to its authority under Eco Soil's Articles of
Incorporation and Bylaws, the Board of Directors increased the number of
directors serving on the Board from six to seven, and elected Edward N. Steel
to fill this new seat. Edward C. "Whitey" Ford retired from the Board in
January 2000. The Board elected Robert W. O'Leary to fill this seat expiring
in 2001. In May 2000, Douglas M. Gloff and Fridolin Fackelmeyer resigned from
the Board. The Board then elected Max D. Gelwix to fill Mr. Gloff's seat and
reduced the size of the Board to six members. S. Bartley Osborn, who
currently serves as a Class I director, has declined to stand for reelection.
In voting for the election of directors of Eco Soil under the
Nebraska Business Corporation Act, all shareholders may cumulate their votes
in the election of directors for any nominee if the nominee's name was placed
in nomination prior to the voting. Under cumulative voting, each shareholder
is entitled in the election of directors to vote one vote for each share held
by him multiplied by the number of directors to be elected, and he may cast
all such votes for a single nominee for director or may distribute them among
any two or more nominees as he sees fit. The candidates receiving the highest
number of votes, up to the number of directors to be elected, will be
elected. The Proxy solicited by the Board of Directors confers discretionary
authority on the proxies to cumulate votes so as to elect the maximum number
of directors. The Proxy may not be voted for more than one person.
INFORMATION REGARDING DIRECTORS
The information set forth below as to the Board of Director's
nominee for director has been furnished to Eco Soil by the nominee for
director:
NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS
TERM EXPIRING AT THE
2003 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH ECO SOIL
<S> <C> <C>
Edward N. Steel 52 Director
</TABLE>
EDWARD N. STEEL has served as a director of Eco Soil since July 1999.
Since February 1986, Mr. Steel has been the President of Boardroom Homebuilders,
Inc., a privately held construction company. From May 1975 to January 1986, Mr.
Steel worked in various capacities for IBM culminating in the position of
Manager of Strategic Planning.
35
<PAGE>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING AT THE
2001 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH ECO SOIL
<S> <C> <C>
Robert W. O'Leary 56 Director
William S. Potter 56 Director
</TABLE>
ROBERT W. O'LEARY has served as a director of Eco Soil since January
2000. Since January 1996, Mr. O'Leary has been the Chairman of Premier, Inc., a
privately held strategic healthcare alliance. From July 1991 to March 1995, Mr.
O'Leary served as Chairman and Chief Executive Officer of American Medical
International, a privately held health care management company. From September
1989 to July 1991, Mr. O'Leary served as Chief Executive Officer of Voluntary
Hospitals of America, a privately held national hospital alliance. Mr. O'Leary
also serves as a member of the Board of Directors of Thermo Electron Corporation
(NYSE: TMO).
WILLIAM S. POTTER served as a director of Eco Soil since August 1992.
Since 1988, Mr. Potter has been President of Rugged Rigger, Inc., a personal
services corporation, which has created Pauma Valley Organics, a certified
organic produce farm. From 1970 to 1988, Mr. Potter worked in various capacities
for H.M. Stevens Incorporated, a national food service and catering company
specializing in sporting events, culminating in the positions of Operational
Vice President and Director.
TERM EXPIRING AT THE
2002 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH ECO SOIL
<S> <C> <C>
William B. Adams 53 Chairman of the Board, Chief
Executive Officer, and Director
Max D. Gelwix 49 President and Chief Operating
Officer
</TABLE>
WILLIAM B. ADAMS has served as Chairman of the Board and Chief
Executive Officer of Eco Soil since March 1991. From 1985 to 1994, Mr. Adams was
Chairman of the Board of Chronimed, Inc., a publicly held medical products
company, and served as Chairman of the Board of Orphan Medical, Inc., a publicly
traded spin-off of Chronimed through December 1998. Prior to his involvement
with Eco Soil, Mr. Adams founded WBA Consultants, Ltd., a management consulting
firm, in 1980 and participated as chief executive officer in corporate
turnarounds. From August 1989 to February 1991, Mr. Adams was Executive Chairman
of Printrak, Inc., a publicly held developer of specialized identification
systems used by the law enforcement community. From April 1986 to April 1988,
Mr. Adams was President and Chief Executive Officer of Check Technology
Corporation, a manufacturer of electronic printing equipment. Mr. Adams received
his B.A. from Texas Tech University.
MAX D. GELWIX joined Eco Soil in September 1998 as Vice President and
was promoted to President and Chief Operating Officer in March 2000. Mr. Gelwix
was elected to fill a vacancy on the Board in May 2000. From 1979 through June
1996 he served as Executive Vice President of Arthur J. Gallagher & Co., an
international risk management and insurance brokerage organization, and was the
President of Maxell Enterprises, a risk management consulting firm, from June
1996 through September 1997. Mr. Gelwix received his B.S. degree from Colorado
State University.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
NOMINEE SET FORTH ABOVE. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO
VOTED UNLESS SHAREHOLDERS SPECIFY OTHERWISE ON THE ACCOMPANYING PROXY.
36
<PAGE>
BOARD MEETINGS AND COMMITTEES
Eco Soil's Board of Directors held five regularly scheduled meetings
during 1999. No nominee for director who served as a director during the past
year attended fewer than 75% of the aggregate of the total number of meetings of
the Board of Directors and the total number of meetings of committees of the
Board of Directors on which he served. The Board of Directors has established a
Compensation Committee and an Audit Committee. Eco Soil does not have a
Nominating Committee.
COMPENSATION COMMITTEE
The Compensation Committee consists of Messrs. Osborn, Potter and
Adams. Following the Annual Meeting, Messrs. [Steel], Potter and Adams will
serve on the Compensation Committee. The Compensation Committee provides
recommendations concerning salaries and incentive compensation for Eco Soil's
officers and administers Eco Soil's benefit plans, other than the 1992 Stock
Option Plan. The Compensation Committee held five meetings during 1999.
AUDIT COMMITTEE
The Audit Committee consists of Messrs. O'Leary and Steel. The Audit
Committee recommends to the Board of Directors the engagement of Eco Soil's
independent public accountants and reviews the scope and results of their audits
and other services. The Audit Committee meets with management and with the
independent public accountants to review matters relating to the quality of Eco
Soil's financial reporting and internal accounting control, including the
nature, extent and results of the audits, proposed changes to Eco Soil's
accounting principles and otherwise maintains communications between the
independent public accountants and the Board of Directors. The Audit Committee
held one meeting during 1999.
COMPENSATION OF DIRECTORS
Eco Soil has not paid any cash compensation to a director in his
capacity solely as a director and has no present plan to pay directors' fees. It
is Eco Soil's current policy to award non-employee directors an option to
purchase 10,000 shares of Eco Soil's common stock at the then-current market
price, vesting over three years, upon becoming a director and options to
purchase 3,000 shares of common stock at the then-current market price, vesting
after six months, on the date of each annual meeting of shareholders if the
director has served since the previous annual meeting of shareholders and has
been elected to an additional term, if applicable. All directors are reimbursed
for travel and other out-of-pocket expenses incurred in connection with
attendance at meetings of the Board of Directors.
37
<PAGE>
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF ECO SOIL
The executive officers and key employees of Eco Soil and their ages
as of June 9, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
EXECUTIVE OFFICERS
William B. Adams 53 Chairman of the Board, Chief Executive Officer
and Director
Max D. Gelwix 49 President, Chief Operating Officer and Director
Dennis Sentz 52 Vice President, Finance, Chief Financial Officer
and Secretary
KEY EMPLOYEES
John M. Doyle 41 Vice President, Biological Product Management
Michael M. Iverson 58 Vice President, Operations
Nicholas R. Spardy 35 Vice President, Turf Partners
</TABLE>
DENNIS SENTZ joined Eco Soil in May 1999 as Vice President of
Accounting and Controller and was promoted to Chief Financial Officer in
March 2000. From June 1997 to April 1999, Mr. Sentz served as Chief Financial
Officer of BE&K-BECHTEL International, an engineering and construction joint
venture, based in Singapore. From June 1993 to May 1997, Mr. Sentz worked for
Foster Wheeler Energy Corporation as Vice President and Chief Financial
Officer of the Power Generation business. Prior to that, Mr. Sentz spent nine
years as Controller and later Chief Financial Officer of Instrumentarium
Imaging, Inc., a high-tech medical equipment manufacturer and distributor.
Mr. Sentz received his B.B.A. in Accounting from the University of Wisconsin
in 1970 and holds both the CPA and CMA certifications.
JOHN M. DOYLE joined Eco Soil in May 1994 as the Vice President of
Biological Product Management. Mr. Doyle is responsible for product and
technology acquisition, regulatory issues, production, marketing and
communication materials, product testing and sales support for Eco Soil's
BioJect system. Prior to joining Eco Soil, Mr. Doyle spent seven years in
various positions with Ringer Corporation, a supplier of natural turf
maintenance products based in Minneapolis, Minnesota, culminating in the
position of Vice President of Product Development. Mr. Doyle received his
B.S. and M.S. on Horticulture from the University of Nebraska.
MICHAEL M. IVERSON joined Eco Soil in March 1998 as Vice President
of Operations after serving as a consultant to Eco Soil on a part-time basis
from August 1997 to March 1998. From June 1996 to August 1997, Mr. Iverson
served as Vice President of Operations with a division of Scientific
Atlantic, an electronics manufacturing company. Mr. Iverson operated his own
management consulting firm from June 1994 to May 1996. From June 1990 to May
1994, Mr. Iverson served as Director of Manufacturing with a division of
General Dynamics, a defense contracting company. Mr. Iverson received his
B.S. in Mechanical Engineering from California State University, San Luis
Obispo, and his M.S. in Aeronautical Engineering from the Naval Postgraduate
School.
NICHOLAS R. SPARDY joined Eco Soil in January 1997 as Vice President
of Western Region, Turf Partners. From May 1991 to January 1997, Mr. Spardy
was Manager of Wilber-Ellis Company, a distributor of seed and soil
amendments to the turf industry. Prior to that, Mr. Spardy spent four years
as a Turf Specialist at Medalist Seed Company. Mr. Spardy received his B.S.
in Ornamental Horticulture from Cal Poly Pomona in 1987 and has been a
Turfgrass Instructor at Cuyamaca College since 1990.
38
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table shows for each of the last three full fiscal
years, compensation awarded, paid to, or earned by Eco Soil's Chief Executive
Officer and the three most highly compensated executive officers other than
the Chief Executive Officer who were serving as executive officers at the end
of the last completed fiscal year and who made more than $100,000 during such
fiscal year (the "Named Executive Officers"). No other executive officers at
the end of the last completed fiscal year made more than $100,000 during such
fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------------------------- -------------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS COMPENSATION OPTIONS (#)
------- ----------- -------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
WILLIAM B. ADAMS 1999 $300,000(4) $ 0 $ 13,440(6) 450,000
Chairman of the Board and Chief Executive 1998 150,000 0 0 0
Officer 1997 142,188 0 0 50,000
MAX D. GELWIX (1) 1999 $106,666 $ 7,500 $ 0 9,375
President and Chief Operating Officer 1998 87,500 0 0 15,000
1997 26,442 0 0 72,000
DOUGLAS M. GLOFF (2) 1999 $230,000 $ 40,500(5) $ 12,000(6) 450,000
Former President and Chief Operating 1998 150,000 0 0 0
Officer 1997 142,188 0 0 20,000
MARK D. BUCKNER (3) 1999 $133,270 $ 65,000 0 400,000
Former Chief Financial Officer and Secretary
</TABLE>
------------------
(1) Mr. Gelwix joined Eco Soil in September 1998 as Vice President and was
promoted to President and Chief Operating Officer in March 2000. The
amount shown in the salary column in 1997 reflects the amount actually
paid to Mr. Gelwix by Eco Soil in 1997.
(2) Mr. Gloff resigned as President and Chief Operating Officer in March
2000.
(3) Mr. Buckner joined Eco Soil in April 1999 as Chief Financial Officer and
resigned in March 2000. The amount shown in the salary column in 1999
reflects the amount actually paid to Mr. Buckner by Eco Soil in 1999.
(4) Mr. Adams agreed to defer $125,000 of his 1999 salary.
(5) Mr. Gloff agreed to defer $55,000 of his 1999 salary and his 1999 bonus.
Pursuant to his separation agreement, Mr. Gloff will receive this
$90,500 over a 13 month period beginning in April 2000. See "Employment
Agreements."
(6) Reflects auto allowances paid to Messrs. Adams and Gloff.
39
<PAGE>
STOCK OPTION GRANTS TABLE
The following table provides information concerning the grant of
stock options to the Named Executive Officers of Eco Soil during fiscal 1999.
Eco Soil does not have any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (1)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -------------------------------
GRANTED IN FISCAL YEAR SHARE DATE 5% 10%
------- -------------- ----- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
William B. Adams 450,000 18.1% $4.44 05/27/04 $553,500 $1,219,500
Max D. Gelwix 9,375 * 5.75 03/09/04 14,906 33,000
Douglas M. Gloff 450,000 18.1% 4.44 05/27/04 553,500 1,219,500
Mark D. Buckner 100,000 4.0% 5.25 03/22/04 145,000 322,000
300,000 12.1% 5.25 07/06/04 35,000 966,000
</TABLE>
------------------
* Less than 1%
(1) The assigned rates of growth were selected by the Securities and
Exchange Commission for illustrative purposes only and are not intended
to predict or forecast future stock prices.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides information with respect to the Named
Executive Officers, concerning the exercise of stock options during fiscal
1999 and unexercised options held as of the end of fiscal 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)(1)
ACQUIRED ON VALUE --------------------- ----------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William B. Adams 110,000 $440,000 356,661 466,667 $613,459 $0
Max D. Gelwix 0 N/A 70,041 34,334 2,912 208
Douglas M. Gloff 55,500 124,875 378,889 456,667 289,578 0
Mark D. Buckner 0 N/A 20,000 380,000 0 0
</TABLE>
------------
(1) Based on the closing sale price of Eco Soil's common stock on December
31, 1999 ($4.312), as reported by the Nasdaq National Market, less the
option exercise price.
EMPLOYMENT AGREEMENTS
Eco Soil does not currently have employment agreements with any of its
executive officers.
Eco Soil entered into a separation agreement with Mark D. Buckner in
March 2000. Pursuant to this separation agreement, Eco Soil accelerated the
vesting of options to purchase an aggregate of 80,000 shares of common stock
at an exercise price of $5.25 per share. Pursuant to the separation
agreement, Mr. Buckner agreed to provide consulting services to Eco Soil
through December 31, 2001. Eco Soil has agreed to pay Mr. Buckner $150 per
hour for these consulting services (or $80 per hour for time spent in
connection with the investigation, analysis or defense of any pending or
future claims against or litigation involving Eco Soil) and to vest options
to purchase 50 shares of common stock for each consulting hour worked by Mr.
Buckner. In addition, Mr. Buckner will receive a facilitation fee of 1% of
any financing in which Mr. Buckner participates or introduces to Eco Soil
(other than any currently pending financing transactions).
40
<PAGE>
Eco Soil entered into a separation agreement with Douglas M. Gloff
in March 2000. Pursuant to this separation agreement, Eco Soil has agreed to
make severance payments to Mr. Gloff in the amount of $115,000. This
severance, together with amounts owed Mr. Gloff for unpaid salary and
bonuses, will be paid over a 13 month period beginning in April 2000. In
addition, Eco Soil accelerated the vesting of options to purchase 200,000
share of common stock at an exercise price of $4.44 per share. These options
expire on May 1, 2003. Further, Eco Soil agreed that all of Mr. Gloff's other
vested options would remain exercisable until July 30, 2001.
COMPENSATION PLANS
1992 STOCK OPTION PLAN. In February 1992, Eco Soil adopted a Stock
Option Plan (the "1992 Plan"), under which 125,000 shares of Eco Soil's
common stock were initially reserved for issuance upon exercise of options
granted to officers, employees and directors of, and advisors and consultants
to, Eco Soil. The 1992 Plan provides for the grant of both stock options
intended to qualify as incentive stock options as defined in the Internal
Revenue Code of 1986, as amended (the "Code"), and nonqualified stock
options. The 1992 Plan will terminate on February 4, 2002, unless sooner
terminated by the Board of Directors. Eco Soil's shareholders approved an
increase in the number of shares reserved for issuance under the Option Plan
to 250,000 shares in August 1993, to 350,000 shares in April 1995, to 450,000
shares in May 1996, to 900,000 shares in November 1996 and to 1,100,000
shares in June 1997. The principal purposes of the 1992 Plan are to provide
incentives for officers, employees and consultants of Eco Soil and its
subsidiaries through the granting of options, thereby stimulating their
personal and active interest in Eco Soil's development and financial success,
and inducing them to remain in Eco Soil's employ.
The 1992 Plan provides for option grants covering up to 1,100,000
shares of Eco Soil's common stock. As of June 9, 2000, options to purchase
an aggregate of 487,723 shares of Eco Soil's common stock at prices ranging
from $3.00 to $5.63 were outstanding under the 1992 Plan. No additional
shares remain available for grant under the 1992 Plan.
1996 DIRECTORS' OPTION PLAN. The 1996 Directors' Stock Option Plan
(the "Directors' Plan") provided for the automatic grant of nonstatutory
stock options to nonemployee directors. Eco Soil initially reserved a total
of 60,000 shares of Eco Soil's common stock for issuance under the Directors'
Plan. As of June 9, 2000, no additional shares were available for the grant
of options under the Directors' Plan.
1998 STOCK OPTION PLAN. In February 1998, Eco Soil adopted the 1998
Stock Option Plan of Eco Soil Systems, Inc. (the "1998 Plan"), under which
1,000,000 shares of Eco Soil's common stock were initially reserved for
issuance upon exercise of options granted to officers, employees and
directors of, and consultants to, Eco Soil. Eco Soil's shareholders approved
the adoption of the 1998 Plan on June 19, 1998. The 1998 Plan provides for
the grant of both stock options intended to qualify as incentive stock
options as defined in the Code and nonqualified stock options. The 1998 Plan
will terminate on February 3, 2008, unless sooner terminated by the Board of
Directors. The Board of Directors approved an increase in the number of
shares reserved for issuance under the 1998 Plan to 1,400,000 shares in
December 1998 and to 1,600,000 shares in April 1999. Eco Soil's shareholders
approved these increases in the number of shares available for issuance under
the 1998 Plan in June 1999. The principal purposes of the 1998 Plan are to
provide incentives for officers, employees and consultants of Eco Soil and
its subsidiaries through the granting of options, thereby stimulating their
personal and active interest in Eco Soil's development and financial success,
and inducing them to remain in Eco Soil's employ.
The 1998 Plan provides for option grants covering up to 1,600,000
shares of Eco Soil's common stock. As of June 9, 2000, options had been
granted (net of those canceled) to purchase an aggregate of 1,182,450 shares
of Eco Soil's common stock at prices ranging from $3.00 to $9.63 under the
1998 Plan. 381,645 additional shares remain available for grant under the
1998 Plan.
1999 EQUITY PARTICIPATION PLAN. In April 1999, Eco Soil adopted the
1999 Equity Participation Plan of Eco Soil Systems, Inc. (the "1999 Plan"),
under which 1,600,000 shares of Eco Soil's common stock were initially
reserved for issuance upon exercise of options granted to Eco Soil's senior
management. Eco Soil's shareholders approved the adoption of the 1999 Plan in
June 1999. The 1999 Plan provides for the grant of both stock options
41
<PAGE>
intended to qualify as incentive stock options as defined in the Code and
nonqualified stock options. The 1999 Plan will terminate on April 19, 2009,
unless sooner terminated by the Board of Directors. The principal purposes of
the 1999 Plan are to provide incentives for members of Eco Soil's senior
management through granting of options and stock purchase rights, thereby
stimulating their personal and active interest in Eco Soil's development and
financial success, and inducing them to remain in Eco Soil's employ. The 1999
Plan provides for option grants covering up to 1,600,000 shares of Eco Soil's
common stock. As of June 9, 2000, options had been granted (net of those
canceled) to purchase an aggregate of 900,000 shares of Eco Soil's common
stock at prices ranging from $4.44 to $4.44 under the 1999 Plan. 700,000
additional shares remain available for grant under the 1999 Plan.
1999 NEW HIRE STOCK OPTION PLAN. In June 1999, Eco Soil adopted the
1999 New Hire Stock Option Plan of Eco Soil Systems, Inc. (the "New Hire
Plan"), under which 1,000,000 shares of Eco Soil's common stock were
initially reserved for issuance upon exercise of options granted to Eco
Soil's employees. The New Hire Plan provides for the grant of non-qualified
stock options. The principal purposes of the New Hire Plan are (i) to provide
additional incentives for employees of Eco Soil to further the growth,
development and financial success of Eco Soil by personally benefiting
through the ownership of Eco Soil common stock which recognizes such growth,
development and financial success and (ii) to enable Eco Soil to obtain and
maintain the services of employees considered essential to the long range
success of Eco Soil. The New Hire Plan provides for option grants covering up
to 1,000,000 shares of Eco Soil's common stock. As of June 9, 2000, options
had been granted (net of those canceled) to purchase an aggregate of 206,995
shares of Eco Soil's common stock at prices ranging from $2.00 to $5.25 under
the New Hire Plan. 793,005 additional shares remain available for grant under
the New Hire Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the Compensation Committee was comprised of Messrs.
Osborn, Potter and Adams. Mr. Adams is the Chief Executive Officer of Eco
Soil. See "Certain Transactions" for a description of a $111,000 payment made
by Eco Soil to Mr. Adams in 1999 in connection with the lease of Eco Soil's
new headquarters facility.
No interlocking relationship exists between any member of the
Compensation Committee and any member of any other company's board of
directors or compensation committee.
CERTAIN TRANSACTIONS
In January 1999, Eco Soil paid $111,000 to Mr. Adams, $111,000 to
Mr. Gloff and $60,000 to Mr. Gelwix to satisfy a contingent payment
obligation agreed to by Eco Soil in December 1997 relating to Eco Soil's new
headquarters facility. In the fall of 1997, the Board of Directors determined
that Eco Soil needed a new headquarters facility but that Eco Soil should not
make a long term commitment of its financial resources to ownership of the
new facility. With this understanding, Messrs. Adams, Gloff and Gelwix sought
out and found a new facility that would meet Eco Soil's needs. They then
entered into an agreement to purchase the facility with the intent of leasing
space to Eco Soil. Eco Soil, however, elected not to move forward on this
basis. Instead, Eco Soil elected to acquire the rights of Messrs. Adams,
Gloff and Gelwix to purchase the facility and then seek an unrelated third
party with whom Eco Soil could enter into a sale-leaseback transaction. The
transfer to Eco Soil of the purchase rights occurred in December 1997, and as
consideration for the transfer Eco Soil agreed to pay Messrs. Adams, Gloff
and Gelwix the amount, if any, by which Eco Soil's ultimate profit on a sale
to a third-party purchaser exceeded $420,000. Eco Soil closed the purchase,
sale and leaseback of the facility in December 1998, and the payments
described above were made shortly thereafter in satisfaction of the
contingent payment obligation related to such sale.
Management of Eco Soil believes that the terms of the transactions
described above were no less favorable to Eco Soil than would have been
obtained from an unaffiliated third party. Any future material transactions
and loans with officers, directors or 5% beneficial shareholders of Eco
Soil's common stock, or affiliates of such persons, will be on terms no less
favorable to Eco Soil than could be obtained from unaffiliated third parties
and will be approved by a majority of the outside members of Eco Soil's Board
of Directors who do not have an interest in the transactions.
42
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the
"Committee") establishes the general compensation policies of Eco Soil and
the compensation plans and the specific compensation levels for senior
executives, including Eco Soil's Chief Executive Officer.
GENERAL COMPENSATION PHILOSOPHY
The primary objectives of Eco Soil's executive compensation policies
include the following:
- To attract, motivate, and retain a highly qualified executive
management team;
- To link executive compensation to Eco Soil's financial
performance as well as to defined individual management
objectives established by the Committee;
- To compensate competitively with the practices of similarly
situated companies; and
- To create management incentives designed to enhance
shareholder value.
Eco Soil competes in an aggressive industry and, as a result,
believes that finding, motivating, and retaining quality employees,
particularly senior managers, sales personnel, and operational personnel are
key factors to Eco Soil's future success. The Committee's compensation
philosophy seeks to align the interests of shareholders and management by
tying compensation to Eco Soil's achievement of strategic objectives and to
financial performance. Therefore, Eco Soil positions its senior managers'
base salaries below competitive levels and provides for annual cash and
equity bonuses to significantly reward the achievement of financial and
strategic objectives. Eco Soil and the Committee believe this philosophy will
motivate the executives and, thereby, reinforce the accomplishments of Eco
Soil's strategic and financial goals.
ELEMENTS OF THE COMPENSATION PROGRAM
CASH COMPENSATION. Eco Soil seeks to provide cash compensation to
its executive officers, including base salary and an annual cash bonus, at
levels that are slightly below the median level of the cash compensation of
executives with comparable responsibility at similarly situated companies.
Annual increases in base salary are determined on an individual basis based
on market data and a review of the officer's performance and contribution to
various individual, departmental, and corporate objectives. Cash bonuses are
intended to provide additional incentives to achieve such objectives.
ANNUAL INCENTIVE PLAN. Eco Soil has not established an annual
incentive plan.
LONG-TERM INCENTIVES. The objectives of Eco Soil's long-term
incentive program are to offer opportunities for stock ownership that are
competitive with those at the peer companies and to encourage and create
ownership and retention of Eco Soil's stock by key employees. Grant levels
under Eco Soil's employee stock option plans are made in consideration of
awards to officers within peer companies and an assessment of the executive's
tenure, responsibilities and accomplishments of individual strategic and
financial objectives.
CEO COMPENSATION
In January 1999, Eco Soil's Compensation Committee approved an
increase of Mr. Adams' annual salary to $300,000. Although Mr. Adams received
base salary of $300,000 during 1999, he agreed to defer $125,000 of his 1999
his base salary and he did not receive any cash bonus during the year. This
salary level is below that of CEO salaries at comparable companies. Mr. Adams
abstained from all Compensation Committee matters relating to his
compensation.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code limits the federal
income tax deductibility of compensation paid to Eco Soil's Chief Executive
Officer and to each of the other four most highly-compensated executive
officers.
43
<PAGE>
Eco Soil may deduct such compensation only to the extent that during any
fiscal year the compensation paid to such individual does not exceed $1
million or meet certain specified conditions (including shareholder
approval). Based on Eco Soil's current compensation plans and policies and
proposed regulations interpreting this provision of the Code, Eco Soil and
the Committee believe that, for the foreseeable future, there is little risk
that Eco Soil will lose any significant tax deduction for executive
compensation.
THE COMPENSATION COMMITTEE
William S. Potter
S. Bartley Osborn
William B. Adams
PERFORMANCE GRAPH
The following graph presents a comparison of the cumulative total
return of Eco Soil's common stock since Eco Soil's January 17, 1997 initial
public offering, the Russell 2000 Index and the Index of Crop Service
Companies (SIC Code 0721). The graph assumes an initial investment of $100 at
January 17, 1997 and the reinvestment of all dividends.
<TABLE>
<CAPTION>
-----------------------------FISCAL YEAR ENDING---------------------------
COMPANY/INDEX/MARKET 1/17/1997 12/31/1997 12/31/1998 12/31/1999
<S> <C> <C> <C> <C>
Eco Soil Systems 100.00 113.20 194.44 95.83
Crop Services 100.00 87.63 42.70 18.30
Russell 2000 Index 100.00 119.94 116.58 139.42
</TABLE>
44
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 9, 2000, the number and
percentage ownership of Eco Soil's common stock by: (i) each director of Eco
Soil, (ii) each Named Executive Officer (as defined above) of Eco Soil, (iii)
each person or entity known by Eco Soil to own beneficially more than five
percent of Eco Soil's common stock and (iv) all directors and executive
officers of Eco Soil as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF
NAME AND ADDRESS (1) BENEFICIAL OWNERSHIP OUTSTANDING SHARES
-------------------- -------------------- ------------------
<S> <C> <C>
William B. Adams (2)............................... 1,805,290 9.6%
Max D. Gelwix (3).................................. 165,708 *
Douglas M. Gloff (4)............................... 1,122,833 6.0%
Mark D. Buckner (5)................................ 120,000 *
William S. Potter (6).............................. 430,132 2.3%
P.O. Box 8173
Rancho Santa Fe, CA 92067
S. Bartley Osborn (7).............................. 112,833 *
360 Orono Orchard Road
Wayzata, MN 55391
Edward N. Steel (8)................................ 3,300 *
41 Ravine Lake Road
Bernardsville, NJ 07924
Robert W. O'Leary ................................. 0 0%
P.O. Box 7274
Rancho Santa Fe, CA 92067
All executive officers and directors as a group
(8 persons) (9).................................... 3,658,346 20.0%
</TABLE>
-------------------
* Less than 1%.
(1) Except as indicated by footnote, each person or group identified has
sole voting and investment power with respect to all shares of Eco
Soil's common stock shown as beneficially owned by them. Except as
otherwise indicated, the address of each of the above persons is c/o
Eco Soil Systems, Inc., 10740 Thornmint Road, San Diego, California
92127.
(2) Includes 559,605 shares of Common Stock subject to currently
exercisable options and warrants.
(3) Includes 85,708 shares of Common Stock subject to currently exercisable
options and warrants.
(4) Includes 718,333 shares of Common Stock subject to currently
exercisable options and warrants.
(5) Includes 100,000 shares of Common Stock subject to currently
exercisable options.
45
<PAGE>
(6) Includes 97,000 shares of Common Stock subject to currently exercisable
options and warrants owned by Rugged Rigger, Inc., a California
corporation that is wholly owned by Mr. Potter. Also includes 333,132
shares of Common Stock owned by Rugged Rigger.
(7) Includes 56,000 shares of Common Stock subject to currently exercisable
options and warrants.
(8) Includes 3,300 shares of Common Stock subject to currently exercisable
options.
(9) See notes 1-4 and 6-8 above. Also includes 18,250 shares of Common
Stock subject to currently exercisable options held by Dennis N. Sentz.
GENERAL
INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP to serve as
Eco Soil's independent auditors for the 2000 fiscal year. Representatives of
Ernst & Young LLP will be present at the Annual Meeting and will have the
opportunity make a statement and to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), as amended, directors, officers and beneficial owners of 10
percent or more of Eco Soil's common stock ("Reporting Persons") are required
to report to the Securities and Exchange Commission (the "Commission") on a
timely basis the initiation of their status as a Reporting Person and any
changes with respect to their beneficial ownership of Eco Soil's common
stock. Based solely on its review of such forms received by it and the
written representations of its Reporting Persons, Eco Soil, to Eco Soil's
knowledge, all of the Section 16(a) filings required to be made by Reporting
Persons with respect to 1999 were made on a timely basis.
SHAREHOLDER PROPOSALS
A proposal to be considered for inclusion in Eco Soil's proxy
statement for the next annual meeting must be received by the Secretary of
Eco Soil not later than [120 days before this years proxy date] to be
considered for inclusion in Eco Soil's proxy statement and form of proxy
relating to that meeting. A shareholder proposal submitted after
[forty-five days before this years proxy date] will not be considered timely.
Holders of proxies which expressly confer discretionary authority may vote
for or against an untimely proposal.
ANNUAL REPORT
The Annual Report of Eco Soil for the fiscal year ended December 31,
1999 will be mailed to shareholders of record on or about [_________], 2000.
The Annual Report does not constitute, and should not be considered, a part
of this Proxy solicitation material.
If any person who was a beneficial owner of common stock of Eco Soil
on the record date for the Annual Meeting of Shareholders desires additional
information, a copy of Eco Soil's Annual Report on Form 10-K will be
furnished without charge upon receipt of a written request identifying the
person so requesting a report as a shareholder of Eco Soil at such date.
Requests should be directed to Dennis Sentz, c/o Eco Soil Systems, Inc.,
10740 Thornmint Road, San Diego, California 92127.
46
<PAGE>
OTHER MATTERS
The Board of Directors does not know of any matter to be presented
at the Annual Meeting which is not listed on the Notice of Annual Meeting and
discussed above. If other matters should properly come before the meeting,
however, the persons named in the accompanying Proxy will vote all Proxies in
accordance with their best judgment.
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN
THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
Dennis Sentz
Secretary
Dated: [__________], 2000
47
<PAGE>
ANNEX A
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
by and between
TURF PARTNERS, INC.
as "Seller,"
ECO SOIL SYSTEMS, INC.
as "Parent,"
and
J.R. SIMPLOT COMPANY
as "Buyer"
Dated: April 5, 2000
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS............................................................................................1
1.1 Defined Terms...................................................................................1
1.2 Other Defined Terms.............................................................................7
ARTICLE II. PURCHASE AND SALE OF ASSETS...........................................................................8
2.1 Transfer of Assets..............................................................................8
2.2 Assumption of Liabilities.......................................................................8
2.3 Excluded Liabilities............................................................................9
2.4 Purchase Price Calculation.....................................................................10
2.5 Payment of Purchase Price......................................................................10
2.6 Closing Balance Sheet..........................................................................11
2.7 Closing Costs; Transfer Taxes and Fees.........................................................12
2.8 Prorations.....................................................................................12
2.9 Allocation of Purchase Price...................................................................12
ARTICLE III. CLOSING.............................................................................................13
3.1 Closing........................................................................................13
3.2 Conveyances at Closing.........................................................................13
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER.............................................................14
4.1 Organization of Seller.........................................................................14
4.2 Subsidiaries...................................................................................14
4.3 Authorization..................................................................................14
4.4 No Adverse Change..............................................................................14
4.5 Assets.........................................................................................15
4.6 Leases.........................................................................................15
4.7 Contracts and Commitments......................................................................15
4.8 Permits........................................................................................16
4.9 Consents.......................................................................................16
4.10 No Conflict or Violation.......................................................................16
4.11 Financial Statements...........................................................................16
4.12 Books and Records..............................................................................17
4.13 Litigation.....................................................................................17
4.14 Labor Matters..................................................................................17
4.15 Liabilities....................................................................................17
4.16 Compliance with Law............................................................................18
4.17 No Brokers.....................................................................................18
4.18 No Other Agreements to Sell the Assets.........................................................18
4.19 Proprietary Rights.............................................................................18
4.20 Employee Benefit Plans.........................................................................19
A-i
<PAGE>
4.21 Tax Matters....................................................................................19
4.22 Insurance......................................................................................19
4.23 Accounts Receivable............................................................................20
4.24 Inventory......................................................................................20
4.25 Compliance With Environmental Laws.............................................................20
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER...............................................................22
5.1 Organization of Buyer..........................................................................22
5.2 Authorization..................................................................................22
5.3 Consents and Approvals.........................................................................22
5.4 No Brokers.....................................................................................22
ARTICLE VI. COVENANTS OF SELLER AND BUYER........................................................................23
6.1 Further Assurances.............................................................................23
6.2 No Solicitation................................................................................24
6.3 Notification of Certain Matters................................................................24
6.4 Investigation by Buyer.........................................................................25
6.5 Conduct of Business............................................................................26
6.6 Employee Matters...............................................................................27
6.7 Shareholder Approval...........................................................................28
6.8 Assumption of Leases...........................................................................29
6.9 Monthly Financial Statements...................................................................29
6.10 Board Approval.................................................................................29
6.11 Working Capital................................................................................30
ARTICLE VII. CONDITIONS TO SELLER'S OBLIGATIONS..................................................................30
7.1 Representations, Warranties and Covenants......................................................30
7.2 Consents; Regulatory Compliance and Approval...................................................30
7.3 No Actions or Court Orders.....................................................................30
7.4 Certificates...................................................................................30
7.5 Corporate Documents............................................................................30
7.6 Assumption Document............................................................................30
7.7 Ancillary Agreements...........................................................................31
7.8 Shareholder Approval...........................................................................31
7.9 Opinion of Counsel.............................................................................31
ARTICLE VIII. CONDITIONS TO BUYER'S OBLIGATIONS..................................................................31
8.1 Representations, Warranties and Covenants......................................................31
8.2 Consents; Regulatory Compliance and Approval..................................................31
8.3 Releases of Liens..............................................................................31
8.4 No Actions or Court Orders.....................................................................32
8.5 Certificates...................................................................................32
8.6 Material Changes...............................................................................32
8.7 Corporate Documents............................................................................32
8.8 Due Diligence Review...........................................................................32
8.9 Conveyancing Documents; Release of Encumbrances................................................32
8.10 Name Change....................................................................................33
A-ii
<PAGE>
8.11 Other Agreements...............................................................................33
8.12 Shareholder Approval...........................................................................33
8.13 Opinion of Counsel.............................................................................33
8.14 Employment of Rehired Employees................................................................33
ARTICLE IX. RISK OF LOSS; CONSENTS TO ASSIGNMENT.................................................................33
9.1 Risk of Loss...................................................................................33
9.2 Consents to Assignment.........................................................................34
ARTICLE X. ACTIONS BY SELLER AND BUYER AFTER THE CLOSING.........................................................34
10.1 Collection of Accounts Receivable and Letters of Credit........................................34
10.2 Books and Records; Tax Matters.................................................................34
10.3 Survival of Representations, Etc...............................................................35
10.4 Indemnifications...............................................................................35
10.5 Bulk Sales.....................................................................................37
10.6 Taxes..........................................................................................37
10.7 Operation of Business..........................................................................38
ARTICLE XI. MISCELLANEOUS........................................................................................38
11.1 Termination....................................................................................38
11.2 Assignment.....................................................................................39
11.3 Notices........................................................................................39
11.4 Choice of Law..................................................................................40
11.5 Entire Agreement; Amendments and Waivers.......................................................40
11.6 Multiple Counterparts..........................................................................40
11.7 Expenses.......................................................................................40
11.8 Invalidity.....................................................................................40
11.9 Titles; Gender.................................................................................41
11.10 Public Statements and Press Releases...........................................................41
11.11 Cumulative Remedies............................................................................41
11.12 Service of Process, Consent to Jurisdiction....................................................41
11.13 Attorneys' Fees................................................................................41
</TABLE>
A-iii
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
<S> <C>
A Facilities......................................................................... A-1
B Allocation of Purchase Price....................................................... B-1
C Bill of Sale....................................................................... C-1
D Assignment of Leases............................................................... D-1
E Assignment of Contract Rights...................................................... E-1
G Assumption of Certain Liabilities.................................................. G-1
H Opinion of Buyer's Counsel......................................................... H-1
I Opinion of Seller's Counsel........................................................ I-1
J 2000 Budget and Forecast........................................................... J-1
</TABLE>
Disclosure Schedule
Schedule 1.1 Additional Proprietary Products
Schedule 4.2 List of Subsidiaries
Schedule 4.6 List of Leased Real Property
Schedule 4.7 List of Contracts
Schedule 4.9 Third Party Consents
Schedule 4.13 Actions
Schedule 4.17 Broker Agreements
Schedule 4.20(c) Employee Plans
Schedule 4.20(d) Multiemployer Plans
Schedule 4.25 Exceptions to Environmental Compliance
A-iv
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, amended and restated as of April 5,
2000, is by and among J.R. Simplot Company, a Nevada corporation ("Buyer"), Turf
Partners, Inc., a Delaware corporation ("Seller"), and Eco Soil Systems, Inc., a
Nebraska corporation ("Parent").
RECITALS
A. Seller owns certain assets which it uses in the conduct of the
Business (as defined below). Seller is a wholly-owned subsidiary of Parent.
B. Buyer desires to purchase from Seller, and Seller desires to
sell to Buyer, such assets upon the terms and subject to the conditions of this
Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the respective covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINED TERMS. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"ACTION" shall mean any action, claim, suit, litigation,
proceeding, labor dispute, arbitral action, governmental audit, inquiry,
criminal prosecution, investigation or unfair labor practice charge or
complaint.
"AFFILIATE" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder.
"ANCILLARY AGREEMENTS" shall mean the Distribution Agreement, the
Soil Builders Agreement, the Field Trials Agreement and the Transitional
Services Agreement.
"ASSETS" shall mean all of the right, title and interest in and to
the business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal that are used primarily in the Business whether
owned by Seller or in which Seller has any interest, including without
limitation all of Seller's right, title and interest in the following:
all accounts and notes receivable (whether current or noncurrent), refunds,
deposits, prepayments or prepaid expenses (including without limitation any
prepaid insurance premiums) of Seller other than intercompany receivables of
Seller which are owed by Parent or any entity which, on the Closing Date, is an
affiliate of Parent or Seller;
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(a) all cash and cash equivalents held by Seller;
(b) all Contract Rights, to the extent transferable;
(c) all Leases other than those Buyer does not elect to assume
pursuant to Section 6.8;
(d) all Leasehold Estates, to the extent transferable;
(e) all Leasehold Improvements;
(f) all Fixtures and Equipment;
(g) all Inventory;
(h) all Books and Records;
(i) all Proprietary Rights owned by the Business, to the
extent transferable;
(j) to the extent transferable, all Permits;
(k) all computers and, to the extent transferable software;
(l) all available supplies, sales literature, promotional
literature, customer, supplier and distributor lists, art work, display units,
telephone and fax numbers and purchasing records related to the Business;
(m) all rights under or pursuant to all warranties,
representations and guarantees made by suppliers in connection with the Assets
or services furnished to Seller pertaining to the Business or affecting the
Assets, to the extent such warranties, representations and guarantees are
assignable;
(n) all deposits and prepaid expenses of Seller; and
(o) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind, against any person or entity,
including without limitation any liens, security interests, pledges or other
rights to payment or to enforce payment in connection with products delivered by
Seller on or prior to the Closing Date;
but excluding therefrom the Excluded Assets.
"BALANCE SHEET" shall mean the audited consolidated balance sheet
of Seller at December 31, 1999 together with the notes thereon.
"BALANCE SHEET DATE" shall mean December 31, 1999.
"BOOKS AND RECORDS" shall mean (a) all records and lists of Seller
pertaining to the Assets, (b) all records and lists pertaining to the Business,
customers, suppliers or personnel
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of Seller, (c) all product, business and marketing plans of Seller and (d) all
books, ledgers, files, reports, plans, drawings and operating records of every
kind maintained by Seller, but excluding the originals of Seller's minute books,
stock books and tax returns.
"BUSINESS" shall mean Seller's business of selling Eco Soil BioJect
programs, FreshPack products, traditional chemical fertilizers and pesticides
and other turf maintenance products in golf course and turf markets.
"CLOSING DATE" shall mean a date two business days following the
satisfaction or waiver of all conditions to the obligations of Buyer and Seller
to consummate the transactions contemplated hereby (other than conditions with
respect to actions Buyer and Seller will take at the Closing itself) to be
agreed upon by Buyer and Seller, but not before July 15, 2000 or after August 1,
2000, or such other date as Buyer and Seller shall mutually agree upon.
"CODE" shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder.
"CONFIDENTIALITY AGREEMENT" shall mean that certain Confidentiality
Agreement dated _______, ____ by and among Parent, Seller and Buyer.
"CONTRACT" shall mean any agreement, contract, note, loan, evidence
of indebtedness, purchase order, letter of credit, indenture, security or pledge
agreement, franchise agreement, undertaking, practice, covenant not to compete,
employment agreement, license, personal property lease, instrument, obligation
or commitment to which Seller is a party or is bound and which relates to the
Business or the Assets, whether oral or written, but excluding all Leases and
Employee Plans.
"CONTRACT RIGHTS" shall mean all of Seller's rights and obligations
under the Contracts listed on Schedule 4.7 and all supply contracts and customer
contracts, whether or not listed on Schedule 4.7.
"COPYRIGHTS" shall mean registered copyrights, copyright
applications and unregistered copyrights.
"COURT ORDER" shall mean any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or governmental
agency, department or authority that is binding on any person or its property
under applicable law.
"DEFAULT" shall mean (1) a breach of or default under any Contract
or Lease, (2) the occurrence of an event that with the passage of time or the
giving of notice or both would constitute a breach of or default under any
Contract or Lease, or (3) the occurrence of an event that with or without the
passage of time or the giving of notice or both would give rise to a right of
termination, renegotiation or acceleration under any Contract or Lease.
"DISCLOSURE SCHEDULE" shall mean a schedule executed and delivered
by Seller to Buyer as of the date hereof and updated as of the Closing Date
which sets forth the exceptions to the representations and warranties contained
in Article IV hereof and certain other information called for by this Agreement.
Unless otherwise specified, each reference in this Agreement to
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any numbered schedule is a reference to that numbered schedule which is included
in the Disclosure Schedule.
"DISTRIBUTION AGREEMENT" shall mean an agreement to be entered into
by Parent and Buyer on or prior to the Closing Date pursuant to which Buyer will
distribute Parent's proprietary products in turf markets.
"EBITDA" shall mean shall mean, for the Business (as conducted by
Seller prior to Closing Date and Buyer on and after the Closing Date) for a
given calendar year, the net income or loss earned or incurred by the Business
from continuing operations during such calendar year (as determined in
accordance with GAAP), subject to the following adjustments: (a) said net income
or loss shall be increased by the provision for income taxes recorded (in
accordance with GAAP) by the Business with respect to such calendar year or
decreased by the benefit from income taxes recorded (in accordance with GAAP) by
the Business for such calendar year; (b) said net income or loss shall be
increased by interest expense incurred by the Business for such calendar year
and decreased by interest income earned by the Business for such calendar year
(other than late charges received from customers); (c) said net income or loss
shall be increased by depreciation and/or amortization expenses or charges
recorded (in accordance with GAAP) by the Business for such calendar year with
respect to property, equipment, goodwill or other depreciable or amortizable
tangible or intangible assets; (d) said net income or loss shall be decreased by
the Business's revenue from the sale of BioJect, CleanRack and FreshPack
products and shall be increased by the costs of goods sold, salesperson expense
and any other expenses allocable to sales of BioJect, CleanRack and FreshPack
products; and (e) said net income or loss shall be decreased by the selling,
general and administrative expenses incurred by Parent on behalf of the Business
and up to $300,000 of such expenses incurred by Buyer on behalf of the Business.
"ENCUMBRANCE" shall mean any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
"EXCLUDED ASSETS," notwithstanding any other provision of this
Agreement, shall mean the following assets of Seller which are not to be
acquired by Buyer hereunder:
(a) any right, title or interest of Seller in any BioJect
systems;
(b) any right, title or interest of Seller in any intellectual
property, including without limitation any patents or patent rights, copyrights
or trademarks, relating to BioJect systems, microbial products for use therein,
FreshPack products, CleanRack products and the other proprietary products listed
on Schedule 1.1 of the Disclosure Schedule;
(c) all Permits, to the extent not transferable;
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(d) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind against any person or entity arising
out of or relating to the Assets to the extent related to the Excluded
Liabilities;
(e) all intercompany receivables of Seller which are owed by
Parent or any entity which, on the Closing Date, is an affiliate of Parent or
Seller;
(f) all Leases Buyer elects not to assume pursuant to Section
6.8 hereof; and
(g) all Employee Plans and all assets relating to the Employee
Plans.
"FACILITIES" shall mean all plants, offices, manufacturing
facilities, stores, warehouses, improvements, administration buildings, and all
real property and related facilities which are identified or listed on Exhibit A
attached hereto.
"FIELD TRIALS AGREEMENT" shall mean the agreement to be entered
into by Parent and Simplot on or prior to the Closing Date pursuant to which
Simplot will conduct trials of Parent's proprietary products on its potato
fields.
"FINANCIAL STATEMENTS" shall mean the audited Balance Sheets dated
December 31, 1999, and the related unaudited statements of operations, changes
in stockholders' equity and cash flow for the year ended December 31, 1999.
"FIXTURES AND EQUIPMENT" shall mean all of the furniture, fixtures,
furnishings, machinery, automobiles, trucks, spare parts, supplies, equipment,
tooling, molds, patterns, dies and other tangible personal property owned by
Seller and used in connection with the Business, wherever located and including
any such Fixtures and Equipment in the possession of any of Seller's suppliers,
including all warranty rights with respect thereto.
"FORMER FACILITY" shall mean each plant, office, manufacturing
facility, store, warehouse, improvement, administrative building and all real
property and related facilities that was owned, leased or operated by Seller at
any time prior to the date hereof, but excluding any Facilities.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations thereunder.
"INVENTORY" shall mean all of Seller's inventory held for resale
and all of Seller's raw materials, work in process, finished products, wrapping,
supply and packaging items and similar items with respect to the Business, in
each case wherever the same may be located.
"LEASED REAL PROPERTY" shall mean all leased property described in
the Leases.
"LEASEHOLD ESTATES" shall mean all of Seller's rights and
obligations as lessee under the Leases.
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"LEASEHOLD IMPROVEMENTS" shall mean all leasehold improvements
situated in or on the Leased Real Property and owned by Seller.
"LEASES" shall mean all of the existing leases with respect to the
Facilities listed on Schedule 4.6 delivered in advance of Closing.
"LIABILITIES" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute,
contingent, matured, unmatured or other.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" shall mean
with respect to the Business or the Assets any significant and substantial
adverse effect or change in the condition (financial or other), business,
results of operations, assets, Liabilities or operations of the Business and/or
the Assets or on the ability of Seller to consummate the transactions
contemplated hereby, or any event or condition which would, with the passage of
time, constitute a "material adverse effect" or "material adverse change."
"NET TANGIBLE ASSETS" shall mean the Assets of Seller minus (i)
intangible assets such as goodwill, trademarks and other proprietary rights and
(ii) total liabilities. For purposes of the calculation of Net Tangible Assets,
(i) Seller's accounts receivable shall include the reserve for bad debts or
uncollectable amounts required by generally accepted accounting principles
consistently applied and (ii) inventory shall be valued at the lesser of cost or
market and shall exclude obsolete and non-sellable inventory.
"ORDINARY COURSE OF BUSINESS" or "ORDINARY COURSE" or any similar
phrase shall mean the ordinary course of the Business and consistent with
Seller's past practice.
"PATENTS" shall mean all patents and patent applications and
registered design and registered design applications.
"PERMITS" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other person,
necessary or desirable for the past, present or anticipated conduct of, or
relating to the operation of the Business.
"PURCHASED ASSETS" shall mean all of Seller's right, title and
interest in and to the Assets.
"REGULATIONS" shall mean any laws, statutes, ordinances,
regulations, rules, notice requirements, court decisions, agency guidelines,
principles of law and orders of any foreign, federal, state or local government
and any other governmental department or agency, including without limitation
Environmental Laws, energy, motor vehicle safety, public utility, zoning,
building and health codes, occupational safety and health and laws respecting
employment practices, employee documentation, terms and conditions of employment
and wages and hours.
"REPRESENTATIVE" shall mean any officer, director, principal,
attorney, agent, employee or other representative.
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"SOIL BUILDERS AGREEMENT" shall mean the agreement to be entered
into by Parent and Simplot Soil Builders on or prior to the Closing Date
pursuant to which Parent' s proprietary products will be sold in Soil Builders
stores.
"SUBSIDIARY" shall mean with respect to any person (a) any
corporation in an unbroken chain of corporations beginning with such person if
each of the corporations other than the last corporation in the unbroken chain
then owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain, (b) any
partnership in which such person, or a Subsidiary of such person, is a general
partner, (c) any partnership in which such person or a Subsidiary of such
person, possesses a 50% or greater interest in the total capital or total income
of such partnership; or (d) any limited liability company in which such person
controls membership interests of 50% or greater.
"TAX" shall mean any federal, state, local, foreign or other tax,
levy, impost, fee, assessment or other government charge, including without
limitation income, estimated income, business, occupation, franchise, property,
payroll, personal property, sales, transfer, use, employment, commercial rent,
occupancy, franchise or withholding taxes, and any premium, including without
limitation interest, penalties and additions in connection therewith.
"TAX RETURN" means any return, report or similar statement required
to be filed with respect to any Taxes (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
"TRADEMARKS" shall mean the registered trademarks, registered
service marks, trademark and service mark applications and unregistered
trademarks and service marks listed on Schedule 4.19 of the Disclosure Schedule.
"TRANSITIONAL SERVICES AGREEMENT" shall mean an agreement to be
entered into by Buyer and Parent on the Closing Date pursuant to which Parent
will provide cash management, information technology and sales management
services to Buyer, which services shall be consistent with those historically
performed by Parent on behalf of Seller and for which Parent will charge Buyer a
service fee equal to Parent's costs of providing such services.
1.2 OTHER DEFINED TERMS. The following terms shall have the meanings
defined for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Adjustment Amount 2.5(b)
Assumed Liabilities 2.2
Assumption Documents 3.2(b)
Bulk Sales Act 10.6
Claim 10.4(d)
Claim Notice 10.4(d)
Cleanup 4.25(a)(i)
Closing 3.1
Consultant 6.4(b)
Damages 10.4(a)
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<S> <C>
Employee Plan 4.20
Environmental Claim 4.25(a)(ii)
Environmental Laws 4.25(a)(iii)
ERISA 4.20(a)
Excluded Liabilities 2.3
Hazardous Materials 4.25(a)(iv)
June 30, 2000 Balance Sheet 2.5(a)
Net Book Value 2.5(b)
Permitted Encumbrances 4.5
Proprietary Rights 4.19(a)
Proxy Statement 6.7(a)
Proposed Acquisition Transaction 6.2(a)
Purchase Price 2.4
Rehired Employees 6.6(a)
Release 4.25(a)(v)
SEC 6.7(a)
Shareholders' Meeting 6.7(a)
</TABLE>
ARTICLE II.
PURCHASE AND SALE OF ASSETS
2.1 TRANSFER OF ASSETS. Upon the terms and subject to the conditions
contained herein, at the Closing, Seller will sell, convey, transfer, assign and
deliver to Buyer, and Buyer will acquire from Seller, the Purchased Assets, free
and clear of all Encumbrances other than Permitted Encumbrances, in exchange for
Buyer's payment to Seller of the Purchase Price provided below.
2.2 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
conditions contained herein, at the Closing, Buyer shall assume the following,
and only the following, Liabilities of Seller (the "Assumed Liabilities"):
(a) All Liabilities accruing, arising out of, or relating to events
or occurrences happening after the Closing Date under the Contracts, but not
including any Liability for any Default under any such Contract occurring on or
prior to the Closing Date;
(b) All Liabilities accruing, arising out of, or relating to events
or occurrences happening after the Closing Date under the Leases Buyer elects to
assume pursuant to Section 6.8, but not including any Liability for any Default
under any such Lease occurring on or prior to the Closing Date;
(c) Other than intercompany indebtedness (which is addressed in
Section 2.3(h)), all of Seller's accounts payable set forth on the Balance Sheet
or incurred after the Balance Sheet Date (i) in the ordinary course of business,
(ii) consistent with amounts historically incurred and (iii) in compliance with
the terms of this Agreement;
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(d) Seller's obligations under its Loan and Security Agreement,
dated June 30, 1999 between Seller and Coast Business Credit (the "Coast Loan");
and
(e) Sales Taxes payable with respect to product sold to customers
between July 1, 2000 and the to the Closing Date and all Taxes imposed on Seller
by law which Buyer has agreed pursuant to Section 2.7 below to pay.
2.3 EXCLUDED LIABILITIES. Notwithstanding any other provision of this
Agreement, except for the Assumed Liabilities expressly specified in Section
2.2, Buyer shall not assume, or otherwise be responsible for, any Liabilities of
Seller, whether liquidated or unliquidated, or known or unknown, whether arising
out of occurrences prior to, at or after the date hereof ("Excluded
Liabilities"), which Excluded Liabilities include, without limitation:
(a) Except as otherwise provided in Section 6.6, any Liability to
or in respect of any employees or former employees of Seller including without
limitation (i) any employment agreement, whether or not written, between Seller
and any person, (ii) any Liability under any Employee Plan at any time
maintained, contributed to or required to be contributed to by or with respect
to Seller or Parent or under which Seller or Parent may incur Liability, or any
contributions, benefits or Liabilities therefor, or any Liability with respect
to Seller's withdrawal or partial withdrawal from or termination of any Employee
Plan and (iii) any claim of an unfair labor practice, or any claim under any
state unemployment compensation or worker's compensation law or regulation or
under any federal or state employment discrimination law or regulation, which
shall have been asserted on or prior to the Closing Date or is based on acts or
omissions which occurred on or prior to the Closing Date;
(b) Any Liability of Parent or Seller in respect of any Tax (except
as contemplated by Section 2.2(e) above and Section 2.7 below);
(c) Any Liability arising from any injury to or death of any person
or damage to or destruction of any property, whether based on negligence, breach
of warranty, strict liability, enterprise liability or any other legal or
equitable theory arising from defects in products manufactured or from services
performed by or on behalf of Seller or any other person or entity on or prior to
the Closing Date;
(d) Any Liability of Seller arising out of or related to any Action
against Seller or any Action which adversely affects the Assets and which shall
have been asserted on or prior to the Closing Date or to the extent the basis of
which shall have arisen on or prior to the Closing Date;
(e) Any Liability of Parent or Seller resulting from entering into,
performing its obligations pursuant to or consummating the transactions
contemplated by, this Agreement (including without limitation any Liability of
Parent or Seller pursuant to Article X hereof);
(f) Any Liability related to any Former Facility or any Lease Buyer
elects not to assume pursuant to Section 6.8 hereof;
(g) Environmental Claims arising from occurrences prior to the
Closing Date; and
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(h) All intercompany payables of Seller which are owed by Seller to
Parent or any entity which, on the Closing Date, is an affiliate of Parent or
Seller.
2.4 PURCHASE PRICE CALCULATION. The purchase price for the Assets (the
"Purchase Price") shall be calculated as six (6) times the year 2000 EBITDA,
subject to the following adjustments. The adjustments in subparagraphs (a), (b)
and (c) below will be calculated from the June 30, 2000 balance sheet and are
hereafter referred to as the "Adjustment Amounts"; adjustment (d) will be
calculated from the audited December 31, 2000 balance sheet and prior months'
unaudited interim balance sheets.
The Purchase Price shall equal six (6) times the year 2000 EBITDA:
(a) less the amount, if any, of any accounts payable shown on the
June 30, 2000 balance sheet that are past due (which shall exclude intercompany
payables of Seller which are owed by Seller to Parent);
(b) less the amount, if any, shown on the June 30, 2000 balance
sheet to be due to salesmen for commissions or other incentive programs beyond
the normal arrears period of three months;
(c) less the amount, if any, shown on the June 30, 2000 balance
sheet by which Three Million Dollars ($3,000,000) exceeds the Net Tangible
Assets or plus the amount, if any, shown on the June 30, 2000 balance sheet by
which the Net Tangible Assets exceeds Three Million Dollars; and
(d) less the amount of the average balance outstanding on the Coast
Loan over the period from January 1, 2000 to December 31, 2000. This amount will
be calculated by averaging the amounts of the Coast Loan balance shown on each
month-end balance sheet for the year.
2.5 PAYMENT OF PURCHASE PRICE.
(a) DOWN PAYMENT. On the Closing Date, Buyer will pay to Seller the
amount of Twenty Million Dollars ($20,000,000) reduced or increased, as the case
may be, by (i) adjustments (a) through (c) of Section 2.4 (the "Adjustment
Amounts") above as they can best be calculated from the unaudited June 30, 2000
balance sheet and (ii) a reduction equal to the product derived from the
following formula:
13.5 x [actual EBITDA - (.75 x budgeted EBITDA)]
in the event the EBITDA of the Business through June 30, 2000 is less than
seventy-five percent of the budgeted $3,100,000. The aggregate amount of any
reductions required by the preceding sentence shall not exceed Five Million
Dollars ($5,000,000). This down payment will also be reduced by the amount, if
any, by which the amount outstanding on the Coast Loan exceeds Seventeen Million
Dollars ($17,000,000) on June 30, 2000.
(b) BALANCE. On March 1, 2001, Buyer will pay to Seller the
difference, if any, between the Purchase Price and the down payment described in
Section 2.5(a). In addition, the
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final payment of the Purchase Price will be adjusted to reflect any differences
in the adjustment amounts set forth in Section 2.4 above indicated by
differences between the unaudited June 30, 2000 balance sheet used on Closing
Date, and the final audited version of the June 30, 2000 balance sheet. Seller
will have no obligation to make any refund to Buyer if the down payment made
pursuant to Section 2.5(a) exceeds the final Purchase Price.
2.6 CLOSING BALANCE SHEET.
(a) On or before August 15, 2000, Seller shall prepare and deliver
to Buyer, (i) an audited balance sheet as of June 30, 2000 (the "Closing Balance
Sheet") and (ii) a reasonably detailed calculation of the Adjustment Amounts.
The Closing Balance Sheet shall be prepared by Seller's personnel in accordance
with generally accepted accounting principles, as applied in preparation of the
Balance Sheet, and shall fairly and accurately present the Assets, Liabilities
(including reserves) and financial position of the Business, with respect to the
Assets, as of June 30, 2000.
(b) DISPUTED ADJUSTMENT AMOUNT. If the Adjustment Amounts
calculated by Seller from the Closing Balance sheet indicates a larger down
payment should have been paid at Closing, Buyer shall remit any additional down
payment to Seller, unless Buyer disagrees with Seller's calculations. If Buyer
shall disagree with the Adjustment Amounts after receiving the Closing Balance
Sheet and Seller's calculation of the Adjustment Amounts, it shall notify Seller
of such disagreement in writing specifying in detail the particulars of such
disagreement within ten (10) days after Buyer's receipt of the Closing Balance
Sheet. Buyer and Seller shall use their best efforts for a period of ten (10)
calendar days after Buyer's delivery of the notice contemplated by the preceding
sentence (or such longer period as Buyer and Seller shall mutually agree upon)
to resolve any disagreements raised by Buyer with respect to the calculation of
the Adjustment Amounts. If, at the end of such period, Buyer and Seller are
unable to resolve such disagreements, Ernst & Young LLP and Arthur Andersen LLP,
independent auditors of Seller and Buyer, respectively, shall jointly select a
third independent auditor of recognized national standing to resolve any
remaining disagreements. The determination by such third independent auditor
shall be final, binding and conclusive on the parties. Buyer and Seller shall
use their best efforts to cause such third independent auditor to make its
determination within thirty (30) calendar days of accepting its selection. The
fees and expenses of such third independent auditor shall be borne by Buyer and
Seller equally. Buyer and Seller shall use the Closing Balance Sheet as
determined pursuant to this paragraph (b) to reconcile the Adjustment Amounts as
appropriate to reflect differences between the unaudited and audited June 30,
2000 balance sheets.
(c) STATEMENT OF OPERATIONS. On or before February 15, 2001, Buyer
shall prepare and deliver to Seller, (i) an audited statement of operations of
the Business for the period July 1, 2000 to December 31, 2000 and (ii) a
reasonably detailed calculation of EBITDA for the Business for such year. The
audited statement of operations shall be prepared by Buyer's personnel in
accordance with generally accepted accounting principles and shall fairly and
accurately present the results of operations of the Business for the period July
1, 2000 to December 31, 2000.
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(d) DISPUTED PURCHASE PRICE CALCULATION. If Seller shall disagree
with the EBITDA calculation after receiving the audited statement of operations
from Buyer, it shall notify Buyer of such disagreement in writing specifying in
detail the particulars of such disagreement within ten (10) days after Seller's
receipt of the audited statement of operations. Buyer and Seller shall use their
best efforts for a period of ten (10) calendar days after Seller's delivery of
the notice contemplated by the preceding sentence (or such longer period as
Buyer and Seller shall mutually agree upon) to resolve any disagreements raised
by Seller with respect to the calculation of EBITDA. If, at the end of such
period, Buyer and Seller are unable to resolve such disagreements, Ernst & Young
LLP and Arthur Andersen LLP, independent auditors of Seller and Buyer,
respectively, shall jointly select a third independent auditor of recognized
national standing to resolve any remaining disagreements. The determination by
such third independent auditor shall be final, binding and conclusive on the
parties. Buyer and Seller shall use their best efforts to cause such third
independent auditor to make its determination within thirty (30) calendar days
of accepting its selection. The fees and expenses of such third independent
auditor shall be borne by Buyer and Seller equally. On March 1, 2001, Buyer
shall pay to Seller the balance of the Purchase Price contemplated by Section
2.5(b) based on the EBITDA calculation proposed by Buyer if a dispute continues
to exist, and Buyer shall pay the remainder of the balance of the Purchase
Price, if any, following resolution of such dispute in accordance herewith.
2.7 CLOSING COSTS; TRANSFER TAXES AND FEES. Buyer shall be responsible
for any documentary and transfer taxes and any sales, use or other taxes imposed
by reason of the transfers of Purchased Assets provided hereunder and any
deficiency, interest or penalty asserted with respect thereto. Buyer shall pay
the fees and costs of recording or filing all applicable conveyancing
instruments described in Section 3.2(a). Buyer shall pay all costs of applying
for new Permits and obtaining the transfer of existing Permits which may be
lawfully transferred.
2.8 PRORATIONS. All rent, utilities and other lease charges with
respect to Leases assumed by Buyer shall be prorated between Buyer and Seller as
of the Closing Date. Such proratidons shall, insofar as feasible, be determined
and paid at the Closing, with best efforts to achieve final settlement of such
prorations within 30 days after the Closing. Seller shall be responsible for
payment of all unpaid rent, common area maintenance expenses and real property
taxes through the Closing Date.
2.9 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among Purchased Assets in the manner required by Section 1060 of the Code and
regulations thereunder.
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ARTICLE III.
CLOSING
3.1 CLOSING. The Closing of the transactions contemplated herein (the
"Closing") shall be held at 9:00 a.m. local time on the Closing Date at the
offices of Latham & Watkins, 701 B Street, Suite 2100, San Diego, California
92101, unless the parties hereto otherwise agree.
3.2 CONVEYANCES AT CLOSING.
(a) INSTRUMENTS AND POSSESSION. To effect the sale and transfer
referred to in Section 2.1 hereof, Seller will, at the Closing, execute and
deliver to Buyer:
(i) one or more bills of sale, in the form attached hereto as
Exhibit C, conveying in the aggregate all of Seller's owned personal property
included in the Purchased Assets;
(ii) subject to Section 9.2, Assignments of Lease in the form
attached hereto as Exhibit D with respect to the Leases;
(iii) subject to Section 9.2, Assignments of Contract Rights,
each in the form of Exhibit E attached hereto, with respect to the Contract
Rights;
(iv) Assignments of Trademarks and other Proprietary Rights
(including an assignment of all of Seller's rights, title and interest to the
name "Turf Partners," and all variations thereof), a schedule of which shall be
provided at Closing, in recordable form to the extent necessary to assign such
rights;
(v) all cash and cash equivalents of the Business; and
(vi) such other instruments as shall be reasonably requested
by Buyer to vest in Buyer title in and to the Purchased Assets in accordance
with the provisions hereof.
(b) ASSUMPTION DOCUMENT. Upon the terms and subject to the
conditions contained herein, at the Closing Buyer shall deliver to Seller an
instrument of assumption substantially in the form attached hereto as Exhibit G,
evidencing Buyer's assumption, pursuant to Section 2.2, of the Assumed
Liabilities (the "Assumption Document").
(c) FORM OF INSTRUMENTS. To the extent that a form of any document
to be delivered hereunder is not attached as an exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to Buyer.
(d) CERTIFICATES. Buyer and Seller shall deliver the certificates,
opinions of counsel and other matters described in Articles VII and VIII.
(e) CONSENTS. Subject to Section 9.2, Seller shall deliver all
Permits and any other third party consents required for the valid transfer of
the Purchased Assets as contemplated by this Agreement.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows, except
as otherwise set forth on the Disclosure Schedule, which representations and
warranties are, as of the date hereof, and will be, as of the Closing Date, true
and correct:
4.1 ORGANIZATION OF SELLER. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to conduct the Business as it is
presently being conducted and to own and lease its properties and assets. Seller
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of its properties owned or
leased or the nature of its activities make such qualification necessary, except
where the failure to be so qualified or in good standing would not have a
material adverse effect on the Purchased Assets or the Business. Copies of the
Certificate of Incorporation and Bylaws of Seller, and all amendments thereto,
heretofore delivered to Buyer are accurate and complete as of the date hereof.
4.2 SUBSIDIARIES. Except as set forth in Schedule 4.2, Seller does not
have any Subsidiaries. Other than as listed on Schedule 4.2, Seller has no
direct or indirect stock or other equity or ownership interest (whether
controlling or not) in any corporation, association, partnership, joint venture
or other entity.
4.3 AUTHORIZATION. Seller has all requisite corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements, to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder. No other corporate proceedings on the part
of Parent or Seller are necessary to authorize this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and thereby, except for the
approval of the boards of directors of Seller and Parent as contemplated by
Section 6.10 hereof, the approval by Parent as the sole stockholder of Seller
and approval of Parent's shareholders contemplated by Section 6.7 hereof. This
Agreement has been duly executed and delivered by Parent and Seller and upon
approval by the boards of directors of Seller and Parent will be, a legal, valid
and binding obligation of Parent and Seller enforceable against them in
accordance with its terms.
4.4 NO ADVERSE CHANGE. Since the Balance Sheet Date:
(a) there has been no actual or threatened adverse change in the
financial condition or results of operation, the Business or the Assets or any
event, condition or state of facts, in either case that is, or would result in a
material adverse change in the Assets or the Business;
(b) there has not been any sale or other disposition, except in the
ordinary course of business of any of the Assets, or any Encumbrance placed on
the Assets; and
(c) Seller has operated the Business in the ordinary course so as
to preserve the Business intact, to keep available to the Business the services
of Seller's employees, and to
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preserve the Business and the goodwill of Seller's suppliers, customers,
distributors and others having business relations with it.
4.5 ASSETS. Excluding the Leased Real Property, Seller has and will
transfer good and marketable title to the Purchased Assets and upon the
consummation of the transactions contemplated hereby, Buyer will acquire good
and marketable title to all of the Purchased Assets, free and clear of any
Encumbrances, except for minor liens which in the aggregate are not substantial
in amount, do not materially detract from the value or transferability of the
property or assets subject thereto or interfere with the present use and have
not arisen other than in the ordinary course of business ("Permitted
Encumbrances").
4.6 LEASES. Schedule 4.6 contains a list of all real property leased by
Seller. Except as set forth on Schedule 4.6, the properties of Seller are not
subject to any mortgage, encumbrance, or lien of any kind except minor
encumbrances not of a financial nature, which do not materially interfere with
the use of the property in the conduct of the business of Seller. Each lease is
in full force and effect and permits Seller with the right to lease the subject
property through the stated terms thereof. Seller, and to the best of Seller's
knowledge, the other parties to each such Lease have complied in all material
respects with the provisions thereof, no party is in Default thereunder and no
notice of any claim of Default has been given to Seller.
4.7 CONTRACTS AND COMMITMENTS.
(a) CONTRACTS. Schedule 4.7 sets forth a complete and accurate list
of all Contracts of the following categories:
(i) Contracts not made in the ordinary course of business;
(ii) Employment contracts and severance agreements, including
without limitation Contracts (A) to employ or terminate executive officers or
other personnel and other contracts with present or former officers, directors
or shareholders of Seller or (B) that will result in the payment by, or the
creation of any Liability to pay on behalf of Buyer or Parent or Seller any
severance, termination, "golden parachute," or other similar payments to any
present or former personnel following termination of employment or otherwise as
a result of the consummation of the transactions contemplated by this Agreement;
(iii) Labor or union contracts;
(iv) Contracts involving future expenditures or Liabilities,
actual or potential, in excess of $200,000 and not cancelable (without
Liability) within 30 calendar days;
(v) Promissory notes, loans, agreements, indentures, evidences
of indebtedness, letters of credit, guarantees, or other instruments relating to
an obligation to pay money, individually in excess of or in the aggregate in
excess of $100,000, whether Seller shall be the borrower, lender or guarantor
thereunder or whereby any Assets are pledged (excluding credit provided by
Seller in the ordinary course of business to purchasers of its products); and
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(vi) Contracts containing covenants limiting the freedom of
Seller or any officer, director or stockholder of Seller, to engage in any line
of business or compete with any person.
Seller has delivered to Buyer true, correct and complete copies of all of the
Contracts listed on Schedule 4.7, including all amendments and supplements
thereto.
(b) ABSENCE OF DEFAULTS. All of the Contracts and Leases to which
Seller is party or by which it or any of the Purchased Assets is bound or
affected are valid, binding and enforceable in accordance with their terms.
Seller has fulfilled, or taken all action necessary to enable it to fulfill when
due, all of its material obligations under each of such Contracts and Leases.
Seller, and to the best of Seller's knowledge, the other parties to such
Contracts and Leases have complied in all material respects with the provisions
thereof, no party is in Default thereunder and no notice of any claim of Default
has been given to Seller.
4.8 PERMITS. Seller has, and at all times has had, all Permits required
under any Regulation (including Environmental Laws) in the operation of its
Business or in the ownership of the Assets, and owns or possesses such Permits
free and clear of all Encumbrances, except such Permits the failure of which to
obtain would not have a material adverse effect on the Purchased Assets or the
Business. Seller is not in Default, nor has it received any notice of any claim
of Default, with respect to any such Permit, except where such Default would not
have a material adverse effect on the Purchased Assets or the Business.
4.9 CONSENTS. Other than in connection with or in compliance with the
provisions of the HSR Act, and except as disclosed on Schedule 4.9 hereto, no
notice to, declaration, filing or registration with, or Permit from, any
domestic or foreign governmental or regulatory body or authority, or any other
person or entity, is required to be made or obtained by Parent or Seller in
connection with the execution, delivery or performance of this Agreement and the
consummation of the transactions contemplated hereby.
4.10 NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by Parent or Seller with any of the
provisions hereof, will (a) violate or conflict with any provision of the
Certificate of Incorporation or Bylaws of Parent or Seller, (b) violate,
conflict with, or result in or constitute a Default under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration under, or result in the creation of any
Encumbrance upon any of the Purchased Assets under, any of the terms, conditions
or provisions of any Contract, Lease or Permit, (i) to which Seller is a party
or (ii) by which the Purchased Assets are bound, (c) violate any Regulation or
Court Order, (d) impose any Encumbrance on the Purchased Assets or the Business,
except in the case of each of clauses (a), (b), (c) and (d) above, for such
violations, Defaults, terminations, accelerations or creations of Encumbrances
which, in the aggregate would not have a material adverse effect on the Assets,
the Business or on the ability of Parent or Seller to consummate the
transactions contemplated hereby.
4.11 FINANCIAL STATEMENTS. Seller has heretofore delivered to Buyer the
Financial Statements. The Financial Statements, all subsequent interim financial
statements, the unaudited
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June 30, 2000 balance sheet and the Closing Balance Sheet previously provided by
Seller to Buyer or which Seller will provide to Buyer pursuant hereto (a) are
and will be in accordance with the books and records of Seller, (b) have been
and will be prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods covered thereby and (c) fairly and
accurately present and will present the assets, Liabilities (including all
reserves) and financial position of Seller as of the respective dates thereof
and the results of operations and changes in cash flows for the periods then
ended, subject only to normal year-end adjustments with respect to any interim
financial statements. The Balance Sheet has been audited by Ernst & Young LLP,
independent certified public accountants, whose report thereon is included with
such Financial Statements.
4.12 BOOKS AND RECORDS. Seller has made and kept (and given Buyer
access to) Books and Records and accounts, which, in reasonable detail,
accurately and fairly reflect the activities of Seller. The minute books of
Seller previously delivered to Buyer accurately and adequately reflect all
action previously taken by the stockholders, board of directors and committees
of the board of directors of Seller. The copies of the stock book records of
Seller previously delivered to Buyer are true, correct and complete, and
accurately reflect all transactions effected in Seller's stock through and
including the date hereof. Seller has not engaged in any transaction, maintained
any bank account or used any corporate funds except for transactions, bank
accounts and funds which have been and are reflected in the normally maintained
books and records of Seller.
4.13 LITIGATION. Except as set forth on Schedule 4.13, there are no
Actions pending, or to the best of Seller's knowledge, threatened or anticipated
(a) against, related to or affecting (i) Seller, the Business or the Assets
(including with respect to Environmental Laws), (ii) any officers or directors
of Seller as such, or (iii) any stockholder of Seller in such stockholder's
capacity as a stockholder of Seller, (b) seeking to delay, limit or enjoin the
transactions contemplated by this Agreement (c) that involve the risk of
criminal liability, or (d) in which Seller is a plaintiff, including any
derivative suits brought by or on behalf of Seller. Seller is not in Default
with respect to or subject to any Court Order, and there are no unsatisfied
judgments against Seller, the Business or the Assets.
4.14 LABOR MATTERS. Seller is not a party to any labor agreement with
respect to its employees with any labor organization, union, group or
association and there are no employee unions (nor any other similar labor or
employee organizations) under local statutes, custom or practice. Seller has not
experienced any attempt by organized labor or its representatives to make Seller
conform to demands of organized labor relating to its employees or to enter into
a binding agreement with organized labor that would cover the employees of
Seller. There is no labor strike or labor disturbance pending or, to the best of
Seller's knowledge, threatened against Seller nor is any grievance currently
being asserted, and Seller has not experienced a work stoppage or other labor
difficulty, and is not and has not engaged in any unfair labor practice.
4.15 LIABILITIES. Other than Excluded Liabilities, Seller has no
material Liabilities due or to become due, except (a) Liabilities which are set
forth or reserved for on the Balance Sheet, which have not been paid or
discharged since the Balance Sheet Date, (b) Liabilities arising in the ordinary
course of business under Contracts, Leases, Permits and other business
arrangements described in the Disclosure Schedule (and under those Contracts,
Leases and
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Permits which are not required to be disclosed on the Disclosure Schedule) and
(c) Liabilities incurred since the Balance Sheet Date in the ordinary course of
business and in accordance with this Agreement (none of which relates to any
Default under any Contract or Lease, breach of warranty, tort, infringement or
violation of any Regulation or Court Order or arose out of any Action) and none
of which, individually or in the aggregate, has or would have a material adverse
effect on the Business or the Assets.
4.16 COMPLIANCE WITH LAW. Seller and the conduct of the Business have
not violated and are in compliance with all Regulations and Court Orders
relating to the Assets or the Business or operations of Seller, except where the
violation or failure to comply, individually or in the aggregate, would not have
a material adverse effect on the Assets or the Business.
4.17 NO BROKERS. Except as set forth on Schedule 4.17, neither Parent,
Seller nor any of their respective officers, directors, employees, shareholders
or affiliates has employed or made any agreement with any broker, finder or
similar agent or any person or firm which will result in the obligation of Buyer
or any of its affiliates to pay any finder's fee, brokerage fees or commission
or similar payment in connection with the transactions contemplated hereby.
4.18 NO OTHER AGREEMENTS TO SELL THE ASSETS. Neither Parent nor Seller
nor any of their respective officers, directors, shareholders or affiliates have
any commitment or legal obligation, absolute or contingent, to any other person
or firm other than the Buyer to sell, assign, transfer or effect a sale of any
of the Assets (other than inventory in the ordinary course of business), to sell
or effect a sale of a majority of the capital stock of Seller, to effect any
merger, consolidation, liquidation, dissolution or other reorganization of
Seller, or to enter into any agreement or cause the entering into of an
agreement with respect to any of the foregoing.
4.19 PROPRIETARY RIGHTS.
(a) Schedule 4.19 lists all of Seller's rights in or to federal,
state and foreign registrations of trademarks and of other marks, trade names or
other trade rights, and all pending applications for any such registrations and
all of Seller's copyrights and all pending applications therefor, whether or not
registered, that are used by or on behalf of Seller in connection with its
business (collectively, "Proprietary Rights"). Seller has no patents, or pending
patents.
(b) No person has a right to receive a royalty or similar payment
in respect of any Proprietary Rights whether or not pursuant to any contractual
arrangements entered into by Seller. Neither Parent nor Seller has any licenses
granted, sold or otherwise transferred by or to it nor other agreements to which
it is a party, relating in whole or in part to any of the Proprietary Rights.
(c) Seller owns and has the sole right to use each of the
Proprietary Rights. Except as set forth on Schedule 4.19 and except for
applications pending, all of the trademarks listed on the Disclosure Schedule
have been duly issued and except as set forth on the Disclosure Schedule, all of
the other Proprietary Rights exist, are registered and are subsisting. None of
the Proprietary Rights is involved in any pending or threatened litigation.
Seller has not received any notice of invalidity or infringement of any rights
of others with respect to such Proprietary Rights. Seller has taken all
reasonable and prudent steps to protect the Proprietary Rights from
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infringement by any other firm, corporation, association or person. To the
knowledge of Seller, no other firm, corporation, association or person (i) has
the right to use any such trademarks on the goods on which they are now being
used in Seller's market area either in identical form or in such near
resemblance thereto as to be likely, when applied to the goods of any such firm,
corporation, association or person, to cause confusion with the trademarks or to
cause a mistake or to deceive, (ii) has notified Seller that it is claiming any
ownership of or right to use such Proprietary Rights, or (iii) is infringing
upon any such Proprietary Rights in any way. To the knowledge of Seller,
Seller's use of the Proprietary Rights is not infringing upon or otherwise
violating the rights of any third party in or to such Proprietary Rights, and no
proceedings have been instituted against or notices received by Seller that are
presently outstanding alleging that Seller's use of the Proprietary Rights
infringes upon or otherwise violates any rights of a third party in or to such
Proprietary Rights. All of the Proprietary Rights are valid and enforceable
rights of Seller in Seller's market area and will not cease to be valid and in
full force and effect by reason of the execution, delivery and performance of
this Agreement or the consummation of the transactions contemplated by this
Agreement.
4.20 EMPLOYEE BENEFIT PLANS.
(a) With respect to each employee benefit plan as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained by Parent or Seller (each an "Employee Plan") covering any
employee of Seller, none of such Employee Plans maintained or contributed to by
Seller or any of its subsidiaries is subject to Title I of ERISA.
(b) Except as set forth on Schedule 4.20(c) of the Disclosure
Schedule, with respect to all Employee Plans maintained by Seller or any of its
subsidiaries, individually and in the aggregate, there are no material funded
benefit obligations for which contributions have not been made or properly
accrued and there are no material unfunded obligations which have not been
accounted for by reserves.
(c) Except as set forth on Schedule 4.20(d), Seller is not a party
or has contributed to any Multiemployer Plan as defined in Section 3(37) of
ERISA.
4.21 TAX MATTERS. Seller and Parent have filed all state, local and
federal tax returns in timely manner or extensions for filing have been obtained
and any taxes owing pursuant to such returns have been fully paid. Neither
Seller nor Parent are presently under audit with respect to any such returns.
Seller and Parent are current on all employee withholding tax remittances and
all such remittances owing for the period ending June 30, 2000 shall be paid
prior to or at Closing.
4.22 INSURANCE. All insurance coverage applicable to Seller, the
Business and the Assets is in full force and effect, insures Seller in
reasonably sufficient amounts against all risks usually insured against by
persons operating similar businesses or properties of similar size in the
localities where such businesses or properties are located, provides coverage as
may be required by applicable Regulation and by any and all Contracts to which
Seller is a party and has been issued by insurers of recognized responsibility.
There is no Default under any such coverage nor has there been any failure to
give notice or present any claim under any such coverage in a due
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and timely fashion, which Default or failure to give notice or present any claim
would have a material adverse effect on the Purchased Assets or the Business.
There are no outstanding unpaid premiums except in the ordinary course of
business and no notice of cancellation or nonrenewal of any such coverage has
been received. All products liability, general liability and workers'
compensation insurance policies maintained by Seller have been occurrence
policies and not claims made policies.
4.23 ACCOUNTS RECEIVABLE. The accounts receivable set forth on the
Balance Sheet, and all accounts receivable arising since the Balance Sheet Date,
represent bona fide claims of Seller against debtors for sales, services
performed or other charges arising on or before the date hereof, and all the
goods delivered and services performed which gave rise to said accounts were
delivered or performed in accordance with the applicable orders, Contracts or
customer requirements. Said accounts receivable are subject to no defenses,
counterclaims or rights of setoff and are fully collectible in the ordinary
course of business without cost in collection efforts therefor, except to the
extent of the appropriate reserves for bad debts on accounts receivable as set
forth on the Balance Sheet and, in the case of accounts receivable arising since
the Balance Sheet Date, to the extent of a reasonable reserve rate for bad debts
on accounts receivable which is not greater than the rate reflected by the
reserve for bad debts on the Balance Sheet.
4.24 INVENTORY. The Inventory as set forth on the Balance Sheet or
arising since the Balance Sheet Date was acquired and has been maintained in
accordance with the regular business practices of Seller, consists of new and
unused items of a quality and quantity usable or saleable in the ordinary course
of business within the past six months, and is valued at reasonable amounts
based on the normal valuation policy of Seller at prices equal to the lower of
cost or market value on a first-in-first-out basis. None of such Inventory is
obsolete, unusable, slow moving, damaged or unsalable in the ordinary course of
business, except for such items of Inventory which have been written down to
realizable market value, or for which adequate reserves have been provided, in
the Balance Sheet.
4.25 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) As used in this Agreement:
(i) "Cleanup" means all actions required to (A) cleanup,
remove, treat or remediate Hazardous Materials in the indoor or outdoor
environment; (B) prevent the Release of Hazardous Materials so that they do not
migrate, endanger or threaten to endanger public health or welfare of the indoor
or outdoor environment; (C) perform pre-remedial studies and investigations and
post-remedial monitoring and care; or (D) respond to any government requests for
information or documents in any way relating to cleanup, removal, treatment or
remediation or potential cleanup, removal, treatment or remediation of Hazardous
Materials in the indoor or outdoor environment.
(ii) "Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any Person alleging
potential liability (including, without limitation, potential liability for
investigatory costs, Cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (A) the presence, or Release into the indoor
or outdoor
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environment, of any Hazardous Materials at any location, whether or not owned or
operated by Seller, or (B) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law.
(iii) "Environmental Laws" means all federal, state, local and
foreign laws and regulations relating to pollution or protection of human health
or the environment, including without limitation, laws relating to Releases or
threatened Releases of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Materials, and all laws relating to endangered
or threatened species of fish, wildlife and plants and the management or use of
natural resources.
(iv) "Hazardous Materials" means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil
and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. Section 300.5,
or defined as such by, or regulated as such under, any Environmental Law.
(v) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater and surface or subsurface
strata) or into or out of any property, including the movement of Hazardous
Materials through or in, the air, soil, surface water, groundwater or property.
(b) Except as set forth on Schedule 4.25, Seller is in
compliance in all material respects with all applicable Environmental Laws
(which compliance includes, but is not limited to, the possession by Seller
of all material Permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof). Seller has not received any communication (written or oral),
whether from a governmental authority, citizens group, employee or otherwise,
that alleges that Seller is not in such compliance, and there are no past or
present (or, to the knowledge of Seller, future) actions, activities,
circumstances, conditions, events or incidents that may prevent or interfere
with such compliance in the future. All Permits and other governmental
authorizations currently held by Seller pursuant to applicable Environmental
Laws are identified in Schedule 4.25.
(c) Except as set forth on Schedule 4.25, there is no material
Environmental Claim pending or overtly threatened against Seller or, to the
knowledge of Seller, against any Person whose liability for any Environmental
Claim Seller has or may have retained or assumed either contractually or by
operation of law.
(d) Except as set forth on Schedule 4.25, to the knowledge of
Seller, there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the Release,
emission, discharge, presence or disposal of any Hazardous Material, which are
reasonably likely to form the basis of any material Environmental Claim
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against Seller or against any Person whose liability for any Environmental Claim
Seller has or may have retained or assumed either contractually or by operation
of law.
(e) Except as set forth on Schedule 4.25, to the knowledge of
Seller, Seller has not, and no other Person has, Released, placed, stored,
buried or dumped Hazardous Materials or any other wastes produced by, or
resulting from, any business, commercial or industrial activities, operations or
processes, on, beneath or adjacent to any property currently or formerly owned,
operated or leased by Seller.
(f) Except as set forth on Schedule 4.25, Seller has delivered or
otherwise made available for inspection to Simplot true, complete and correct
copies and results of any reports, studies, analyses, tests or monitoring
possessed or initiated by Seller pertaining to Hazardous Materials in, on,
beneath or adjacent to any property currently or formerly owned, operated or
leased by Seller, or regarding Seller's compliance with applicable Environmental
Laws.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows, which
representations and warranties are, as of the date hereof, and will be, as of
the Closing Date, true and correct, to Parent and Seller as follows:
5.1 ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
5.2 AUTHORIZATION. Buyer has all requisite corporate power and
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and the Ancillary Agreements, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. No other corporate proceedings on the part of Buyer are necessary to
authorize this Agreement and the Ancillary Agreements and the transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by Buyer and is a legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.
5.3 CONSENTS AND APPROVALS. Other than in connection with or in
compliance with the provisions of the HSR Act, no notice to, declaration, filing
or registration with, or authorization, consent or approval of, or permit from,
any domestic or foreign governmental or regulatory body or authority, or any
other person or entity, is required to be made or obtained by Buyer in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby.
5.4 NO BROKERS. Neither Buyer nor any of its officers, directors,
employees, shareholders or affiliates has employed or made any agreement with
any broker, finder or similar agent or any person or firm which will result in
the obligation of Seller or Parent or any of their respective affiliates to pay
any finder's fee, brokerage fees or commission or similar payment in connection
with the transactions contemplated hereby.
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ARTICLE VI.
COVENANTS OF SELLER AND BUYER
Parent, Seller and Buyer each covenant with the other as follows:
6.1 FURTHER ASSURANCES. Upon the terms and subject to the conditions
contained herein, the parties agree, both before and after the Closing, (i) to
use all reasonable efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement, (ii) to execute
any documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the transactions contemplated
hereunder, and (iii) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use their
respective best efforts (A) to obtain all necessary waivers, consents and
approvals from other parties to the Contracts and Leases to be assumed by Buyer;
PROVIDED, HOWEVER that Buyer shall not be required to make any payments,
commence litigation or agree to modifications of the terms thereof in order to
obtain any such waivers, consents or approvals, (B) to obtain all necessary
Permits as are required to be obtained under any Regulations, (C) to defend all
Actions challenging this Agreement or the consummation of the transactions
contemplated hereby, (D) to lift or rescind any injunction or restraining order
or other Court Order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby, (E) to give all notices to, and
make all registrations and filings with third parties, including without
limitation submissions of information requested by governmental authorities, and
(F) to fulfill all conditions to this Agreement; PROVIDED, HOWEVER, neither
Buyer nor Seller shall be obligated to take or perform any such actions after
August 31, 2000. As soon as practical after the execution and delivery of this
Agreement, but no later than twenty (20) days after such execution and delivery,
Buyer and Seller shall make all filings required under the HSR Act, and Buyer
and Seller will promptly file any supplemental or additional information which
may reasonably be requested in connection therewith pursuant to the HSR Act, and
will comply in all material respects with the requirements of the HSR Act. Each
Party shall use its reasonable efforts to resolve objections, if any, which may
be asserted with respect to the purchase and sale of the Purchased Assets under
the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the
Federal Trade Commission Act, as amended, and any other federal, state or
foreign law or, regulation or decree designed to prohibit, restrict or regulate
actions for the purpose or effect of monopolization or restraint of trade
(collectively "Antitrust Laws"). Notwithstanding the foregoing, in no event
shall Buyer or Seller have an obligation to continue to seek to resolve
objections under Antitrust Laws on or after August 31, 2000 if such party wishes
to exercise its rights to terminate this Agreement pursuant to Section
11.1(a)(ii) and such party otherwise has complied in all material respects with
its obligations under this Agreement, including under this Section 6.1. Seller
shall reimburse Buyer for one-half of the filing fee promptly following Buyer's
and Seller's making the filings required under the HSR Act. In addition, Seller
will commence all action required under this Section 6.1 by a date which is
early enough to allow the transactions contemplated hereunder to be consummated
by the Closing Date.
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6.2 NO SOLICITATION.
(a) NO SOLICITATION. From the date hereof through the Closing or
the earlier termination of this Agreement, each of Parent, Seller and their
Representatives shall not, and shall cause each of their respective shareholders
or Representatives (including without limitation investment bankers, attorneys
and accountants), not to, directly or indirectly, enter into, solicit, initiate
or continue any discussions or negotiations with, or encourage or respond to any
inquiries or proposals by, or participate in any negotiations with, or provide
any information to, or otherwise cooperate in any other way with, any
corporation, partnership, person or other entity or group, other than Buyer and
its Representatives, concerning any sale of all or a portion of the Purchased
Assets or the Business, or of any shares of capital stock of Seller, or any
merger, consolidation, liquidation, dissolution or similar transaction involving
Seller unless such proposed transaction relates to an acquisition of Parent as
an entirety, proposed by a third party, and not solicited by Parent or its
Representatives (each such transaction being referred to herein as a "Proposed
Acquisition Transaction"). Seller and its subsidiaries shall not, directly or
indirectly, through any officer, director, employee, representative, agent or
otherwise, solicit, initiate or encourage the submission of any proposal or
offer from any person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) or entity
relating to any Proposed Acquisition Transaction or participate in any
negotiations regarding, or furnish to any other person any information with
respect to Seller or any of its subsidiaries for the purposes of, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to seek or effect a Proposed
Acquisition Transaction. Seller hereby represents that it is not now engaged in
discussions or negotiations with any party other than Buyer with respect to any
of the foregoing. Seller shall notify Buyer promptly (orally and in writing) if
any such written offer, or any inquiry or contact with any person with respect
thereto, is made and shall provide Buyer with a copy of such offer and shall
keep Buyer informed on the status of any negotiations regarding such offer.
Seller agrees not to release any third party from, or waive any provision of,
any confidentiality or standstill agreement to which Seller is a party.
(b) NOTIFICATION. Seller will immediately notify Buyer if any
discussions or negotiations are sought to be initiated, any inquiry or proposal
is made, or any information is requested with respect to any Proposed
Acquisition Transaction and notify Buyer of the terms of any proposal which it
may receive in respect of any such Proposed Acquisition Transaction, including
without limitation the identity of the prospective purchaser or soliciting
party.
6.3 NOTIFICATION OF CERTAIN MATTERS. From the date hereof through the
Closing, Seller shall give prompt notice to Buyer of (a) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement or in any
exhibit or schedule hereto to be untrue or inaccurate in any material respect
and (b) any material failure of Parent, Seller, or any of their respective
affiliates, or of any of their respective shareholders or Representatives, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement or any exhibit or schedule hereto;
PROVIDED, HOWEVER, that such disclosure shall not be deemed to cure any breach
of a representation, warranty, covenant or agreement or to satisfy any
condition. Seller shall promptly notify Buyer of any Default, the threat or
commencement of any Action, or any
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development that occurs before the Closing that could in any way materially
affect Seller, the Assets or the Business.
6.4 INVESTIGATION BY BUYER. Subject to the Confidentiality Agreement,
from the date hereof through the Closing Date:
(a) Seller shall, and shall cause its officers, directors,
employees and agents to, afford the Representatives of Buyer and its affiliates
complete access at all reasonable times to the Assets for the purpose of
inspecting the same, and to the officers, employees, agents, attorneys,
accountants, properties, Books and Records and Contracts of Seller, and shall
furnish Buyer and its Representatives all financial, operating and other data
and information as Buyer or its affiliates, through their respective
Representatives, may reasonably request.
(b) (i) Buyer shall have the right, at its sole cost and expense
to (A) conduct tests of the soil surface or subsurface waters and air quality
at, in, on, beneath or about the Leased Real Property, and such other procedures
as may be recommended by an independent environmental consultant selected by
Buyer (the "Consultant") based on its reasonable professional judgment, in a
manner consistent with good engineering practice, (B) inspect records, reports,
permits, applications, monitoring results, studies, correspondence, data and any
other information or documents relevant to environmental conditions or
environmental noncompliance, and (C) inspect all buildings and equipment at the
Leased Real Property, including without limitation the visual inspection of the
Facilities for asbestos-containing construction materials; PROVIDED, in each
case, such tests and inspections shall be conducted only (1) during regular
business hours; and (2) in a manner which will not unduly interfere with the
operation of the Business and/or the use of, access to or egress from the Leased
Property.
(ii) Buyer's right to conduct tests, inspect records and
other documents, and visually inspect all buildings and equipment at the Leased
Real Property shall also be subject to the following terms and conditions:
(A) All testing performed on Buyer's behalf shall be
conducted by the Consultant;
(B) Seller shall have the right to accompany the
Consultant as it performs testing;
(C) Except as otherwise required by law, any information
concerning the Leased Real Property gathered by Buyer or the Consultant as the
result of, or in connection with, the testing shall be kept confidential in
accordance with subsection (D) below and shall not be revealed to, or discussed
with, anyone other than Representatives of Buyer or Representatives of Seller or
Parent who agree to comply with the provisions of subsection (D) below; and
(D) In the event that any party to this Agreement or any
party set forth in subsection (C) above is requested or required to disclose
information described in subparagraph (b)(i), Buyer shall provide Seller or
Seller shall provide Buyer, as the case may be, with prompt notice of such
request so that Seller or Buyer, as the case may be, may seek an appropriate
protective order or waiver by the other party's compliance with this Agreement.
If,
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in the absence of a protective order or the receipt of a waiver hereunder, such
party is nonetheless, in the opinion of its counsel, compelled to disclose such
information to any tribunal or else stand liable for contempt or suffer other
censure or penalty, such party will furnish only that portion of the information
which is legally required and will exercise its reasonable efforts to obtain
reliable assurance that confidential treatment will be afforded to the disclosed
information. The requirements of this subparagraph shall not apply to
information in the public domain or lawfully acquired on a nonconfidential basis
from others.
6.5 CONDUCT OF BUSINESS. From the date hereof through the Closing,
Seller shall, except as contemplated by this Agreement, or as consented to by
Buyer in writing, operate the Business in the ordinary course of business and
substantially in accordance with past practice and will not take any action
inconsistent with this Agreement or with the consummation of the Closing.
Without limiting the generality of the foregoing, Seller shall not, except as
specifically contemplated by this Agreement or as consented to by Buyer in
writing:
(a) change or amend the Certificate of Incorporation or Bylaws of
Seller;
(b) enter into, extend, materially modify, terminate or renew any
Contract or Lease, except in the ordinary course of business;
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any of the Assets, or any interests therein,
except in the ordinary course of business and, without limiting the generality
of the foregoing, Seller will produce, maintain and sell inventory consistent
with its past practices;
(d) incur any Liability for long-term interest bearing
indebtedness, guarantee the obligations of others, indemnify others or, except
in the ordinary course of business, incur any other Liability;
(e) (i) take any action with respect to the grant of any bonus,
severance or termination pay (otherwise than pursuant to policies or agreements
of Seller in effect on the date hereof that are described on the Disclosure
Schedule) or with respect to any increase of benefits payable under its
severance or termination pay policies or agreements in effect on the date hereof
or increase in any manner the compensation or fringe benefits of any employee or
pay any benefit not required by any existing Employee Plan or policy;make any
change in the key management structure of Seller, including without limitation
the hiring of additional officers or the termination of existing officers;
(ii) adopt, enter into or amend any Employee Plan, agreement
(including without limitation any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of any
employee, except for any such amendment as may be required to comply with
applicable Regulations or which does not increase in any material respects the
benefits made available to employees under such Employee Plan; or
(iii) fail to maintain all Employee Plans in accordance with
applicable Regulations;
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(f) acquire by merger or consolidation with, or merge or
consolidate with, or purchase substantially all of the assets of, or otherwise
acquire any material assets or business of any corporation, partnership,
association or other business organization or division thereof;
(g) declare, set aside, make or pay any dividend or other
distribution in respect of Seller's capital stock;
(h) enter into, renew, modify or revise any agreement or
transaction with Parent or any of its affiliates other than for the transfer of
cash in accordance with Parent's ordinary course cash management practices;
(i) make any income tax election or settlement or compromise with
tax authorities;
(j) fail to comply in any material respect with all Regulations
applicable to it, the Assets and the Business;
(k) issue, repurchase or redeem or commit to issue, repurchase or
redeem, any shares of Seller's capital stock, any options or other rights to
acquire such stock or any securities convertible into or exchangeable for such
stock;
(l) fail to use its best efforts to (i) retain the Seller's
employees and (ii) maintain the Business so that such employees will remain
available to Seller on and after the Closing Date, (iii) maintain existing
relationships with suppliers, customers and others having business dealings with
Seller and (iv) otherwise to preserve the goodwill of the Business so that such
relationships and goodwill will be preserved on and after the Closing Date;
(m) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder; or
(n) transfer any cash or cash equivalents to Parent (whether by
loan, dividend or otherwise) except for remittances of proceeds received from
sales of proprietary products.
6.6 EMPLOYEE MATTERS.
(a) Buyer shall extend offers of employment to all of the employees
of Seller effective as of the Closing Date, which offers shall be on terms and
conditions substantially similar to the current terms and conditions of
employment by Seller. Seller shall cooperate with and use its commercially
reasonably efforts to assist Buyer in its efforts to secure satisfactory
employment arrangements with the employees of Seller. Employees of Seller who
become employees of Buyer as of the Closing Date are referred to herein as
"Rehired Employees."
(b) Buyer agrees that, with respect to all of its employee benefit
programs and arrangements covering or otherwise benefiting any of the Rehired
Employees on or after the Closing Date, service with Seller and its affiliates
shall be counted for purposes of determining any period of eligibility to
participate or to vest in benefits to the same extent such service was counted
under Seller's employee programs, except that service with Seller shall not be
taken into account with respect to calculation of pension payments under Buyer's
pension plan.
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(c) Except to the extent required by law, Seller shall not pay
Rehired Employees their accrued and unused vacation, and Buyer shall provide,
without duplication of benefits, all Rehired Employees with vacation time rather
than cash in lieu of vacation time for all vacation earned and unpaid through
the Closing Date.
(d) Buyer shall provide a medical plan as of the Closing Date so as
to ensure uninterrupted coverage of all Rehired Employees. Such medical plan
shall grant credit for amounts paid by employees during the applicable plan year
beginning prior to the Closing Date, shall not exclude pre-existing conditions
and shall provide for medical benefits substantially consistent with the
Seller's medical plan in effect prior to the Closing Date.
(e) From and after the Closing Date until December 31, 2000, Buyer
shall provide employee benefits and compensation to the Rehired Employees which
are substantially similar to those provided by Seller immediately prior to the
Closing Date. Without limiting the foregoing, Buyer shall continue in effect the
2000 compensation plan for Seller's salesmen, which was announced in January
2000.
(f) Nothing contained in this Agreement shall confer upon any
Rehired Employee any right with respect to continuance of employment by Buyer,
nor shall anything herein interfere with (i) the right of Buyer to terminate the
employment of any of the Rehired Employees at any time, with or without cause,
or (ii) restrict Buyer in the exercise of its independent business judgment in
modifying any of the terms and conditions of the employment of the Rehired
Employees provided that Buyer continues to provide employee benefits and
compensation to the Rehired Employees which are substantially similar to those
provided by Seller through December 31, 2000.
(g) Seller shall not, directly or indirectly, hire or offer
employment to or seek to hire or offer employment to any Rehired Employee after
the Closing Date or any employee of Buyer or any successor or affiliate of Buyer
which is engaged in the Business, unless Buyer first terminates the employment
of such employee or gives its written consent to such employment or offer of
employment.
6.7 SHAREHOLDER APPROVAL.
(a) As soon as reasonably practicable after execution of this
Agreement, Parent shall prepare and file with the Securities and Exchange
Commission (the "SEC") a proxy statement seeking Parent's shareholders' approval
of, among other things, the sale of the Purchased Assets to Buyer (the "Proxy
Statement"), and shall use its reasonable efforts to cause SEC review of the
Proxy Statement to be completed as promptly as practicable. Buyer shall
cooperate in the preparation and filing of the Proxy Statement and shall furnish
all information concerning Buyer as Parent may reasonably request in connection
with such action. Parent shall call an annual or special meeting of its
shareholders (the "Shareholders' Meeting"), to be held as soon as reasonably
practicable after the SEC indicates that it has no further comments on the Proxy
Statement, for the purpose of Parent's shareholders voting upon the approval of
the sale of the Purchased Assets to Buyer.
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(b) In connection with the Shareholders' Meeting, the Board of
Directors of Parent shall recommend to its stockholders the approval of the
matters submitted for approval unless withdrawal of such recommendation is
required in order for the Board of Directors of Parent to comply with its
obligations to Parent shareholders under applicable law. If Parent or its
Representatives provides information to or negotiates with a third party that
makes an unsolicited bid to acquire Parent in its entirety in accordance with
Section 6.2(a) hereof and the Board of Directors subsequently withdraws its
recommendation of the transactions contemplated hereby on the basis that it
cannot, in a manner consistent with its duties to shareholders under applicable
law, continue to recommend the transactions contemplated hereby in light of the
existence of such other transaction, Parent shall pay to Buyer upon the earlier
of (i) Buyer's, Seller's and Parent's mutually agreeing to terminate this
Agreement in light of such other transaction; (ii) termination of this Agreement
by Buyer pursuant to clause (ii) or (iii) of Section 11.1(a) hereof or (iii)
Parent's shareholders failing to approve the transactions contemplated hereby at
the Shareholders' meeting: (1) a break-up fee in the amount of $250,000 plus
Buyer's actual expenses incurred with respect to its environmental due
diligence, and (2) a topping fee equal to five percent (5%) of the acquisition
price offered by such third party attributable to the assets of Seller.
Additionally, any interim financing provided by Buyer to Seller or Parent, if
any, shall be repaid immediately upon termination of this Agreement.
(c) Subject to the provisions of this Section 6.7, the Board of
Directors and officers of Parent shall use their reasonable efforts to obtain
such shareholders' approval.
6.8 ASSUMPTION OF LEASES. Buyer shall be obligated to assume all Leases
to the extent transferable other than those that relate to Facilities where
Buyer has identified material environmental contingencies. At least five (5)
business days prior to the Closing Date, Buyer shall deliver to Seller a list of
the Leases, if any, which Buyer will not assume in connection with the purchase
and sale of the Purchased Assets. The Leases so designated by Buyer will be
deemed Excluded Assets and the Liabilities of Seller thereunder will be deemed
Excluded Liabilities for purposes of this Agreement. Buyer shall remove the
Purchased Assets located at the Facilities covered by the Leases not assumed by
Buyer within 30 days after the Closing Date. Buyer shall reimburse Seller for
its costs under the Leases not assumed by Buyer from the Closing Date until the
Purchased Assets are removed from such Facilities. To the extent that Buyer
reasonably determines not to assume the Leases for certain Facilities pursuant
to this Section 6.8 and the elimination of such Facilities materially adversely
affects the value of the Purchased Assets taken as a whole, Seller and Buyer
shall negotiate in good faith an appropriate adjustment to the Purchase Price.
6.9 MONTHLY FINANCIAL STATEMENTS. Seller shall prepare and deliver to
Buyer as promptly as practicable following the end of each month (beginning with
March 2000 and ending with the last full month prior to the Closing Date)
unaudited monthly balance sheets as of the end of each such month and statements
of operations for such month and for the period from January 1, 2000 through the
end of such month.
6.10 BOARD APPROVAL. This Agreement is subject to the approval of the
boards of directors of Seller and Parent. Each of Seller and Parent will hold a
meeting of its board or will take action by written consent of its board on or
prior to March 28, 2000. Seller and Parent will deliver certified copies of
their board resolutions to Buyer on or prior to March 30, 2000.
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6.11 WORKING CAPITAL. This Agreement is subject to Parent and/or Seller
obtaining sufficient additional commitments for loans or other sources of cash
to satisfy Parent's and Seller's working capital needs through the Closing Date.
ARTICLE VII.
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the transactions
provided for hereby are subject, in the reasonable discretion of Seller, to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by Seller:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects at and as of the date of this Agreement and at and as of the
Closing Date, except as and to the extent that the facts and conditions upon
which such representations and warranties are based are expressly required or
permitted to be changed by the terms hereof, and Buyer shall have performed and
satisfied in all material respects all agreements and covenants required hereby
to be performed by it prior to or on the Closing Date.
7.2 CONSENTS; REGULATORY COMPLIANCE AND APPROVAL. All consents,
approvals and waivers from governmental authorities and other parties necessary
to permit Seller to transfer the Assets to Buyer as contemplated hereby shall
have been obtained, unless the failure to obtain any such consent, approval or
waiver would not have a material adverse effect upon the Purchased Assets or
Seller. Seller shall be satisfied that all approvals required under any
Regulations to carry out the transactions contemplated by this Agreement shall
have been obtained and that the parties shall have complied with all Regulations
applicable to the purchase and sale of the Purchased Assets and Buyer's
assumption of the Assumed Liabilities. The applicable waiting period, including
any extension thereof, under the HSR Act shall have expired.
7.3 NO ACTIONS OR COURT ORDERS. No Action by any governmental authority
or other person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to damage Buyer, the Assets or the Business materially if
the transactions contemplated hereby are consummated, including without
limitation any material adverse effect on the right or ability of Buyer to own,
operate, possess or transfer the Purchased Assets after the Closing. There shall
not be any Regulation or Court Order that makes the purchase and sale of the
Business or the Assets contemplated hereby illegal or otherwise prohibited.
7.4 CERTIFICATES. Buyer shall furnish Seller with such certificates of
its officers and others to evidence compliance with the conditions set forth in
this Article VII as may be reasonably requested by Seller.
7.5 CORPORATE DOCUMENTS. Seller shall have received from Buyer
resolutions adopted by the board of directors of Buyer approving this Agreement,
the Ancillary Agreements and the transactions contemplated hereby or thereby,
certified by Buyer's corporate secretary.
7.6 ASSUMPTION DOCUMENT. Buyer shall have executed the Assumption
Document.
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7.7 ANCILLARY AGREEMENTS. Buyer shall have executed and delivered the
Ancillary Agreements to which Buyer is a party.
7.8 SHAREHOLDER APPROVAL. The shareholders of Parent shall have
approved this Agreement and the sale of the Purchased Assets, as and to the
extent required by Nebraska law, by the provisions of Parent's certificate of
incorporation or by the rules of the Nasdaq National Market.
7.9 OPINION OF COUNSEL. Seller shall have received the opinion of
counsel to Buyer covering the matters set forth on Exhibit H hereto.
ARTICLE VIII.
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions provided
for hereby are subject, in the reasonable discretion of Buyer, to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by Buyer:
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties of Seller contained in this Agreement shall be true and correct in
all material respects at and as of the date of this Agreement and at and as of
the Closing Date, except as and to the extent that the facts and conditions upon
which such representations and warranties are based are expressly required or
permitted to be changed by the terms hereof, and Seller shall have performed and
satisfied in all material respects all agreements and covenants required hereby
to be performed by it prior to or on the Closing Date.
8.2 CONSENTS; REGULATORY COMPLIANCE AND APPROVAL. All Permits,
consents, approvals and waivers from governmental authorities and other parties
necessary to the consummation of the transactions contemplated hereby and for
the operation of the Business by Buyer (including, without limitation, all
required third party consents to the assignment of the Leases and Contracts to
be assumed by Buyer) shall have been obtained. Buyer shall be reasonably
satisfied that all approvals required under any Regulations to carry out the
transactions contemplated by this Agreement shall have been obtained and that
the parties shall have complied with all Regulations applicable to the purchase
and sale of the Purchased Assets and Buyer's assumption of the Assumed
Liabilities. The applicable waiting period, including any extension thereof,
under the HSR Act shall have expired.
8.3 RELEASES OF LIENS. Without limiting the condition set forth in
Section 8.2, any liens on the Purchased Assets arising under or by virtue of
Parent's Senior Subordinated Notes due 2000 and the Note and Warrant Purchase
Agreement related thereto (the "Note Purchase Agreement"), Parent's 7% Senior
Secured Convertible Debentures due January 24, 2001 and the Convertible
Debentures and Warrants Purchase Agreement (the "Debenture Purchase Agreement")
and the Security Agreement related thereto, and the Term Loan and Security
Agreement, dated as of July 30, 1999 between Parent and Coast Business Credit
(the "Parent Coast Loan") shall have been released. In addition, the holders of
the Senior Subordinated Notes shall have waived compliance with all covenants
that would limit or prohibit the transactions
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contemplated hereby and, through the Closing Date, all financial covenants
contained in the Note Purchase Agreement, the holders of the Convertible
Debentures shall have waived compliance with all covenants that would limit
or prohibit the transactions contemplated hereby and, through the Closing
Date, all financial covenants under the Debenture Purchase Agreement and
related agreements (other than covenants with respect to registration rights)
and Coast shall have waived compliance with all covenants that would limit or
prohibit the transactions contemplated hereby and, through the Closing Date,
all financial covenants under the Parent Coast Loan. The holders of the
Senior Subordinated Notes and the holders of the Convertible Debentures also
shall have amended their agreements with Parent so that Parent's obligations
to issue shares of its common stock or warrants to them will arise only if
the Senior Subordinated Notes have not been repaid in full on or before July
31, 2000.
8.4 NO ACTIONS OR COURT ORDERS. No Action by any governmental authority
or other person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to damage Buyer, the Assets or the Business materially if
the transactions contemplated hereby are consummated, including without
limitation any material adverse effect on the right or ability of Buyer to own,
operate, possess or transfer the Purchased Assets after the Closing. There shall
not be any Regulation or Court Order that makes the purchase and sale of the
Business or the Assets contemplated hereby illegal or otherwise prohibited.
8.5 CERTIFICATES. Parent and Seller shall furnish Buyer with such
certificates of its officers and others to evidence compliance with the
conditions set forth in this Article VIII as may be reasonably requested by
Buyer.
8.6 MATERIAL CHANGES. Since the Balance Sheet Date, there shall not
have been any material adverse change with respect to the Business or the
Assets.
8.7 CORPORATE DOCUMENTS. Buyer shall have received from Seller
resolutions adopted by the boards of directors of Parent and Seller and
resolutions of Parent, for itself and as the shareholder of Seller, approving
this Agreement and the Ancillary Agreements and the transactions contemplated
hereby and thereby, certified by Parent's and Seller's corporate secretary, as
applicable.
8.8 DUE DILIGENCE REVIEW. Buyer and its Representatives shall have
conducted a due diligence review of Seller's Books and Records, Financial
Statements, and other records and accounts of the Business, and in the
reasonable discretion of Buyer, Buyer shall be satisfied on the basis of such
review that there has been no material breach of the representations and
warranties or the pre-closing covenants of Parent or Seller made pursuant to
this Agreement.
8.9 CONVEYANCING DOCUMENTS; RELEASE OF ENCUMBRANCES. Seller shall have
executed and delivered each of documents described in Section 3.2 hereof so as
to effect the transfer and assignment to Buyer of all right, title and interest
in and to the Purchased Assets and Seller shall have filed (where necessary) and
delivered to Buyer all documents necessary to release the Assets from all
Encumbrances, which documents shall be in a form reasonably satisfactory to
Buyer's counsel.
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8.10 NAME CHANGE. Seller shall have filed an amendment to its
Certificate of Incorporation to change its corporate name so as not to include
the words "Turf Partners" or any other name or mark that has such a near
resemblance thereto as may be likely to cause confusion or mistake to the
public, or to otherwise deceive the public. Such amendment shall be in a form
acceptable for filing with the Secretary of State of the State of Delaware.
8.11 OTHER AGREEMENTS. Parent and Seller shall have executed and
delivered the Ancillary Agreements
8.12 SHAREHOLDER APPROVAL. The shareholders of Parent shall have
approved this Agreement and the sale of the Purchased Assets, as and to the
extent required by Nebraska law, by the provisions of Parent's certificate of
incorporation or by the rules of the Nasdaq National Market.
8.13 OPINION OF COUNSEL. Buyer shall have received the opinion of
counsel to Seller covering the matters set forth on Exhibit I hereto.
8.14 EMPLOYMENT OF REHIRED EMPLOYEES. Buyer shall have received
acceptances of employment from Rehired Employees sufficient in Buyer's
reasonable discretion to operate the Business after Closing in the same manner
as run by Seller prior to Closing.
ARTICLE IX.
RISK OF LOSS; CONSENTS TO ASSIGNMENT
9.1 RISK OF LOSS. From the date hereof through the Closing Date, all
risk of loss or damage to the property included in the Assets shall be borne by
Seller, and thereafter shall be borne by Buyer. If any portion of the Assets is
destroyed or damaged by fire or any other cause on or prior to the Closing Date,
other than use, wear or loss in the ordinary course of business, Seller shall
give written notice to Buyer as soon as practicable after, but in any event
within five (5) calendar days of, discovery of such damage or destruction, the
amount of insurance, if any, covering such Assets and the amount, if any, which
Seller is otherwise entitled to receive as a consequence. Prior to the Closing,
Buyer shall have the option, which shall be exercised by written notice to
Seller within ten (10) calendar days after receipt of Seller's notice or if
there is not ten (10) calendar days prior to the Closing Date, as soon as
practicable prior to the Closing Date, of (a) accepting such Assets in their
destroyed or damaged condition in which event Buyer shall be entitled to the
proceeds of any insurance or other proceeds payable with respect to such loss
and subject to Section 10.4(f), to such indemnification for any uninsured
portion of such loss pursuant to Section 10.4, and the full Purchase Price shall
be paid for such Assets, (b) excluding such Assets from this Agreement, in which
event the Purchase Price shall be reduced by the amount allocated to such
Assets, as mutually agreed between the parties or (c) if the destruction or
damage of a portion of the Assets has a material adverse effect on the Business
or the Purchased Assets taken as a whole, terminating this Agreement in
accordance with Section 11.1. If Buyer accepts such Assets, then after the
Closing, any insurance or other proceeds shall belong, and shall be assigned to,
Buyer without any reduction in the Purchase Price; otherwise, such insurance
proceeds shall belong to Seller.
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9.2 CONSENTS TO ASSIGNMENT. Anything in this Agreement to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
Contract, Lease, Permit or any claim or right or any benefit arising thereunder
or resulting therefrom if an attempted assignment thereof, without the consent
of a third party thereto, would constitute a Default thereof or in any way
adversely affect the rights of Buyer thereunder. If such consent is not
obtained, or if an attempted assignment thereof would be ineffective or would
affect the rights thereunder so that Buyer would not receive all such rights,
Seller will cooperate with Buyer, in all reasonable respects, to provide to
Buyer the benefits under any such Contract, Lease, Permit or any claim or right,
including without limitation enforcement for the benefit of Buyer of any and all
rights of Seller against a third party thereto arising out of the Default or
cancellation by such third party or otherwise.
ARTICLE X.
ACTIONS BY SELLER AND BUYER
AFTER THE CLOSING
10.1 COLLECTION OF ACCOUNTS RECEIVABLE AND LETTERS OF CREDIT. At the
Closing, Buyer will acquire hereunder, and thereafter Buyer or its designee
shall have the right and authority to collect for Buyer's or its designee's
account, all receivables, letters of credit and other items which constitute a
part of the Assets, and Seller shall within forty-eight (48) hours after receipt
of any payment in respect of any of the foregoing, properly endorse and deliver
to Buyer any letters of credit, documents, cash or checks received on account of
or otherwise relating to any such receivables, letters of credit or other items.
Seller shall promptly transfer or deliver to Buyer or its designee any cash or
other property that Seller may receive in respect of any deposit, prepaid
expense, claim, contract, license, lease, commitment, sales order, purchase
order, letter of credit or receivable of any character, or any other item,
constituting a part of the Assets.
10.2 BOOKS AND RECORDS; TAX MATTERS.
(a) BOOKS AND RECORDS. Each party agrees that it will cooperate
with and make available to the other party, during normal business hours, all
Books and Records, information and employees (without substantial disruption of
employment) retained and remaining in existence after the Closing which are
necessary or useful in connection with any tax inquiry, audit, investigation or
dispute, any litigation or investigation or any other matter requiring any such
Books and Records, information or employees for any reasonable business purpose.
The party requesting any such Books and Records, information or employees shall
bear all of the out of pocket costs and expenses (including without limitation
attorneys' fees, but excluding reimbursement for salaries and employee benefits)
reasonably incurred in connection with providing such Books and Records,
information or employees. All information received pursuant to this Section
10.2(a) shall be subject to the terms of the Confidentiality Agreement.
(b) COOPERATION AND RECORDS RETENTION. Seller and Buyer shall (i)
each provide the other with such assistance as may reasonably be requested by
any of them in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to Liability for Taxes, (ii) each retain and provide the other with any
records or other information that may be relevant to such return, audit
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or examination, proceeding or determination, and (iii) each provide the other
with any final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any tax return of
the other for any period. Without limiting the generality of the foregoing,
Buyer and Seller shall each retain, until the applicable statutes of limitations
(including any extensions) have expired, copies of all tax returns, supporting
work schedules, and other records or information that may be relevant to such
returns for all tax periods or portions thereof ending on or before the Closing
Date and shall not destroy or otherwise dispose of any such records without
first providing the other party with a reasonable opportunity to review and copy
the same.
(c) PAYMENT OF LIABILITIES. Following the Closing Date, Seller
shall pay promptly when due all of the debts and Liabilities of Seller,
including any Liability for Taxes, other than Assumed Liabilities; PROVIDED,
HOWEVER, this covenant shall not apply to that portion (or all) of any debt that
Seller is contesting in good faith.
10.3 SURVIVAL OF REPRESENTATIONS, ETC. All of the representations,
warranties, covenants and agreements made by each party in this Agreement or in
any attachment, exhibit, the Disclosure Schedule, certificate, document or list
delivered by any such party pursuant hereto shall survive the Closing for a
period of (and claims based upon or arising out of such representations,
warranties, covenants and agreements may be asserted at any time before the date
which shall be) one year following the Closing (except with respect to the
representations and warranties set forth Sections 4.20, 4.21 and 4.25 which
shall survive until the expiration of the applicable statute of limitations
(with extensions) with respect to the matters addressed in such sections. Each
party hereto shall be entitled to rely upon the representations and warranties
of the other party set forth in this Agreement. The termination of the
representations and warranties provided herein shall not affect the rights of a
party in respect of any Claim made by such party in a writing received by the
other party prior to the expiration of the applicable survival period provided
herein.
10.4 INDEMNIFICATIONS.
(a) BY PARENT AND SELLER. Parent and Seller, jointly and severally,
shall indemnify, save and hold harmless Buyer, its affiliates and subsidiaries,
from and against any and all costs, losses (including without limitation
diminution in value), Taxes (other than Taxes which Buyer has agreed to pay
pursuant to Sections 2.2(e) and 2.7), Liabilities, obligations, damages,
lawsuits, deficiencies, claims, demands, and expenses (whether or not arising
out of third party claims), including without limitation interest, penalties,
costs of mitigation, losses in connection with any Environmental Law (including
without limitation any clean-up or remedial action), lost profits and other
losses resulting from any shutdown or curtailment of operations, damages to the
environment, attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing (herein, "Damages"), incurred in connection
with, arising out of, resulting from or incident to (i) any breach of any
representation or warranty or the inaccuracy of any representation, made by
Parent or Seller in or pursuant to this Agreement; (ii) any breach of any
covenant or agreement made by Seller in or pursuant to this Agreement; (iii) any
Excluded Liability or (iv) any Liability imposed upon Buyer by reason of Buyer's
status as transferee of the Business or the Purchased Assets.
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The term "Damages" as used in this Section 10.4 is not limited to
matters asserted by third parties against Seller or Buyer, but includes Damages
incurred or sustained by Seller or Buyer in the absence of third party claims.
Payments by Buyer of amounts for which Buyer is indemnified hereunder, and
payments by Seller of amounts for which Seller is indemnified, shall not be a
condition precedent to recovery. Seller's obligation to indemnify Buyer, and
Buyer's obligation to indemnify Seller, shall not limit any other rights,
including without limitation rights of contribution which either party may have
under statute or common law.
(b) BY BUYER. Buyer shall indemnify and save and hold harmless
Parent, Seller, and their respective affiliates and subsidiaries from and
against any and all Damages incurred in connection with, arising out of,
resulting from or incident to (i) any breach of any representation or warranty
or the inaccuracy of any representation, made by Buyer in or pursuant to this
Agreement; (ii) any breach of any covenant or agreement made by Buyer in or
pursuant to this Agreement; or (iii) from and after the Closing, any Assumed
Liability.
(c) COOPERATION. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; PROVIDED, HOWEVER, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom. The parties shall cooperate with each
other in any notifications to insurers.
(d) DEFENSE OF CLAIMS. If a claim for Damages (a "Claim") is to be
made by a party entitled to indemnification hereunder against the indemnifying
party, the party claiming such indemnification shall, subject to Section 10.3,
give written notice (a "Claim Notice") to the indemnifying party as soon as
practicable after the party entitled to indemnification becomes aware of any
fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 10.4. If any lawsuit or
enforcement action is filed against any party entitled to the benefit of
indemnity hereunder, written notice thereof shall be given to the indemnifying
party as promptly as practicable (and in any event within fifteen (15) calendar
days after the service of the citation or summons). The failure of any
indemnified party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After such notice, if the
indemnifying party shall acknowledge in writing to the indemnified party that
the indemnifying party shall be obligated under the terms of its indemnity
hereunder in connection with such lawsuit or action, then the indemnifying party
shall be entitled, if it so elects at its own cost, risk and expense, (i) to
take control of the defense and investigation of such lawsuit or action, (ii) to
employ and engage attorneys of its own choice to handle and defend the same
unless the named parties to such action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party has been
advised in writing by counsel that there may be one or more legal defenses
available to such indemnified party that are different from or additional to
those available to the indemnifying party, in which event the indemnified party
shall be entitled, at the indemnifying party's cost, risk and expense, to
separate counsel of its own choosing, and (iii) to compromise or settle such
claim, which compromise or settlement shall be made only with the written
consent of the indemnified party, such consent not to be unreasonably withheld.
If the indemnifying party fails to assume the defense of such claim within
fifteen (15) calendar days after receipt of the Claim Notice, the indemnified
party against which such claim has been
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asserted will (upon delivering notice to such effect to the indemnifying party)
have the right to undertake, at the indemnifying party's cost and expense, the
defense, compromise or settlement of such claim on behalf of and for the account
and risk of the indemnifying party; PROVIDED, HOWEVER, that such Claim shall not
be compromised or settled without the written consent of the indemnifying party,
which consent shall not be unreasonably withheld. In the event the indemnified
party assumes the defense of the claim, the indemnified party will keep the
indemnifying party reasonably informed of the progress of any such defense,
compromise or settlement. The indemnifying party shall be liable for any
settlement of any action effected pursuant to and in accordance with this
Section 10.4 and for any final judgment (subject to any right of appeal), and
the indemnifying party agrees to indemnify and hold harmless an indemnified
party from and against any Damages by reason of such settlement or judgment.
(e) BUYER'S RIGHT OF OFFSET. Anything in this Agreement to the
contrary notwithstanding, Buyer may withhold and set off against any amounts
otherwise due Seller any amount as to which Seller is obligated to indemnify
Buyer pursuant to any provision of this Section 10.4.
(f) BROKERS AND FINDERS. Pursuant to the provisions of this Section
10.4, each of Buyer and Seller shall indemnify, hold harmless and defend the
other party from the payment of any and all broker's and finder's expenses,
commissions, fees or other forms of compensation which may be due or payable
from or by the indemnifying party, or may have been earned by any third party
acting on behalf of the indemnifying party in connection with the negotiation
and execution hereof and the consummation of the transactions contemplated
hereby.
(g) LIMITATIONS. Neither Buyer nor Seller shall be liable to the
other under this Section 10.4 for any Damages until either any individual amount
otherwise due the party being indemnified exceeds One Hundred Thousand Dollars
($100,000) or the aggregate amount otherwise due the party being indemnified
exceeds an accumulated total of Two Hundred Thousand Dollars ($200,000). Claims
for indemnification with respect to fraud, intentional misrepresentation or the
cause or knowledge of a deliberate or willful breach of any representations,
warranties or covenants under this Agreement or in any certificate, schedule or
exhibit delivered pursuant hereto shall not be subject to any of the limitations
set forth in this Article X.
10.5 BULK SALES. It may not be practicable to comply or attempt to
comply with the procedures of the "Bulk Sales Act" or similar law of any or all
of the states in which the Assets are situated or of any other state which may
be asserted to be applicable to the transactions contemplated hereby.
Accordingly, to induce Buyer to waive any requirements for compliance with any
or all of such laws, Seller hereby agrees that the indemnity provisions of
Section 10.4 hereof shall apply to any Damages of Buyer arising out of or
resulting from the failure of Seller or Buyer to comply with any such laws.
10.6 TAXES. Subject to Section 2.7, Parent and Seller shall pay, or
cause to be paid, when due all Taxes for which Seller is or may be liable or
that are or may become payable with respect to all taxable periods ending on or
prior to the Closing Date.
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10.7 OPERATION OF BUSINESS. From the Closing Date through December 31,
2000, Buyer shall operate the Business using the Purchased Assets as a separate
business unit in accordance with the budget and forecast for the Business
attached hereto as Exhibit J. Buyer also shall maintain separate, auditable
financial statements for the Business following the Closing Date.
ARTICLE XI.
MISCELLANEOUS
11.1 TERMINATION.
(a) TERMINATION. This Agreement may be terminated at any time prior
to Closing:
(i) By mutual written consent of Buyer and Seller;
(ii) By Buyer or Seller if the Closing shall not have occurred
on or before August 31, 2000; PROVIDED HOWEVER, that this provision shall not be
available to Buyer if Seller has the right to terminate this Agreement under
clause (iv) of this Section 11.1, and this provision shall not be available to
Seller if Buyer has the right to terminate this Agreement under clause (iii) of
this Section 11.1;
(iii) By Buyer if there is a material breach of any
representation or warranty set forth in Article IV hereof or any covenant or
agreement to be complied with or performed by Parent or Seller pursuant to the
terms of this Agreement or the failure of a condition set forth in Article VIII
to be satisfied (and such condition is not waived in writing by Buyer) on or
prior to the Closing Date, or the occurrence of any event which results or would
result in the failure of a condition set forth in Article VIII to be satisfied
on or prior to the Closing Date, provided that Buyer may not terminate this
Agreement prior to the Closing if Seller has not had an adequate opportunity to
cure such failure;
(iv) By Seller if there is a material breach of any
representation or warranty set forth in Article V hereof or of any covenant or
agreement to be complied with or performed by Buyer pursuant to the terms of
this Agreement or the failure of a condition set forth in Article VII to be
satisfied (and such condition is not waived in writing by Seller) on or prior to
the Closing Date, or the occurrence of any event which results or would result
in the failure of a condition set forth in Article VII to be satisfied on or
prior to the Closing Date; PROVIDED that, Seller may not terminate this
Agreement prior to the Closing Date if Buyer has not had an adequate opportunity
to cure such failure;
(v) By Buyer if Seller and Parent have not obtained the board
approvals contemplated by Section 6.10 hereof; or
(vi) By Seller if it has not obtained commitments for
additional working capital, as contemplated by Section 6.11, on or before March
28, 2000.
(b) IN THE EVENT OF TERMINATION. In the event of termination of
this Agreement:
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(i) Each party will redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same;
(ii) The provisions of the Confidentiality Agreement shall
continue in full force and effect; and
(iii) No party hereto shall have any Liability to any other
party to this Agreement, except as stated in subsections (i), (ii) and (iii) of
this Section 11.1(b), except for any willful breach of this Agreement occurring
prior to the proper termination of this Agreement. The foregoing provisions
shall not limit or restrict the availability of specific performance or other
injunctive relief to the extent that specific performance or such other relief
would otherwise be available to a party hereunder.
11.2 ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party without the prior written
consent of the other parties; except that Buyer may, without such consent,
assign all such rights to any lender as collateral security and assign all such
rights and obligations to a wholly-owned subsidiary (or a partnership controlled
by Buyer) or subsidiaries of Buyer or to a successor in interest to Buyer which
shall assume all obligations and Liabilities of Buyer under this Agreement.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, and no other person shall have any right, benefit or obligation under
this Agreement as a third party beneficiary or otherwise.
11.3 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (E.G., Federal Express); and
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
If to Parent or Seller, addressed to:
Eco Soil Systems, Inc.
10740 Thornmint Road
San Diego, CA 92177
Attention: William B. Adams
With a copy to:
Latham & Watkins
701 "B" Street
Suite 2100
San Diego, California 92101
Attention: Robert E. Burwell
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If to Buyer, addressed to:
J. R. Simplot Company
999 Main Street, Suite 1300
Boise, Idaho 83702
Attention: Ray Sasso
With a copy to:
J.R. Simplot Company
999 Main Street, Suite 1300
Boise, Idaho 83702
Attention: General Counsel
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.4 CHOICE OF LAW. This Agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the laws of the State of
California (without reference to the choice of law provisions of California
law).
11.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, the
Ancillary Agreements, together with all exhibits and schedules hereto and
thereto (including the Disclosure Schedule), and the Confidentiality Agreement
constitute the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto. No amendment, supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
11.6 MULTIPLE COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7 EXPENSES. Except as otherwise specified in this Agreement, each
party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect.
11.8 INVALIDITY. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
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11.9 TITLES; GENDER. The titles, captions or headings of the Articles
and Sections herein, and the use of a particular gender, are for convenience of
reference only and are not intended to be a part of or to affect or restrict the
meaning or interpretation of this Agreement.
11.10 PUBLIC STATEMENTS AND PRESS RELEASES. The parties hereto covenant
and agree that, except as provided for hereinbelow, each will not from and after
the date hereof make, issue or release any public announcement, press release,
statement or acknowledgment of the existence of, or reveal publicly the terms,
conditions and status of, the transactions provided for herein, without the
prior written consent of the other party as to the content and time of release
of and the media in which such statement or announcement is to be made;
PROVIDED, HOWEVER, that in the case of announcements, statements,
acknowledgments or revelations which either party is required by law to make,
issue or release, the making, issuing or releasing of any such announcement,
statement, acknowledgment or revelation by the party so required to do so by law
shall not constitute a breach of this Agreement if such party shall have given,
to the extent reasonably possible, not less than two (2) calendar days prior
notice to the other party, and shall have attempted, to the extent reasonably
possible, to clear such announcement, statement, acknowledgment or revelation
with the other party. Each party hereto agrees that it will not unreasonably
withhold any such consent or clearance.
11.11 CUMULATIVE REMEDIES. All rights and remedies of either party
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
11.12 SERVICE OF PROCESS, CONSENT TO JURISDICTION.
(a) SERVICE OF PROCESS. Each parties hereto irrevocably consents to
the service of any process, pleading, notices or other papers by the mailing of
copies thereof by registered, certified or first class mail, postage prepaid, to
such party at such party's address set forth herein, or by any other method
provided or permitted under California law.
(b) CONSENT AND JURISDICTION. Each party hereto irrevocably and
unconditionally (1) agrees that any suit, action or other legal proceeding
arising out of this Agreement may be brought in the United States District Court
for the Southern District of California or, if such court does not have
jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in the County of San Diego, California; (2) consents to the
jurisdiction or any such court in any such suit, action or proceeding; and (3)
waives any objection which such Shareholder may have to the laying of venue of
any such suit, action or proceeding in any such court.
11.13 ATTORNEYS' FEES. If any party to this Agreement brings an action
to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
PARENT: BUYER:
ECO SOIL SYSTEMS, INC. J.R. SIMPLOT COMPANY
By: /s/ William B. Adams By: /s/ Stephen A. Babe
------------------------------- ---------------------------------
Name: William B. Adams Name: Stephen A. Babe
-------------------------- ----------------------------
Its: Chairman/CEO Its: President and CEO
--------------------------- -----------------------------
SELLER:
TURF PARTNERS, INC.
By: /s/ William B. Adams
-------------------------------
Name: William B. Adams
--------------------------
Its: Chairman/CEO
---------------------------
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ANNEX B
FIRST AMENDMENT TO AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
This First Amendment to Amended and Restated Asset Purchase Agreement
(the "Amendment") is entered into as of June 9, 2000 by and among Eco Soil
Systems, Inc., a Nebraska corporation ("Parent"), Turf Partners, Inc., a
Delaware corporation ("Seller"), and J.R. Simplot Company, a Nevada corporation
("Buyer"). Parent, Seller and Buyer are hereinafter referred to as the
"Parties."
WHEREAS, the Parties entered into an Asset Purchase Agreement dated as
of March 27, 2000; and
WHEREAS, the Parties later agreed to certain amendments to the Asset
Purchase Agreement which were reflected in an Amended and Restated Asset
Purchase Agreement dated as of April 5, 2000 (as amended, the "Agreement"); and
WHEREAS, the Parties now wish to amend the provisions of the Agreement
regarding, among other things, (i) the purchase price and (ii) termination of
the Agreement; and
WHEREAS, the board of directors of Parent has unanimously approved this
Amendment and has resolved to recommend to Parent's shareholders that they
approve the transactions contemplated by the Agreement as amended hereby; and
WHEREAS, concurrently with the execution and delivery of this
Amendment, (i) Buyer has arranged a $2 million letter of credit to secure
Parent's obligations under a Term Loan and Security Agreement with Coast
Business Credit; (ii) Buyer is prepared to lend Parent and Seller $3 million
pursuant to that certain Term Loan Agreement dated as of April 12, 2000 among
Buyer, Parent and Seller; (iii) Parent and Buyer have agreed upon the final
terms of each of the Ancillary Agreements (as defined in the Agreement); (iv)
the Parties have entered into a corporate governance agreement pursuant to which
Buyer will manage the operations of Seller pending the Closing (as defined in
the Agreement); and (v) each member of Parent's board of directors has entered
into a Shareholder Voting Agreement pursuant to which such directors have agreed
to vote their shares of Parent common stock in favor of the transactions
contemplated by the Agreement as amended hereby; and
WHEREAS, the Parties believe this Amendment will benefit each of them.
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Parties hereto agree as follows:
1. The following defined terms shall be deleted from Section 1.1:
"EBITDA" and "Net Tangible Assets."
2. The term "Closing Date" as defined in Section 1.1 shall be revised
to state in its entirety as follows:
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"`CLOSING DATE' shall mean a date two business days following
the satisfaction or waiver of all conditions to the obligations of
Buyer and Seller to consummate the transactions contemplated hereby
(other than conditions with respect to actions Buyer and Seller will
take at the Closing itself) to be agreed upon by Buyer and Seller or
such other date as Buyer and Seller shall mutually agree upon."
3. The following defined terms and the corresponding section references
shall be deleted from the table contained in Section 1.2: "Adjustment Amount,"
"June 30, 2000 Balance Sheet" and "Net Book Value."
4. Section 2.4 of the Agreement shall be revised to state in its
entirety as follows:
"2.4 PURCHASE PRICE. The purchase price for the Assets (the
"Purchase Price") shall be Twenty-Three Million Dollars ($23,000,000).
On the Closing Date, Buyer will pay (i) Twenty-One Million Nine Hundred
Seventy-Five Thousand Dollars ($21,975,000) to Seller by wire transfer
to an account designated by Seller prior to the Closing and (ii) One
Million Twenty-Five Thousand Dollars ($1,025,000), on behalf of Seller,
by wire transfer to an account provided to Buyer prior to the Closing
in respect of certain expenses incurred by Seller in connection with
the transactions contemplated hereby, as specified on Schedule 2.4
hereto."
5. Section 2.5 of the Agreement shall be revised to state in its
entirety as follows:
"2.5 REPAYMENT OF TERM LOAN. On the Closing Date, Seller shall
repay all amounts outstanding, together with any interest thereon, on
the $3 million term loan made by Buyer to Parent and Seller under that
certain Term Loan Agreement dated as of April 12, 2000 among Buyer,
Parent and Seller."
6. Section 2.6 shall be revised to state in its entirety as follows:
"2.6 CLOSING BALANCE SHEET. On or before August 15, 2000,
Seller shall prepare and deliver to Buyer, an audited balance sheet as
of June 30, 2000 (the "Closing Balance Sheet"). The Closing Balance
Sheet shall be prepared by Seller's personnel in accordance with
generally accepted accounting principles, as applied in preparation of
the Balance Sheet, and shall fairly and accurately present the Assets,
Liabilities (including reserves) and financial position of the
Business, with respect to the Assets, as of June 30, 2000."
7. Section 2.8 shall be revised to state in its entirety as follows:
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"2.8 PRORATIONS. All rent, utilities and other lease charges
with respect to Leases assumed by Buyer shall be prorated between Buyer
and Seller as of June 30, 2000. Such prorations shall, insofar as
feasible, be determined and paid at the Closing, with best efforts to
achieve final settlement of such prorations within 30 days after the
Closing. Seller shall be responsible for payment of all unpaid rent,
common area maintenance expenses and real property taxes through June
30, 2000."
8. The third sentence of Section 6.1 shall be revised to state in its
entirety as follows:
"As soon as practical after the execution and delivery of this
Agreement, but no later than June 13, 2000, Buyer and Seller shall make
all filings required under the HSR Act, and Buyer and Seller will
promptly file any supplemental or additional information which may
reasonably be requested in connection therewith pursuant to the HSR
Act, and will comply in all material respects with the requirements of
the HSR Act."
9. Sections 6.11, 8.6 and 10.7 of the Agreement shall be deleted in
their entirety.
10. Clause (vi) of Section 11.1(a) of the Agreement shall be deleted in
its entirety.
11. The effectiveness of this Amendment is subject to the approval of
the boards of directors of Seller and Parent on or before June 9, 2000. Prior to
such approvals, this Amendment shall have no force or effect. Seller and Parent
will deliver certified copies of their board resolutions to Buyer on or prior to
June 13, 2000.
12. This Amendment may be executed in one or more counterparts, and by
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original, including counterparts transmitted by
facsimile, but all of which taken together shall constitute one and the same
agreement.
13. On and after the date hereof, each reference in the Agreement to
the "Agreement" shall mean the Agreement as amended hereby. Except as
specifically amended above, the Agreement shall remain in full force and effect
and is hereby ratified and confirmed. The execution, delivery and effectiveness
of this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any party hereto, nor constitute a
waiver of any provision of the Agreement.
[Signature page follows]
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IN WITNESS HEREOF, the Parties have entered into this Amendment as of
the date first written above.
PARENT: BUYER:
ECO SOIL SYSTEMS, INC. J.R. SIMPLOT COMPANY
By: /s/ William B. Adams By: /s/ Stephen A. Beebe
------------------------------- ------------------------------------
Name: William B. Adams Name: Stephen A. Beebe
---------------------------- ---------------------------------
Its: Chairman/CEO Its: President and CEO
----------------------------- ----------------------------------
SELLER:
TURF PARTNERS, INC.
By: /s/ William B. Adams
-------------------------------
Name: William B. Adams
----------------------------
Its: Chairman/CEO
-----------------------------
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SCHEDULE 2.4
On the Closing Date, the amount of $1,025,000 shall be paid by Buyer to
CIBC World Markets Corp. ("CIBC World Markets") in respect of certain fees owed
by Seller to CIBC World Markets.
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ANNEX C
SHAREHOLDER VOTING AGREEMENT
THIS SHAREHOLDER VOTING AGREEMENT (this "AGREEMENT") is made and
entered into as of June 9, 2000, by and between J.R. Simplot Company, a Nevada
corporation ("SIMPLOT"), and the undersigned ("SHAREHOLDER").
WHEREAS, Shareholder desires that Simplot, Eco Soil Systems, Inc., a
Nebraska corporation ("ECO SOIL"), and Turf Partners, Inc., a Delaware
corporation and wholly owned subsidiary of Eco Soil ("TURF PARTNERS"), enter
into a First Amendment to Amended and Restated Asset Purchase Agreement dated as
of the date hereof (the "AMENDMENT"), which reflects various amendments to the
Amended and Restated Asset Purchase Agreement dated as of April 5, 2000 among
Eco Soil, Turf Partners and Simplot (as amended, the "PURCHASE AGREEMENT"),
pursuant to which Turf Partners will sell substantially all of its assets to
Simplot (the "ASSET SALE");
WHEREAS, Shareholder is executing this Agreement as an inducement to
Simplot to enter into and execute, the Amendment.
NOW, THEREFORE, in consideration of the execution and delivery by
Simplot of the Amendment and the mutual covenants, conditions and agreements
contained herein and therein, the parties agree as follows:
1. VOTING AGREEMENT. Shareholder hereby covenants to Simplot that, at
any meeting of shareholders of Eco Soil called to vote upon the Asset Sale and
the Purchase Agreement or at any adjournment thereof or in any other
circumstances upon which a vote with respect to the Asset Sale and the Purchase
Agreement is sought (the "SHAREHOLDERS' MEETING"), Shareholder shall appear, or
cause the holder of record on any applicable record date (the "RECORD HOLDER")
to appear, for the purpose of obtaining a quorum at the Shareholders' Meeting,
and vote (or cause the Record Holder to vote) the number of shares of common
stock, $.005 par value per share, of Eco Soil ("COMMON STOCK") beneficially
owned by the Shareholder as of the record date (the "SHARES") in favor of the
Asset Sale, the approval and adoption of the Purchase Agreement, and the
approval of the terms thereof and each of the other transactions contemplated by
the Purchase Agreement. For purposes of this Agreement, the term "Shares" shall
not include shares of Common Stock issuable upon exercise of options or warrants
that have not been exercised prior to the record date for the Shareholders'
Meeting.
2. GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY. Shareholder hereby
irrevocably appoints and constitutes Simplot as Shareholder's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of Shareholder, to vote the Shares at the Shareholders' Meeting in
favor of the Asset Sale, the execution and delivery of the Purchase Agreement
and approval of the terms thereof and each of the other transactions
contemplated by the Purchase Agreement. Shareholder hereby affirms that the
irrevocable proxy set forth in this Section 2 is given in connection with the
execution of the Purchase Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of Shareholder
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under this Agreement. Shareholder hereby further affirms that the irrevocable
proxy is coupled with an interest and may under no circumstances be revoked.
3. REPRESENTATIONS AND WARRANTIES. Shareholder represents and warrants
to Simplot as follows:
(a) Shareholder is competent to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement of,
Shareholder, enforceable in accordance with its terms.
(b) Neither the execution and delivery of this Agreement nor
the consummation by Shareholder of the transactions contemplated hereby will
result in a violation of, or a default under, or conflict with, any contract,
trust, commitment, agreement, understanding, arrangement or restriction of any
kind to which Shareholder is a party or bound or to which the Shares are
subject.
(c) The Shares and the certificates representing such Shares
are now, and at all times during the term hereof will be, held by Shareholder,
or by a nominee or custodian for the benefit of such Shareholder, free and clear
of all liens, claims, security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever, except for
any such encumbrances or proxies arising hereunder.
(d) Shareholder understands and acknowledges that Simplot is
entering into the Amendment in reliance upon Shareholder's execution and
delivery of this Agreement. Shareholder acknowledges that the irrevocable proxy
set forth in Section 2 is granted in consideration for Simplot's execution and
delivery of the Amendment.
4. COVENANTS. Shareholder hereby agrees that he will not (i) transfer
(which term shall include, without limitation, for the purposes of this
Agreement, any sale, gift, pledge or other disposition), or consent to any
transfer of, any or all of the Shares or any interest therein; (ii) enter into
any contract, option or other agreement or understanding with respect to any
transfer of any or all of such Shares or any interest therein, (iii) grant any
proxy, power of attorney or other authorization in or with respect to such
Shares, except for this Agreement, or (iv) deposit such Shares into a voting
trust or enter into a voting agreement or arrangement with respect to such
Shares; provided, that Shareholder may transfer (as defined above) any of the
Shares to any other person who is on the date hereof, or to any family member of
a person or charitable institution which prior to the Shareholders' Meeting and
prior to such transfer becomes, a party to this Agreement bound by all the
obligations of Shareholder hereunder.
5. CERTAIN EVENTS. Shareholder agrees that this Agreement and the
obligations hereunder shall attach to the Shares and shall be binding upon any
person or entity to which legal or beneficial ownership of such Shares shall
pass, whether by operation of law or otherwise, including without limitation
Shareholder's successors or assigns. Shareholder agrees that, in the event of
any stock split, stock dividend, merger, reorganization, recapitalization or
other change in the capital structure of Eco Soil affecting the Common Stock, or
the acquisition of additional
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shares of Common Stock or other voting securities of Eco Soil by Shareholder,
the number of Shares subject to the terms of this Agreement shall be adjusted
appropriately and this Agreement and the obligations hereunder shall apply to
any additional shares of Common Stock or other voting securities of Eco Soil
issued to or acquired by Shareholder.
6. FURTHER ASSURANCES. Shareholder shall, upon request and expense of
Simplot, execute and deliver any additional documents and take such further
actions as may reasonably be deemed by Simplot to be necessary or desirable to
carry out the provisions hereof and to vest the power to vote the Shares as
contemplated by Section 2 in Simplot; provided that nothing herein shall
obligate Shareholder to exercise any options or warrants held by him prior to
the record date for the Shareholders' Meeting.
7. TERMINATION. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the first to occur of (i) the Closing
Date of the Asset Sale or (ii) the date upon which the Purchase Agreement is
terminated in accordance with its terms. Upon such termination, no party shall
have any further obligations or liabilities hereunder, provided that no such
termination shall relieve any party from liability for any breach of this
Agreement prior to such termination.
8. MISCELLANEOUS.
(a) All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice): (i) if to Simplot, to the
address provided in the Purchase Agreement; and (ii) if to Shareholder; to its
address shown below its signature on the last page hereof.
(b) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(c) This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement.
(d) This Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
(e) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
(f) Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by any of the parties without the prior written
consent of the other parties. Any assignment in violation of the foregoing shall
be void.
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(g) If any term, provision, covenant or restriction herein, or
the application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and the
application thereof to any other circumstances, shall remain in full force and
effect, shall not in any way be affected, impaired or invalidated, and shall be
enforced to the fullest extent permitted by law.
(h) Nothing contained in this Agreement shall be deemed to
vest in Simplot any direct or indirect ownership or incidence of ownership of or
with respect to any of the Shares. All rights, ownership and economic benefits
of and relating to the Shares shall remain and belong to Shareholder, and
Simplot shall not have any authority to manage, direct, superintend, restrict,
regulate, govern, or administer any of the policies or operations of Eco Soil or
exercise any power or authority to direct Shareholder in the voting of any of
the Shares, except as otherwise provided herein, or the performance of
Shareholder's duties or responsibilities as a shareholder of Eco Soil.
(k) No amendment, modification or waiver in respect of this
Agreement shall be effective against any party unless it shall be in writing and
signed by such party.
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IN WITNESS WHEREOF, the undersigned parties have executed and delivered
this Shareholder Voting Agreement as of the day and year first above written.
J.R. SIMPLOT COMPANY
By:
-----------------------------------
Its:
----------------------------------
SHAREHOLDER:
--------------------------------------
Name:
---------------------------------
Address:
------------------------------
------------------------------
<PAGE>
ANNEX D
[LETTERHEAD OF CIBC WORLD MARKETS CORP.]
June 9, 2000
The Board of Directors
Eco Soil Systems, Inc.
10740 Thornmint Road
San Diego, California 92127
Members of the Board:
You have asked CIBC World Markets Corp. ("CIBC World Markets") to render a
written opinion ("Opinion") to the Board of Directors as to the fairness,
from a financial point of view, to Eco Soil Systems, Inc. ("Eco Soil") of the
Consideration (defined below) to be received pursuant to the Amended and
Restated Asset Purchase Agreement, dated as of April 5, 2000, as amended
as of June 9, 2000 (the "Agreement"), by and among J.R. Simplot Company
("Simplot"), Turf Partners, Inc., a wholly owned subsidiary of Eco Soil
("Turf Partners"), and Eco Soil. The Agreement provides for, among other
things, the sale by Turf Partners to Simplot of certain specified assets of,
and the assumption by Simplot of certain specified liabilities relating to,
the business of Turf Partners of selling Eco Soil BioJect programs, FreshPack
products, traditional chemical fertilizers and pesticides and other turf
maintenance products in golf course and turf markets (the "Business" and, such
sale, the "Transaction") for total consideration of $23.0 million in cash
and the assumption of certain outstanding indebtedness and other
liabilities of Eco Soil, as specified in the Agreement (collectively,
the "Consideration").
In arriving at our Opinion, we:
(a) reviewed the Agreement;
(b) reviewed audited financial statements for Eco Soil for the fiscal years
ended December 31, 1997, December 31, 1998 and December 31, 1999;
(c) reviewed unaudited financial statements for Eco Soil for the fiscal
quarter ended March 31, 1999;
(d) reviewed financial projections for the Business prepared by the management
of Eco Soil;
(e) held discussions with the senior management of Eco Soil with respect to
Eco Soil, the Business and their prospects for future growth, including
the near-term liquidity needs of, and capital resources available to, Eco
Soil and the Business;
(f) reviewed and analyzed certain publicly available financial data for
certain companies with operations we deemed comparable to the Business;
(g) reviewed and analyzed certain publicly available information for
transactions that we deemed comparable to the Transaction;
(i) reviewed public information concerning the Business; and
(j) performed such other analyses and reviewed such other information as we
deemed appropriate.
In rendering our Opinion, we relied upon and assumed, without independent
verification or investigation, the accuracy and completeness of all of the
financial and other information provided to or discussed with us by Eco Soil and
its employees, representatives and affiliates. With respect to forecasts of the
future
D-1
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The Board of Directors
Eco Soil Systems, Inc.
June 9, 2000
Page 2
financial condition and operating results of the Business provided to or
discussed with us, we assumed, at the direction of the management of Eco
Soil, without independent verification or investigation, that such forecasts
were reasonably prepared on bases reflecting the best available information,
estimates and judgments of the management of Eco Soil. In addition, the
management of Eco Soil has advised us that, on or prior to the closing of the
Transaction, Eco Soil and Simplot (or affiliates thereof) will enter into
certain agreements providing for, among other things, the distribution,
sale and testing by Simplot of Eco Soil's proprietary products and certain
transitional services to be provided to Simplot by Eco Soil (the "Related
Transactions"). To the extent material to our analysis, we have assumed, with
your consent, that the Related Transactions will be consummated in accordance
with the terms discussed with us by the management of Eco Soil. We have neither
made nor obtained any independent evaluations or appraisals of the assets or
liabilities (contingent or otherwise) of the Business. We are not expressing
any opinion as to the underlying valuation, future performance or long-term
viability of the Business. In connection with our engagement, we were not
requested to, and we did not, solicit third party indications of interest with
respect to the acquisition of all or a part of the Business. Our Opinion is
necessarily based on the information available to us and general economic,
financial and stock market conditions and circumstances as they exist and can
be evaluated by us on the date hereof. It should be understood that, although
subsequent developments may affect this Opinion, we do not have any obligation
to update, revise or reaffirm the Opinion.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We have acted as financial advisor to Eco Soil in connection with the
Transaction and will receive a fee for our services, a significant portion of
which is contingent upon consummation of the Transaction and a portion of which
is payable upon the delivery of this Opinion. CIBC World Markets and its
affiliates have in the past provided services to Eco Soil unrelated to the
proposed Transaction, for which CIBC World Markets and its affiliates have
received compensation. In the ordinary course of business, CIBC World Markets
and its affiliates may actively trade securities of Eco Soil for their own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
Based upon and subject to the foregoing, and such other factors as we deemed
relevant, it is our opinion that, as of the date hereof, the Consideration to be
received in the Transaction is fair, from a financial point of view, to Eco
Soil. This Opinion is for the use of the Board of Directors of Eco Soil in its
evaluation of the Transaction and does not constitute a recommendation as to how
any stockholder should vote with respect to any matters relating to the
Transaction.
Very truly yours,
/s/ CIBC WORLD MARKETS CORP.
----------------------------
CIBC WORLD MARKETS CORP.
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ANNEX E
DISSENTER'S RIGHTS
21-20,137. DISSENTERS' RIGHTS; TERMS, DEFINED. For purposes of sections
21-20,137 to 21-20,150:
(1) Beneficial shareholder shall mean the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder;
(2) Corporation shall mean the issuer of the shares held by a dissenter before
the corporate action or the surviving or acquiring corporation by merger or
share exchange of that issuer;
(3) Dissenter shall mean a shareholder who is entitled to dissent from corporate
action under section 21-20,138 and who exercises that right when and in the
manner required by sections 21-20,140 to 21-20,148;
(4) Fair value, with respect to a dissenter's shares, shall mean the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable;
(5) Interest shall mean interest from the effective date of the corporate action
until the date of payment at the rate specified in section 45-104, as such rate
may from time to time be adjusted by the Legislature;
(6) Record shareholder shall mean the person in whose name shares are registered
in the records of a corporation or the beneficial shareholder to the extent of
the rights granted by a nominee certificate on file with a corporation; and
(7) Shareholder shall mean the record shareholder or the beneficial shareholder.
Source: Laws 1995, LB 109, Section 137. Operative date January 1, 1996.
21-20,138. RIGHT TO DISSENT. (1) A shareholder shall be entitled to dissent
from, and obtain payment of the fair value of his or her shares in the event of,
any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
(i) If shareholder approval is required for the merger by section 21-20,130 or
the articles of incorporation and the shareholder is entitled to vote on the
merger; or
(ii) If the corporation is a subsidiary that is merged with its parent under
section 21-20,131;
(b) Consummation of a plan of share exchange to which the corporation is a party
as the corporation whose shares will be acquired, if the shareholder is entitled
to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(d) An amendment of the articles of incorporation that materially and adversely
affects rights in respect of a dissenter's shares because it:
(i) Alters or abolishes a preferential right of the shares;
(ii) Creates, alters, or abolishes a right in respect of redemption including a
provision respecting a sinking fund for the redemption or repurchase of the
shares;
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(iii) Alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities;
(iv) Excludes or limits the right of the shares to vote on any matter, or to
cumulate votes, other than a limitation by dilution through issuance of shares
or other securities with similar voting rights; or
(v) Reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
section 21-2038; or
(e) Any corporate action taken pursuant to a shareholder vote to the extent the
articles of incorporation, the bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for his or her shares
under sections 21-20,137 to 21-20,150 may not challenge the corporate action
creating his or her entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
(3) The right to dissent and obtain payment under sections 21-20,137 to
21-20,150 shall not apply to the shareholders of a bank, trust company,
stock-owned savings and loan association, industrial loan and investment
company, or the holding company of any such bank, trust company, stock-owned
savings and loan association, or industrial loan and investment company.
Source: Laws 1995, LB 109, Section 138. Operative date January 1, 1996
21-20,139. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1) A record shareholder
may assert dissenters' rights as to fewer than all the shares registered in his
or her name only if he or she dissents with respect to all shares beneficially
owned by any one person and notifies the corporation in writing of the name and
address of each person on whose behalf he or she asserts dissenters' rights. The
rights of a partial dissenter under this subsection shall be determined as if
the shares as to which he or she dissents and his or her other shares were
registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held on
his or her behalf only if:
(a) He or she submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(b) He or she does so with respect to all shares of which he or she is the
beneficial shareholder or over which he or she has power to direct the vote.
Source: Laws 1995, LB 109, Section 139. Operative date January 1, 1996
21-20,140. NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action
creating dissenters' rights under section 21-20,138 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders are or
may be entitled to assert dissenters' rights under sections 21-20,137 to
21-20,150 and be accompanied by a copy of such sections.
(2) If corporate action creating dissenters' rights under section 21-20,138 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send those shareholders the dissenters' notice described in section
21-20,142.
Source: Laws 1995, LB 109, Section 140. Operative date January 1, 1996
21-20,141. DISSENTERS' RIGHTS; NOTICE OF INTENT TO DEMAND PAYMENT. (1) If
proposed corporate action creating dissenters' rights under section 21-20,138 is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights (a) shall deliver to the corporation before the vote
is taken a written notice of his or
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her intent to demand payment for his or her shares if the proposed action is
effectuated and (b) shall not vote his or her shares in favor of the proposed
action.
(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section shall not be entitled to payment for his or her shares under
sections 21-20,137 to 21-20,150.
Source: Laws 1995, LB 109, Section 141. Operative date January 1, 1996
21-20,142. DISSENTERS' NOTICE. (1) If proposed corporate action creating
dissenters' rights under section 21-20,138 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of section 21-20,141.
(2) The dissenters' notice shall be sent no later than ten days after the
corporate action was taken and shall:
(a) State where the payment demand shall be sent and where and when certificates
for certificated shares shall be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he or she acquired beneficial ownership of the shares
before that date;
(d) Set a date by which the corporation shall receive the payment demand which
date may not be fewer than thirty nor more than sixty days after the date the
notice required by subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of sections 21-20,137 to 21-20,150.
Source: Laws 1995, LB 109, Section 142. Operative date January 1, 1996
21-20,143. DISSENTERS' RIGHTS; DUTY TO DEMAND PAYMENT. (1) A shareholder who was
sent a dissenters' notice described in section 21-20,142 shall demand payment,
certify whether he or she acquired beneficial ownership of the shares before the
date required to be set forth in the dissenters' notice pursuant to subdivision
(2)(c) of section 21-20,142, and deposit his or her certificates in accordance
with the terms of the notice.
(2) The shareholder who demands payment and deposits his or her shares under
subsection (1) of this section shall retain all other rights of a shareholder
until such rights are canceled or modified by the taking of the proposed
corporate action.
(3) A shareholder who does not demand payment or does not deposit his or her
share certificates where required, each by the date set in the dissenters'
notice, shall not be entitled to payment for his or her shares under sections
21-20,137 to 21-20,150.
Source: Laws 1995, LB 109, Section 143. Operative date January 1, 1996
21-20,144. DISSENTERS' RIGHTS; SHARE RESTRICTIONS. (1) The corporation may
restrict the transfer of uncertificated shares from the date the demand for
their payment is received until the proposed corporate action is taken or the
restrictions are released under section 21-20,146.
(2) The person for whom dissenters rights are asserted as to uncertificated
shares shall retain all other rights of a shareholder until such rights are
canceled or modified by the taking of the proposed corporate action.
Source: Laws 1995, LB 109, Section 144. Operative date January 1, 1996
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21-20,145. DISSENTERS' RIGHTS; PAYMENT. (1) Except as provided in section
21-20,147, as soon as the proposed corporate action is taken, or upon receipt of
a payment demand, the corporation shall pay each dissenter who complied with
section 21-20,143 the amount the corporation estimates to be the fair value of
his or her shares, plus accrued interest.
(2) The payment shall be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending not
more than sixteen months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
(b) A statement of the corporation's estimate of the fair value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under section
21-20,148; and
(e) A copy of section 21-21,137 to 21-20,150.
Source: Laws 1995, LB 109, Section 145 Operative date January 1, 1996.
21-20,146. DISSENTERS' RIGHTS; FAILURE TO TAKE ACTION. (1) If the corporation
does not take the proposed action within sixty days after the date set for
demanding payment and depositing share certificates, the corporation shall
return the deposited certificates and release the transfer restrictions imposed
on uncertificated shares.
(2) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenter's notice under section 21-20,142 and repeat the payment demand
procedure.
Source: Laws 1995, LB 109, Section 146. Operative date January 1, 1996.
21-20,147. DISSENTERS' RIGHTS; AFTER-ACQUIRED SHARES. (1) A corporation may
elect to withhold payment required by section 21-20,145 from a dissenter unless
he or she was the beneficial shareholder before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under subsection
(1) of this section after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of his or
her demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's rights to demand payment under
section 21-20,148.
Source: Laws 1995, LB 109, Section 147 Operative date January 1, 1996
21-20,148. DISSENTERS' RIGHTS; PROCEDURE IF SHAREHOLDER DISSATISFIED WITH
PAYMENT OR OFFER. (1) A dissenter may notify the corporation in writing of his
or her own estimate of the fair value of his or her shares and amount of
interest due, and demand payment of his or her estimate, less any payment under
section 21-20,145, or reject the corporation's offer under section 21-20,147 and
demand payment of the f air value of his or her shares and interest due if;
(a) The dissenter believes that the amount paid under section 21-20,145 or
offered under section 21-20,147 is less than the fair value of his or her shares
or that the interest due is incorrectly calculated;
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(b) The corporation fails to make payment under section 21-20,145 within sixty
days after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action, does not return
the deposited certificates or release the transfer restrictions imposed on
uncertificated shares within sixty days after the date set for demanding
payment.
(2) A dissenter waives his or her right to demand payment under this section
unless he or she notifies the corporation of his or her demand in writing under
subsection (1) of this section within thirty days after the corporation made or
offered payment for his or her shares.
Source: Laws 1995, LB 109, Section 148. Operative date January 1, 1996.
21-20,149. DISSENTERS' RIGHTS; COURT ACTION. (1) If a demand for payment under
section 21-20,148 remains unsettled, the corporation shall commence a proceeding
within sixty days after receiving the payment demand and petition the court to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the district court of the
county where a corporation's principal office, or, if none in this state , its
registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the district court of the county in this state where the registered office of
the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled, parties to the proceeding as in an action
against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section shall be plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. Appraisers shall have the powers
described in the order appointing them or in any amendment to such order. The
dissenters shall be entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding shall be entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or (b) for
the fair value, plus accrued interest, of his or her after-acquired shares for
which the corporation elected to withhold payment under section 21-20,147.
Source: Laws 1995, LB 109, Section 149 Operative date January 1, 1996.
21-20, 150. DISSENTERS' RIGHTS; COURT COSTS AND ATTORNEY'S FEES. (1) The court
in an appraisal proceeding commenced under section 21-20,149 shall determine all
costs of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under section 21-20,148.
(2) The court may also assess the attorney's fees and expenses and the fees and
expenses of experts for the respective parties in amounts the court finds
equitable:
(a) Against the corporation and in favor of any or all dissenters if the court
finds the corporation did not substantially comply with the requirements of
sections 21-20,140 to 21-20,148; or
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(b) Against either the corporation or a dissenter, in favor of any other party,
if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by sections 21-20,137 to 21-20,150.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to counsel reasonable fees to be paid out of the amounts awarded to the
dissenters who were benefited.
Source: Laws 1995, LB 109, Section 150. Operative date January 1, 1996.
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PROXY ECO SOIL SYSTEMS, INC. PROXY
10890 THORNMINT ROAD, SUITE 200, SAN DIEGO, CA 92127
THE UNDERSIGNED SHAREHOLDER(S) OF ECO SOIL SYSTEMS, INC. ("ECO
SOIL") HEREBY CONSTITUTES AND APPOINTS WILLIAM B. ADAMS AND MAX D. GELWIX,
AND EACH OF THEM, ATTORNEYS AND PROXIES OF THE UNDERSIGNED, EACH WITH POWER
OF SUBSTITUTION, TO ATTEND, VOTE AND ACT FOR THE UNDERSIGNED AT THE ANNUAL
MEETING OF SHAREHOLDERS OF ECO SOIL TO BE HELD ON [____________], 2000, AND
AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF, ACCORDING TO THE NUMBER OF SHARES
OF COMMON STOCK OF ECO SOIL WHICH THE UNDERSIGNED MAY BE ENTITLED TO VOTE,
AND WITH ALL THE POWERS WHICH THE UNDERSIGNED WOULD POSSESS IF PERSONALLY
PRESENT, AS FOLLOWS:
THIS PROXY WILL BE VOTED FOR THE ELECTION AS DIRECTOR OF THE NOMINEE
SET FORTH IN THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT, UNLESS THE
CONTRARY IS INDICATED IN THE APPROPRIATE PLACE.
1. To elect the nominee for the Board of
Directors of Eco Soil
[ ] FOR the nominee listed below
(except as marked to the contrary below)
EDWARD N. STEEL
[ ] WITHHOLD AUTHORITY to vote for
the nominee listed
(INSTRUCTION: To vote for the nominee listed above, mark the "FOR" box, and
to withhold authority for the nominee listed above, mark the "WITHHOLD
AUTHORITY" box.)
2. To approve an Amended and Restated Asset
Purchase Agreement, dated April 5, 2000, as amended by that
certain First Amendment to Amended and Restated Asset
Purchase Agreement, dated as of June 9, 2000, by
and among Eco Soil, its subsidiary Turf Partners,
Inc. ("Turf Partners") and J.R. Simplot Company
("Simplot"), pursuant to which Turf Partners will
sell substantially all of its assets to Simplot.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to
transact such other business as may properly
come before the Meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted for each of the proposals described above.
The undersigned revokes any prior proxy at such meeting and ratifies all that
said attorneys and proxies, or any of them, may lawfully do by virtue hereof.
Receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement
is hereby acknowledged.
<PAGE>
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation,
please sign in full corporate name by President or other authorized officer.
If a partnership, please sign in partnership name by authorized person.
--------------------------------------
Signature
--------------------------------------
Signature if held jointly
DATED:______________, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ECO SOIL SYSTEMS, INC. PLEASE COMPLETE, SIGN, DATE AND MAIL PROMPTLY
IN THE POSTAGE-PAID ENVELOPE ENCLOSED
