<PAGE>
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________
Commission file number 0-19352
-------
AGRIBIOTECH, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 85-0325742
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Sunset Road, Suite C-25, Las Vegas, Nevada 89120
(Address of principal executive offices)
(702) 798-1969
(Issuer's telephone number)
Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X NO .
----- ------
As of November 10, 1996, the Registrant had 11,866,171 shares of Common
Stock, par value $.001 per share, issued and outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,931,598 2,522,309
Accounts receivable, less allowance for doubtful
accounts of $475,272 at September 30, 1996
and $104,773 at June 30, 1996 8,229,935 7,501,725
Inventories 18,037,631 7,257,795
Other 117,919 285,811
----------- -----------
Total current assets 36,317,083 17,567,640
Property, plant and equipment, net 12,820,970 7,916,145
Intangible assets, net of accumulated amortization 2,363,246 546,327
Investment in associated entity, at equity 681,640 --
Other assets 108,939 153,676
----------- -----------
Total assets $52,291,878 26,183,788
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- ---------
<S> <C> <C>
Current liabilities:
Short-term debt $ 4,500,000 5,088,984
Current installments of long-term debt 595,963 567,353
Accounts payable 6,455,595 4,406,588
Accrued liabilities 1,881,945 1,043,746
Amount due in connection with acquisition 16,407,951 --
------------ ----------
Total current liabilities 29,841,454 11,106,671
Long-term debt, excluding current installments 1,278,964 1,054,621
------------ ----------
Total liabilities 31,120,418 12,161,292
------------ ----------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 10,000,000 shares;
issued and outstanding 13,318 shares at September 30, 1996
(aggregate liquidation preference of $13,491,752) and 6,530 shares
at June 30, 1996 (aggregate liquidation preference of $6,667,002) 13 7
Common stock $.001 par value; authorized 30,000,000
shares; issued and outstanding 10,849,581 shares at
September 30, 1996 and 8,543,757 shares at June 30, 1996 10,850 8,544
Capital in excess of par value 32,181,944 23,752,051
Accumulated (deficit) (11,005,987) (9,711,316)
------------ ----------
21,186,820 14,049,286
Deferred compensation (15,360) (26,790)
------------ ----------
Total stockholders' equity 21,171,460 14,022,496
------------ ----------
Contingency and subsequent events (notes 2, 4 and 5)
Total liabilities and stockholders' equity $ 52,291,878 26,183,788
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AGRIBIOTECH INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three-month period
ended September 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
Net Sales $ 7,653,171 $2,469,030
Cost of sales 5,612,580 1,850,785
----------- ----------
Gross profit 2,040,591 618,245
Operating expenses 3,299,390 1,397,174
----------- ----------
(Loss from operations) (1,258,799) (778,929)
----------- ----------
Other income (expense):
Interest expense (259,818) (13,093)
Interest income 89,984 14,276
Other 133,962 3,131
----------- ----------
Total other income (expense) (35,872) 4,314
----------- ----------
Net (loss) $(1,294,671) (774,615)
=========== ==========
Shares of common stock used in
computing loss per share 9,105,682 7,145,200
=========== ==========
Net (loss) per share $ (0.14) (0.11)
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDARIES
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Perferred stock Common stock
------------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 6,530 7 8,543,757 $8,544
Issuance of preferred stock for cash 10,000 10 -- --
Common stock issued for:
Services -- -- 15,000 15
Exercise of options -- -- 362,500 363
Preferred stock converted and
redeemed (3,212) (4) 1,178,324 1,178
Cancellation of options -- -- 750,000 750
Expenses of stock issuances -- -- -- --
Deferred compensation earned -- -- -- --
Net (loss) -- -- -- --
------ --- ---------- ------
Balance at September 30, 1996 13,318 $13 10,849,581 $10,850
====== === ========== =======
<CAPTION>
Capital in
excess of Accumulated Deferred
par value (deficit) compensation Total
---------- ----------- ------------- ------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 23,752,051 (9,711,316) (26,790) 14,022,496
Issuance of preferred stock for cash 9,999,990 -- -- 10,000,000
Common stock issued for:
Services 45,885 -- -- 45,900
Exercise of options 655,762 -- -- 656,125
Preferred stock converted and
redeemed (906,639) -- -- --
Cancellation of options (750) -- -- --
Expenses of stock issuances (1,364,355) -- -- (1,364,355)
Deferred compensation earned -- -- 11,430 11,430
Net (loss) -- (1,294,671) -- (1,294,671)
---------- ----------- ------- ----------
Balance at September 30, 1996 32,181,944 (11,005,987) (15,360) 21,171,460
========== =========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AGRIBIOTECH, INC AND SUBSIDIARIES.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three-month period
ended September 30,
-------------------
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(1,294,671) (774,615)
Adjustments to reconcile net (loss) to net cash
flows from operating activities:
Amortization 35,991 31,605
Depreciation 150,274 56,117
Common stock for services 57,330 43,541
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable 1,263,555 (218,982)
Inventories (2,001,212) (621,903)
Other assets 207,100 (217,236)
Payables 1,697,523 564,784
Accrued liabilities 3,199 (69,065)
----------- ----------
Net cash flows from operating activities 119,089 (1,205,754)
----------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (406,902) (237,851)
Additions to intangible assets -- (155,000)
Acquisitions -- (772,653)
----------- ----------
Net cash flows from investing activities (406,902) (1,165,504)
----------- ----------
Cash flows from financing activities:
Net proceeds of short-term debt (588,984) 435,709
Repayments of long-term debt (121,201) (106,391)
Sale of preferred stock 10,000,000 --
Exercise of options 656,125 --
Redemption of preferred stock (905,465) --
Expenses of stock issuance (1,364,355) --
Additions to long-term debt 20,982 --
Payments received on notes receivable from
sale of stock -- 1,083,027
----------- ----------
Net cash flows from financing activities 7,697,102 1,412,345
----------- ----------
Net increase (decrease) in cash and cash equivalents 7,409,289 (958,913)
Cash and cash equivalents at beginning of period 2,522,309 1,422,943
----------- ----------
Cash and cash equivalents at end of period $9,931,598 464,030
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three-month period
ended September 30,
-------------------
1996 1995
------------- ----------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 138,021 23,685
=========== =========
Non cash investing and financing activities:
Amount due in connection with acquisitions $15,997,034 --
Accued costs of acquisition 835,000 --
Increase in warrant exercise price -- 96,855
Reduction of notes receivable for acquisitions -- 350,140
=========== =========
Summary of assets and liabilities acquired through acquisitions:
Accounts receivable $ 1,991,765 330,166
Inventories 8,778,624 349,252
Property, plant and equipment 4,693,197 500,150
Intangible assets 1,807,910 --
Other assets 676,111 13,691
Accounts payable and accrued expenses (762,401) (70,466)
Long-term and short-term debt (353,172) --
----------- ---------
Net assets acquired $16,832,034 1,122,793
============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
AGRIBIOTECH, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
===========================================================================
(1) PRESENTATION OF UNAUDITED FINANCIAL STATEMENTS
----------------------------------------------
AgriBioTech, Inc. ("ABT" or the "Company") was formed to design, develop, and
market various agricultural products intended to improve the profitability of
farming and ranching. The Company is a specialized distributor of forage (hay
crops), turf grass, corn, soybean and other seeds throughout the United States
and internationally. Since January 1, 1995, the Company has followed a business
strategy to acquire reputable, regionally based seed companies with proprietary
products and established production and distribution channels in their
respective markets in order to consolidate and vertically integrate the forage
and turf grass sector of the seed industry.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The unaudited financial statements have been prepared in accordance with the
rules of the Securities and Exchange Commission and, therefore, do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows, in conformity with generally
accepted accounting principles. The information furnished, in the opinion of
management reflects all adjustments (consisting primarily of normal recurring
accruals) necessary to present fairly the financial position, results of
operations and cash flows for the three-month periods ended September 30, 1996
and 1995. The Company's business is subject to wide seasonal fluctuations and,
therefore, the results of operations for periods less than one year are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole.
(2) ACQUISITIONS
------------
The Company purchased substantially all of the assets of W-L Research, Inc. and
Germain's, Inc., which were indirect subsidiaries of Berisford, plc, effective
September 1, 1996. The transaction also included the acquisition of a 50%
ownership interest in SeedBiotics, Inc. a limited liability company. The
transaction was recorded using the purchase method of accounting. The net
purchase price of $15,997,034 includes inventory, accounts receivable, prepaid
assets, fixed assets, and intangible assets, less accounts payable and certain
assumed liabilities. The intangible assets consist of trademark rights and
proprietary rights to certain crop varieties, as well as the genetic breeding
base for the development of additional varieties. The purchase price was paid
in cash. At September 30, 1996, the Company owed the sellers $16,407,951
related to the acquisition, including $410,917 for operational items incurred
subsequent to the effective date of the acquisition.
During the year ended June 30, 1996, the Company consummated the acquisitions
described in Note 1 of Notes to Consolidated Financial Statements in the
Company's June 30, 1996 Form 10-QSB. Unaudited pro-forma results of operations
assuming all acquisitions had occurred at the beginning of the period presented
is as follows:
<TABLE>
<CAPTION>
Three-Month Period Ended
------------------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Revenue $10,176,639 $ 7,345,642
Net earnings(loss) $(1,362,040) $(2,169,619)
Net earnings(loss) per share $ (0.15) $ (0.28)
</TABLE>
8
<PAGE>
AGRIBIOTECH, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
===========================================================================
(3) SHORT-TERM DEBT
---------------
At June 30, 1996, the Company had a $4.5 million line of credit with Bank of
America ("BofA"). On October 4, 1996, the Company entered into a new agreement
with BofA to increase the line of credit to $15 million under similar terms and
conditions. The new line of credit bears interest at 1.25% over the BofA
reference rate and expires November 30, 1997. In connection with the
acquisition described in Note 2, the Company increased the amount outstanding
under the line of credit to approximately $12.5 million. The separate $721,000
line of credit maintained by one of the Company's subsidiaries, which had an
outstanding balance of $588,984 on June 30, 1996, was repaid and expired on
October 1, 1996.
(4) CAPITAL STOCK
-------------
Between July 1, 1996 and September 30, 1996, 3,212 shares of the Company's
Series B Convertible Preferred Stock were presented for conversion. The Company
issued 1,178,324 shares of common stock and redeemed for cash the equivalent of
353,443 shares of common stock aggregating $905,465. At September 30, 1996, the
3,318 shares of Series B Convertible Preferred Stock outstanding had a
liquidation preference of $3,471,229 and were convertible into 1,645,132 shares
of common stock. Between October 1, 1996 and November 10, 1996, 520 shares of
Series B Convertible Preferred Stock were submitted to the Company for
conversion. The Company issued 256,219 shares of common stock and redeemed for
cash the equivalent of 32,442 shares of common stock aggregating $76,353.
In September 1996, the Company completed a private placement of 10,000 shares of
Series C Convertible Preferred Stock at $1,000 per share, receiving gross
proceeds of $10,000,000. The Company paid commissions and selling expenses of
13% of the gross proceeds and also incurred legal and other expenses, which
aggregated $1,364,355. The Series C Convertible Preferred Stock has a
liquidation preference of $1,000 per share, plus a premium of 8 percent per
annum from the date of issuance. The Series C Convertible Preferred Stock is
convertible into shares of common stock equal to the aggregate liquidation
preference, including the 8 percent per annum premium, divided by a conversion
price that is the lesser of (i) 80 percent of the average closing bid price for
the Company's common stock for the five days prior to conversion or (ii) a set
amount, which is $3.00 for one-third of the shares, $3.50 for one-third of the
shares and $4.00 for one-third of the shares. In the event of a conversion when
the average closing bid price of the Company's common stock is below the price
at the issuance of the Series C Convertible Preferred Stock, the Company has the
option of redeeming for cash, at the average closing bid price, the shares of
common stock issuable upon such conversion. The Series C Convertible Preferred
Stock will convert into common stock after being outstanding two years if not
been previously converted.
At September 30, 1996, the 10,000 shares of Series C Convertible Preferred Stock
outstanding had a liquidation preference of $10,020,523 and were convertible
into 4,749,063 shares of common stock. Between October 1, 1996 and November 10,
1996, 248 shares of Series C Convertible Preferred Stock were submitted to the
Company for conversion. The Company issued 133,997 shares of common stock and
redeemed for cash the equivalent of 4,780 shares of common stock aggregating
$10,712.
(5) CONTINGENCIES
-------------
On February 9, 1996, Jonathan R. Curshen commenced a lawsuit in the United
States District Court, Middle District of Florida, against the Company, John C.
Francis and Johnny R. Thomas, officers of the Company, and Tammie Winfield (a
shareholder). The plaintiff is seeking unspecified compensatory and punitive
damages based upon an alleged repudiation of an agreement to sell plaintiff
shares of Common Stock of the Company. The Company and the other defendants have
denied the allegations and are vigorously defending the lawsuit. The Company
believes that the lawsuit has no merit.
9
<PAGE>
AGRIBIOTECH, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
===========================================================================
The former owner of one of the Company's subsidiaries filed a lawsuit alleging
the Company is obligated to make up a shortfall of approximately $137,000 in
proceeds upon the sale of the Company's common stock compared to the amount
guaranteed by the Company in the acquisition. However, the former owner violated
a lock-up agreement covering the common stock issued which, by its terms, voids
the Company's guarantee. On November 1, 1996, this lawsuit was settled by the
Company agreeing to issue 25,620 shares of its common stock to the former owner.
------------------------------
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto of the Company included
elsewhere herein. The Company is a specialized distributor of forage (hay
crops), turf grass, corn, soybean and other seeds. The Company had limited
revenues until January 1, 1995, when it commenced an acquisition program (the
"Acquisition Program") to acquire various regional seed companies. The Company's
business strategy is to acquire reputable, regionally based seed companies with
proprietary products and established production and distribution channels in
their respective markets.
Since January 1, 1995, the Company has grown significantly, primarily through
acquisitions of regional seed companies. These acquisitions are more fully
discussed in Note 1 of Notes to Consolidated Financial Statements in the June
30, 1996 Form 10-KSB and Note 2 of Notes to Consolidated Financial Statements
herein. The results of operations of the acquired companies are included in the
Company's consolidated results beginning with the effective date of the
acquisition in accordance with the purchase method of accounting, as follows:
<TABLE>
<CAPTION>
Effective
Name Date
---- ----
<S> <C>
Seed Resource, Inc. January 1, 1995
Scott Seed Company March 1, 1995
Hobart Seed Company April 1, 1995
Halsey Seed Company July 1, 1995
Arnold Thomas Seed Service, Inc. October 1, 1995
Clark Seeds, Inc. October 1, 1995
Doug Conlee Seed Co. January 1, 1996
Beachley-Hardy Seed February 1, 1996
W-L Research, Inc. and Germain's Inc. September 1, 1996
</TABLE>
In addition to the above acquisitions, the Company acquired certain assets of
Sphar Seed Company effective July 1, 1995 to expand the operations of Scott Seed
Company. The Company also created Seed Mart, Inc. a start-up seed operation in
the upper midwest section of the United States. Seed Mart began operations in
the summer of 1995 but did not have significant sales until the spring of 1996.
The Company began limited operations in Mexico in 1994.
The acquisitions and other operations being included in the Company's
consolidated financial statements beginning with each of their effective or
start-up dates significantly affects the meaningfulness of comparisons drawn
between periods. Furthermore, the seed business is subject to wide seasonal
fluctuations and, therefore, the results of periods less than twelve months are
not necessarily indicative of results which may be expected for an entire year.
The above factors have significant impacts on the following discussion and
analysis and should be considered as part of it.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $6,475,629 at September 30, 1996, as compared
to $6,460,969 at June 30, 1996. The September 30, 1996 amount reflects the
acquisition of W-L Research, Inc. and Germains, Inc. (collectively, "W-
L/Germain's"), effective September 1, 1996, and the completion of a $10 million
private placement of preferred stock as described in Notes 2 and 4 of Notes to
Consolidated Financial Statements herein.
To finance acquisitions and ongoing operations, the Company has raised
significant amounts of additional equity capital. In the three-months ended
September 30, 1996 (the "1997 Quarter"), the Company received gross cash
proceeds of $10,000,000 from the private placement of preferred stock. The
Company paid commissions and
11
<PAGE>
selling expenses equal to 13% of the gross proceeds and incurred $64,355 of
other offering expenses. In addition, the Company received $656,125 from the
exercise of existing options for common stock. In the 1997 Quarter, the Company
paid $905,465 for the partial redemption of preferred stock submitted to the
Company for conversion into common stock since the Company believes this will
promote a more orderly conversion to common stock which will allow the Company
future access to growth capital under more favorable terms.
At June 30, 1996, the Company had a $4.5 million line of credit with Bank of
America ("BofA"). Borrowings under this line of credit are limited to 70% of
eligible accounts receivable and 50% of eligible inventory. On October 4, 1996,
the Company entered into a new agreement with BofA to increase the line of
credit to $15 million under similar terms and conditions. The new line of
credit bears interest at 1.25% over the BofA reference rate and expires November
30, 1997. The new line is secured by inventory, accounts receivable, certain
equipment and intangibles. In connection with the acquisition of W-L/Germain's,
the Company increased the amount outstanding under the line of credit to
approximately $12.5 million. The separate $721,000 line of credit maintained by
one of the Company's subsidiaries, which had an outstanding balance of $588,984
on June 30, 1996, was repaid and expired on October 1, 1996.
In November 1996, the Company entered into an agreement with a financial
institution to obtain mortgage financing for the main location of Germain's,
Inc. The Company will receive net proceeds from this loan of approximately
$800,000. The loan bears interest at a variable rate based on the BofA
reference rate and is repayable over 20 years. The Company is also negotiating
with another financial institution for an additional revolving credit facility
designed to provide funds for acquisitions.
The Company believes it has adequate financial resources to finance its ongoing
operations. However, the seed business is subject to wide seasonal fluctuations
which results in a significant increase in the level of inventory prior to and
during the heavier selling season in the spring and related higher levels of
accounts receivable following such sales through the early summer. This also
reflects that industry practice dictates a significant amount of sales are made
with extended terms through mid summer. In addition, the seed business can be
significantly impacted by the weather which can alter the timing and nature of
crops planted by farmers which, in turn, affects the timing and nature of seed
sales. Therefore, it is possible that the Company may need to seek additional
financial resources to finance ongoing operations. Furthermore, the Company
will need to obtain additional equity and/or debt financing in order to continue
its Acquisition Program.
During the 1997 Quarter, the Company had net cash flows from operating
activities of $119,089, compared to net deficit cash flows from operating
activities of $1,205,754 during the three-month period ended September 30, 1995
(the "1996 Quarter"). The 1997 Quarter reflects the Company's operating loss of
$1,294,671, adjusted for non-cash operating items and changes in operating
assets and liabilities. These include a reduction of accounts receivable which
arose in the spring selling season and an increase in inventory for the fall
selling season, the latter of which was substantially offset by an increase in
accounts payable. During the 1997 Quarter, the Company had net cash flows from
financing activities of $7,697,102, primarily due to the factors stated above,
compared to net cash flows from financing activities of $1,412,345 during the
1996 Quarter. These cash flows combined with deficit cash flows from investing
activities of $406,902 for additions to property, plant and equipment resulted
in an increase in cash of $7,409,289 during the 1997 Quarter.
RESULTS OF OPERATION
During the 1997 Quarter, the Company had net sales of $7,653,171 as compared
with $2,469,030 during the 1996 Quarter. The 1997 Quarter revenues reflect the
operation of all of the Company's entities for the entire quarter, except W-
L/Germain's, which was included for one month, while the 1996 Quarter revenues
reflected operations of only four acquisitions (plus Mexico and Sphar).
Cost of sales, primarily seed cost, were $5,612,580 or 73.3% of net sales for
the 1997 Quarter as compared to $1,850,785 or 75.0% for the 1996 Quarter. The
increase in the dollar amount of cost of sales is due to the acquisitions as
described above. The change in the percentage is due differences in the product
mix of the acquired companies and the Company's focus on shifting the product
lines from primarily public varieties (commodities) to proprietary (value added)
products.
12
<PAGE>
Operating expenses increased from $1,397,174 in the 1996 Quarter to $3,299,390
in the 1997 Quarter. However, operating expenses as a percent of revenue
declined to 43.1% in the 1997 Quarter as compared to 56.6% in the 1996 Quarter.
The percentage for the 1997 Quarter is greater than the 37.1% for the Company's
fiscal year ended June 30, 1996 caused by the seasonality of the Company's
business reflecting a relatively low sales quarter whereas expenses are more
uniform throughout the year. This ratio is expected to continue to decline as
revenue growth continues to exceed growth in expenses and operating synergies
occur with integration of the acquired companies into cohesive units.
The major components of operating expenses are personnel costs, occupancy
expense, vehicle and shipping expenses, outside services, travel and
advertising, all of which increased substantially in the 1997 Quarter compared
to the 1996 Quarter. These increases are primarily due to the seed operations
of new acquisitions and operations, including additional employees and
facilities. However, the Company has significantly reduced expenses, after
acquisition, as compared to historical operations prior to the effective date of
some acquisitions as a result of operating efficiencies. The major components of
operating expenses are as follows:
<TABLE>
<CAPTION>
1997 Quarter 1996 Quarter
------------ ------------
<S> <C> <C>
Personnel costs $1,664,961 697,489
Occupancy expenses 370,665 147,610
Vehicle and shipping 198,263 136,307
Outside services 133,150 76,937
Travel 120,594 36,858
Advertising and promotion 193,200 75,061
</TABLE>
Research and development expenditures were $93,889 in the 1997 Quarter, all of
which is attributable to W-L/Germain's, as compared to $5,104 in the 1996
Quarter. As the Company transforms its forage and turf grass seed business to
proprietary products and increases gross margins, the Company expects research
and development expenses to eventually be similar to other proprietary seed
sectors. W-L Research, Inc. conducts extensive research in alfalfa breeding and,
accordingly, research expenditures will increase significantly reflecting the W-
L/Germain's acquisition after its September 1, 1996 effective date.
The Company's interest expense increased to $259,818 in the 1997 Quarter as
compared to $13,093 for the 1996 Quarter. This is primarily due to increasing
the Company's line of credit from $1,000,000 to $4,500,000 and additional long-
term and short-term debt in connection with acquisitions, including W-
L/Germain's. The Company anticipates using more debt to fund future growth.
As discussed above, the Company increased its line of credit in connection with
the W-L/Germain's acquisition and increased borrowings under the line to
approximately $12.5 million.
Net losses for the Company were $1,294,671 for the 1997 Quarter compared to
$774,615 for the 1996 Quarter as the result of the items discussed above. The
net loss per share was $0.14 for the 1997 Quarter based on average common shares
outstanding of 9,105,682 compared to $0.11 for the 1996 Quarter based on average
common shares outstanding of 7,145,200. The increase in common shares reflects
additional shares issued in connection with acquisitions, options, warrants,
conversions of preferred stock, and services rendered.
INFLATION
Management does not consider that inflation has had a significant effect on the
Company's operations to date, nor is inflation expected to have a material
impact in the United States. The cost of seed products is largely affected by
seed yields and alternative crop prices, which have not generally been greatly
impacted by inflation. However, there has been some upward movement in the cost
of goods sold as a result of worldwide shortages of crops such as corn and
wheat. Those costs which are normally impacted by inflation, such as wages,
transportation and energy, are a relatively small part of the Company's total
operations. However, the Company remains subject to possible significant
inflation in Mexico, Argentina and other foreign countries.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as set forth below, there have been no material changes in any legal
proceedings involving the Company reported in its annual report on form 10-KSB
for the fiscal year ended June 30, 1996. In August 1996, John Duddleston
commenced an action against the Registrant and its subsidiary Halsey Seed
Company in the New York State Supreme Court, Tompkins County, New York. The
plaintiff sought $131,330 pursuant to a contract whereby the Registrant acquired
the assets of the Halsey Seed Company from Duddleston. Pursuant to a settlement
agreement, dated November 1, 1996, Duddleston has received 25,620 shares of the
Registrant's common stock in full settlement of the action.
ITEM 2. CHANGES IN SECURITIES
As the Registrant reported on a Current Report on Form 8-K, dated September 13,
1996, which Form 8-K is incorporated herein by reference, the Registrant
completed a private placement of 10,000 shares of Series C Convertible Preferred
Stock ("Preferred Stock") pursuant to Regulation D under the Securities Act of
1933, as amended. The Registrant received proceeds of $10,000,000 in the
offering, before placement commissions and expenses.
The Preferred Stock is convertible into a number of shares of common stock of
the Registrant ("Common Stock") derived by dividing the principal amount, plus
an 8% per annum premium by a conversion price, subject to adjustment, equal to
the lesser of (x) 80% of the average closing bid price of the Registrant's
Common Stock for the five trading days immediately preceding the date set forth
in the conversion notice and (y) an amount which is (i) $3.00 per share for 34%
of the shares of Preferred Stock; (ii) $3.50 per share for an additional 33% of
the shares of Preferred Stock; and (iii) $4.00 per share for the remaining 33%
of the shares of the Preferred Stock. The Preferred Stock becomes convertible on
staggered dates through February 1, 1997, and on September 30, 1998, any
outstanding shares of Preferred Stock will be automatically converted. The
Registrant has a right to redeem Preferred Stock noticed for conversion,
however, at the market price, if the Preferred Stock is converted at a price
less than or equal to 80% of the market price at the date of issuance, and after
February 15, 1997, the Registrant may redeem all outstanding shares of Preferred
Stock upon 30 days' written notice at the market price.
Each share of Preferred Stock has a liquidation preference of $1,000 plus a
premium equal to 8% per annum of the original issue price. In the event of any
dissolution, liquidation or winding up of the Registrant, whether voluntary or
involuntary, the holders of the Preferred Stock will be entitled to receive
their liquidation preference prior to the distribution of any assets or funds to
the holders of Common Stock. The holders of Preferred Stock have no voting
rights, except as provided by Nevada law.
The common stock underlying the Preferred Stock has been registered by the
Registrant in a registration statement declared effective by the Securities and
Exchange Commission. Based on the closing bid price of the Common Stock over
the five trading days preceding September 30, 1996, the number of shares that
would be issued upon full conversion of the Preferred Stock would be 4,749,063.
The issuance of a large number of shares of Common Stock upon conversion would
affect the existing holders of shares by diluting the voting power of their
Common Stock.
The net proceeds of the offering were used to complete the acquisition of assets
of the AgriBusiness Group of Berisford Holdings, Inc., as reported by the
Registrant on a Current Report on Form 8-K dated October 30, 1996 (the
"Acquisition"), and also to satisfy a condition necessary to increase the amount
of the Registrant's bank line of credit.
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ITEM 5. OTHER INFORMATION
(a) CREDIT LINE AMENDMENT
Effective October 4, 1996, the Registrant amended its revolving credit line with
Bank of America Nevada ("BOA"). BOA increased the line of credit to an amount
equal to the lesser of (i) $15,000,000 or (ii) a formula based on the value of
inventory and receivables. The line of credit expires on November 30, 1997.
Outstanding balances bear interest at 1.25% plus BOA's "reference rate." An
annual loan fee of $25,000 is due, and there is an "unused commitment" fee of
.5% per annum. The loan is secured by inventory, receivables, certain equipment
and intangibles of the Registrant and its subsidiaries.
(b) ACQUISITION OF ASSETS
As the Registrant reported on a Current Report on Form 8-K, dated October 30,
1996, which Form 8-K is incorporated herein by reference, on October 30, 1996,
the Registrant, completed the acquisition of certain assets of Germain's, Inc.,
a Delaware corporation, W-L Research, Inc., a California corporation, and a 50%
membership interest in SeedBiotics, L.L.C., an Idaho Limited Liability Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Certificate of Designation and Preferences of Series C
Convertible Preferred Stock.*
10.1. Form of Subscription Agreement for the Series C
Convertible Preferred Stock.*
10.2 Business Loan Agreement, dated as of October 4, 1996,
among the Registrant, certain of its subsidiaries and Bank
of America (Nevada).
27.1 Financial Data Schedule
(b) One report on Form 8-K for September 13, 1996 was filed during
the quarter for which this Report is filed, reporting under Item 2 thereof the
offering of Series C Preferred Stock.
________________________
* Incorporated by reference from the Registrant's Current Report on Form
8-K for September 13, 1996.
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In accordance with the requirement of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AGRIBIOTECH, INC.,
November 19, 1996 By: /s/ Henry A. Ingalls
- ----------------- -------------------------
Date Henry A. Ingalls,
Vice-President/CFO
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EXHIBIT 10.2
[LOGO OF BANK OF AMERICA]
Business Loan Agreement
(Receivables and Inventory)
- --------------------------------------------------------------------------------
This Agreement dated as of October 4, 1996 is between Bank of America Nevada
(the "Bank") and Agribiotech, Inc., a Nevada corporation ("AI"), Scott Seed
Company, a Nevada corporation ("SSC"), Seed Resource, Inc., a Nevada corporation
("SRI"), Halsey Seed Company, a Nevada corporation ("HSC"), Seed Mart, Inc., a
Nevada corporation ("SMI"), Arnold-Thomas Seed Service, Inc., a Nevada
corporation ("ATSSI"), Clark Seeds, Inc., an Idaho corporation ("CSI"),
Germain's Seeds, Inc., a Nevada corporation ("GSI") and W-L Research, Inc., a
Nevada corporation ("WLR"); ("AI", "SSC", "SRI", "HSC", "SMI", "ATSSI", "CSI",
"GSI", and "WLR" are sometimes referred to collectively as the "Borrowers" and
individually as the "Borrower.")
1. DEFINITIONS In addition to the terms which are defined elsewhere in this
Agreement, the following terms have the meanings indicated for the purposes of
this Agreement:
1.1 "Borrowing Base" means the lesser of:
(a) Fifteen Million and No/100 Dollars; or
(b) the sum of:
(i) 70% of the balance due on Acceptable Receivables; and
(ii) 50% of the value of Acceptable Inventory.
It is provided, however, the aggregate amount under subparagraph 1.1 (b) (ii)
above, may not exceed (i) 50% of the Borrowing Base between March 31 and July 31
of any calendar year; and (ii) 70% of the Borrowing Base between August 31 and
February 28 of the succeeding calendar year.
In determining the value of Acceptable Inventory to be included in the Borrowing
Base, the Bank will use the lowest of (i) the Borrower's cost, (ii) the
Borrower's estimated market value, or (iii) the Bank's independent determination
of the resale value of such inventory in such quantities and on such terms as
the Bank deems appropriate. Furthermore, the value of Acceptable Inventory
shall be reduced by any amounts the Borrower owes to growers of agricultural
products that the Borrower has purchased for processing or for use in producing
the Borrower's inventory.
1.2 "Acceptable Receivable" means an account receivable which satisfies the
following requirements:
(a) The account has resulted from the sale of goods or the performance of
services by any Borrower in the ordinary course of such Borrower's
business.
(b) There are no conditions which must be satisfied before the Borrowers are
entitled to receive payment of the account. Accounts arising from COD
sales, consignments or guaranteed sales are not acceptable.
(c) The debtor upon the account does not claim any defense to payment and has
not asserted any counterclaims against the Borrowers.
(d) The account represents a genuine obligation of the debtor for goods sold
and accepted by the debtor, or for services performed for and accepted by
the debtor.
(e) the Borrowers have sent an invoice to the debtor in the amount of the
account.
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(f) The account is owned by the Borrowers free of any title defects or any
liens or interests of others except the security interest in favor of the
Bank.
(g) The debtor upon the account is not any of the following:
(i) an employee, affiliate, parent or subsidiary of any Borrower, or an
entity which has common officers or directors with any Borrower.
(ii) the U.S. government or any agency or department of the U.S. government
unless the Bank agrees in writing to accept the obligation and the
Borrowers comply with the procedures in the Federal Assignment of
Claims Act of 1940 with respect to the obligation (unless otherwise
approved by Bank and such account is supported by a letter of credit
or other credit enhancement acceptable to Bank).
(iii) any state, county, city, town or municipality.
(iv) any person or entity located in a foreign country (unless otherwise
approved by Bank and such account is supported by a letter of credit
or other credit enhancement acceptable to Bank).
(v) any person or entity to whom any Borrower is obligated for goods
purchased by such Borrower or for services performed for such
Borrower.
(h) The account is not in default. An account will be considered in default if
any of the following occur:
(i) The account is not paid within the 30 day period starting on its due
date, provided, however, that the due date will not be later than
sixty (60) days from the invoice date;
(ii) The debtor obligated upon the account suspends business, makes a
general assignment for the benefit of creditors, or fails to pay its
debts generally as they come due; or
(iii) Any petition is filed by or against the debtor obligated upon the
account under any bankruptcy law or any other law or laws for the
relief of debtors;
(i) The account is not the obligation of a debtor who is in default (as defined
above) on 25% or more of the accounts upon which such debtor is obligated.
(j) The account does not arise from the sale of goods which remain in any
Borrower's possession or under any Borrower's control.
(k) The account does not arise from the sale of minerals (including oil and
gas) at the wellhead or minehead;
(l) The account is not evidenced by a promissory note or chattel paper.
(m) The account is otherwise acceptable to the Bank.
In addition to the foregoing limitations, the dollar amount of accounts included
as Acceptable Receivables which are the obligations of a single debtor shall not
exceed the concentration limit established for that debtor. To the extent the
total of such accounts exceeds a debtor's concentration limit, the amount of any
such excess shall be excluded. The concentration limit for each debtor shall be
equal to 10% of the total amount of the Borrowers Acceptable Receivables at that
time.
1.3 "Acceptable Inventory" means inventory that satisfies the following
requirements:
(a) The inventory is owned by the Borrowers free of any title defects or any
liens or interests of others except the security interest in favor of the
Bank.
(b) The inventory is permanently located at locations which the Borrowers have
disclosed to the Bank and which are acceptable to the Bank. If the
inventory is covered by a negotiable document of title (such as a
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warehouse receipt) that document must be delivered to the Bank. Inventory
which is in transit is not acceptable unless it is covered by a commercial
letter of credit issued by the Bank and the seller of the inventory is
required to present shipping or title documents to the Bank as a condition
to obtaining payment.
(c) The inventory is held for sale or use in the ordinary course of the
Borrowers business and is of good and merchantable quality. Inventory
which is obsolete, unsalable, damaged, defective, discontinued or slow-
moving or which has been returned by the buyer, is not acceptable. Display
items, work-in-process and packing and shipping materials are not
acceptable.
(d) Consigned inventory which is under One Million and No/100 ($1,000,000.00)
in the aggregate and further limited to Two Hundred Fifty Thousand and
No/100 Dollars ($250,000.00) of consigned inventory per location.
(e) The inventory is otherwise acceptable to the Bank.
1.4 "Credit Limit" means the amount of Fifteen Million and No/100 Dollars
($15,000,000.00).
2. LINE OF CREDIT AMOUNT AND TERMS
2.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrowers. The amount of the line of credit (the
"Commitment") is equal to the lesser of (i) the Credit Limit or (ii) the
Borrowing Base.
(b) This is a revolving line of credit. During the availability period, the
Borrowers may repay principal amounts and reborrow them.
(c) The Borrowers agree not to permit the outstanding principal balance of the
line of credit exceed the Commitment. If the Borrowers exceed this limit,
the Borrowers will immediately pay the excess to the Bank upon the Bank's
demand. The Bank may apply payments received from the Borrowers under this
Paragraph to the obligations of the Borrowers to the Bank in the order and
the manner as the Bank, in its discretion, may determine.
2.2 Availability Period. The line of credit is available between the date of
this Agreement and November 30, 1997 (the "Expiration Date") unless any Borrower
is in default.
2.3 Conditions to Each Extension of Credit. Before each extension of credit
under the line of credit, including the first, the Borrowers will deliver the
following to the Bank if requested by the Bank:
(a) a borrowing certificate, in form and detail satisfactory to the Bank,
setting forth the Acceptable Receivables and the Acceptable Inventory on
which the requested extension of credit is to be based;
(b) copies of the invoices or the record of invoices from each Borrower's sales
journal for such Acceptable Receivables and a listing of the names and
addresses of the debtors obligated thereunder; and
(c) copies of the delivery receipts, purchase orders, shipping instructions,
bills of lading and other documentation pertaining to such Acceptable
Receivables.
2.4 Interest Rate.
(a) The interest rate is the Reference Rate plus 1.25 percentage points.
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(b) The Reference Rate is the rate of interest publicly announced from time to
time by Bank of America National Trust and Savings Association ("BofA
California") as its "reference rate". The Reference Rate is set by BofA
California based on various factors, including BofA California's costs and
desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans. The Bank and BofA California
may price loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate will take effect at the opening of
business on the day specified in the public announcement of a change in
BofA California's Reference Rate.
2.5 Repayment Terms.
(a) The Borrowers will pay interest on October 31, 1996 and on the last day of
each month thereafter until payment in full of any principal outstanding
under this line of credit.
(b) The Borrowers will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Expiration Date.
(c) The Borrower may prepay the loan in full or in part at any time.
3. FEES AND EXPENSES.
3.1 Fees.
(a) Loan Fee. The Borrowers agree to pay an annual loan fee in the amount of
Twenty Five Thousand and No/100 Dollars ($25,000.00).
(b) Documentation Fee. The Borrowers agree to pay a One Thousand Five Hundred
and No/100 Dollars ($1,500.00) fee due and payable at loan closing.
(c) Unused Commitment Fee. The Borrowers agree to pay a fee on any difference
between the Credit Limit amount and the amount of credit it actually uses,
determined by the weighted average loan balance maintained during the
specified period. The fee will be calculated at 0.50% per year.
This fee is due as of the last day of each quarter until the expiration of
the availability period, and is payable upon billing by Bank.
3.2 Expenses. The Borrowers agree to immediately repay the Bank for expenses
that include, but are not limited to, filing, recording and search fees,
appraisal fees, title report fees, survey fees and documentation fees.
3.3 Reimbursement Costs.
(a) The Borrowers agree to reimburse the Bank for any expenses it incurs in the
preparation of this Agreement and any agreement or instrument required by
this Agreement. Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of the Bank's in-house
counsel.
(b) The Borrowers agree to reimburse the Bank for the cost of periodic audits
and appraisals of the personal property collateral securing this Agreement,
at such intervals as the Bank may reasonably require. The audits and
appraisals may be performed by employees of the Bank or by independent
appraisers.
4. COLLATERAL
4.1 Personal Property. The Borrowers' obligations to the Bank under this
Agreement will be secured by personal property the Borrowers now own or will own
in the future as listed below. The collateral is further defined in security
agreement(s) executed by the Borrowers.
In addition, all personal property collateral securing this Agreement shall also
secure all other present and future obligations of the Borrowers or any one of
them to the Bank (excluding any consumer credit covered by the federal Truth in
Lending law, unless the Borrowers have otherwise agreed in writing). All
personal property collateral
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securing any other present or future obligations of the Borrowers or any one of
them to the Bank shall also secure this Agreement.
(a) Machinery, equipment and furniture.
(b) Inventory.
(c) Receivables.
(d) General Intangibles.
5. DISBURSEMENTS, PAYMENTS AND COSTS
5.1 Requests for Credit. Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
5.2 Disbursements and Payments Each disbursement by the Bank and each payment
by the Borrowers will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from time to
time;
(c) made in immediately available funds, or such other type of funds selected
by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrowers to sign one or more promissory notes.
5.3 Telephone and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions for advances or
repayments given by any one of the individual signer(s) of this Agreement
or a person or persons authorized by any one of the signer(s) of this
Agreement.
(b) Advances will be deposited in and repayments will be withdrawn from AI's
account number 851001305, or such other of the Borrower's accounts with the
Bank as designated in writing by the Borrowers.
(c) The Borrowers indemnify and excuse the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone or telefax instructions it reasonably
believes are made by a signer of this Agreement or a person authorized by a
signer. This indemnity and excuse will survive this Agreement's
termination.
5.4 Direct Debit.
(a) The Borrowers agree that interest and any fees will be deducted
automatically on the due date from AI's account number 851001305, or such
other of the Borrower's accounts with the Bank as designated in writing by
the Borrowers (the "Designated Account").
(b) The Bank will debit the account on the dates the payments become due. If a
due date does not fall on a banking day, the Bank will debit the account on
the first banking day following the due date.
(c) The Borrowers will maintain sufficient funds in the account on the dates
the Bank enters debits authorized by this Agreement. If there are
insufficient funds in the account on the date the Bank enters any debit
authorized by this Agreement, the debit will be reversed.
5.5 Banking Days. Unless otherwise provided in this Agreement, a banking day
is a day other than a Saturday or a Sunday on which the Bank is open for
business in Nevada. All payments and disbursements which would be due on a day
which is not a banking day will be due on the next banking day. All payments
received on a day which is not a banking day will be applied to the credit on
the next banking day.
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5.6 Taxes. The Borrowers will not deduct any taxes from any payments it makes
to the Bank. If any government authority imposes any taxes or charges on any
payments made by the Borrowers, the Borrowers will pay the taxes or charges and
will also pay to the Bank, at the time interest is paid, any additional amount
which the Bank specifies as necessary to preserve the after-tax yield the Bank
would have received if such taxes had not been imposed. Upon request by the
Bank, the Borrowers will confirm that it has paid the taxes by giving the Bank
official tax receipts (or notarized copies) within 30 days after the due date.
However, the Borrowers will not pay the Bank's net income taxes.
5.7 Additional Costs. The Borrowers will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency. The costs and losses will be allocated to
the loan in a manner determined by the Bank, using any reasonable method. The
costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments for
credit.
5.8 Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360 day year and
the actual number of days elapsed. This results in more interest or a higher
fee than if a 365-day year is used.
5.9 Interest on Late Payments. In the event any payment required hereunder is
received by the Bank fifteen (15) days after its due date, a late charge of five
percent (5.00%) of each overdue payment may be charged for the purpose of
defraying the expenses incident to handling said delinquent payments and as an
inducement to Borrowers to make timely payment. Acceptance of a scheduled
payment fifteen (15) days after its due date shall not waive any appropriate
late charge, nor shall it constitute a waiver of any event of default.
5.10 Default Rate. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 2.00 percentage point(s)
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any default.
5.11 Overdrafts. At the Bank's sole option in each instance, the Bank may do
one of the following:
(a) The Bank may make advances under this Agreement to prevent or cover an
overdraft on any account of any Borrower with the Bank. Each such advance
will accrue interest from the date of the advance or the date on which the
account is overdrawn, whichever occurs first, at the interest rate
described in this Agreement.
(b) The Bank may reduce the amount of credit otherwise available under this
Agreement by the amount of any overdraft on any account of any Borrower
with the Bank.
This paragraph shall not be deemed to authorize any Borrower to create
overdrafts on any of the Borrower's accounts with the Bank.
5.12 Payments in Kind. The proceeds of collections of the Borrowers' accounts
receivable, when received by the Bank in kind, shall be credited to interest,
principal, and other sums owed to the Bank under this Agreement in the order and
proportion determined by the Bank in its sole discretion. All such credits will
be conditioned upon collection and any returned items may, at the Bank's option,
be charged to the Borrowers.
6. CONDITIONS The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to the
Borrowers under this Agreement:
6.1 Balance Sheet. An opening balance sheet reflecting the proposed asset
acquisition of WLR and GSI.
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6.2 Authorizations. Evidence that the execution, delivery and performance by
each Borrower of this Agreement and any instrument or agreement required under
this Agreement have been duly authorized.
6.3 Governing Documents. A copy of each Borrower's articles of incorporation.
6.4 Security Agreements. Signed original security agreements, assignments,
financing statements and fixture filings (together with collateral in which the
Bank requires a possessory security interest), which the Bank requires.
6.5 Evidence of Priority. Evidence that security interests and liens in favor
of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
6.6 Insurance. Evidence of insurance coverage, as required in the "Covenants"
section of this Agreement.
6.7 Legal Opinion. A written opinion from the Borrowers' legal counsel,
covering such matters as the Bank may require. The legal counsel and the terms
of the opinion must be acceptable to the Bank.
6.8 Good Standing. Certificates of good standing for each Borrower from its
state of incorporation and from any other state in which such Borrower is
required to qualify to conduct its business.
6.9 Payment of Fees. Payment of all accrued and unpaid expenses incurred by
the Bank as required by the paragraph entitled "Reimbursement Costs".
6.10 Appraisals. Appraisals prepared by appraisers acceptable to the Bank with
respect to the liquidation value of the Borrowers' inventory.
6.11 Other Items. Any other items that the Bank reasonably requires.
7. REPRESENTATIONS AND WARRANTIES When the Borrowers sign this Agreement,
and until the Bank is repaid in full, each Borrower makes the following
representations and warranties. Each request for an extension of credit
constitutes a renewed representation:
7.1 Organization of Borrower. Each Borrower is a corporation duly formed and
existing under the laws of the state where organized.
7.2 Authorization. This Agreement, and any instrument or agreement required
hereunder, are within each Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
7.3 Enforceable Agreement. This Agreement, and each other agreement or
document executed and delivered to the Bank in connection with this Agreement,
is a legal, valid and binding agreement of each Borrower, enforceable against
each Borrower in accordance with its terms, and any instrument or agreement
required hereunder, when executed and delivered, will be similarly legal, valid,
binding and enforceable.
7.4 Good Standing. In each state in which each Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
7.5 No Conflicts. This Agreement does not conflict with any law, agreement,
or obligation by which any Borrower is bound.
7.6 Financial Information. All financial and other information that has been
or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the Borrowers'
financial condition.
(b) in form and content required by the Bank.
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(c) in compliance with all government regulations that apply.
7.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against any Borrower, which, if lost, would impair the Borrowers' or
any Borrower's financial condition or ability to repay the loan, except as have
been disclosed in writing to the Bank prior to the date of this Agreement.
7.8 Collateral. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
7.9 Permits, Franchises. Each Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged without conflict of the rights
of others.
7.10 Other Obligations. No Borrower is in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
7.11 Income Tax Returns. No Borrower has any knowledge of any pending
assessments or adjustments of its income tax for any year.
7.12 No Event of Default. There is no event which is, or with notice or lapse
of time or both would be, a default under this Agreement.
7.13 Merchantable Inventory. All inventory which is included in the Borrowing
Base is of good and merchantable quality and free from defects.
7.14 ERISA Plans.
(a) Each Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and is in
compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA for which
the PBGC requires 30 day notice.
(c) No action by any Borrower to terminate or withdraw from any Plan has been
taken and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section 4042
of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(ii) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by any Borrower and insured by the Pension Benefit
Guaranty Corporation under Title IV of ERISA.
7.15 Location of Borrower. Each Borrower's place of business (or, if any
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrowers' signature on this Agreement.
8
<PAGE>
8. COVENANTS The Borrowers agree, so long as credit is available under this
Agreement and until the Bank is repaid in full:
8.1 Use of Proceeds. To use the proceeds of the credit only for working
capital purposes.
8.2 Financial Information. To provide the following financial information and
statements and such additional information as requested by the Bank from time to
time:
(a) Within 120 days after AI's fiscal year end; (i) AI's annual consolidated
financial statements. These financial statements must be audited by a
Certified Public Accountant ("CPA") acceptable to the Bank, and (ii) AI's
annual consolidating financial statements. These financial statements may
be Borrower prepared. In addition, AI's Form 10-K is required within 15
days of filing.
(b) Within 30 days of the period's end, each Borrowers' monthly financial
statements. These financial statements may be Borrower prepared.
(c) Within 45 days of the period's end, AI's quarterly financial statements.
These financial statements may be Borrower prepared. The statements shall
be prepared on a consolidated and consolidating basis. In addition, AI's
Form 10-Q is required within 15 days of filing.
(d) Within the periods provided in (a) and (c) above, a compliance certificate
of AI signed by an authorized financial officer of such Borrower setting
forth (i) the information and computations (in sufficient detail) to
establish that such Borrower is in compliance with all financial covenants
at the end of the period covered by the financial statements then being
furnished and (ii) whether there existed as of the date of such financial
statements and whether there exists as of the date of the certificate, any
default under this Agreement and, if any such default exists, specifying
the nature thereof and the action such Borrower is taking and proposes to
take with respect thereto.
(e) A borrowing certificate from AI setting forth the respective amounts of
Acceptable Receivables and Acceptable Inventory within twenty (20) days of
each month.
(f) Statements showing an aging and reconciliation of AI's receivables within
thirty (30) days after the end of each month.
(g) A statement from AI showing an aging of accounts payable within thirty (30)
days after the end of each month.
(h) If the Bank requires the Borrowers to deliver the proceeds of accounts
receivable to the Bank upon collection by the Borrowers, a schedule of the
amounts so collected and delivered to the Bank.
(i) An inventory listing from AI within thirty (30) days after the end of each
quarter; the listing must include a description of the inventory, its
location and cost, and such other information as the Bank may require.
(j) When requested by the Bank, a listing of the names and addresses of all
debtors obligated upon AI's accounts receivable.
(k) Promptly upon the Bank's request, such other statements, lists of property
and accounts, budgets, forecasts or reports as to the Borrowers and as to
each guarantor of the Borrowers' obligations to the Bank as the Bank may
request.
(l) If an acquisition is acceptable under Paragraph 8.20 (f) of this Agreement
then AI shall provide a recast of its' projections along with a three year
forecast, which must be approved by the Bank, prior to the completion of
the acquisition.
8.3 Tangible Net Worth. To maintain on a consolidated basis tangible net
worth equal to at least the amounts indicated for each period specified below:
9
<PAGE>
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Post Closing $19,500,000.00
September 30, 1996 $19,500,000.00
December 31, 1996 $19,500,000.00
March 31, 1997 $22,000,000.00
June 30, 1997 $22,000,000.00
</TABLE>
"Tangible net worth" means the gross book value of the Borrowers' assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles and
monies due from affiliates, officers, directors or shareholders of the
Borrowers) less total liabilities, including but not limited to accrued and
deferred income taxes, and any reserves against assets.
8.4 Total Liabilities to Tangible Net Worth Ratio. To maintain on a
consolidated basis a ratio of Total Liabilities to Tangible Net Worth not
exceeding the ratios indicated for the periods specified below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Post Closing 1.00:1.00
September 30, 1996 1.00:1.00
December 31, 1996 1.25:1.00
March 31, 1997 1.25:1.00
June 30, 1997 1.00:1.00
"Total Liabilities" means the sum of current liabilities plus long term
liabilities.
8.5 Working Capital. To maintain on a consolidated basis current assets in
excess of current liabilities by at least the amounts indicated for each period
specified below:
Period Amount
------ ------
Post Closing $ 8,000,000.00
September 30, 1996 $ 8,000,000.00
December 31, 1996 $ 8,000,000.00
March 31, 1997 $10,000,000.00
June 30, 1997 $10,000,000.00
</TABLE>
8.6 Adjusted EBITDA Debt Coverage Ratio. To maintain on a consolidated basis
an Adjusted EBITDA Debt Coverage Ratio of at least 1.70:1.00.
"Adjusted EBITDA Debt Coverage Ratio" means the ratio of Adjusted EBITDA to the
sum of total interest expense, rent expense and the current portion of long-term
debt. "Adjusted EBITDA" means the sum of net income before interest expense,
taxes, depreciation and amortization and rent expense.
This ratio will be calculated at the three quarter period ending March 31, 1997
and at the fiscal year ending June 30, 1997. The current portion of long term
debt will be measured as of the last day of the test period.
8.7 Other Debts. Not to have outstanding or incur any direct or contingent
debts or lease obligations (other than those to the Bank), or become liable for
the debts of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
10
<PAGE>
(d) Debts and lines of credit in existence on the date of this Agreement
disclosed in writing to the Bank.
(e) Additional debts for business purposes which do not exceed a total
principal amount of Two Million and No/100 Dollars ($2,000,000.00)
outstanding at any one time.
8.8 Other Liens. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property any Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to the
Bank.
(d) Additional purchase money security interests in personal property acquired
after the date of this Agreement, if the total principal amount of debts
secured by such liens does not exceed One Million and No/100 Dollars
($1,000,000.00) at any one time.
8.9 Dividends. Not to declare or pay any dividends on any of its shares, and
not to purchase, redeem or otherwise acquire for value any of its shares, or
create any sinking fund in relation thereto.
8.10 Loans to Officers. Not to make any loans, advances or other extensions of
credit to any Borrower's executives, officers, or directors or shareholders (or
any relatives of any of the foregoing).
8.11 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit over One Hundred Thousand and No/100 Dollars ($100,000.00)
against any one or more Borrowers.
(b) any substantial dispute between any Borrower and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in any Borrower's financial condition or
operations.
(e) any change in any Borrower's name, legal structure, place of business, or
chief executive office if such Borrower has more than one place of
business.
8.12 Books and Records. To maintain adequate books and records.
8.13 Audits. To allow the Bank and its agents to inspect the Borrowers'
properties and examine, audit, and make copies of books and records at any
reasonable time. If any of the Borrowers' properties, books or records are in
the possession of a third party, the Borrowers authorize that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
8.14 Compliance with Laws. To comply with the laws, (including any fictitious
name statute), regulations, and orders of any government body with authority
over each Borrower's business.
8.15 Preservation of Rights. To maintain and preserve all rights, privileges,
and franchises each Borrower now has.
8.16 Maintenance of Properties. To make any repairs, renewals, or replacements
to keep each Borrower's properties in good working condition.
8.17 Perfection of Liens. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
8.18 Cooperation. To take any action requested by the Bank to carry out the
intent of this Agreement.
11
<PAGE>
8.19 Insurance.
(a) Insurance Covering Collateral. To maintain all risk property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount acceptable to the
Bank. The insurance must be issued by an insurance company acceptable to
the Bank and must include a lender's loss payable endorsement in favor of
the Bank in a form acceptable to the Bank.
(b) General Business Insurance. To maintain insurance satisfactory to the
Bank as to amount, nature and carrier covering property damage (including
loss of use and occupancy) to any of the Borrowers' properties, public
liability insurance including coverage for contractual liability, product
liability and workers' compensation, and any other insurance which is usual
for the Borrowers' business.
(c) Evidence of Insurance. Upon the request of the Bank, deliver to the Bank a
copy of each insurance policy or, if permitted by the Bank, a certificate
of insurance listing all insurance in force.
8.20 Additional Negative Covenants. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
Borrowers' or any Borrower's present business.
(b) liquidate or dissolve the Borrowers' business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate, or
other combination.
(d) lease, or dispose of all or a substantial part of the Borrowers' or any
Borrower's business or the Borrowers' or any Borrower's assets except in
the ordinary course of the Borrower's business.
(e) sell or otherwise dispose of any assets for less than fair market value or
enter into any sale and leaseback agreement covering any of its fixed or
capital assets.
(f) enter into any future acquisition of a business or its assets with a
purchase price in excess of One Million and No/100 Dollars ($1,000,000.00).
(g) enter into any future seller financing.
8.21 ERISA Plans. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of ERISA for
which the PBGC requires 30 day notice.
(b) Any action by any Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan under Section
4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under Section
4042 of ERISA.
8.22 Consignments. Prior to placement of any inventory on consignment with any
person ("Consignee"):
(a) To provide the Bank with all consignment agreements and other documents to
be used in connection with such consignment, all of which must be
acceptable to the Bank;
(b) To file appropriate financing statements with respect to the consigned
inventory showing the Consignee as debtor, the Borrower as secured party,
and the Bank as assignee of secured party;
(c) To file appropriate financing statements with respect to the consigned
inventory showing the Borrower as debtor and the Bank as secured party;
12
<PAGE>
(d) After all financing statements referred to above have been filed, to
conduct a search of all filings made against the Consignee in all
jurisdictions in which the consigned inventory is to be located, and
deliver to the Bank copies of the results of all such searches;
(e) To notify, in writing, all creditors of the Consignee which are or may be
holders of security interests in the inventory to be consigned that the
Borrower expects to deliver certain inventory to the Consignee, all of
which inventory shall be described in such notice by item or type.
9. HAZARDOUS WASTE INDEMNIFICATION The Borrowers will indemnify and hold
harmless the Bank from any loss or liability directly or indirectly arising out
of the use, generation, manufacture, production, storage, release, threatened
release, discharge, disposal or presence of a hazardous substance. This
indemnity will apply whether the hazardous substance is on, under or about the
Borrowers' or any Borrower's property or operations or property leased to the
Borrowers or any Borrower. The indemnity includes but is not limited to
attorneys' fees (including the reasonable estimate of the allocated cost of in-
house counsel and staff). The indemnity extends to the Bank, its parent,
subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as "hazardous" or
"toxic" under any federal, state or local law. This indemnity will survive
repayment of the Borrowers' obligations to the Bank.
10. DEFAULT If any of the following events occur, the Bank may do one or more
of the following: declare the Borrowers in default, terminate this Agreement,
stop making any additional credit available to the Borrowers, and require the
Borrowers to repay its entire debt immediately and without prior notice. If an
event of default occurs under the paragraph entitled "Bankruptcy," below, with
respect to any Borrower, then the entire debt outstanding under this Agreement
will automatically be due immediately.
10.1 Failure to Pay. Any Borrower fails to make a payment under this Agreement
when due.
10.2 Lien Priority. The Bank fails to have an enforceable first lien (except
for any prior liens to which the Bank has consented in writing) on or security
interest in any property given as security for the extensions of credit under
this Agreement.
10.3 False Information. Any Borrower has given the Bank false or misleading
information or representations.
10.4 Death. Any principal officer or majority stockholder dies of any Borrower
dies.
10.5 Bankruptcy. Any Borrower files a bankruptcy petition, a bankruptcy
petition is filed against any Borrower, or any Borrower makes a general
assignment for the benefit of creditors.
10.6 Receivers. A receiver or similar official is appointed for any Borrower's
business, or the business is terminated.
10.7 Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against any one or more of the Borrowers in an aggregate amount
of One Hundred Thousand and No/100 Dollars ($100,000.00) or more in excess of
any insurance coverage.
10.8 Judgments. Any judgments or arbitration awards are entered against any
one or more of the Borrowers, or any one or more of the Borrowers enters into
any settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of One Hundred Thousand and No/100 Dollars ($100,000.00) or
more in excess of any insurance coverage.
10.9 Government Action. Any government authority take action that the Bank
believes materially adversely affects any Borrower's financial condition or
ability to repay.
10.10 Material Adverse Change. A material adverse change occurs in any
Borrower's financial condition, properties or prospects, or ability to repay the
extensions of credit under this Agreement.
13
<PAGE>
10.11 Cross-default. Any default occurs under any agreement in connection
with any credit any Borrower has obtained from anyone else or which any Borrower
has guaranteed.
10.12 Default Under Related Documents. Any guaranty, subordination agreement,
security agreement, deed of trust, or other document required by this Agreement
is violated or no longer in effect.
10.13 Other Bank Agreements. Any Borrower fails to meet the conditions of, or
fails to perform any obligation under any other agreement any Borrower has with
the Bank or any affiliate of the Bank.
10.14 ERISA Plans. The occurrence of any one or more of the following events
with respect to any Borrower, provided such event or events could reasonably be
expected, in the judgment of the Bank, to subject such Borrower to any tax,
penalty or liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial condition of
such Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which is, in the
reasonable judgment of the Bank likely to result in the termination of such
Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to terminate a Plan)
or such Borrower's full or partial withdrawal from a Plan.
10.15 Other Breach Under Agreement. Any Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article.
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
11.2 Nevada Law. This Agreement is governed by Nevada law.
11.3 Successors and Assigns. This Agreement is binding on the Borrowers' and
the Bank's successors and assignees. The Borrowers agree that it may not assign
this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrowers with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrowers.
11.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies or claims
between any one or more of the Borrowers and the Bank, including but not
limited to those that arise from:
(i) This Agreement (including any renewals, extensions or modifications of
this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted between
any one or more of the Borrowers and the Bank, including claims for
injury to persons, property or business interests (torts).
(b) At the request of any Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though
this Agreement provides that it is governed by Nevada law.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
14
<PAGE>
(d) For purposes of the application of the statute of limitations, the filing
of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated
under this paragraph is subject to any applicable statute of limitations.
The arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss
the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the arbitrators
will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be submitted
to any authorized court of law to be confirmed and enforced.
(g) This provision does not limit the right of the Borrowers or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property collateral; or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(h) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrowers or the Bank, including
the suing party, to submit the controversy or claim to arbitration if the
other party contests the lawsuit.
(i) If the Bank forecloses against any real property securing this Agreement,
the Bank has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
11.5 Severability; Waivers. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
11.6 Costs. If the Bank incurs any expenses in connection with administering
or enforcing this Agreement, or if the Bank takes collection action under this
Agreement, it is entitled to costs and reasonable attorney's fees, including any
allocated costs of in-house counsel.
11.7 Attorneys' Fees. In the event of a lawsuit or arbitration proceeding, the
prevailing party is entitled to recover costs and reasonable attorneys' fees
(including any allocated costs of in-house counsel) incurred in connection with
the lawsuit or arbitration proceeding, as determined by the court or arbitrator.
11.8 Joint and Several Liability.
(a) Each Borrower agrees that it is jointly and severally liable to the Bank
for the payment of all obligations arising under this Agreement, and that
such liability is independent of the obligations of the other Borrower(s).
The Bank may bring an action against any Borrower, whether an action is
brought against the other Borrower(s).
(b) Each Borrower agrees that any release which may be given by the Bank to the
other Borrower(s) or any guarantor will not release such Borrower from its
obligations under this Agreement.
(c) Each Borrower waives any right to assert against the Bank any defense,
setoff, counterclaim, or claims which such Borrower may have against the
other Borrower(s) or any other party liable to the Bank for the obligations
of the Borrowers under this Agreement.
15
<PAGE>
(d) Each Borrower agrees that it is solely responsible for keeping itself
informed as to the financial condition of the other Borrower(s) and of all
circumstances which bear upon the risk of nonpayment. Each Borrower waives
any right it may have to require the Bank to disclose to such Borrower any
information which the Bank may now or hereafter acquire concerning the
financial condition of the other Borrower(s).
(e) Each Borrower waives all rights to notices of default or nonperformance by
any other Borrower under this Agreement. Each Borrower further waives all
rights to notices of the existence or the creation of new indebtedness by
any other Borrower.
(f) The Borrowers represent and warrant to the Bank that it will derive
benefit, directly and indirectly, from the collective administration and
availability of credit under this Agreement. The Borrowers agree that the
Bank will not be required to inquire as to the disposition by any Borrower
of funds disbursed in accordance with the terms of this Agreement.
(g) Each Borrower waives any right of subrogation, reimbursement,
indemnification and contribution (contractual, statutory or otherwise),
including without limitation, any claim or right of subrogation under the
Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute, which
such Borrower may now or hereafter have against any other Borrower with
respect to the indebtedness incurred under this Agreement. Each Borrower
waives any right to enforce any remedy which the Bank now has or may
hereafter have against any other Borrower, and waives any benefit of, and
any right to participate in, any security now or hereafter held by the
Bank.
11.9 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank and
the Borrowers concerning this credit;
(b) replace any prior oral or written agreements between the Bank and the
Borrowers concerning this credit; and
(c) are intended by the Bank and the Borrowers as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
11.10 Exchange of Information. The Borrowers agree that the Bank may exchange
financial information about any Borrower with BankAmerica Corporation affiliates
and other related entities.
11.11 Disposition of Schedules, Reports, Etc. Delivered by Borrower. The Bank
will not be obligated to return any schedules, invoices, statements, budgets,
forecasts, reports or other papers delivered by the Borrowers. The Bank will
destroy or otherwise dispose of such materials at such time as the Bank, in its
discretion, deems appropriate.
11.12 Returned Merchandise. Until the Bank exercises its rights to collect
the accounts receivable as provided under any security agreement required under
this Agreement, the Borrowers may continue its present policies for returned
merchandise and adjustments. Credit adjustments with respect to returned
merchandise shall be made immediately upon receipt of the merchandise by the
Borrowers or upon such other disposition of the merchandise by the debtor in
accordance with the Borrowers' instructions. If a credit adjustment is made
with respect to any Acceptable Receivable, the amount of such adjustment shall
no longer be included in the amount of such Acceptable Receivable in computing
the Borrowing Base.
11.13 Verification of Receivables. The Bank may at any time, either orally or
in writing, request confirmation from any debtor of the current amount and
status of the accounts receivable upon which such debtor is obligated.
11.14 Indemnification. The Borrowers agree to indemnify the Bank against, and
hold the Bank harmless from, all claims, actions, losses, costs and expenses
(including attorneys' fees and allocated costs for in-house legal services)
incurred by the Bank and arising from any contention whether well-founded or
otherwise, that there has
16
<PAGE>
been a failure to comply with any law regulating the Borrowers' sales or leases
to or performance of services for debtors obligated upon the Borrowers' accounts
receivable and disclosures in connection therewith. This indemnity will survive
repayment of the Borrowers' obligations to the Bank and termination of this
Agreement.
11.15 Notices. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrowers may specify from time to time in writing.
11.16 Headings. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
11.17 Counterparts. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
11.18 Prior Agreement Superseded. This Agreement supersedes the Business Loan
Agreement (Receivables and Inventory) entered into as of May 1, 1996, between
the Bank and the Borrowers, as such agreement has been amended from time to time
prior to the date hereof, and any credit outstanding thereunder shall be deemed
to be outstanding under this Agreement.
17
<PAGE>
This Agreement is executed as of the date stated at the top of the first page.
<TABLE>
<S> <C>
BANK OF AMERICA NEVADA AGRIBIOTECH, INC., a Nevada corporation
By: /s/ Bill Paredes By: /s/ John C. Francis
---------------- -------------------
Bill Paredes, Vice President John C. Francis, Vice President
SCOTT SEED COMPANY, a Nevada corporation
By: /s/ John C. Francis
-------------------
Address where notices to the Bank John C. Francis, Vice President
are to be sent:
SEED RESOURCE, INC., a Nevada corporation
Commercial Banking Division - South #2006
300 South Fourth Street, Second Floor By: /s/ John C. Francis
Las Vegas, Nevada 89101 -------------------
John C. Francis, Secretary
SEED MART, INC., a Nevada corporation
By: /s/ John C. Francis
-------------------
John C. Francis, Secretary
HALSEY SEED COMPANY, a Nevada corporation
By: /s/ John C. Francis
-------------------
John C. Francis, Secretary
ARNOLD-THOMAS SEED SERVICE, INC., a Nevada corporation
By: /s/ John C. Francis
-------------------
John C. Francis, Secretary
CLARK SEEDS, INC., an Idaho corporation
By: /s/ John C. Francis
-------------------
John C. Francis, Secretary/Treasurer
GERMAIN'S SEEDS, INC., a Nevada corporation
By: /s/ John C. Francis
--------------------
John C. Francis, Secretary
W-L RESEARCH, INC., a Nevada corporation
By: /s/ John C. Francis
-------------------
John C. Francis, Secretary
Address where notices to the Borrower
are to be sent:
Quail Park West
2700 Sunset Road, Suite 40
Las Vegas, Nevada 89120
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,931,598
<SECURITIES> 0
<RECEIVABLES> 8,705,207
<ALLOWANCES> 475,272
<INVENTORY> 18,037,631
<CURRENT-ASSETS> 36,317,083
<PP&E> 12,820,970
<DEPRECIATION> 701,342
<TOTAL-ASSETS> 52,291,878
<CURRENT-LIABILITIES> 29,841,454
<BONDS> 1,874,927
0
13
<COMMON> 10,850
<OTHER-SE> 21,160,597
<TOTAL-LIABILITY-AND-EQUITY> 52,291,878
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</TABLE>
