<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1998
-------------
or
[ ] TRANSITION REPORT PURSUANT OF SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ---------------------
Commission File Number: 0 - 20242
------------------------------------------------------
CENTRAL GARDEN & PET COMPANY
- ------------------------------------------------------------------------------
Delaware 68-0275553
- ------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3697 Mt. Diablo Blvd., Suite 310, Lafayette, California 94549
- ------------------------------------------------------------------------------
(Address of principle executive offices)
- ------------------------------------------------------------------------------
(510) 283-4573
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding as of June 27, 1998 29,641,232
Class B Stock Outstanding as of June 27, 1998 1,662,967
<PAGE>
CENTRAL GARDEN & PET COMPANY FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
-------------------------------
Item
- ----
1. Financial Statements
Condensed Consolidated Balance Sheets
September 27, 1997 and June 27, 1998
Consolidated Statements of Cash Flows
Nine months ended June 28, 1997 and June 27, 1998
Consolidated Statements of Income
Three and Nine months ended
June 28, 1997 and June 27, 1998
Notes to Consolidated Financial Statements
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
---------------------------
1. Legal Proceedings
2. Changes in Securities and Use of Proceeds
3. Defaults Upon Senior Securities
4. Submission of Matter to a Vote of Securities Holders
5. Other Information
6. Exhibits and Reports on 8-K
Exhibit Index
<PAGE>
CENTRAL GARDEN & PET COMPANY
---------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 27, June 27,
1997 1998
------------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents $ 100,125 $ 18,578
Accounts receivable (less allowance for doubtful
accounts of $5,204 and $6,692) 85,028 206,954
Inventories 218,796 277,245
Prepaid expenses and other assets 10,470 17,918
--------- ---------
Total current assets 414,419 520,695
Land, Buildings, Improvements and Equipment - Net 22,688 81,185
Goodwill 113,018 345,210
Other Assets 8,918 30,773
--------- ---------
Total $ 559,043 $ 977,863
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 72 $ 31,837
Accounts payable 136,220 158,260
Accrued expenses 24,201 57,921
Current portion of long-term debt 0 667
--------- ---------
Total current liabilities 160,493 248,685
Long-Term Debt 115,200 129,600
Deferred Income Taxes and Other Long-Term
Obligations 1,543 15,986
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.01 par value; 1,000 shares authorized, 100 shares
issued and oustanding in 1997; 1,000,000 authorized,
100 issued and none outstanding in 1998 -- --
Class B stock, $.01 par value: 3,000,000 shares authorized;
1,663,167 shares outstanding in 1997 and 1,662,967
outstanding in 1998 16 16
Common stock, $.01 par value: 40,000,000 shares authorized,
19,143,325 shares issued and 19,117,325 outstanding in 1997;
80,000,000 shares authorized, 29,667,232 issued and
29,641,232 outstanding in 1998 191 298
Additional paid-in capital 245,783 516,629
Retained earnings 36,291 67,070
Treasury Stock (364) (364)
Restricted stock deferred compensation (110) (57)
--------- ---------
Total shareholders' equity 281,807 583,592
--------- ---------
Total $ 559,043 $ 977,863
========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
CENTRAL GARDEN & PET COMPANY
---------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 28, June 27,
1997 1998
--------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 15,038 $ 30,779
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 3,621 10,329
Change in assets and liabilities:
Receivables (56,807) (62,182)
Inventories (20,434) 35,463
Prepaid expenses and other assets (3,738) (6,024)
Accounts payable 52,678 (26,751)
Accrued expenses 8,598 12,525
--------- ----------
Net cash used in operating activities (1,044) (5,861)
Cash Flows From Investing Activities:
Additions to land, buildings, improvements and equipment (3,011) (12,796)
Payments to acquire companies, net of cash acquired (95,814) (218,613)
--------- ----------
Net cash used in investing activities (98,825) (231,409)
Cash Flows From Financing Activities:
Repayments of notes payable - net 95 (40,377)
Repayments of long-term debt (12,062) (6,619)
Proceeds from issuance of long-term debt 111,227 0
Proceeds from issuance of stock - net 674 202,719
--------- ----------
Net cash provided by financing activities 99,934 155,723
Net Increase (Decrease) in Cash 65 (81,547)
Cash at Beginning of Period 1,272 100,125
--------- ----------
Cash at End of Period $ 1,337 $ 18,578
========= ==========
Supplemental Information:
Cash paid for interest $ 4,226 $ 8,369
Cash paid for income taxes 5,748 13,209
Assets (excluding cash) acquired through purchase of companies 69,780 220,217
Liabilities assumed through purchase of companies 35,765 165,840
</TABLE>
See notes to consolidated financial statements
<PAGE>
CENTRAL GARDEN & PET COMPANY
--------------------
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
June 28, June 27, June 28, June 27,
1997 1998 1997 1998
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 656,887 $ 997,166 $ 320,402 $ 502,183
Cost of Goods Sold and Occupancy 551,203 783,678 265,888 397,815
--------- --------- ---------- ---------
Gross profit 105,684 213,488 54,514 104,368
Selling, General and
Administrative Expenses 74,739 155,161 31,895 69,076
--------- --------- ---------- ---------
Income from operations 30,945 58,327 22,619 35,292
Interest Expense - Net (5,012) (5,256) (2,265) (2,633)
--------- --------- ---------- ---------
Income before income taxes 25,933 53,071 20,354 32,659
Income Taxes 10,895 22,292 8,547 13,720
--------- --------- ---------- ---------
Net Income $ 15,038 $ 30,779 $ 11,807 $ 18,939
========= ========= ========== =========
Net Income per Common
Share
Basic $ 1.01 $ 1.12 $ 0.78 $ 0.61
========= ========= ========== =========
Diluted $ 0.94 $ 1.06 $ 0.65 $ 0.56
========= ========= ========== =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
CENTRAL GARDEN & PET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months and Nine Months Ended June 27, 1998
(Unaudited)
1. Basis of Presentation
---------------------
The condensed consolidated balance sheet as of June 27, 1998, the consolidated
statements of income for both the three months and nine months ended June 27,
1998 and June 28, 1997 and consolidated statements of cash flows for the nine
months ended June 27, 1998 and June 28, 1997 have been prepared by the Company,
without audit. The condensed consolidated balance sheet as of September 27,
1997 has been derived from the audited financial statements of the Company for
the year ended September 27, 1997. In the opinion of management, all
adjustments (which include only normal recurring adjustments) considered
necessary to present fairly the financial position, results of operations and
cash flows of the Company for the periods mentioned above, have been made.
Due to the seasonal nature of the Company's business, the results of
operations for the three months and nine months ended June 27, 1998 are not
indicative of the operating results that may be expected for the year ending
September 26, 1998.
It is suggested that these interim financial statements be read in
conjunction with the annual audited financial statements, accounting policies
and financial notes thereto, included in the Company's 1997 Annual Report on
Form 10-K which has previously been filed with the Securities and Exchange
Commission.
<PAGE>
2. Current Year Acquisitions
-------------------------
The following table summarizes on a pro forma basis the combined results of
operations of the Company as if the Kaytee Products, TFH Publications and
Pennington Seed, Inc. acquisitions made during the first six months of 1998 had
occurred on September 29, 1996. The pro forma results of operations also
reflect pro forma adjustments for cash paid and stock issued to facilitate the
acquisitions and for the amortization of goodwill. Although this pro forma
combined information includes the results of operations of the acquisitions, it
does not necessarily reflect the results of operations that would have occurred
had the companies been managed by the Company prior to their acquisitions.
<TABLE>
<CAPTION>
Nine Months Ended
June 28, June 27,
1997 1998
--------- ----------
<S> <C> <C>
(In thousands, except
per share amounts)
Net Sales $959,125 $1,097,540
Gross profit 201,815 243,778
Income from operations 54,871 57,447
Income before income taxes 34,272 50,248
Net Income 20,098 29,137
Net income per Common
Share Outstanding:
Basic $ 1.18 $ 1.03
Diluted $ 1.08 $ .98
</TABLE>
<PAGE>
3. Earnings Per Share
------------------
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share" in the first quarter of the current fiscal year. All
per share amounts have been restated in accordance with the provisions of SFAS
No. 128.
The following is a reconciliation of the numerators and denominators of the
basic and diluted per-share computations for net income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 27, 1998 June 27, 1998
Net Per Net Per
Income Shares Share Income Shares Share
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Income $18,939 31,207 $ .61 $30,779 27,559 $ 1.12
Effect of Dilutive Securities
Options to purchase
common stock 505 448
Convertible notes 1,079 4,107 3,236 4,107
Series A Convertible
Preferred stock 97 99
Diluted EPS
Net Income attributed to
Common shareholders $20,018 35,916 $ .56 $34,015 32,213 $ 1.06
<CAPTION>
Three Months Ended Nine Months Ended
June 28, 1997 June 28, 1997
Net Per Net Per
Income Shares Share Income Shares Share
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Income $11,807 15,196 $ .78 $15,038 14,874 $ 1.01
Effect of Dilutive Securities
Options to purchase
common stock 532 492
Convertible notes 1,069 4,107 2,662 3,385
Series A Convertible
Preferred stock 100 100
Diluted EPS
Net Income attributed to
Common shareholders $12,876 19,935 $ .65 $17,700 18,851 $ .94
</TABLE>
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company entered into an agreement, effective October 1, 1995, with Solaris,
its largest supplier, whereby the Company serves as master agent and master
distributor for sales of Solaris products within the United States. The
agreement also provides for the Company to perform a wide range of value added
services including logistics, order processing and fulfillment, inventory
management and merchandising, principally for Solaris' direct sales accounts.
As a result of the Solaris Agreement, a majority of the Company's sales of
Solaris products are now derived from servicing Solaris direct accounts, whereas
historically, a majority of such sales were made by the Company as a traditional
distributor.
A substantial portion of these sales now consist of large shipments to customer
distribution centers. This type of sale is characterized by lower gross margins
as a percent of sales and lower associated operating costs. The collective
impact of these factors has served to substantially increase the Company's sales
of Solaris products, increase gross profit and lower gross margins as a percent
of sales.
The Solaris Agreement, which runs through September 30, 1999, provides for the
Company to be reimbursed for costs incurred in connection with the services
provided to Solaris' direct sales accounts and to receive payments based on the
sales growth of Solaris products. The Company will also share with Solaris in
the economic benefits of certain cost reductions, to the extent realized. As a
result, management believes that the Company's profitability has become more
directly attributable to the success of Solaris than it was in the past.
On June 25, 1998, Monsanto Company announced that Scotts Company had signed a
letter of intent to acquire Monsanto's Solaris business. The parties have
stated that they are working towards closing the transaction within the next few
months. After the transaction is completed, the Company will commence
discussions with Scotts on how the Company and Scotts will work together
subsequent to September 30, 1999. The Company anticipates these discussions
will take several months. The outcome of these discussions could have a
material impact on the Company's future results of operations.
The Company has developed a plan to deal with the year 2000 (Y2K) issue which
covers both systems and vendor/customer issues. The systems portion of the plan
includes a detailed survey of the Company's current systems and associated
upgrades, as well as options relating to the replacement or reprogramming of
current systems to bring all of the Company's systems into compliance. The plan
developed to address vendor and customer issues includes systems integration,
testing and communication strategies. The Company expects that the majority of
the system changes will be complete by early 1999, and that the remaining issues
will be resolved by the summer of 1999. The Company intends to utilize both
internal and external resources to reprogram, replace and test the systems for
Y2K modifications.
The Company does not expect expenditures relating to the Y2K issue to be
material and does not expect costs associated with Y2K to have a significant
impact on the Company's results of operations or financial position. However,
there can be no assurance that the Company will not experience unexpected
difficulties in connection with Y2K or that the systems of other companies on
which the Company's systems rely will be timely converted.
THREE MONTHS ENDED JUNE 27, 1998
COMPARED WITH THREE MONTHS ENDED JUNE 28, 1997
Net sales for the three months ended June 27, 1998 increased by 56.7% or $181.8
million from $320.4 million for the comparable 1997 period. The increase
reflects approximately $141.5 million attributable to newly acquired companies
with the balance related to increased sales of lawn and garden products from
existing operations. The sales increase in lawn and garden products was driven
in part by a late spring which shifted sales into the third quarter.
Gross profit increased by 91.4% or $49.9 million from $54.5 million during the
quarter ended June 28, 1997 to $104.4 million for the quarter ended June 27,
<PAGE>
1998. The increase in gross profit relates principally to the increase in sales
of lawn and garden products offset in part by a decrease in the sales of pet
products coupled with the increased sales of newly acquired businesses. Gross
profit as a percentage of net sales increased from 17.0% for the three months
ended June 28, 1997 to 20.8% for the three months ended June 27, 1998. The
increase in the gross margin percentage was attributable to a significantly
greater proportion of branded product sales to total sales during the current
quarter compared with the 1997 quarter. Proprietary branded products generally
produce a significantly higher gross profit margin percentage than does garden
and pet distribution.
Selling, general and administrative expenses increased during the quarter ended
June 27, 1998 by $37.2 million from $31.9 million for the similar 1997 period.
As a percentage of net sales, these expenses increased from 10.0% during the
quarter ended June 28, 1997 to 13.8% for the comparable 1998 period. Of the
$37.2 million increase in these expenses, approximately $6.6 million relates to
(1) the increase in sales of lawn and garden products; (2) costs associated with
the consolidation of certain pet facilities; and (3) increased amortization of
goodwill related to the newly acquired businesses. The balance of the increase
is attributable to the newly acquired operations. The increase in selling,
general and administrative expenses as a percentage of net sales is due
principally to the recent acquisitions of branded product companies which
typically generate higher levels of operating expenses as a percentage of their
sales than is the case with garden and pet distribution.
Net interest expense for the quarter ended June 27, 1998 increased by $0.3
million from $2.3 million for the comparable 1997 period. The increase is
related to the newly acquired companies offset in part by an increase in
interest income generated from proceeds received from the Company's common stock
offerings completed in December 1997 and January 1998 and certain supplier
advances. Average short-term borrowings for the three months ended June 27,
1998 were $69.6 million compared with $9.2 million for the same 1997 period.
Average interest rates on short-term borrowings were 7.8% and 7.3%,
respectively.
<PAGE>
NINE MONTHS ENDED JUNE 27, 1998
COMPARED WITH NINE MONTHS ENDED JUNE 28, 1997
Net sales for the nine months ended June 27, 1998 increased by 51.8% or $340.3
million from $656.9 million for the comparable 1997 period. Of the sales
increase, approximately $303.8 million was attributable to newly acquired
companies and approximately $52.0 million to increased sales of lawn and garden
products offset in part by a decrease of $15.5 million principally related to
sales of pet supplies. Net sales of pet supplies have declined principally due
to the loss of certain large retail customers in the Northeast and California
markets due to their being acquired by a major pet chain and to a lesser extent
the use of proprietary distribution centers by some retailers.
Gross profit increased by 102.0% or $107.8 million from $105.7 million during
the nine months ended June 28, 1997 to $213.5 million for the comparable 1998
period. The increase in gross profit is largely due to the newly acquired
businesses. Gross profit as a percentage of net sales increased from 16.1% in
the nine months ended June 28, 1997 to 21.4% for the similar 1998 period. While
both garden and pet products experienced modest increases in their margin
percentages during the current nine month period, the overall increase in gross
margin as a percentage of sales was principally related to the newly acquired
branded product businesses.
For the nine months ended June 27, 1998, selling, general and administrative
expenses increased by $80.5 million from $74.7 million for the comparable 1997
period. As a percentage of net sales, these expenses increased from 11.4%
during the nine months ended June 28, 1997 to 15.6% for the nine months ended
June 27, 1998. Of the $80.5 million increase, approximately $70.5 million is
related to the newly acquired businesses with the balance attributable to
increased amortization of goodwill and the increase in sales related to existing
operations. The increase in selling, general and administrative expenses as a
percentage of net sales is principally related to the newly acquired branded
product companies.
Net interest expense for the nine months ended June 27, 1998 increased by $0.3
million from $5.0 million for the comparable 1997 period. The increase reflects
interest related to newly acquired companies coupled with interest on the
Company's $115.0 million 6% subordinated notes outstanding for the entire nine
months of 1998 offset in part by interest income resulting from the proceeds
received from the Company's common stock offerings completed in August and
December 1997, and interest income related to advances to suppliers. Average
short-term borrowings for the nine months ended June 27, 1998 were $49.8 million
compared with $5.7 million for the similar 1997 period. Average interest rates
on short-term borrowings were 7.5% and 7.8%, respectively.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: The statements contained in this report which are not historical facts
are forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by forward-looking statements, including the possibility of
unanticipated costs and difficulties related to the integration of acquisitions,
the Company's dependence on sales of Solaris products, changes resulting from
the possible sale of the Solaris business by Monsanto, the Company's dependence
on sales to Wal*Mart, Home Depot and other large retailers, the impact in the
<PAGE>
Company's results of operations of seasonality and weather, and other risks
disclosed in the Company's SEC filings.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth through a combination of bank borrowings,
supplier credit, internally generated funds and sales of securities to the
public. The Company received net proceeds (after offering expenses) of
approximately $431.0 million from its five public offerings of common stock in
July 1993, November 1995, July 1996, August 1997 and January 1998, and in
November 1996 the Company completed the sale of $115 million 6% subordinated
convertible notes generating approximately $112 million net of underwriting
commissions.
The Company's business is highly seasonal and its working capital requirements
and capital resources track closely to this seasonal pattern. During the first
fiscal quarter accounts receivable reach their lowest level while inventory,
accounts payable and short-term borrowings begin to increase. Since the
Company's short-term credit line fluctuates based upon a specified asset
borrowing base, this quarter is typically the period when the asset borrowing
base is at its lowest and consequently the Company's ability to borrow is at its
lowest. During the second quarter, receivables, accounts payable and short-term
borrowings begin to increase, reflecting the build-up of inventory and related
payables in anticipation of the peak selling season. During the third quarter,
principally due to the Solaris Agreement, inventory levels remain relatively
constant while accounts receivable peak and short-term borrowings start to
decline as cash collections are received during the peak selling season. During
the fourth quarter, inventory levels are at their lowest, and accounts
receivable and payables are substantially reduced through conversion of
receivables to cash.
For the nine months ended June 27, 1998, the Company used cash in operating
activities of $5.9 million reflecting the normal cycle of receivables build up,
$56 million of early payments for purchases of inventory under various
promotional programs offered by certain suppliers offset by increased lawn and
garden sales in the third quarter which reduced inventory levels. Net cash used
in investing activities of $231.4 million resulted from acquisitions and
equity investments during the first and second fiscal quarters and the
acquisition of office and warehouse equipment. Cash generated from financing
activities of $155.7 million consisted principally of net proceeds from the sale
of 8,050,000 shares of the Company's stock in December 1997 and January 1998,
less repayment of $6.6 million of long-term debt and approximately $40.4 of
short-term debt.
The Company has a $100.0 million line of credit with Congress Financial
Corporation (Western). The available amount under the line of credit fluctuates
based upon a specific asset-borrowing base. The line of credit, bears interest
at a rate equal to the prime rate per annum, and is secured by substantially all
of the Company's assets. At June 27, 1998, the Company had no outstanding
borrowings and had $100.0 million of available borrowing capacity under this
line. The Company's line of credit contains certain financial covenants such as
minimum net worth and minimum working capital requirements. The line also
requires the lender's prior written consent to any acquisition of a business. In
connection with the acquisition of three companies in fiscal 1998, the Company
assumed combined lines of credit aggregating $86.7 million, of which $55.7
million was available at June 27, 1998. Interest rates related to these lines
averaged approximately 7.8% at June 27, 1998.
The Company believes that cash flow from operations, funds available under its
lines of credit, proceeds from its sale of convertible notes, common stock sales
and arrangements with suppliers will be adequate to fund its presently
anticipated working capital requirements for the foreseeable future.
<PAGE>
The Company anticipates that its capital expenditures will not exceed $7.0
million for the next 12 months.
As part of its growth strategy, the Company has engaged in acquisition
discussions with a number of companies in the past and it anticipates it will
continue to evaluate potential acquisition candidates. If one or more potential
acquisition opportunities, including those that would be material, become
available in the near future, the Company may require additional external
capital. In addition, such acquisitions would subject the Company to the
general risks associated with acquiring companies, particularly if the
acquisitions are relatively large.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
<PAGE>
CENTRAL GARDEN & PET COMPANY FORM 10-Q
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not Applicable
ITEM 3. Defaults Upon Senior Securities
Not Applicable
ITEM 4. Submission of Matter to a Vote of Securities Holders
Not Applicable
ITEM 5. Other Information
In accordance with Rule 14a-4(c)(1) promulgated by the
Securities and Exchange Commission, management proxies
intend to use their discretionary voting authority with
respect to any shareholder proposal raised at the Company's
annual meeting as to which the proponent fails to notify
the Company on or before December 9, 1998.
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following reports on Form 8-K were filed during the
quarter ended June 27, 1998.
(1) On May 6, 1998, the Company filed a report on Form
8-K/A amending Item 7 of the Form 8-K which was
filed on March 11, 1998, to provide the required
financial statements related to the acquisition of
Pennington Seed, Inc.
(b) Exhibits
Ex 10 Loan and Security Agreement by and among
Congress Financial Corporation and Central
Garden and Pet Company.
Ex 27 Financial Data Schedule.
<PAGE>
CENTRAL GARDEN & PET COMPANY FORM 10-Q
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunder
duly authorized.
CENTRAL GARDEN & PET COMPANY
--------------------------------------------
Registrant
Dated: August 11, 1998
/s/ William E. Brown
--------------------------------------------
William E. Brown, Chairman of the Board and
Chief Executive Officer
/ s / Robert B. Jones
--------------------------------------------
Robert B. Jones, Vice President-Finance and
Chief Financial Officer
<PAGE>
Loan and Security Agreement
by and among
CONGRESS FINANCIAL CORPORATION (WESTERN)
as Lender
and
CENTRAL GARDEN & PET COMPANY
MATTHEWS REDWOOD AND NURSERY SUPPLY, INC.
FOUR PAWS PRODUCTS, LTD.
EZELL NURSERY SUPPLY, INC.,
as Borrowers
Dated: December 17, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
- ----------
<C> <S> <C>
SECTION 1. DEFINITIONS.................................................................. 1
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.............................................................. 16
2.2 Letter of Credit Accommodations.............................................. 18
2.3 Availability Reserves........................................................ 21
2.4 Restatement.................................................................. 21
2.5 Reduction of Maximum Credit.................................................. 22
SECTION 3. INTEREST AND FEES
3.1 Interest..................................................................... 23
3.2 Special Facility Fee......................................................... 25
3.3 Modification Fee............................................................. 25
3.4 Servicing Fee................................................................ 25
3.5 Unused Line Fee.............................................................. 25
3.6 Changes in Laws and Increased Costs of Loans................................. 25
SECTION 4. CONDITIONS PRECEDENT......................................................... 26
4.1 Conditions Precedent to Initial Loans and
Letter of Credit Accommodations............................................. 26
4.2 Conditions Precedent to All Loans and Letter
of Credit Accommodations.................................................... 29
SECTION 5. GRANT OF SECURITY INTEREST
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Accounts..................................................... 32
6.2 Statements................................................................... 32
6.3 Collection of Accounts....................................................... 32
6.4 Payments..................................................................... 34
6.5 Authorization to Make Loans.................................................. 35
6.6 Use of Proceeds.............................................................. 36
6.7 Appointment of CG&Pet as Agent for Borrowers................................. 36
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting......................................................... 36
7.2 Accounts Covenants........................................................... 37
7.3 Inventory Covenants.......................................................... 39
7.4 Additional Covenants Regarding Solaris
Products Inventory and Accounts............................................. 40
7.5 Equipment Covenants.......................................................... 41
7.6 Power of Attorney............................................................ 41
7.7 Right to Cure................................................................ 42
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
- ----------
<C> <S> <C>
7.8 Access to Premises........................................................... 42
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1 Corporate Existence, Power and Authority; Subsidiaries....................... 43
8.2 Financial Statements; No Material Adverse Change............................. 43
8.3 Chief Executive Office; Collateral Locations................................. 44
8.4 Priority of Liens; Title to Properties....................................... 44
8.5 Tax Returns.................................................................. 44
8.6 Litigation................................................................... 44
8.7 Compliance with Other Agreements and Applicable Laws......................... 45
8.8 Environmental Compliance..................................................... 45
8.9 Employee Benefits............................................................ 46
8.10 Bank Accounts................................................................ 47
8.11 Accuracy and Completeness of Information..................................... 47
8.12 Interrelated Business........................................................ 47
8.13 Capitalization............................................................... 47
8.15 Survival of Warranties; Cumulative........................................... 48
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence..................................................... 49
9.2 New Collateral Locations..................................................... 49
9.4 Payment of Taxes and Claims.................................................. 51
9.5 Insurance.................................................................... 51
9.6 Financial Statements and Other Information................................... 52
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc...................... 53
9.8 Encumbrances................................................................. 53
9.9 Indebtedness................................................................. 54
9.10 Loans, Investments, Guarantees, Etc.......................................... 55
9.11 Dividends and Redemptions.................................................... 56
9.12 Transactions with Affiliates................................................. 56
9.13 Additional Bank Accounts..................................................... 56
9.14 Compliance with ERISA........................................................ 57
9.15 Consolidated Net Worth....................................................... 57
9.16 Costs and Expenses........................................................... 57
9.17 Further Assurances........................................................... 58
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default............................................................ 58
10.2 Remedies..................................................................... 61
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver........ 62
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
- ----------
<C> <S> <C>
11.2 Waiver of Notices........................................................... 64
11.3 Amendments and Waivers...................................................... 64
11.4 Waiver of Counterclaims..................................................... 64
11.5 Indemnification............................................................. 64
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term........................................................................ 65
12.2 Notices..................................................................... 67
12.3 Partial Invalidity.......................................................... 67
12.4 Successors.................................................................. 67
12.5 Entire Agreement............................................................ 67
</TABLE>
(iii)
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Information Certificate
Schedule 7.4(d) Distributor/Agents
Schedule 7.4(e) Non-Agent Distributors
Schedule 8.4 Existing Liens
Schedule 8.8 Environmental Matters
Schedule 8.10 Bank Accounts
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement dated as of December 17, 1997 is entered
into by and among CONGRESS FINANCIAL CORPORATION (WESTERN), a California
corporation ("Lender"), CENTRAL GARDEN & PET COMPANY, a Delaware corporation
("CG&Pet"), MATTHEWS REDWOOD AND NURSERY SUPPLY, INC., a California corporation
("Matthews"), FOUR PAWS PRODUCTS, LTD., a New York corporation ("Four Paws"),
and EZELL NURSERY SUPPLY, INC., a California corporation ("Ezell"; and together
with CG&Pet, Matthews, and Four Paws, each a "Borrower" and, individually and
collectively, "Borrowers").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Lender, CG&Pet and Matthews are presently parties to certain
financing arrangements pursuant to an Accounts Financing Agreement [Security
Agreement] dated as of June 12, 1992, as amended (the "Accounts Agreement") and
various supplements thereto, as amended (the "Accounts Agreement", together with
all supplements thereto and all other "Financing Agreements" as referred to
therein, collectively, the "Existing Financing Agreements"; and
WHEREAS, Lender and Borrowers wish to amend and restate the Existing
Financing Agreements so as to add Four Paws and Ezell as Borrowers under the
financing arrangements with Lender and provide for an increase in the "Maximum
Credit" and other modifications, all on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
-----------
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural, unless the context
otherwise requires. All references to Borrowers shall, unless the context
otherwise expressly provides, mean each Borrower and any one or more or all
Borrowers, individually and collectively, jointly and severally. All references
to Borrowers and Lender pursuant to the definitions set forth in the recitals
hereto, or to any other person herein, shall include their respective successors
and assigns. The words "hereof", "herein",
<PAGE>
"hereunder", "this Agreement" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Lender, if such Event of Default is capable of being
cured as determined by Lender. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meaning customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:
1.1 "Accounts" shall mean, as to each Borrower, all present and future
rights of such Borrower to payment for goods sold or leased or for services
rendered, which are not evidenced by instruments or chattel paper, and whether
or not earned by performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking authority for determining the
reserve requirement which is or would be applicable to deposits of United States
dollars in a non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with
the proceeds of such deposit, whether or not the Reference Bank actually holds
or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage.
1.3 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letter of Credit Accommodations which
would otherwise be available to Borrowers under the lending formula(s) provided
for herein: (a) to reflect events, conditions, contingencies or risks which, as
determined by Lender in good faith, do or may affect either (i) the Collateral
or any other property which is security for the Obligations or its value, (ii)
the assets, business or prospects of any Borrower or any Obligor or (iii) the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority
-2-
<PAGE>
thereof) or (b) to reflect Lender's good faith belief that any collateral report
or financial information furnished by or on behalf of any Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect or (c) to reflect outstanding Letter of Credit
Accommodations as provided in Section 2.2 hereof or (d) in respect of any state
of facts which Lender determines in good faith constitutes an Event of Default
or may, with notice or passage of time or both, constitute an Event of Default.
1.4 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.5 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of California or the Commonwealth of Pennsylvania, and a
day on which the Reference Bank and Lender are open for the transaction of
business, except that if a determination of a Business Day shall relate to any
Eurodollar Rate Loans, the term Business Day shall also exclude any day on which
banks are closed for dealings in dollar deposits in the London interbank market
or other applicable Eurodollar Rate market.
1.6 "Capital Stock" shall mean any and all shares, interests,
participations, or other equivalents (however designated) of corporate stock or
partnership interests and any options or warrants with respect to any of the
foregoing.
1.7 "Cash Dominion Certification" and "Cash Dominion Conditions" shall have
the meanings set forth in Section 6.3(a) hereof.
1.8 "CG&Pet" shall mean Central Garden & Pet Company, a Delaware
corporation, and its successors and assign.
1.9 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.10 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.11 "Consolidated Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to: the difference between: (i) the aggregate net book value of all
assets of such Person and its subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out
-3-
<PAGE>
basis, after deducting from such book values all appropriate reserves in
accordance with GAAP (including all reserves for doubtful receivables,
obsolescence, depreciation and amortization) and (ii) the aggregate amount of
the indebtedness and other liabilities of such Person and its subsidiaries
(including tax and other proper accruals).
1.12 "Distributor/Agents" shall mean independent third parties appointed
by CG&Pet who (i) purchase Solaris Products from CG&Pet and serve in the
capacity as subagent for CG&Pet in connection with fulfillment of distribution
services to Solaris relating to sales of such Solaris Products to Solaris Direct
Customers, and who also may (ii) purchase Solaris Products from CG&Pet for
distribution and sale for their own account to their own customers, which shall
not include any Solaris Direct Customers.
1.13 "Eligible Accounts" shall mean, as to each Borrower, Accounts created
by such Borrower which are and continue to be acceptable to Lender based on the
criteria set forth below. In general, Accounts of a Borrower shall be Eligible
Accounts if:
(a) such Accounts arise from the actual and bona fide sale and delivery
---- ----
of goods by such Borrower or rendition of services by such Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than ninety (90) days after the
date of the original invoice for them (or more than one hundred fifty (150) days
after the date of the original invoice for them in the case of Accounts having
seasonal dating terms with respect to which extended eligibility has been
approved by Lender), or more than sixty (60) days past due;
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consign ment, guaranteed
sale, sale and return, sale on approval, or other terms under which payment by
the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to
such Accounts is located in the United States of America, or, at Lender's
option, if either: (i) the account debtor has delivered to such Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender and payable only in the United States of America and in U.S. dollars,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's
-4-
<PAGE>
agent and the issuer thereof notified of the assignment of the proceeds of such
letter of credit to Lender, or (ii) such Account is subject to credit insurance
payable to Lender issued by an insurer and on terms and in an amount acceptable
to Lender, or (iii) such Account is otherwise acceptable in all respects to
Lender (subject to such lending formula with respect thereto as Lender may
determine);
(f) such Accounts do not consist of progress billings, bill and hold
invoices or retainage invoices, except as to bill and hold invoices, if Lender
shall have received an agreement in writing from the account debtor, in form and
substance satisfactory to Lender, confirming the unconditional obligation of the
account debtor to take the goods related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has not asserted a
counterclaim, defense or dispute and does not have, and does not engage in
transactions which may give rise to, any right of setoff against such Accounts
(but the portion of the Accounts of such account debtor in excess of the
aggregate amount at any time and from time to time owed by all Borrowers to such
account debtor or claimed owed by such account debtor may be deemed Eligible
Accounts);
(h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and perfected
security interest of Lender and any goods giving rise thereto are not, and were
not at the time of the sale thereof, subject to any liens except those permitted
in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent of
or affiliated with any Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
-5-
<PAGE>
(l) there are no proceedings or actions which are threatened or pending
against the account debtors with respect to such Accounts which might result in
any material adverse change in any such account debtor's financial condition;
(m) such Accounts of a single account debtor or its affiliates owed to
any or all Borrowers do not constitute more than twenty-five (25%) percent (or
forty-five (45%) percent in the case of Wal-Mart Stores Inc.) of all otherwise
Eligible Accounts (but the portion of the Accounts not in excess of such
percentage may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has Accounts
unpaid more than ninety (90) days after the date of the original invoice for
them (or more than one hundred fifty (150) days after the date of the original
invoice for them, in the case of Accounts having seasonal dating terms with
respect to which extended eligibility has been approved by Lender), or are more
than sixty (60) days past due, which constitute more than fifty (50%) percent of
the total Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose aggregate
indebtedness to Borrowers does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time (but the portion of
the Accounts not in excess of such credit limit may be deemed Eligible
Accounts);
(p) such Accounts are not owed by Distributor/Agents or otherwise
excluded from Eligible Accounts under Section 2.1(c) hereof; and
(q) such Accounts are owed by account debtors deemed creditworthy at all
times by Lender, as determined by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.14 "Eligible Inventory" shall mean, as to each Borrower, Inventory
consisting of finished goods in the categories of lawn and garden and pet
products purchased and held for resale in the ordinary course of the business of
such Borrower which are acceptable to Lender based on the criteria set forth
below. In general, Eligible Inventory shall not include (a) raw materials,
work-in-process or any goods manufactured by or for Borrowers; (b) components
which are not part of finished goods; (c) spare parts for equipment; (d)
packaging and shipping materials; (e) supplies used or consumed in such
Borrower's business; (f) Inventory at premises other than those owned and
controlled by such Borrower, except if Lender shall have received an agreement
in writing from the person in possession of such Inventory and/or
-6-
<PAGE>
the owner or operator of such premises in form and substance satisfactory to
Lender acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(g) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (h) bill and hold
goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory which
is not subject to the first priority, valid and perfected security interest of
Lender; (k) damaged, out of date and/or defective Inventory; and (l) Inventory
purchased or sold on consignment. General criteria for Eligible Inventory may
be established and revised from time to time by Lender in good faith. Any
Inventory which is not Eligible Inventory shall nevertheless be part of the
Collateral.
1.15 "Environmental Laws" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between any Borrower and any
governmental authority, (1) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (2) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (3) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
1.16 "Equipment" shall mean, as to each Borrower, all of such Borrower's
now owned and hereafter acquired equipment,
-7-
<PAGE>
machinery, computers and computer hardware and software (whether owned or
licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and
property now or hereafter affixed thereto or used in connection therewith, and
substitutions and replacements thereof, wherever located.
1.17 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.18 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.19 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.20 "Eurodollar Rate" shall mean with respect to the Interest Period for
a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by a Borrower and approved by Lender) on
or about 9:00 a.m. (New York City time) two (2) Business Days prior to the
commencement of such Interest Period in amounts substantially equal to the
principal amount of the Eurodollar Rate Loans requested by and available to such
Borrower in accordance with this Agreement, with a maturity of comparable
duration to the Interest Period selected by such Borrower.
1.21 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.22 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of (i) the aggregate amount of
Revolving Loans available to Borrowers on a combined basis at such time based on
the applicable lending formulas under Section 2.1 hereof, as determined by
Lender, and subject to the Inventory Loan Limit as to each Borrower and all
other sublimits and all Availability Reserves from time to time established by
Lender hereunder and (ii) the Maximum Credit, less the face amount of
outstanding Letter of Credit Accommodations, minus (b) the amount of all then
-----
outstanding and unpaid Obligations (other than the face amount of outstanding
Letter of Credit Accommodations).
-8-
<PAGE>
1.23 "Ezell" shall mean Ezell Nursery Supply, Inc., a California
corporation, and its successors and assigns.
1.24 "Existing Financing Agreements" shall have the meaning set forth in
the Recitals hereto.
1.25 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by any
Borrower or any Obligor in connection with this Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.26 "Four Paws" shall mean Four Paws Products, Ltd., a New York
corporation, and its successors and assigns.
1.27 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.15 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.
1.28 "Guarantors" shall mean each Person that at any time guaranties
payment or performance of the Obligations or any portion thereof, and shall
include (i) Mustang Products, Inc., an Ohio corporation, (ii) Cynal Corp., a New
York corporation, A.P.O.F.P., Inc., a Delaware corporation, Pet Life, Inc., a
New York corporation, unless dissolved within sixty (60) days after the date
hereof, and (iii) unless otherwise consented to in writing by Lender, each other
existing and future Subsidiary of CG&Pet that is not a Borrower hereunder.
1.29 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated
-9-
<PAGE>
under any Environmental Law (including any that are or become classified as
hazardous or toxic under any Environmental Law).
1.30 "Information Certificate" shall mean, individually and collectively,
the Information Certificates of Borrowers constituting Exhibit A hereto
containing material information with respect to Borrowers, their business and
assets, provided by or on behalf of Borrowers to Lender in connection with the
preparation of this Agreement and the other Financing Agreements and the
financing arrangements provided for herein.
1.31 "Interest Period" shall mean for any Eurodollar Rate Loan, a period
of approximately one (1), two (2), or three (3) months duration as a Borrower
may elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; provided, that, a Borrower
-------- ----
may not elect an Interest Period which will end after the last day of the then-
current term of this Agreement.
1.32 "Interest Rate" shall mean, as to Prime Rate Loans, the Prime Rate
and, as to Eurodollar Rate Loans, a rate of two (2%) percent per annum in excess
of the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the
Interest Period selected by Borrower as in effect three (3) Business Days after
the date of receipt by Lender of the request of a Borrower for such Eurodollar
Rate Loans in accordance with the terms hereof, whether such rate is higher or
lower than any rate previously quoted to any Borrower); provided, that, the
-------- ----
Interest Rate shall mean the rate of two (2%) percent per annum in excess of the
Prime Rate as to Prime Rate Loans and the rate of four (4%) percent per annum in
excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at Lender's
option, without notice, (a) for the period (i) from and after the date of
termination or non-renewal hereof until Lender has received full and final
payment of all obligations (notwithstanding entry of a judgment against any
Borrower) and (ii) from and after the date of the occurrence of an Event of
Default for so long as such Event of Default is continuing as determined by
Lender, and (b) on the Revolving Loans at any time outstanding in excess of the
amounts available to the applicable Borrowers under Section 2 (whether or not
such excess(es), arise or are made with or without Lender's knowledge or consent
and whether made before or after an Event of Default).
1.33 "Inventory" shall mean, as to each Borrower, all of such Borrower's
now owned and hereafter existing or acquired raw materials, work in process,
finished goods and all other inventory of whatsoever kind or nature, wherever
located.
1.34 "Inventory Loan Limit" shall mean (i) at any time when the Maximum
Credit is $150,000,000, (A) as to CG&Pet, the amount of $100,000,000, less the
amount of Obligations determined by Lender to be outstanding at such time in
respect of Eligible
-10-
<PAGE>
Inventory of the other Borrowers, (B) as to Matthews, the amount of $1,000,000,
(C) as to Four Paws, the amount of $3,000,000, and (D) as to Ezell, the amount
of $5,000,000; and (ii) at all other times (A) as to CG&Pet, the amount of
$65,000,000, less the amount of Obligations determined by Lender to be
outstanding at such time in respect of Eligible Inventory of the other
Borrowers, (B) as to Matthews, the amount of $1,000,000, (C) as to Four Paws,
the amount of $3,000,000, and (D) as to Ezell, the amount of $5,000,000.
1.35 "Kaytee" shall mean Kaytee Products, Incorporated, a Wisconsin
corporation, and its successors and assigns.
1.36 "Kaytee Purchase Agreements" shall mean, individually and
collectively, the Stock Purchase Agreement, dated as of December 10, 1997,
between CG&Pet and the shareholders of Kaytee, together with all bills of sale,
quitclaim deeds, assignment and assumption agreements and such other instruments
of transfer as are referred to therein and all side letters with respect
thereto, and all agreements, documents and instruments executed and/or delivered
in connection therewith, as all of the foregoing now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.37 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of any Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by any Borrower of its obligations to such issuer.
1.38 "Loans" shall mean the Revolving Loans.
1.39 "Madison Warehouse" shall mean the warehouse facilities located at
4300/4400 Planned Industrial Drive, St. Louis, Missouri and 4600 Goodfellow
Boulevard, St. Louis, Missouri, each operated for CG&Pet by Madison Warehouse
Corporation, and the replacement warehouse facility operated by Madison
Warehouse Corporation for CG&Pet and located at 101 Interstate Drive,
Wentzville, Missouri.
1.40 "Matthews" shall mean Matthews Redwood and Nursery Supply, Inc., a
California corporation, and its successors and assigns.
1.41 "Misdirected Items" shall have the meaning set forth in Section
6.3(b) hereof.
1.42 "Maximum Credit" shall mean (i) for the period from the date hereof
through and including December 31, 1998, the amount of $150,000,000, subject to
reduction as provided in
-11-
<PAGE>
Section 2.5 hereof, and, in any event (ii) for the period on and after January
1, 1999, the amount of $100,000,000.
1.43 "Mortgage" shall mean each mortgage, deed of trust, deed to secure
debt or other instrument at any time granting or evidencing a lien upon Real
Property.
1.44 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.45 "Non-Agent Distributors" shall mean independent third parties
appointed by CG&Pet who only purchase Solaris Products from CG&Pet for
distribution and sale for their own account to their own customers, which shall
not include any Solaris Direct Customers.
1.46 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by any or all Borrowers to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to any Borrower under the United States Bankruptcy Code or any
similar statute (including the payment of interest and other amounts which would
accrue and become due but for the commencement of such case, whether or not such
amounts are allowed or allowable in whole or in part in such case), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured, and
however acquired by Lender.
1.47 "Obligor" shall mean any Guarantor or any other guarantor, endorser,
acceptor, surety or other person liable on or with respect to the Obligations or
who is the owner of any property which is security for the Obligations, other
than a Borrower.
1.48 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.49 "Permitted Acquisition" shall mean the purchase by CG&Pet, for
consideration consisting solely of cash or common stock of CG&Pet, from non-
affiliated Persons engaged in the business of wholesale distribution or
manufacturing in the United
-12-
<PAGE>
States of pool, lawn and garden and pet supplies or related businesses, of
either the assets of such Person that are located in the United States which are
used and useful in such business or all of the Capital Stock of such Person;
provided, that, (i) Lender shall receive not less than fifteen (15) days' prior
- -------- ----
written notice of each such proposed acquisition, together with financial and
other information with respect to the assets, liabilities and business to be
acquired, or the assets, liabilities and business of the Person whose Capital
Stock is to be acquired and of its subsidiaries, (ii) Lender shall receive all
documents, instruments and agreements (including all schedules and exhibits) to
be executed and delivered in connection with such acquisition, (iii) no Event of
Default, or event which, with notice or passage of time, or both, would
constitute an Event of Default, shall exist or have occurred and be continuing
at the time of such purchase, or would result therefrom, (iv) CG&Pet shall, at
its expense, execute and deliver, or cause to be duly executed and delivered,
such further agreements, documents and instruments, and do or cause to be done
such further acts as may be necessary or proper to evidence, perfect, maintain
and enforce the security interests of Lender in any newly acquired assets and
future assets of the business so acquired, or, if applicable, of the Person
whose Capital Stock is so acquired and of its Subsidiaries, including, without
limitation, in the case of a Person whose Capital Stock is so acquired and its
Subsidiaries, a first priority pledge in favor of Lender of the Capital Stock of
such Person so acquired and of each Subsidiary of such Person, guaranties, by
such Person and its Subsidiaries, in favor of Lender, of payment and performance
of the Obligations and general security agreements and mortgages upon their
existing and future assets securing such guaranties with a first priority
security interest and lien in favor of Lender, all in form and substance
satisfactory to Lender, and including, without limitation, with respect to all
such acquisitions of assets or Capital Stock, the agreements from third parties
in favor of Lender of the types described in Section 4.1(e) hereof, and (v)
Excess Availability, as determined by Lender, shall be not less than $20,000,000
for the thirty (30) consecutive days immediately prior to and immediately after
giving effect to such acquisition and each payment by CG&Pet of the purchase
price therefor; and provided, further that (1) no Person whose Capital Stock is
-------- -------
so acquired shall become a Borrower hereunder without Lender's prior written
consent, and (2) Lender shall be entitled to conduct such due diligence
concerning the assets, liabilities and business so purchased and, if applicable,
assets, liabilities and business of the Person whose Capital Stock is so
acquired and its Subsidiaries, as Lender shall require before determining
whether to approve any request that any Person whose Capital Stock is so
acquired or any of its Subsidiaries become a Borrower hereunder and/or whether,
and to what extent, the newly acquired assets, or any future assets arising from
the conduct of the businesses so acquired, or, if
-13-
<PAGE>
added as Borrowers, of the Person whose Capital Stock is acquired or its
Subsidiaries, shall be deemed to be Eligible Accounts or Eligible Inventory
under the Financing Agreements, and, if so, the lending formulas and sublimits
applicable thereto.
1.50 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Internal Revenue Code of 1986, as amended), limited liability
company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
1.51 "Prime Rate" shall mean the rate from time to time publicly announced
by CoreStates Bank, N.A., or its successors, at its office in Philadelphia,
Pennsylvania, as its prime rate, whether or not such announced rate is the best
rate available at such bank.
1.52 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.53 "Real Property" shall mean, as to each Borrower, all now owned and
hereafter acquired real property of such Borrower, including leasehold
interests, together with all buildings, structures and other improvements
located thereon and all licenses, easements and appurtenances relating thereto,
wherever located.
1.54 "Real Property Loan" shall have the meaning set forth in Section 5.2
hereof.
1.55 "Records" shall mean, as to each Borrower, all of such Borrower's
present and future books of account of every kind or nature, purchase and sale
agreements, invoices, ledger cards, bills of lading and other shipping evidence,
statements, correspondence, memoranda, credit files and other data relating to
the Collateral or any account debtor, together with the tapes, disks, diskettes
and other data and software storage media and devices, file cabinets or
containers in or on which the foregoing are stored (including any rights of such
Borrower with respect to the foregoing maintained with or by any other person).
1.56 "Reference Bank" shall mean CoreStates Bank, N.A., or such other bank
as Lender may from time to time designate.
1.57 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrowers on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
-14-
<PAGE>
1.58 "Solaris" shall mean The Solaris Group, a business unit of Monsanto
Company, a Delaware corporation, and its successors and assigns.
1.59 "Solaris Direct Customers" shall mean the customers of Solaris listed
on Schedule 1.1A to the Solaris Distributor Agreement, as such Schedule may be
amended by Solaris and CG&Pet from time to time, and any other customer who buys
Solaris Products directly from Solaris and is either invoiced directly by
Solaris or by any person acting as billing agent for Solaris or by any subagent
thereof.
1.60 "Solaris Distributor Agreement" shall mean the Exclusive Agency and
Distributor Agreement, dated July 21, 1995, between Solaris and CG&Pet, pursuant
to which CG&Pet has and may continue to (i) provide certain services to and on
behalf of and as agent for Solaris with respect to sales by Solaris of products
manufactured by Solaris and sold by Solaris to certain Solaris Direct Customers,
and (ii) serve as Solaris' exclusive United States distributor of such products,
exclusive of sales of such products to such Solaris Direct Customers, as the
same now exists or may hereafter be amended, supplemented, extended, renewed,
restated or replaced.
1.61 "Solaris Products" shall mean all products manufactured by or for
Solaris and bearing a Solaris or Solaris-owned trademark, and included in
Solaris' United States product line as of July 21, 1995, together with any new
or replacement products manufactured by or for Solaris and bearing a Solaris or
Solaris-owned trademark, and included in Solaris' United States product line.
1.62 "Subsidiary" or "subsidiary" of a Person shall mean any other Person
as to which more than fifty (50%) percent of the outstanding voting stock or
shares or interests of such other Person shall now or hereafter be owned or
controlled, directly or indirectly by such Person, any Subsidiary of such other
Person, or any Subsidiary of such Subsidiary.
1.63 "T.F.H." shall mean T.F.H. Publications, Inc. a Delaware corporation,
and its successors and assigns.
1.64 "T.F.H. Purchase Agreements" shall mean, individually and
collectively, the Stock Purchase Agreement, dated as of December 5, 1997,
between CG&Pet and the shareholders of T.F.H., together with all bills of sale,
quitclaim deeds, assignment and assumption agreements and such other instruments
of transfer as are referred to therein and all side letters with respect
thereto, and all agreements, documents and instruments executed and/or delivered
in connection therewith, as all of the foregoing now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
-15-
<PAGE>
1.65 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
SECTION 2. CREDIT FACILITIES
-----------------
2.1 Revolving Loans.
---------------
(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to each Borrower from time to time in
amounts requested by such Borrower (or by CG&Pet on behalf of such Borrower), up
to the amount equal to the sum of:
(i) eighty-five (85%) percent of the Net Amount of Eligible
Accounts of such Borrower, plus
----
(ii) the lesser of: (A) the sum of sixty-five (65%) percent of the
Value of Eligible Inventory of such Borrower consisting of finished goods in
the categories of lawn and garden products, plus fifty-five (55%) percent of
the Value of Eligible Inventory of such Borrower consisting of finished
goods in the category of pet products, or (B) the Inventory Loan Limit
applicable to such Borrower, less
----
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less than
five (5) days prior notice to CG&Pet (on behalf of Borrowers), (i) reduce the
lending formula with respect to Eligible Accounts of one or more Borrowers to
the extent that Lender determines in good faith that: (A) the dilution with
respect to the Accounts of such Borrower or Borrowers for any period (based on
the ratio of (1) the aggregate amount of reductions in Accounts other than as a
result of payments in cash to (2) the aggregate amount of total sales) has
increased in any material respect or may be reasonably anticipated to increase
in any material respect above historical levels, or (B) the general
creditworthiness of account debtors of such Borrower or Borrowers has declined
or (ii) reduce the lending formula(s) with respect to Eligible Inventory of one
or more Borrowers to the extent that Lender determines that: (A) the number of
days of the turnover of the Inventory of such Borrower or Borrowers for any
period has changed in any material respect or (B) the liquidation value of the
Eligible Inventory of such Borrower or Borrowers, or any category thereof, has
decreased, or (C) the nature and quality of the Inventory of such Borrower or
Borrowers has deteriorated. In determining whether to reduce the lending
formula(s), Lender may consider events, conditions, contingencies or risks which
are
-16-
<PAGE>
also considered in determining Eligible Accounts, Eligible Inventory or in
establishing Availability Reserves.
(c) Borrowers hereby acknowledge and agree that (i) Accounts arising
from sales, shipments and/or invoicing of Solaris Products by CG&Pet to
Distributor/Agents are not Eligible Accounts for lending purposes,
notwithstanding that such Accounts may relate in whole or in part to quantities
of Solaris Products purchased by a Distributor/Agent for sale to its own
customers rather than fulfillment of sales to Solaris Direct Customers and (ii)
Accounts arising from sales, shipments and/or invoicing of Solaris Products by
CG&Pet to Solaris Direct Customers shall not be Eligible Accounts for lending
purposes irrespective of whether CG&Pet or a Distributor/Agent has purchased or
delivered the Solaris Products giving rise to such Accounts and irrespective of
whether CG&Pet has invoiced the Solaris Direct Customer or Solaris or any
Distributor/Agent in respect of such sales or shipments.
(d) Borrowers hereby acknowledge and agree that (i) only such Solaris
Products owned by CG&Pet as are subject to the first priority security interest
of Lender and that satisfy all other eligibility criteria for Eligible
Inventory, as set forth in or determined from time to time by Lender as provided
herein, shall be deemed Eligible Inventory; (ii) CG&Pet shall at all times
maintain Inventory of Solaris Products having a Value of not less than
$80,000,000; and (iii) not more than eighty (80%) percent of the Inventory of
Solaris Products upon which Lender holds a first priority security interest and
that otherwise meets all other criteria for Eligible Inventory, shall be
considered Eligible Inventory. All Inventory of Solaris Products in excess of
the Inventory of Solaris Products deemed Eligible Inventory shall, nevertheless,
at all times, remain part of the Collateral and secure payment and performance
of all Obligations.
(e) Without limiting the other eligibility criteria for Eligible
Inventory as set forth in or determined from time to time by Lender as provided
herein, no portion of Borrowers' Inventory which is subject to a security
interest or lien or other secured or title retention claim in favor of Solaris
or any other vendor or any consignor, shall at any time be deemed Eligible
Inventory, but all Inventory of Borrowers, whether or not deemed Eligible
Inventory, shall, at all times, remain part of the Collateral and secure payment
and performance of all Obligations.
(f) Except in Lender's discretion (i) the aggregate amount of Loans and
Letter of Credit Accommodations outstanding at any time shall not exceed the
Maximum Credit and (ii) the aggregate amount of Loans and Letter of Credit
Accommodations outstanding at any time to a Borrower shall not exceed the
Inventory Loan Limit as to such Borrower. In the event that the
-17-
<PAGE>
outstanding amount of any component of the Loans, or the aggregate amount of the
outstanding Loans and Letter of Credit Accommodations, exceed the amounts
available under the lending formulas, the Inventory Loan Limit as to any
Borrower, the sublimits for Letter of Credit Accommodations set forth in Section
2.2(d) or the Maximum Credit, as applicable, such event shall not limit, waive
or otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrowers shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.
(g) For purposes of applying the sublimit set forth in Section
2.1(a)(ii)(B) hereof, Lender may treat the amount of its reliance on Eligible
Inventory to be purchased under outstanding Letter of Credit Accommodations as a
Revolving Loan based on Eligible Inventory pursuant to Section 2.1(a)(ii). In
determining the amount of such reliance, the outstanding Revolving Loans and
Availability Reserves shall first be attributed to any components of the lending
formulas in Section 2.1(a) that are not subject to such sublimit, before being
attributed to components of the lending formulas subject to such sublimit.
2.2 Letter of Credit Accommodations.
-------------------------------
(a) Subject to, and upon the terms and conditions contained herein, at
the request of a Borrower, Lender agrees to provide or arrange for Letter of
Credit Accommodations for the account of such Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
such Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations, each Borrower
shall pay to Lender a letter of credit fee at a rate equal to two and one-
quarter (2.25%) percent per annum on the daily outstanding balance of the Letter
of Credit Accommodations for the immediately preceding month (or part thereof),
payable in arrears as of the first day of each succeeding month, except that
such Borrower shall pay to Lender such letter of credit fee, at Lender's option,
without notice, at a rate equal to four and one-quarter (4.25%) percent per
annum on such daily outstanding balance for: (i) the period from and after the
date of termination or non-renewal hereof until Lender has received full and
final payment of all Obligations (notwithstanding entry of a judgment against
any Borrower) and (ii) the period from and after the date of the occurrence of
an Event of Default and for so long as such Event of Default is
-18-
<PAGE>
continuing as determined by Lender. Such letter of credit fee shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed and the obligation of such Borrower to pay such fee shall survive the
termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available to a Borrower
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to such Borrower (subject to the
Maximum Credit, the Inventory Loan Limit as to such Borrower, and any
Availability Reserves) are equal to or greater than: (i) if the proposed Letter
of Credit Accommodation is for the purpose of purchasing Eligible Inventory, the
sum of (A) the percentage equal to one hundred (100%) percent minus the then
applicable percentage set forth in Section 2.1(a)(ii)(A) above of the Value of
such Eligible Inventory, plus (B) freight, taxes, duty and other amounts which
Lender estimates must be paid in connection with such Inventory upon arrival and
for delivery to one of such Borrower's locations for Eligible Inventory within
the United States of America and (ii) if the proposed Letter of Credit
Accommodation is for any other purpose, an amount equal to one hundred (100%)
percent of the face amount thereof and all other commitments and obligations
made or incurred by Lender with respect thereto. Effective on the issuance of
each Letter of Credit Accommodation, an Availability Reserve shall be
established in the applicable amount set forth in Section 2.2(c)(i) or Section
2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all outstanding Letter
of Credit Accommodations and all other commitments and obligations made or
incurred by Lender in connection therewith shall not at any time exceed
$5,000,000. At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrowers will either furnish cash collateral
to secure the reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the Revolving Loans
otherwise available to Borrowers shall not be reduced as provided in Section
2.2(c) to the extent of such cash collateral.
(e) Borrowers shall indemnify and hold Lender harmless from and against
any and all losses, claims, damages, liabilities, costs and expenses which
Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation. Borrowers assume all risks with respect to the acts or
omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such
-19-
<PAGE>
purposes the drawer or beneficiary shall be deemed the agent of Borrowers.
Borrowers assume all risks for, and agree to pay, all foreign, Federal, State
and local taxes, duties and levies relating to any goods subject to any Letter
of Credit Accommodations or any documents, drafts or acceptances thereunder.
Borrowers hereby release and hold Lender harmless from and against any acts,
waivers, errors, delays or omissions, whether caused by any Borrower, by any
issuer or correspondent or otherwise with respect to or relating to any Letter
of Credit Accommodation, except for those directly caused by Lender's own gross
negligence or willful misconduct as determined by a final non-appealable
judgment of a court of competent jurisdiction. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or non-
renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant any
Borrower any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrowers shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of any Borrower. Lender shall have the sole and exclusive right
and authority to, and no Borrower shall: (i) at any time an Event of Default
exists or has occurred and is continuing, (A) approve or resolve any questions
of non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in any Borrower's name.
(g) Any rights, remedies, duties or obligations granted or undertaken by
any Borrower to any issuer or corre spondent in any application for any Letter
of Credit Accommoda tion, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by such
-20-
<PAGE>
Borrower to Lender. Any duties or obligations undertaken by Lender to any
issuer or correspondent in any application for any Letter of Credit
Accommodation, or any other agreement by Lender in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been undertaken by the applicable Borrower to Lender and to apply in all
respects to such Borrower.
2.3 Availability Reserves. All Revolving Loans otherwise available to
---------------------
Borrowers pursuant to the lending formulas and subject to the Maximum Credit,
the Inventory Loan Limit as to each Borrower and other applicable limits
hereunder shall be subject to Lender's continuing right to establish and revise
Availability Reserves. Without limiting any other Availability Reserves from
time to time established by Lender, Lender shall have the right, prior to an
Event of Default, to establish Availability Reserves in an amount equal to the
amount of any actual or potential landlord's, warehouseman's or other similar
lien upon any of the Collateral, plus ninety (90) days' rent, storage and
warehouse service charges and other occupancy expenses that may, in Lender's
good faith determination, be required to be paid by Lender in order to gain
access to any Collateral or services with respect thereto, and/or to use or
occupy the premises upon which any Collateral may be located in connection with
Lender's realization on the Collateral. Upon and after an Event of Default,
Lender may establish and increase such Availability Reserves in such amounts as
Lender shall determine.
2.4 Restatement.
-----------
(a) All loans and advances to CG&Pet and Matthews outstanding under the
Existing Financing Agreements immediately prior to the effectiveness hereof,
shall be deemed outstanding Revolving Loans, and such Revolving Loans, together
with all accrued interest, fees, charges and expenses under the Existing
Financing Agreements, shall in all respects be deemed Obligations hereunder and
shall be subject to and governed by the terms hereof and of the other Financing
Agreements and, subject to Section 2.4(c) hereof, shall no longer be subject to
or governed by the Existing Financing Agreements, which are being amended and
restated by this Agreement and the other Financing Agreements.
(b) All letters of credit, acceptances, merchandise purchase or other
guarantees issued or opened by Lender under the Existing Financing Agreements or
with respect to which Lender has, pursuant to the Existing Financing Agreements,
indemnified the issuer or guaranteed to the issuer the performance by CG&Pet or
Matthews of its obligations to such issuer, shall, to the extent the same are
outstanding immediately prior to the effectiveness hereof, be deemed Letter of
Credit Accommodations to such Borrowers hereunder and shall be subject to and
governed by the terms hereof and of the other Financing Agreements, and,
-21-
<PAGE>
subject to Section 2.4(c) hereof, shall no longer be subject to or governed by
the Existing Financing Agreements, which are being amended and restated by this
Agreement and the other Financing Agreements.
(c) Notwithstanding the amendment and restatement of the Existing
Financing Agreements pursuant to this Agreement and the other Financing
Agreements, nothing contained in this Agreement or any other Financing
Agreements executed and delivered in connection herewith shall extinguish,
impair or limit the liens, security interests, assignments, pledges and rights
of setoff in or with respect to the existing and future property of any Borrower
or Obligor granted to or held by Lender pursuant to the Existing Financing
Agreements or the perfection or priority thereof. In addition, no right or
remedy of Lender as against any third party under any of the Existing Financing
Agreements, and no obligation of any Borrower or Obligor to any third party or
to Lender under any Existing Financing Agreement to which a third party is a
signatory, shall be discharged, impaired or otherwise affected by the amendment
and restatement contained in this Agreement or any other Financing Agreement
executed and delivered in connection herewith, and, accordingly, all Existing
Financing Agreements to which a third party is a signatory shall continue in
full force and effect. Such Existing Financing Agreements to which a third
party is a signatory include, without limitation, all intercreditor agreements,
subordination agreements, landlord and mortgagee waivers, bailee acknowledgment
and notification letters, lockbox and blocked account agreements and insurance
endorsements.
2.5 Reduction of Maximum Credit. As of and after January 1, 1999, the
---------------------------
Maximum Credit shall be deemed automatically and permanently reduced to
$100,000,000. Prior to January 1, 1999, the Maximum Credit shall be reduced
permanently to $100,000,000, upon the written request of Borrowers (or CG&Pet on
behalf of Borrowers) in accordance with and subject to the following terms and
conditions:
(a) Borrowers (or CG&Pet on behalf of Borrowers) may, on or before
November 10, 1998, submit to Lender a written request for the permanent
reduction of the Maximum Credit hereunder to $100,000,000;
(b) Such request shall be irrevocable; and
(c) Such request, if received by Lender in accordance with this Section
2.5 shall become effective as to Borrowers on the first day of the month next
following the twentieth (20) day following the date of Lender's receipt of such
request; provided, that such request shall not become effective for any purpose
--------
hereunder if, upon the otherwise effective date of such requested reduction,
either (i) the outstanding amount of the Obligations
-22-
<PAGE>
would exceed the Maximum Credit if such reduction were given effect, or (ii) the
amount of obligations determined by Lender to be outstanding in respect of
Eligible Inventory of any Borrower would exceed the Inventory Loan Limit for
such Borrower, after giving effect to the reductions in the Inventory Loan
Limits of the Borrowers otherwise applicable under the definition of Inventory
Loan Limits if such reduction of the Maximum Credit were to become effective.
SECTION 3. INTEREST AND FEES
-----------------
3.1 Interest
--------
(a) Borrowers shall pay to Lender interest on the outstanding principal
amount of the non-contingent Obligations at the Interest Rate. All interest
accruing hereunder on and after the date of any Event of Default or termination
or non-renewal hereof shall be payable on demand.
(b) Borrowers (or CG&Pet on behalf of Borrowers) may from time to time
request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any
existing Eurodollar Rate Loans continue for an additional Interest Period. Such
request from or on behalf of Borrowers shall specify the amount of the Prime
Rate Loans which will constitute Eurodollar Rate Loans (subject to the limits
set forth below) and the Interest Period to be applicable to such Eurodollar
Rate Loans. Subject to the terms and conditions contained herein, three (3)
Business Days after receipt by Lender of such a request from Borrowers, such
Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar
Rate Loans shall continue, as the case may be, provided, that, (i) no Event of
-------- ----
Default, or event which with notice or passage of time or both would constitute
an Event of Default exists or has occurred and is continuing, (ii) no party
hereto shall have sent any notice of termination or non-renewal of this
Agreement, (iii) such Borrowers shall have complied with such customary
procedures as are established by Lender and specified by Lender to Borrowers
from time to time for requests by Borrowers for Eurodollar Rate Loans, (iv) no
more than four (4) Interest Periods may be in effect at any one time, (v) the
amount of each Eurodollar Rate Loan must be in an amount not less than
$5,000,000 or an integral multiple of $1,000,000 in excess thereof, (vi) the
maximum amount of the Eurodollar Rate Loans at any time requested by any
Borrower shall not exceed the amount equal to eighty (80%) percent of the lowest
principal amount of the Revolving Loans to such Borrower which it is anticipated
will be outstanding during the applicable Interest Period, in each case as
determined by Lender (but with no obligation of Lender to make such Revolving
Loans) and (vii) Lender shall have determined that the Interest Period or
Adjusted Eurodollar Rate is available to Lender through the Reference Bank and
can be readily
-23-
<PAGE>
determined as of the date of the request for such Eurodollar Rate Loan by
Borrower. Any request by Borrowers to convert Prime Rate Loans to Eurodollar
Rate Loans or to continue any existing Eurodollar Rate Loans shall be
irrevocable. Notwithstanding anything to the contrary contained herein, Lender
and Reference Bank shall not be required to purchase United States Dollar
deposits in the London interbank market or other applicable Eurodollar Rate
market to fund any Eurodollar Rate Loans, but the provisions hereof shall be
deemed to apply as if Lender and Reference Bank had purchased such deposits to
fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate
Loans upon the last day of the applicable Interest Period, unless Lender has
received and approved a request to continue such Eurodollar Rate Loan at least
three (3) Business Days prior to such last day in accordance with the terms
hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice by
Lender to Borrowers (or to CG&Pet on behalf of Borrowers), convert to Prime Rate
Loans in the event that (i) an Event of Default or event which, with the notice
or passage of time, or both, would constitute an Event of Default, shall exist,
(ii) this Agreement shall terminate or not be renewed, or (iii) the aggregate
principal amount of the Prime Rate Loans which have previously been converted to
Eurodollar Rate Loans or existing Eurodollar Rate Loans continued, as the case
may be, at the beginning of an Interest Period shall at any time during such
Interest Period exceed either (A) the aggregate principal amount of the Loans
then outstanding, or (B) the Revolving Loans then available to the applicable
Borrowers under Section 2 hereof. Borrowers shall pay to Lender, upon demand by
Lender (or Lender may, at its option, charge any loan accounts of Borrowers) any
amounts required to compensate Lender, the Reference Bank or any participant
with Lender for any loss (including loss of anticipated profits), cost or
expense incurred by such person, as a result of the conversion of Eurodollar
Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrowers to Lender monthly in arrears
not later than the first day of each calendar month and shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. The
interest rate on non-contingent Obligations (other than Eurodollar Rate Loans)
shall increase or decrease by an amount equal to each increase or decrease in
the Prime Rate effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last day of the
month in which any such change occurs. In no event shall charges constituting
interest payable by Borrowers to Lender exceed the maximum amount or the rate
permitted under any applicable law or regulation, and if any such part or
provision of this Agreement is in
-24-
<PAGE>
contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
3.2 Special Facility Fee. Borrowers shall pay to Lender monthly, as a fee
--------------------
for the portion of the Maximum Credit hereunder in excess of $100,000,000, a fee
calculated at the rate of one (1%) percent per annum upon the amount by which
the Maximum Credit in effect for any month (or portion thereof) exceeds
$100,000,000, such fee shall be fully earned and payable in advance on the date
hereof and on the first day of each month while the Agreement is in effect and
for so long thereafter as any Obligations are outstanding; provided, however,
-------- -------
that, notwithstanding any reduction(s) in the Maximum Credit or any other event
or circumstance, in no event will the special facility fee payable under this
Section in respect of the period commencing on the date hereof and ending on
March 31, 1998 or the date of any earlier termination hereof, be less than
$41,667 per month (or part thereof) during such period or less than $125,000 in
the aggregate.
3.3 Modification Fee. Borrowers shall pay to Lender, as a facility
----------------
modification fee, the amount of $120,000, which shall be fully earned as of and
payable on the date hereof.
3.4 Servicing Fee. Borrowers shall pay to Lender monthly a servicing fee in
-------------
an amount equal to $10,000 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof and on the first day of each month
hereafter.
3.5 Unused Line Fee. Borrowers shall pay to Lender monthly an unused line
---------------
fee at a rate equal to one-half of one (.5%) percent per annum calculated upon
the amount by which fifty (50%) percent of the Maximum Credit as in effect in
the immediately preceding month (or part thereof) exceeds the average daily
principal balance of the outstanding Revolving Loans and Letter of Credit
Accommodations during such immediately preceding month (or part thereof) while
this Agreement is in effect and for so long thereafter as any of the Obligations
are outstanding, which fee shall be payable on the first day of each month in
arrears.
3.6 Changes in Laws and Increased Costs of Loans.
--------------------------------------------
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Lender to Borrowers (or to CG&Pet on
behalf of Borrowers), convert to Prime Rate Loans in the event that (i) any
change in applicable law or regulation (or the interpretation or administration
thereof) shall either (A) make it unlawful for Lender, Reference Bank or
-25-
<PAGE>
any participant to make or maintain Eurodollar Rate Loans or to comply with the
terms hereof in connection with the Eurodollar Rate Loans, or (B) shall result
in the increase in the costs to Lender, Reference Bank or any participant of
making or maintaining any Eurodollar Rate Loans by an amount deemed by Lender to
be material, or (C) reduce the amounts received or receivable by Lender in
respect thereof, by an amount deemed by Lender to be material or (ii) the cost
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to
be material. Borrowers shall pay to Lender, upon demand by Lender (or Lender
may, at its option, charge any loan accounts of Borrowers) any amounts required
to compensate Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense incurred by such
person as a result of the foregoing, including, without limitation, any such
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to compensate
Lender as aforesaid shall be delivered to Borrowers (or CG&Pet on behalf of
Borrowers) and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar Rate
Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrowers shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan accounts of Borrowers) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional loss (including
loss of anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 Conditions Precedent to Initial Loans and Letter of Credit
----------------------------------------------------------
Accommodations. Each of the following is a condition precedent to Lender making
- --------------
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected
-26-
<PAGE>
and first priority security interests in and liens upon the Collateral and any
other property which is intended to be security for the Obligations or the
liability of any Obligor in respect thereof, subject only to the security
interests and liens permitted herein or in the other Financing Agreements;
(b) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Lender, and Lender shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Lender may have requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the assets,
business or prospects of any Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of any Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the Records and such
other information with respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to Borrowers, the results of
which shall be satisfactory to Lender, not more than three (3) business days
prior to the date hereof;
(e) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons which Lender may deem necessary or desirable in order to permit, protect
and perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including acknowledgements by lessors, mortgagees and warehousemen
of Lender's security interests in the Collateral, waivers by such persons of any
security interests, liens or other claims by such persons to the Collateral and
agreements permitting Lender access to, and the right to remain on, the premises
to exercise its rights and remedies and otherwise deal with the Collateral;
(f) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorse ments naming Lender as loss payee and additional
insured;
-27-
<PAGE>
(g) Lender shall have received, in form and substance satisfactory to
Lender (i) a guarantee of payment by each Guarantor in favor of Lender of all
Obligations, secured by a first and only security interest in favor of Lender
granted by each Guarantor in all of its existing and future assets, and (ii) a
guarantee of payment by each Borrower in favor of Lender of all Obligations of
each other Borrower to Lender, secured by all Collateral;
(h) Lender shall have received a Pledge and Security Agreement pledging
to Lender as part of the Collateral all of the issued and outstanding Capital
Stock of each of Kaytee and T.F.H., unless prohibited by the terms of any loan
agreement to which Kaytee or T.F.H., as applicable, is a party as in effect on
the date hereof, except if such prohibition is waived or such agreement is
terminated;
(i) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel to Borrowers and Guarantors with respect
to the Financing Agreements and such other matters as Lender may request;
(j) Lender shall have received satisfactory agreements or other evidence
satisfactory to Lender that, notwithstanding anything to the contrary contained
in the Solaris Distributor Agreement or any other agreement between Solaris and
CG&Pet, (i) Solaris shall not deliver or arrange to be delivered to CG&Pet any
Solaris Products on consignment or conditional sale or under any terms other
than a completed sale of Solaris Products as to which title has passed to
CG&Pet, (ii) all Solaris Products located in the Madison Warehouse or any other
location of CG&Pet shall be owned solely by CG&Pet, subject only to Lender's
security interest and any other security interests permitted under this
Agreement (if any), (iii) Lender will have no liability to Solaris in respect of
Misdirected Items, and (iv) the Vender Buyback Agreement dated June 12, 1992
remains in full force and effect and covers all existing and future Solaris
Products.
(k) Lender shall have received, in form and substance satisfactory to
Lender, evidence that the Kaytee Purchase Agreements and T.F.H. Purchase
Agreements Purchase Agreements have been duly executed and delivered by and to
the appropriate parties thereto and the transactions contemplated under the
terms of the Kaytee Purchase Agreements and T.F.H. Purchase Agreements have been
consummated prior to or contemporaneously with the execution of this Agreement;
(l) Borrowers shall have Excess Availability of not less than
$15,000,000 on the date hereof after giving effect to the initial Loans and
Letter of Credit Accommodations hereunder and the consummation of the
transactions contemplated hereunder
-28-
<PAGE>
to close prior to or contemporaneously herewith, including, without limitation,
the closing under the Kaytee Purchase Agreements and T.F.H. Purchase Agreements;
and
(m) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.
---------------------------------------------------------------------
Each of the following is an additional condition precedent to Lender making
Loans and/or providing Letter of Credit Accommodations to Borrowers, including
the initial Loans and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the other
Financing Agreements shall be true and correct in all material respects with the
same effect as though such representations and warranties had been made on and
as of the date of the making of each such Loan or providing each such Letter of
Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with notice or
passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
or providing each such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 5. GRANT OF SECURITY INTEREST
--------------------------
5.1 To secure payment and performance of all Obligations, each Borrower
hereby grants to Lender a continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Lender as security, the
following property and interests in property of such Borrower, whether now owned
or hereafter acquired or existing, and wherever located (collectively, the
"Collateral"):
(a) Accounts;
(b) all present and future contract rights, general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and existing and future leasehold interests in equipment, real estate and
fixtures), chattel paper, documents,
-29-
<PAGE>
instruments, securities and other investment property, letters of credit,
bankers' acceptances and guaranties;
(c) all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of such Borrower now or hereafter
held or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of such Borrower,
whether for safekeeping, pledge, custody, transmission, collection or otherwise,
and all present and future liens, security interests, rights, remedies, title
and interest in, to and in respect of Accounts and other Collateral, including
(i) rights and remedies under or relating to guaranties, contracts of
suretyship, letters of credit and credit and other insurance related to the
Collateral, (ii) rights of stoppage in transit, replevin, repossession,
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, (iii) goods described in invoices, documents, contracts or instruments
with respect to, or otherwise representing or evidencing, Accounts or other
Collateral, including returned, repossessed and reclaimed goods, and (iv)
deposits by and property of account debtors or other persons securing the
obligations of account debtors;
(d) Inventory;
(e) Equipment;
(f) Real Property;
(g) Records; and
(h) all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.
5.2 Financing or Sale of Real Property.
----------------------------------
(a) Upon not less than thirty (30) days' prior written notice to Lender
from Borrowers and provided that Lender has not accelerated the Obligations, and
no material Event of Default has occurred which is continuing, and no event or
condition, which, upon notice or passage of time or both, would constitute a
material Event of Default exists or has occurred and is continuing, Lender
agrees to subordinate its Mortgages on a Borrower's Real Property in favor of
any Person, not an affiliate of Borrowers, that provides at least $500,000 of
new cash financing to such Borrower in an arm's length loan transaction secured
by such Borrower's Real Property (a "Real Property Loan"); provided, that the
-------- ----
following additional terms and conditions are, in Lender's commercially
reasonable discretion, satisfied and/or complied with: (i) the indebtedness in
respect
-30-
<PAGE>
of such Real Property Loan is permitted under Section 9.9(e) and the Real
Property Loan shall be secured only by such Borrower's Real Property and (ii)
Lender shall receive, in form and substance satisfactory to Lender, waivers by
the lender making the Real Property Loan of any security interests, liens or
other claims by such lender with respect to any Collateral, other than such
Borrower's Real Property, and permitting Lender use of and access to such
Borrower's Real Property securing such Real Property Loan for purposes of
Lender's preserving, protecting, realizing upon and/or otherwise dealing with
any Collateral (other than such Real Property), all without charge, for such
period of time and upon such terms as shall be satisfactory to Lender in its
discretion. If the lender providing the Real Property Loan does not agree to
Borrowers' good faith request that such lender permit Lender to retain a
subordinate Mortgage upon the Real Property securing the Real Property Loan,
Lender will release its Mortgage on such Real Property to the extent securing
the Real Property Loan, contemporaneously with the closing thereof, subject to
satisfaction of the other conditions stated in this Section 5.1(a).
(b) Upon not less than thirty (30) days' prior written notice to Lender
from Borrowers, and provided that Lender has not accelerated the Obligations,
and no material Event of Default has occurred which is continuing, and no event
or condition, which, upon notice or passage of time or both, would constitute a
material Event of Default, exists or has occurred and is continuing, Lender
agrees to release from its Mortgages, any Real Property of a Borrower which is
sold to a Person, not an affiliate of Borrowers, who pays a cash consideration
at least equal to seventy-five (75%) percent of the fair market value of the
Real Property so sold, as shown on an appraisal report obtained by Borrowers at
their expense by an appraiser satisfactory to Lender, dated not more than nine
(9) months prior to the proposed sale; provided, however, that arrangements for
-------- -------
the removal of any Inventory or other Collateral located on the Real Property to
be sold are made to the satisfaction of Lender, or if any such Collateral will
remain on the Real Property to be sold, Lender shall have received from the new
owner and any mortgagee, in form and substance satisfactory to Lender, a written
waiver of any security interests, liens or other claims by such owner or
mortgagee with respect to any Collateral from time to time located on such Real
Property, and permitting Lender use of and access to the Real Property for
purposes of Lender's preserving, protecting, realizing upon and/or otherwise
dealing with Lender's Collateral, all without charge, for such period of time
and upon such terms as shall be satisfactory to Lender in its discretion.
-31-
<PAGE>
SECTION 6. COLLECTION AND ADMINISTRATION
-----------------------------
6.1 Borrowers' Loan Accounts. Lender shall maintain one or more loan
------------------------
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrowers and (c) all other appropriate debits and
credits as provided in this Agreement, including fees, charges, costs, expenses
and interest. All entries in the loan account(s) shall be made in accordance
with Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to CG&Pet (on behalf of Borrowers)
----------
each month a statement setting forth the balance in the Borrowers' loan
account(s) maintained by Lender for Borrowers pursuant to the provisions of this
Agreement, including principal, interest, fees, costs and expenses. Each such
statement shall be subject to subsequent adjustment by Lender but shall, absent
manifest errors or omissions, be considered correct and deemed accepted by
Borrowers and conclusively binding upon Borrowers as an account stated except to
the extent that Lender receives a written notice from a Borrower of any specific
exceptions of such Borrower thereto within thirty (30) days after the date such
statement has been mailed by Lender. Until such time as Lender shall have
rendered to Borrowers a written statement as provided above, the balance in
Borrowers' loan account(s) shall be presumptive evidence of the amounts due and
owing to Lender by Borrowers.
6.3 Collection of Accounts.
----------------------
(a) Borrowers shall establish and maintain, at their expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Lender may specify, with such banks as are acceptable to Lender
into which Borrowers shall promptly deposit or direct their account debtors to
directly remit all payments on Accounts and all payments constituting proceeds
of Inventory or other Collateral in the identical form in which such payments
are made, whether by cash, check or other manner. The banks at which the
Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into the
Blocked Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Each Borrower agrees that all
payments made to such Blocked Accounts or other funds
-32-
<PAGE>
received and collected by Lender, whether on the Accounts or as proceeds of
Inventory or other Collateral or otherwise shall be the property of Lender.
Notwithstanding the foregoing, with respect to any period during which all of
the following conditions (the "Cash Dominion Conditions") are satisfied: (A)
Excess Availability shall be and remain above $50,000,000, and (B) the aggregate
outstanding principal amount of Loans and Letter of Credit Accommodations does
not exceed $20,000,000, and (C) no Event of Default, and no event or condition
that,with notice or passage of time, or both, would constitute an Event of
Default, shall exists or have occurred and be continuing, and (D) Borrowers
shall have timely delivered to Lender all required Collateral reports in
accordance with the provisions hereof, and (E) there is no good faith belief by
Lender that any information contained in any Collateral report delivered
hereunder is incomplete, inaccurate or misleading in any material respect,
Lender shall, if so requested in writing by Borrowers (or by CG&Pet on behalf of
Borrowers), accompanied by Borrowers' certification ("Cash Dominion
Certification") that the Cash Dominion Conditions will continue to be satisfied
for at least the ensuing thirty (30) day period, direct the depository bank or
banks maintaining such Blocked Accounts to transfer any deposits or other
amounts transferred to the Blocked Account to an operating account of Borrowers
as directed by Borrowers (or CG&Pet on behalf of Borrower); provided, that on or
--------
before the last day of each month thereafter, Borrowers (or CG&Pet on behalf of
Borrowers) shall provide Lender with an updated Cash Dominion Certification with
respect to the immediately following month. If Borrowers shall fail to (or be
unable to) provide Lender with any monthly Cash Dominion Certification, or if,
at any time (and during any period) that any one or more of the Cash Dominion
Conditions is or are not satisfied, Lender may notify and direct the depository
bank or banks maintaining such Blocked Accounts to transfer any deposits or
other amounts transferred to such Blocked Accounts to the Payment Account of
Lender, as provided in the Blocked Account Agreement(s) or otherwise as directed
by Lender.
(b) The Blocked Account(s) established for payments on account of
purchases or other obligations of Non-Distributor Agents to CG&Pet shall be
separate from those Blocked Account(s) established for Distributor/Agents to
which CG&Pet shall deposit or direct its Distributor/Agents to remit all
payments on account of their purchases from and other obligations to CG&Pet. In
no event will payments from Solaris Direct Customers or any other funds
belonging to Solaris be directed or remitted to, or deposited by CG&Pet into,
any such account, but Lender shall have no liability to CG&Pet or Solaris or any
other person with respect to any such payments which are nevertheless received
in any such account (collectively, "Misdirected Items") and transferred to
Lender and applied to the Obligations.
-33-
<PAGE>
(c) For purposes of calculating the amount of the Loans available to
Borrowers, such payments will be applied (conditional upon final collection) to
the Obligations on the business day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrowers' loan
accounts on such day, and if not, then on the next business day. For the
purposes of calculating interest on the Obligations, such payments or other
funds received will be applied (conditional upon final collection) to the
Obligations one (1) business day following the date of receipt of immediately
available funds by Lender in the Payment Account, provided such payments or
other funds and notice thereof are received in accordance with Lender's usual
and customary practices as in effect from time to time and within sufficient
time to credit Borrowers' loan accounts on such day, and if not, then on the
next business day.
(d) With respect to any period during which Lender does not receive in
the Payment Account the proceeds of Accounts and other Collateral based upon the
Borrowers' satisfaction of the Cash Dominion Conditions and the Lender's
direction to the depository bank or banks pursuant to Section 6.3(a) hereof,
Lender shall be entitled to an additional fee of $10,000 per month, payable
monthly in arrears, in lieu of the additional one (1) business day of interest
that would otherwise be payable in respect of the application of payments or
other funds received in the Payment Account as set forth in the last sentence of
Section 6.3(c).
(e) Borrowers and all of their affiliates, Subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender. In no
event shall the same be commingled with Borrowers' own funds. Borrowers agree
to reimburse Lender on demand for any amounts owed or paid to any bank at which
a Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The Obligations of
Borrowers to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
--------
provided in Section 6.3 or such other place as
-34-
<PAGE>
Lender may designate from time to time. Lender may apply payments received or
collected from Borrowers or for the account of Borrowers (including the monetary
proceeds of collections or of realization upon any Collateral) to such of the
Obligations, whether or not then due, in such order and manner as Lender
determines. At Lender's option, all principal, interest, fees, costs, expenses
and other charges provided for in this Agreement or the other Financing
Agreements may be charged directly to the loan account(s) of Borrowers.
Borrowers shall make all payments to Lender on the Obligations free and clear
of, and without deduction or withholding for or on account of, any setoff,
counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this Agreement
shall continue in full force and effect as if such payment or proceeds had not
been received by Lender. Borrowers shall be liable to pay to Lender, and
Borrowers hereby indemnify and hold Lender harmless for the amount of any
payments or proceeds surrendered or returned. This Section 6.4 shall remain
effective notwithstanding any contrary action which may be taken by Lender in
reliance upon such payment or proceeds. This Section 6.4 shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans and
---------------------------
provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of a Borrower (or
CG&Pet on behalf of a Borrower) and whose name has been designated for such
purposes in a writing purportly signed by an authorized officer of a Borrower
(or CG&Pet), or other authorized person or, at the discretion of Lender, if such
Loans are necessary to satisfy any Obligations. All requests for Loans or
Letter of Credit Accommodations hereunder shall specify the date on which the
requested advance is to be made or Letter of Credit Accommodations established
(which day shall be a business day) and the amount of the requested Loan.
Requests received after 11:00 a.m. Los Angeles, California time on any day shall
be deemed to have been made as of the opening of business on the immediately
following business day. All Loans and Letter of Credit Accommodations under
this Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, a Borrower when deposited to the credit of
any Borrower or otherwise disbursed or established in accordance with the
instructions of a Borrower (or CG&Pet on behalf of a Borrower) or in accordance
with the terms and conditions of this Agreement.
-35-
<PAGE>
6.6 Use of Proceeds. Borrowers shall use the initial proceeds of the
---------------
Loans provided by Lender to Borrowers hereunder only for: (a) payments to each
of the persons listed in the disbursement direction letter furnished by
Borrowers to Lender on or about the date hereof and (b) costs, expenses and fees
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrowers pursuant to the provisions
hereof shall be used by Borrowers only for general operating, working capital
and other proper corporate purposes of Borrowers not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for
the purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation G
of the Board of Governors of the Federal Reserve System, as amended.
6.7 Appointment of CG&Pet as Agent for Borrowers. Each Borrower hereby
--------------------------------------------
irrevocably appoints CG&Pet, and each officer thereof, as its agent and
attorney-in-fact to request Loans and Letter of Credit Accommodations on its
behalf, to receive disbursements of Loans on its behalf (which may be made to
the same account of CG&Pet to which disbursements of Loans to CG&Pet are made)
to make requests relating to Eurodollar Rate Loans on its behalf, to receive
notices and statements of account from Lender, to take such other actions on its
behalf as is provided hereunder or under any of the other Financing Agreements
and generally to deal with Lender on its behalf, for all matters pertaining to
the financing arrangements under this Agreement.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
----------------------------------
7.1 Collateral Reporting. Borrowers shall provide Lender with the
--------------------
following documents in a form satisfactory to Lender: (a) on a weekly or more
frequent basis as required by Lender, a schedule of Accounts, sales made,
credits issued and cash received; (b) on a monthly basis or more frequently as
Lender may request, (i) perpetual inventory reports, (ii) inventory reports by
category and (iii) agings of accounts payable, (c) upon Lender's request, (i)
copies of customer statements and credit memos, remittance advices and reports,
and copies of deposit slips and bank statements, (ii) copies of shipping and
delivery documents, and (iii) copies of purchase orders, invoices and delivery
documents for Inventory and Equipment acquired by each Borrower; (d) agings of
accounts receivable on a monthly basis or more frequently as Lender may request;
(e) the reports relating to the transactions relating to Solaris Products
required under Section 7.4(a); and (f) such other reports as to the Collateral
-36-
<PAGE>
as Lender shall request from time to time. If any of Borrowers' records or
reports of the Collateral are prepared or maintained by an accounting service,
contractor, shipper or other agent, Borrowers hereby irrevocably authorize such
service, contractor, shipper or agent to deliver such records, reports, and
related documents to Lender and to follow Lender's instructions with respect to
further services at any time that an Event of Default exists or has occurred and
is continuing.
7.2 Accounts Covenants.
------------------
(a) Borrowers shall notify Lender promptly of: (i) any material delay in
any Borrower's performance of any of its obligations to any account debtor or
the assertion of any claims, offsets, defenses or counterclaims by any account
debtor, or any disputes with account debtors, or any settlement, adjustment or
compromise thereof, (ii) all material adverse information relating to the
financial condition of any account debtor and (iii) any event or circumstance
which, to any Borrower's knowledge would cause Lender to consider any then
existing Accounts as no longer constituting Eligible Accounts. No credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted by any Borrower to any account debtor without Lender's consent, except
in the ordinary course of such Borrower's business in accordance with practices
and policies previously disclosed in writing to Lender. So long as no Event of
Default exists or has occurred and is continuing, Borrowers shall settle, adjust
or compromise any claim, offset, counterclaim or dispute with any account
debtor. At any time that an Event of Default exists or has occurred and is
continuing, Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors or grant any credits, discounts or allowances.
(b) Without limiting the obligation of Borrowers to deliver any other
information to Lender, Borrowers shall promptly report to Lender any return of
Inventory by any one account debtor if the Inventory so returned in such case
has a value in excess of $100,000. At any time that Inventory is returned,
reclaimed or repossessed, the Account (or portion thereof) which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not be deemed an
Eligible Account. In the event any account debtor returns Inventory when an
Event of Default exists or has occurred and is continuing, Borrowers shall, upon
Lender's request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned Inventory from all of its other property, (iii) dispose
of the returned Inventory solely according to Lender's instructions, and (iv)
not issue any credits, discounts or allowances with respect thereto without
Lender's prior written consent.
-37-
<PAGE>
(c) With respect to each Account: (i) the amounts shown on any invoice
delivered to Lender or schedule thereof delivered to Lender shall be true and
complete, (ii) no payments shall be made thereon except payments deposited
and/or transferred to the Blocked Accounts or immediately delivered to Lender
pursuant to the terms of this Agreement, (iii) no credit, discount, allowance or
extension or agreement for any of the foregoing shall be granted by any Borrower
to any account debtor except as reported to Lender in accordance with this
Agreement and except for credits, discounts, allowances or extensions made or
given in the ordinary course of such Borrower's business in accordance with
practices and policies previously disclosed to Lender, (iv) there shall be no
setoffs, deductions, contras, defenses, counterclaims or disputes existing or
asserted with respect thereto except as reported to Lender in accordance with
the terms of this Agreement, (v) none of the transactions giving rise thereto
will violate any applicable State or Federal laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in accordance
with its terms.
(d) Lender shall have the right at any time or times, in Lender's name
or in the name of a nominee of Lender, to verify the validity, amount or any
other matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(e) Each Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to such Borrower, all
chattel paper and instruments which such Borrower now owns or may at any time
acquire immediately upon such Borrower's receipt thereof, except as Lender may
otherwise agree.
(f) Lender may, at any time or times that an Event of Default exists or
has occurred and is continuing, (i) notify any or all account debtors that the
Accounts have been assigned to Lender and that Lender has a security interest
therein and Lender may direct any or all accounts debtors to make payment of
Accounts directly to Lender, (ii) extend the time of payment of, compromise,
settle or adjust for cash, credit, return of merchandise or otherwise, and upon
any terms or conditions, any and all Accounts or other obligations included in
the Collateral and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without affecting any of
the Obligations, (iii) demand, collect or enforce payment of any Accounts or
such other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or
-38-
<PAGE>
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are payable directly
and only to Lender and Borrowers shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) each Borrower
-------------------
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, such Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) each Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) no Borrower shall remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory by a Borrower in the ordinary course of
such Borrower's business and except to move Inventory directly from one location
set forth or permitted herein to another such location; (d) upon Lender's
request, Borrowers shall, at their expense, no more than once in any twelve (12)
month period, but at any time or times as Lender may request on or after an
Event of Default, deliver or cause to be delivered to Lender written reports or
appraisals as to the Inventory in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender, addressed to Lender or upon
which Lender is expressly permitted to rely; (e) Borrowers shall produce, use,
store and maintain the Inventory with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(f) Borrowers assume all responsibility and liability arising from or relating
to the production, use, sale or other disposition of the Inventory; (g)
Borrowers shall not sell Inventory to any customer on approval, or any other
basis which entitles the customer to return or may obligate any Borrower to
repurchase such Inventory; (h) Borrowers shall keep the Inventory in good and
marketable condition; and (i) Borrowers shall not, without prior written notice
to Lender, acquire or accept any Inventory on consignment or approval.
-39-
<PAGE>
7.4 Additional Covenants Regarding Solaris Products Inventory and Accounts
----------------------------------------------------------------------
(a) In addition to any other reports or documents required to be
provided by Borrowers to Lender hereunder or under the other Financing
Agreements, Borrowers shall provide Lender with the following documents in a
form satisfactory to Lender:
(i) on a monthly basis, or more frequently as Lender may request,
a schedule of Accounts of CG&Pet separately setting forth those owed by
Distributor/Agents and those owed by Non-Agent Distributors;
(ii) on a monthly basis, or more frequently as Lender may request,
Inventory reports of Solaris Products by location;
(iii) simultaneously with delivery by CG&Pet to or receipt from
Solaris, copies of the reports from time to time delivered to or by Solaris
under the Solaris Distributor Agreement; and
(iv) simultaneously with delivery by CG&Pet to or receipt from
Solaris, copies of all notices of default under, or of termination, non-renewal,
proposed amendment or extension of, the Solaris Distributor Agreement or any
agreement, document or instrument relating thereto.
(b) All Solaris Products located at the Madison Warehouse or any other
location of CG&Pet are and shall be owned by CG&Pet, free and clear of all
claims, liens, pledges and encumbrances of any kind, other than those granted in
favor of Lender and except for any other security interests therein, if any,
permitted hereunder.
(c) At no time shall any Borrower report to Lender as part of its
Inventory any Solaris Products that have been returned to CG&Pet by Solaris
Direct Customers or Distributor/Agents on behalf of Solaris Direct Customers.
(d) Schedule 7.4(d) hereto sets forth a true and complete list of all
Distributor/Agents who have been appointed as of the date hereof. CG&Pet shall
not appoint any new Distributor/Agents or redesignate any Non-Agent Distributor
to be a Distributor/ Agent, except upon not less than ten (10) days prior
written notice to Lender. Not less frequently than annually, CG&Pet shall
provide Lender with an updated Schedule 7.4(d) hereto, showing all changes to
the list of Distributor/Agents shown on the previous Schedule 7.4(d).
(e) Schedule 7.4(e) hereto sets forth a true and complete list of all
Non-Agent Distributors who have been
-40-
<PAGE>
appointed as of the date hereof. CG&Pet shall not appoint any new Non-Agent
Distributor or redesignate any Distributor/Agent to be a Non-Agent Distributor,
except upon not less than ten (10) days prior written notice to Lender. Not
less frequently than annually, CG&Pet shall provide Lender with an updated
Schedule 7.4(e) hereto, showing all changes to the list of Non-Agent
Distributors shown on the previous Schedule 7.4(e).
(f) CG&Pet shall provide Lender, as soon as known to CG&Pet, with
written notice of any new or redesignated Solaris Direct Customers, and any
customers no longer having such status. Each supplemental or amended Schedule
1A to the Solaris Distributor Agreement shall be provided to Lender promptly
upon receipt or preparation thereof by CG&Pet.
7.5 Equipment Covenants. With respect to the Equipment: (a) upon Lender's
-------------------
request, each Borrower shall, at its expense, at any time or times as Lender may
request on or after an Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to the Equipment in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to Lender; (b)
each Borrower shall keep the Equipment in good order, repair, running and
marketable condition (ordinary wear and tear excepted); (c) each Borrower shall
use the Equipment with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with all applicable
laws; (d) the Equipment is and shall be used in each Borrower's business and not
for personal, family, household or farming use; (e) no Borrower shall remove any
Equipment from the locations set forth or permitted herein, except to the extent
necessary to have any Equipment repaired or maintained in the ordinary course of
the business of such Borrower or to move Equipment directly from one location
set forth or permitted herein to another such location and except for the
movement of motor vehicles used by or for the benefit of such Borrower in the
ordinary course of business; (f) the Equipment is now and shall remain personal
property and no Borrower shall permit any of the Equipment to be or become a
part of or affixed to real property; and (g) Borrowers assume all responsibility
and liability arising from the use of their Equipment.
7.6 Power of Attorney. Each Borrower hereby irrevocably designates and
-----------------
appoints Lender (and all persons designated by Lender) as such Borrower's true
and lawful attorney-in-fact, and authorizes Lender, in such Borrower's or
Lender's name, to: (a) at any time an Event of Default or event which with
notice or passage of time or both would constitute an Event of Default exists or
has occurred and is continuing (i) demand payment on Accounts or other proceeds
of Inventory or other Collateral, (ii) enforce payment of Accounts by legal
proceedings or otherwise, (iii) exercise all of such Borrower's rights and
remedies to collect any Account or other Collateral, (iv) sell or assign any
-41-
<PAGE>
Account upon such terms, for such amount and at such time or times as the Lender
deems advisable, (v) settle, adjust, compromise, extend or renew an Account,
(vi) discharge and release any Account, (vii) prepare, file and sign such
Borrower's name on any proof of claim in bankruptcy or other similar document
against an account debtor, (viii) notify the post office authorities to change
the address for delivery of such Borrower's mail to an address designated by
Lender, and open and dispose of all mail addressed to such Borrower, and (ix) do
all acts and things which are necessary, in Lender's determination, to fulfill
such Borrower's Obligations under this Agreement and the other Financing
Agreements and (b) at any time to (i) subject to the provisions of Sections
6.3(a) hereof, take control in any manner of any item of payment or proceeds
thereof, (ii) have access to any lockbox or postal box into which such
Borrower's mail is deposited, (iii) endorse such Borrower's name upon any items
of payment or proceeds thereof and deposit the same in the Lender's account for
application to the Obligations, (iv) endorse such Borrower's name upon any
chattel paper, document, instrument, invoice, or similar document or agreement
relating to any Account or any goods pertaining thereto or any other Collateral,
(v) sign such Borrower's name on any verification of Accounts and notices
thereof to account debtors and (vi) execute in such Borrower's name and file any
UCC financing statements or amendments thereto. Each Borrower hereby releases
Lender and its officers, employees and designees from any liabilities arising
from any act or acts under this power of attorney and in furtherance thereof,
whether of omission or commission, except as a result of Lender's own gross
negligence or wilful misconduct as determined pursuant to a final non-appealable
judgment of a court of competent jurisdiction.
7.7 Right to Cure. Lender may, at its option, (a) cure any default by any
-------------
Borrower or Obligor under any agreement with a third party or pay or bond on
appeal any judgment entered against any Borrower, (b) discharge taxes, liens,
security interests or other encumbrances at any time levied on or existing with
respect to the Collateral and (c) pay any amount, incur any expense or perform
any act which, in Lender's judgment, is necessary or appropriate to preserve,
protect, insure or maintain the Collateral and the rights of Lender with respect
thereto. Lender may add any amounts so expended to the Obligations and charge
Borrowers' accounts therefor, such amounts to be repayable by Borrowers on
demand. Lender shall be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrowers. Any payment made or other action taken by Lender under
this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
7.8 Access to Premises. From time to time as requested by Lender, at the
------------------
cost and expense of Borrowers, (a) Lender or
-42-
<PAGE>
its designee shall have complete access to all of Borrowers' premises during
normal business hours and after notice to Borrowers (or to CG&Pet on behalf of
Borrowers), or at any time and without notice to any Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrowers' books
and records, including the Records, and (b) Borrowers shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender may
request, and (c) use during normal business hours such of Borrowers' personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrowers hereby, jointly and severally, represent and warrant to Lender the
following (which shall survive the execution and delivery of this Agreement),
the truth and accuracy of which are a continuing condition of the making of
Loans and providing Letter of Credit Accommodations by Lender to Borrowers:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Each
------------------------------------------------------
Borrower is a corporation duly organized and in good standing under the laws of
its state of incorporation and is duly qualified as a foreign corporation and in
good standing in all states or other jurisdictions where the nature and extent
of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on any Borrower's financial
condition, results of operation or business or the rights of Lender in or to any
of the Collateral. The execution, delivery and performance of this Agreement,
the other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within each Borrower's corporate powers, have been duly
authorized and are not in contravention of law or the terms of any Borrower's
certificate of incorporation, by-laws, or other organizational documentation, or
any indenture, agreement or undertaking to which any Borrower is a party or by
which any Borrower or its property are bound. This Agreement and the other
Financing Agreements constitute legal, valid and binding obligations of each
Borrower enforceable in accordance with their respective terms. No Borrower has
any subsidiaries except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
------------------------------------------------
statements relating to Borrowers which have been or may hereafter be delivered
by Borrowers to Lender have been prepared in accordance with GAAP and fairly
present the financial
-43-
<PAGE>
condition and the results of operation of Borrowers as at the dates and for the
periods set forth therein. Except as disclosed in any interim financial
statements furnished by Borrowers to Lender prior to the date of this Agreement,
there has been no material adverse change in the assets, liabilities, properties
and condition, financial or otherwise, of any Borrower, since the date of the
most recent audited financial statements furnished by Borrowers to Lender prior
to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
--------------------------------------------
office of each Borrower and each Borrower's Records concerning Accounts are
located only at the address(es) set forth below and its only other places of
business and the only other locations of Collateral, if any, are the addresses
set forth in the Information Certificate, subject to the right of Borrowers to
establish new locations in accordance with Section 9.2 below. The Information
Certificate correctly identifies any of such locations which are not owned by
Borrowers and sets forth the owners and/or operators thereof.
8.4 Priority of Liens; Title to Properties. The security interests and
--------------------------------------
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Each Borrower
has good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a
-----------
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Each Borrower
has paid or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, except taxes the validity of which are
being contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower and with respect to which adequate reserves have been
set aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate, there
----------
is no present investigation by any governmental agency pending, or to the best
of any Borrower's
-44-
<PAGE>
knowledge threatened, against or affecting any Borrower, its assets or business
and there is no action, suit, proceeding or claim by any Person pending, or to
the best of any Borrower's knowledge threatened, against any Borrower or its
assets or goodwill, or against or affecting any transactions contemplated by
this Agreement, which if adversely determined against any Borrower would result
in any material adverse change in the assets, business or prospects of any
Borrower or would impair the ability of any Borrower to perform its Obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. No Borrower
----------------------------------------------------
is in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and each Borrower is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses, permits, approvals
and orders of any foreign, Federal, State or local governmental authority.
8.8 Environmental Compliance.
------------------------
(a) Except as set forth on Schedule 8.8 hereto, no Borrower or, to
Borrowers' knowledge, any predecessor of a Borrower, has generated, used,
stored, treated, transported, manufactured, handled, produced or disposed of any
Hazardous Materials, on or off its premises (whether or not owned by it) in any
manner which at any time violates or has violated any applicable Environmental
Law or any license, permit, certificate, approval or similar authorization
thereunder and the operations of each Borrower comply in all material respects
with all Environmental Laws and all licenses, permits, certificates, approvals
and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of Borrowers' knowledge threatened, with respect to any non-
compliance with or violation of the requirements of any Environmental Law by any
Borrower or any predecessor of a Borrower, or the release, spill or discharge,
threatened or actual, of any Hazardous Material or the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or any other environmental, health or safety matter, which
affects any Borrower or its business, operations or assets or any properties at
which any Borrower or predecessor of a Borrower has transported, stored or
disposed of any Hazardous Materials.
-45-
<PAGE>
(c) No Borrower has any material liability (contingent or otherwise) in
connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.
(d) Each Borrower has all licenses, permits, certificates, approvals or
similar authorizations required to be obtained or filed in connection with the
operations of such Borrower under any Environmental Law and all of such
licenses, permits, certificates, approvals or similar authorizations are valid
and in full force and effect.
8.9 Employee Benefits.
-----------------
(a) No Borrower has engaged in any transaction in connection with which
any Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code, including any accumulated funding deficiency described in
Section 8.9(c) hereof and any deficiency with respect to vested accrued benefits
described in Section 8.9(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has been or
is expected by any Borrower to be incurred with respect to any employee benefit
plan of any Borrower or any of its ERISA Affiliates. There has been no
reportable event (within the meaning of Section 4043(b) of ERISA) or any other
event or condition with respect to any employee pension benefit plan of any
Borrower or any of its ERISA Affiliates which presents a risk of termination of
any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrowers or any of
their ERISA Affiliates are required under Section 302 of ERISA and Section 412
of the Code to have paid under the terms of each employee benefit plan as
contributions to such plan as of the last day of the most recent fiscal year of
such plan ended prior to the date hereof, and no accumulated funding deficiency
(as defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, exists with respect to any employee benefit plan, including any penalty
or tax described in Section 8.9(a) hereof and any deficiency with respect to
vested accrued benefits described in Section 8.9(d) hereof.
(d) The current value of all vested accrued benefits under all employee
benefit plans maintained by Borrowers that are subject to Title IV of ERISA does
not exceed the current value of the assets of such plans allocable to such
vested accrued benefits, including any penalty or tax described in Section
8.9(a) hereof and any accumulated funding deficiency described in
-46-
<PAGE>
Section 8.9(c) hereof. The terms "current value" and "accrued benefit" have the
meanings specified in ERISA.
(e) None of Borrowers or any of their ERISA Affiliates is or has ever
been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.10 Bank Accounts. All of the deposit accounts, investment accounts or
-------------
other accounts in the name of or used by Borrowers maintained at any bank or
other financial institution are set forth on Schedule 8.10 hereto, subject to
the right of Borrowers to establish new accounts in accordance with Section 9.13
below.
8.11 Accuracy and Completeness of Information. All information furnished
----------------------------------------
by or on behalf of any Borrower in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate, is true and correct in all material respects on the date as of
which such information is dated or certified and does not omit any material fact
necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of any Borrower,
which has not been fully and accurately disclosed to Lender in writing.
8.12 Interrelated Business. CG&Pet is the direct and beneficial owner and
---------------------
holder of all of the issued and outstanding shares of Capital Stock of the other
Borrowers. Borrowers share an identity of interests such that any benefit
received by any Borrower benefits the others. CG&Pet (a) renders services to or
for the benefit of the other Borrowers, (b) makes loans and advances and
provides other financial accommodations to or for the benefit of the other
Borrowers (including, inter alia, the payment and or guaranties of indebtedness
----- ----
of the other Borrowers), and (c) provides administrative, marketing, payroll and
management services to or for the benefit of the other Borrowers. Borrowers
have centralized purchasing, collection, distribution, accounting, legal and
other services.
8.13 Capitalization. Each of the Borrowers is solvent and will continue
--------------
to be solvent after the creation of the Obligations, the security interests of
Lender and the other transactions contemplated hereunder, is able to pay its
debts as they mature and has (and has reason to believe it will continue to
have) sufficient capital (and not unreasonably small capital) to carry on its
business and all businesses in which it is engaged and proposes to engage. The
assets and properties of each Borrower at a fair valuation and at their present
fair
-47-
<PAGE>
salable value are, and will be, greater than the indebtedness of such Borrower,
and including subordinated and contingent liabilities computed at the amount
which, to the best of such Borrower's knowledge, represents an amount which can
reasonably be expected to become an actual or matured liability.
8.14 Certain Acquisitions.
--------------------
(a) The Kaytee Purchase Agreements and T.F.H. Purchase Agreements and the
transactions contemplated thereunder have been duly executed, delivered and
performed in accordance with their terms by the respective parties thereto in
all respects, including the fulfillment (not merely the waiver, except as may be
disclosed to Lender and consented to in writing by Lender) of all conditions
precedent set forth therein and giving effect to the terms of the Kaytee
Purchase Agreements and T.F.H. Purchase Agreements and the assignments to be
executed and delivered by the sellers thereunder, CG&Pet acquired and has good
and marketable title to the Capital Stock and other property purchased pursuant
to the Kaytee Purchase Agreements and T.F.H. Purchase Agreements, free and clear
of all claims, liens, pledges and encumbrances of any kind, except as disclosed
in writing to Lender.
(b) All actions and proceedings required by the Kaytee Purchase Agreements
and T.F.H. Purchase Agreements, applicable law or regulation (including, but not
limited to, compliance with the Hart-Scott-Rodino Anti-Trust Improvements Act of
1976, as amended) have been taken and the transactions required thereunder have
been duly and validly taken and consummated.
(c) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the
transactions described in the Kaytee Purchase Agreements and T.F.H. Purchase
Agreements and no governmental or other action or proceeding has been threatened
or commenced, seeking any injunction, restraining order or other order which
seeks to void or otherwise modify the transactions described in the Kaytee
Purchase Agreements and T.F.H. Purchase Agreements.
(d) Borrowers have delivered, or caused to be delivered, to Lender true,
correct and complete copies of the Kaytee Purchase Agreements and T.F.H.
Purchase Agreements.
8.15 Survival of Warranties; Cumulative. All representa tions and
----------------------------------
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and
-48-
<PAGE>
warranties set forth herein shall be cumulative and in addition to any other
representations or warranties which any Borrower shall now or hereafter give, or
cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1 Maintenance of Existence. Each Borrower shall at all times preserve,
------------------------
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Each Borrower shall give Lender thirty (30) days prior written
notice of any proposed change in its corporate name, which notice shall set
forth the new name and such Borrower shall deliver to Lender a copy of the
amendment to the Certificate of Incorporation of such Borrower providing for the
name change certified by the Secretary of State of the jurisdiction of
incorporation of such Borrower as soon as it is available.
9.2 New Collateral Locations. Any Borrower may open any new location
------------------------
within the continental United States provided such Borrower (a) gives Lender
thirty (30) days prior written notice of the intended opening of any such new
location and (b) executes and delivers, or causes to be executed and delivered,
to Lender such agreements, documents, and instruments as Lender may deem
reasonably necessary or desirable to protect its interests in the Collateral at
such location, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
---------------------------------------
(a) Each Borrower shall, at all times, comply in all material respects
with all laws, rules, regulations, licenses, permits, approvals and orders
applicable to it and duly observe all requirements of any Federal, State or
local governmental authority, including the Employee Retirement Security Act of
1974, as amended, the Occupational Safety and Health Act of 1970, as amended,
the Fair Labor Standards Act of 1938, as amended, and all statutes, rules,
regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including all of the Environmental
Laws.
(b) Each Borrower shall establish and maintain, at its expense, a system
to assure and monitor its continued compliance with all Environmental Laws in
all of its operations, which system shall include annual reviews of such
compliance by employees or agents of such Borrower who are familiar with the
requirements of the Environmental Laws. Copies of all environmental surveys,
audits, assessments, feasibility studies
-49-
<PAGE>
and results of remedial investigations shall be promptly furnished, or caused to
be furnished, by Borrowers to Lender. Each Borrower shall take prompt and
appropriate action to respond to any non-compliance with any of the
Environmental Laws and shall regularly report to Lender on such response.
(c) Each Borrower shall give both oral and written notice to Lender
immediately upon such Borrower's receipt of any notice of, or such Borrower's
otherwise obtaining knowledge of, (i) the occurrence of any event involving the
release, spill or discharge, threatened or actual, of any Hazardous Material or
(ii) any investigation, proceeding, complaint, order, directive, claims,
citation or notice with respect to: (A) any non-compliance with or violation of
any Environmental Law by any Borrower or any predecessor of a Borrower or (B)
the release, spill or discharge, threatened or actual, of any Hazardous Material
or (C) the generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials or (D) any other
environmental, health or safety matter, which affects any Borrower or its
business, operations or assets or any properties at which any Borrower or any
predecessor of a Borrower transported, stored or disposed of any Hazardous
Materials.
(d) Without limiting the generality of the foregoing, whenever Lender
reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of any Borrower in order to avoid any
material non-compliance, with any Environmental Law, Borrowers shall, at
Lender's request and Borrowers' expense: (i) cause an independent environmental
engineer acceptable to Lender to conduct such tests of the site where such
Borrower's non-compliance or alleged non-compliance with such Environmental Laws
has occurred as to such non-compliance and prepare and deliver to Lender a
report as to such non-compliance setting forth the results of such tests, a
proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof and (ii) provide to Lender a supplemental
report of such engineer whenever the scope of such non-compliance, or Borrowers'
response thereto or the estimated costs thereof, shall change in any material
respect.
(e) Borrowers shall indemnify and hold harmless Lender, its directors,
officers, employees, agents, invitees, representatives, successors and assigns,
from and against any and all losses, claims, damages, liabilities, costs, and
expenses (including reasonable attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to
-50-
<PAGE>
any property and the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Each Borrower shall duly pay and discharge
---------------------------
all taxes, assessments, contributions and governmental charges upon or against
it or its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower and with respect to which adequate reserves have been
set aside on its books. Borrowers shall be liable for any tax or penalties
imposed on Lender as a result of the financing arrangements provided for herein
and Borrowers agree to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrowers such amount shall be added and deemed part of the Loans; provided,
--------
that, nothing contained herein shall be construed to require Borrowers to pay
- ----
any income or franchise taxes attributable to the income of Lender from any
amounts charged or paid hereunder to Lender. The foregoing indemnity shall
survive the payment of the Obligations and the termination or non-renewal of
this Agreement.
9.5 Insurance. Borrowers shall, at all times, maintain with financially
---------
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrowers shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrowers fail to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrowers. All policies shall provide for at least thirty (30) days
prior written notice to Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for each Borrower in obtaining, and at any time
an Event of Default exists or has occurred and is continuing, adjusting,
settling, amending and canceling such insurance. Borrowers shall cause Lender
to be named as a loss payee and an additional insured (but without any liability
for any premiums) under such insurance policies and Borrowers shall obtain non-
contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by any Borrower or any of its affiliates.
At its option, Lender may apply any insurance proceeds received by
-51-
<PAGE>
Lender at any time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order and in such
manner as Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6 Financial Statements and Other Information.
------------------------------------------
(a) Each Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the Collateral and the business of such Borrower and its subsidiaries (if
any) in accordance with GAAP and Borrowers shall furnish or cause to be
furnished to Lender: (i) within forty-five (45) days after the end of each
fiscal month, monthly unaudited consolidated financial statements and unaudited
consolidating financial statements of CG&Pet and its subsidiaries (including in
each case balance sheets, statements of income and loss, statements of cash
flow, and statements of shareholders' equity), all in reasonable detail, fairly
presenting the financial position and the results of the operations of such
Borrower and its subsidiaries as of the end of and through such fiscal month and
(ii) within ninety (90) days after the end of each fiscal year, audited
consolidated financial statements of CG&Pet and its subsidiaries (including in
each case balance sheets, statements of income and loss, statements of cash flow
and statements of shareholders' equity), and the accompanying notes thereto, all
in reasonable detail, fairly presenting the financial position and the results
of the operations of CG&Pet and its subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Borrowers and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of CG&Pet and its subsidiaries as
of the end of and for the fiscal year then ended.
(b) Each Borrower shall promptly notify Lender in writing of the details
of (i) any loss, damage, investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in such
Borrower's business, properties, assets, goodwill or condition, financial or
otherwise and (ii) the occurrence of any Event of Default or event which, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Each Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which such
Borrower sends to its stockholders generally and copies of all reports and
registration statements which such Borrower files with the Securities and
Exchange
-52-
<PAGE>
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrowers shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the Collateral
and the business of CG&Pet and its subsidiaries, as Lender may, from time to
time, reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of any
Borrower to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Each Borrower hereby
irrevocably authorizes and directs all accountants or auditors to deliver to
Lender, at Borrowers' expense, copies of the financial statements of Borrowers
and any reports or management letters prepared by such accountants or auditors
on behalf of Borrowers and to disclose to Lender such information as they may
have regarding the business of Borrowers. Any documents, schedules, invoices or
other papers delivered to Lender may be destroyed or otherwise disposed of by
Lender one (1) year after the same are delivered to Lender, except as otherwise
designated by CG&Pet (on behalf of Borrowers) to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. No Borrower
--------------------------------------------------------
shall directly or indirectly, (a) merge into or with or consolidate with any
other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person or any of its assets to any other
Person (except for (i) sales of Inventory in the ordinary course of business and
(ii) the disposition of worn-out or obsolete Equipment or Equipment no longer
used in the business of such Borrower so long as (A) if an Event of Default
exists or has occurred and is continuing, any proceeds are paid to Lender and
(B) such sales do not involve Equipment having an aggregate fair market value in
excess of $200,000 for all such Equipment disposed of in any fiscal year of
Borrower), or (c) form or acquire any Subsidiaries, except acquisition of
Subsidiaries pursuant to Permitted Acquisitions, or (d) wind up, liquidate or
dissolve or (e) agree to do any of the foregoing.
9.8 Encumbrances. No Borrower shall create, incur, assume or suffer to
------------
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including the
Collateral, except: (a) liens and security interests of Lender; (b) liens
------
securing the payment of taxes, either not yet overdue or the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to such Borrower and with respect to which adequate reserves have
been set aside on its books; (c) non-consensual statutory liens (other than
liens securing the payment of taxes) arising in the ordinary
-53-
<PAGE>
course of such Borrower's business to the extent: (i) such liens secure
indebtedness which is not overdue or (ii) such liens secure indebtedness
relating to claims or liabilities which are fully insured and being defended at
the sole cost and expense and at the sole risk of the insurer or being contested
in good faith by appropriate proceedings diligently pursued and available to
such Borrower, in each case prior to the commencement of foreclosure or other
similar proceedings and with respect to which adequate reserves have been set
aside on its books; (d) zoning restrictions, easements, licenses, covenants and
other restrictions affecting the use of real property which do not interfere in
any material respect with the use of such real property or ordinary conduct of
the business of such Borrower as presently conducted thereon or materially
impair the value of the real property which may be subject thereto; (e) purchase
money security interests in Equipment (including capital leases) and purchase
money mortgages on real estate not to exceed $8,000,000 in the aggregate at any
time outstanding for all Borrowers, so long as such security interests and
mortgages do not apply to any property of any Borrower other than the Equipment
or real estate so acquired, and the indebtedness secured thereby does not exceed
the cost of the Equipment or real estate so acquired, as the case may be; (f)
liens on Real Property of Borrowers securing Real Property Loans permitted under
Section 9.9(e) and meeting the requirements of Section 5.2(a); and (g) the
security interests and liens set forth on Schedule 8.4 hereto.
9.9 Indebtedness. No Borrower shall incur, create, assume, become or be
------------
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except: (a) the Obligations; (b) trade obligations and normal
------
accruals in the ordinary course of business not yet due and payable, or with
respect to which such Borrower is contesting in good faith the amount or
validity thereof by appropriate proceedings diligently pursued and available to
such Borrower, and with respect to which adequate reserves have been set aside
on its books; (c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement; (d) indebtedness of one Borrower to
another Borrower for intercompany loans permitted under Section 9.10(c) hereof;
(e) indebtedness in respect of Real Property Loans not to exceed the aggregate
principal amount of $5,000,000 borrowed after the date hereof; and (f) the
indebtedness set forth on Schedule 9.9 hereto; provided, that, in the case of
-------- ----
the indebtedness under Section 9.9(e) and (f) hereof (i) a Borrower may only
make regularly scheduled payments of principal and interest in respect of such
indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness of such Borrower as in effect on
the date hereof, (ii) Borrowers shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such indebtedness or any agreement,
document or
-54-
<PAGE>
instrument related thereto as in effect on the date hereof, or (B) redeem,
retire, defease, purchase or otherwise acquire such indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose, and (iii) Borrowers
shall furnish to Lender all notices or demands in connection with such
indebtedness either received by a Borrower or on its behalf, promptly after the
receipt thereof, or sent by a Borrower or on its behalf, concurrently with the
sending thereof, as the case may be. Borrowers and Lender hereby expressly
designate the Obligations of CG&Pet to be "Designated Senior Indebtedness" for
purposes of the Indenture governing the 6% Convertible Subordinated Notes due
2003 of CG&Pet.
9.10 Loans, Investments, Guarantees, Etc. No Borrower shall, directly or
------------------------------------
indirectly, make any loans or advance money or property to any Person, or invest
in (by capital contribution, dividend or otherwise) or purchase or repurchase
the Capital Stock or indebtedness or all or a substantial part of the assets or
property of any Person, or guarantee, assume, endorse, or otherwise become
responsible for (directly or indirectly) the indebtedness, performance,
obligations or dividends of any Person or agree to do any of the foregoing,
except: (a) the endorsement of instruments for collection or deposit in the
- ------
ordinary course of business; (b) investments in: (i) short-term direct
obligations of the United States Government, (ii) negotiable certificates of
deposit issued by any bank satisfactory to Lender, payable to the order of a
Borrower or to bearer and delivered to Lender, and (iii) commercial paper rated
A1 or P1; provided, that, as to any of the foregoing, unless waived in writing
-------- ----
by Lender, Borrowers shall take such actions as are deemed necessary by Lender
to perfect the security interest of Lender in such investments, (c) short-term
intercompany loans by one Borrower to another Borrower in the ordinary course of
business, not to exceed $1,500,000 in principal amount owed by any one Borrower
for such loans made by another Borrower, or $5,000,000 in the aggregate at any
time outstanding for all intercompany loans between Borrowers on a combined
basis, (d) Permitted Acquisitions and (e) the loans, advances and guarantees set
forth on Schedule 9.10 hereto; provided, that, as to such loans, advances and
-------- ----
guarantees, (i) Borrowers shall not, directly or indirectly, (A) amend, modify,
alter or change the terms of such loans, advances or guarantees or any
agreement, document or instrument related thereto, or (B) as to such guarantees,
redeem, retire, defease, purchase or otherwise acquire the obligations arising
pursuant to such guarantees, or set aside or otherwise deposit or invest any
sums for such purpose, and (ii) Borrowers shall furnish to Lender all notices or
demands in connection with such loans, advances or guarantees or other
indebtedness subject to such guarantees either received by a Borrower or on its
behalf, promptly after the receipt thereof, or sent by a Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.
-55-
<PAGE>
9.11 Dividends and Redemptions. No Borrower shall, directly or indirectly,
-------------------------
declare or pay any dividends on account of any shares of class of Capital Stock
of any Borrower now or hereafter outstanding, or set aside or otherwise deposit
or invest any sums for such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of capital stock (or set aside or
otherwise deposit or invest any sums for such purpose) for any consideration
other than common stock or apply or set apart any sum, or make any other
distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing; except that CG&Pet may, out of
legally available funds therefor, repurchase from non-affiliated Persons, for
consideration consisting solely of cash, and hold as treasury stock, its
publicly traded common stock; provided, that: (i) the aggregate amount from time
-------- ----
to time paid by CG&Pet in respect of all such permitted repurchases on or after
July 12, 1995 does not exceed $15,000,000; (ii) no Event of Default, or event
which with notice or passage of time or both would constitute an Event of
Default, exists or has occurred and is continuing at the time of any such
repurchase or would result therefrom; and (iii) Excess Availability, as
determined by Lender, shall not be less than $10,000,000 after giving effect to
each payment in respect of such permitted repurchases.
9.12 Transactions with Affiliates. No Borrower shall, directly or
----------------------------
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with any Borrower, except in the ordinary course of and pursuant to
the reasonable requirements of such Borrower's business and upon fair and
reasonable terms no less favorable to such Borrower than such Borrower would
obtain in a comparable arm's length transaction with an unaffiliated person or
(b) make any payments of management, consulting or other fees for management or
similar services, or of any indebtedness owing to any officer, employee,
shareholder, director or other person affiliated with any Borrower except
reasonable compensation to officers, employees and directors for services
rendered to such Borrower in the ordinary course of business.
9.13 Additional Bank Accounts. No Borrower shall, directly or indirectly,
------------------------
open, establish or maintain any deposit account, investment account or any other
account with any bank or other financial institution, other than the Blocked
Accounts and the accounts set forth in Schedule 8.10 hereto, except: (a) as to
any new or additional Blocked Accounts and other such new or additional accounts
which contain any Collateral or proceeds thereof, with the prior written consent
of Lender and subject to such conditions thereto as Lender may establish and (b)
as to any accounts used by any Borrower to make payments of payroll, taxes or
other obligations to third parties, after prior written notice to Lender.
-56-
<PAGE>
9.14 Compliance with ERISA.
---------------------
(a) No Borrower shall, with respect to any "employee benefit plans"
maintained by any Borrower or any of its ERISA Affiliates: (i) terminate any of
such employee benefit plans so as to incur any liability to the Pension Benefit
Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to
exist any prohibited transaction involving any of such employee benefit plans or
any trust created thereunder which would subject any Borrower or any such ERISA
Affiliate to a tax or penalty or other liability on prohibited transactions
imposed under Section 4975 of the Code or ERISA, (iii) fail to pay to any such
employee benefit plan any contribution which it is obligated to pay under
Section 302 of ERISA, Section 412 of the Code or the terms of such plan, (iv)
allow or suffer to exist any accumulated funding deficiency, whether or not
waived, with respect to any such employee benefit plan, (v) allow or suffer to
exist any occurrence of a reportable event or any other event or condition which
presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan,
which termination could result in any liability to the Pension Benefit Guaranty
Corporation or (vi) incur any withdrawal liability with respect to any
multiemployer pension plan.
(b) As used in this Section 9.14, the terms "employee benefit plans",
"accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the Code
and ERISA.
9.15 Consolidated Net Worth. Borrowers shall, at all times, on a
----------------------
consolidated basis for CG&Pet and its subsidiaries, maintain Consolidated Net
Worth of not less than $250,000,000.
9.16 Costs and Expenses. Borrowers shall pay to Lender on demand all
------------------
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) all insurance premiums,
environmental audits, surveys, assessments, engineering reports and inspections,
appraisal fees and search fees; (c) costs and expenses of remitting loan
proceeds, collecting checks and other items of payment, and
-57-
<PAGE>
establishing and maintaining the Blocked Accounts, together with Lender's
customary charges and fees with respect thereto; (d) charges, fees or expenses
charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (g) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrowers' and any
Obligors' operations; and (h) the reasonable fees and disbursements of counsel
(including legal assistants) to Lender in connection with any of the foregoing.
9.17 Further Assurances. (a) At the request of Lender at any time and
------------------
from time to time, each Borrower shall, at its expense, duly execute and
deliver, or cause to be duly executed and delivered, such further agreements,
documents and instruments, and do or cause to be done such further acts as may
be necessary or proper to evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any of the other Financing
Agreements. Lender may at any time and from time to time request a certificate
from an officer of any or all Borrowers (as Lender shall determine) representing
that all conditions precedent to the making of Loans and providing Letter of
Credit Accommodations contained herein are satisfied. In the event of such
request by Lender, Lender may, at its option, cease to make any further Loans or
provide any further Letter of Credit Accommodations until Lender has received
such certificate(s) and, in addition, Lender has determined that such conditions
are satisfied. Where permitted by law, each Borrower hereby authorizes Lender
to execute and file one or more UCC financing statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1 Events of Default. The occurrence or existence of any one or more
-----------------
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) any Borrower fails to pay any of its Obligations after the same
becomes due and payable or (ii) any Borrower or any Obligor fails to perform any
of the terms,
-58-
<PAGE>
covenants, conditions or provisions contained in this Agreement or any of the
other Financing Agreements other than as described in Section 10.1(a)(i) and
such failure shall continue for fifteen (15) days; provided, that, such fifteen
-------- ----
(15) day period shall not apply in the case of: (A) any failure to observe any
such term, covenant, condition or provision which is not capable of being cured
at all or within such fifteen (15) day period or which has been the subject of a
prior failuare within a six (6) month period or (B) an intentional breach by any
Borrower or any Obligor of any such term, covenant, condition or provision, or
provisions contained in Section 6.3, 6.4, 6.6, 7.1, 7.1, 7.3, 7.8, 9.1, 9.2,
9.5, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 or 9.13 of this Agreement or any covenants
or agreements covering substantially the same matter as such sections in any of
the other Financing Agreements;
(b) any representation, warranty or statement of fact made by any
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against any
Borrower or any Obligor in excess of $250,000 in any one case or in excess of
$500,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against any
Borrower or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or any Borrower or any Obligor, which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) any Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United States
of America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any
-59-
<PAGE>
jurisdiction now or hereafter in effect (whether at law or in equity) is filed
against any Borrower or any Obligor or all or any part of its properties and
such petition or application is not dismissed within forty-five (45) days after
the date of its filing or any Borrower or any Obligor shall file any answer
admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United States
of America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at a law or equity) is
filed by any Borrower or any Obligor or for all or any part of its property; or
(i) any default by any Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $100,000, which default continues for more than the
applicable cure period, if any, with respect thereto, or any default by any
Borrower or any Obligor under any material contract, lease, license or other
obligation to any person other than Lender, which default continues for more
than the applicable cure period, if any, with respect thereto;
(j) any breach by Monsanto Company (or Solaris), or any termination by
Monsanto (or Solaris) of, or receipt by Lender of notice of termination or
purported termination or intention to terminate by Monsanto Company (or
Solaris), with respect to the Vendor Buyback Agreement dated June 12, 1992 by
Monsanto Company in favor of Lender or with respect to the Intercreditor
Agreement dated January 28, 1994, as amended, between Monsanto Company
(including Solaris) and Lender;
(k) any change in the controlling ownership of CG&Pet or any change in
the ownership of any other Borrower or Guarantor, unless Lender shall have
provided its prior written consent thereto;
(l) the indictment or threatened indictment of any Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against any Borrower or any Obligor, pursuant
to which statute or proceedings the penalties or remedies sought or
-60-
<PAGE>
available include forfeiture of any of the property of such Borrower or such
Obligor;
(m) there shall be a material adverse change in the business, assets or
prospects of any Borrower or any Obligor after the date hereof; or
(n) there shall be an event of default under any of the other Financing
Agreements.
10.2 Remedies.
--------
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by any Borrower or any Obligor, except as such notice or consent
is expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discr etion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by any Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against any Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
-------- ----
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require any or all Borrowers, at Borrowers'
expense, to assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender, (iv) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral, (v) remove
any or all of the Collateral from any premises on or in which the same may be
located for the purpose of effecting the sale, foreclosure or other disposition
thereof or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into
-61-
<PAGE>
contracts with respect thereto, public or private sales at any exchange,
broker's board, at any office of Lender or elsewhere) at such prices or terms as
Lender may deem reasonable, for cash, upon credit or for future delivery, with
the Lender having the right to purchase the whole or any part of the Collateral
at any such public sale, all of the foregoing being free from any right or
equity of redemption of Borrowers, which right or equity of redemption is hereby
expressly waived and released by each Borrower and/or (vii) terminate this
Agreement. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
Lender to Borrowers (or to CG&Pet on behalf of Borrowers) designating the time
and place of any public sale or the time after which any private sale or other
intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and each Borrower waives any other notice. In the
event Lender institutes an action to recover any Collateral or seeks recovery of
any Collateral by way of prejudgment remedy, each Borrower waives the posting of
any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually received
by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrowers shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including reasonable attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations to any or
all Borrowers or reduce the lending formulas or amounts of Revolving Loans and
Letter of Credit Accommodations available to any or all Borrowers and/or (ii)
terminate any provision of this Agreement providing for any future Loans or
Letter of Credit Accommodations to be made by Lender to any or all Borrowers.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
--------------------------------
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
--------------------------------------------------------------
Waiver.
------
(a) The validity, interpretation and enforcement of this Agreement and
the other Financing Agreements and any dispute arising out of the relationship
between the parties hereto,
-62-
<PAGE>
whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of California (without giving effect to principles of
conflicts of law).
(b) Each Borrower and Lender irrevocably consents and submits to the
non-exclusive jurisdiction of the Superior Court of Los Angeles County,
California and the United States District Court for the Central District of
California and waive any objection based on venue or forum non conveniens with
----- --- ----------
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against any or all
Borrowers or its or their property in the courts of any other jurisdiction which
Lender deems necessary or appropriate in order to realize on the Collateral or
to otherwise enforce its rights against any or all Borrowers or its or their
property).
(c) EACH BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH BORROWER AND
LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY
BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(d) Lender shall not have any liability to any Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by any Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and non-
appealable judgment binding on Lender, that the losses were the result of acts
or omissions constituting gross negligence or willful misconduct of Lender. In
any such litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the
-63-
<PAGE>
exercise of ordinary care in the performance by it of the terms of this
Agreement.
11.2 Waiver of Notices. Each Borrower hereby expressly waives demand,
-----------------
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on any Borrower which Lender may elect to give shall entitle such
Borrower or any other Borrower to any other or further notice or demand in the
same, similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
----------------------
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of each
Borrower to be bound thereby. Lender shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of its rights,
powers and/or remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. Any such waiver shall be enforceable only to the
extent specifically set forth therein. A waiver by Lender of any right, power
and/or remedy on any one occasion shall not be construed as a bar to or waiver
of any such right, power and/or remedy which Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Each Borrower waives all rights to
-----------------------
interpose any claims, deductions, setoffs or counterclaims of any nature (other
then compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrowers shall indemnify and hold Lender, and its
---------------
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the reasonable fees and
expenses of counsel. To the extent that the undertaking to indemnify, pay and
hold harmless set forth in this
-64-
<PAGE>
Section may be unenforceable because it violates any law or public policy,
Borrowers shall pay the maximum portion which they are permitted to pay under
applicable law to Lender in satisfaction of indemnified matters under this
Section. The foregoing indemnity shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
12.1 Term.
----
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on July 12, 2001 (the "Renewal
Date"), and from year to year thereafter, unless sooner terminated pursuant to
the terms hereof. Lender or Borrowers (but not less than all Borrowers) may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party(ies) at least sixty (60) days prior written notice; provided,
--------
that, this Agreement and all other Financing Agreements must be terminated
- ----
simultaneously. Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrowers shall pay to Lender, in full, all outstanding
and unpaid Obligations and shall furnish cash collateral to Lender in such
amounts as Lender determines are reasonably necessary to secure Lender from
loss, cost, damage or expense, including reasonable attorneys' fees and legal
expenses, in connection with any contingent Obligations, including issued and
outstanding Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Lender has not yet
received final and indefeasible payment. Such payments in respect of the
Obligations and cash collateral shall be remitted by wire transfer in Federal
funds to such bank account of Lender, as Lender may, in its discretion,
designate in writing to Borrowers for such purpose. Interest shall be due until
and including the next business day, if the amounts so paid by Borrowers to the
bank account designated by Lender are received in such bank account later than
12:00 noon, Los Angeles, California time.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge any Borrower of its respective duties, obligations
and covenants under this Agreement or the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and remedies of
Lender hereunder, under the other Financing Agreements and applicable law, shall
remain in effect until all such Obligations have been fully and finally
discharged and paid.
-65-
<PAGE>
(c) If for any reason this Agreement is terminated prior to the end of
the then current term or renewal term of this Agreement, as a fee for any such
termination by Borrowers, or, in the event of termination by Lender by reason of
an Event of Default, in view of the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits as a result thereof, Borrowers
agree to pay to Lender, upon the effective date of such termination, an early
termination fee in the amount set forth below if such termination is effective
in the period indicated:
<TABLE>
<CAPTION>
Amount Period
------ ------
<S> <C>
(i) $250,00 From the date hereof to
and including July 11,
1999.
(ii) $187,50 From July 12, 1999 to, but
not including, the Renewal
Date, or, if later, the
last day of the then-
current renewal year.
</TABLE>
Such early termination fee is the agreed upon fee for any early termination by
Borrowers, or, in the event of termination by reason of an Event of Default,
shall be presumed to be the amount of lost profits sustained by Lender as a
result of such early termination and Borrowers agree that it is reasonable under
the circumstances currently existing. In addition, Lender shall be entitled to
such early termination fee upon the occurrence of any Event of Default described
in Sections 10.1(g) and 10.1(h) hereof, even if Lender does not exercise its
right to terminate this Agreement, but elects, at its option, to provide
financing to any or all Borrowers or permit the use of cash collateral under the
United States Bankruptcy Code. The early termination fee provided for in this
Section 12.1 shall be deemed included in the Obligations.
(d) Notwithstanding anything to the contrary contained in Section
12.1(c), if this Agreement shall be terminated by Borrowers effective on or
before December 31, 1998 contemporaneously with the consummation of a
refinancing of the Obligations and contemporaneously with the consummation of an
asset acquisition by CG&Pet consisting of the acquisition of a non-affiliated
business having assets of at least $300,000,000, as such assets are determined
at the end of such non-affiliated business' fiscal month immediately preceding
the effective time of such acquisition, then, provided Lender has received from
Borrowers (or CG&Pet on behalf of Borrowers) not less than thirty (30) days'
prior written notice of such early termination, acquisition and refinancing, the
early termination fee otherwise
-66-
<PAGE>
payable by Borrowers under Section 12.1(c) in respect of such termination shall
be reduced to $100,000.
12.2 Notices. All notices, requests and demands hereunder shall be in
-------
writing and (a) made to Lender at its address set forth below and to any or all
Borrowers c/o CGPet at its chief executive office set forth below, or to such
other address as either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to be
------------------
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
----------
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrowers and their respective
successors and assigns, except that no Borrower may assign its rights under this
Agreement, the other Financing Agreements and any other document referred to
herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrowers (or CG&Pet on behalf of Borrowers), assign its rights
and delegate its obligations under this Agreement and the other Financing
Agreements and further may assign, or sell participations in, all or any part of
the Loans, the Letter of Credit Accommodations or any other interest herein to
another financial institution or other person, in which event, the assignee or
participant shall have, to the extent of such assignment or participation, the
same rights and benefits as it would have if it were the Lender hereunder,
except as otherwise provided by the terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing Agreements,
----------------
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions,
-67-
<PAGE>
representations, warranties, commitments, proposals, offers and contracts
concerning the subject matter hereof, whether oral or written. In the event of
any inconsistency between the terms of this Agreement and any schedule or
exhibit hereto, the terms of this Agreement shall govern.
IN WITNESS WHEREOF, Lender and Borrowers have caused these presents to be
duly executed as of the day and year first above written.
LENDER BORROWER
- ------ --------
CONGRESS FINANCIAL CENTRAL GARDEN & PET COMPANY
CORPORATION (WESTERN)
By: /s/ illegible By: /s/ Robert B. Jones
---------------------- ------------------------
Title: V.P. Title: V.P. Finance
------------------- ---------------------
Address: Chief Executive Office:
- -------- -----------------------
225 South Lake Avenue 3697 Mount Diablo Boulevard
Suite 1000 Suite 310
Pasadena, California 91101 Lafayette, California 94549
MATTHEWS REDWOOD AND NURSERY
SUPPLY, INC.
By: /s/ Robert B. Jones
--------------------------
Title: /s/ V.P. Finance
-----------------------
Chief Executive Office:
----------------------
3697 Mount Diablo Boulevard
Suite 310
Lafayette, California 94549
FOUR PAWS PRODUCTS, LTD.
By: /s/ Robert B. Jones
--------------------------
Title: V.P. & C.F.O.
-----------------------
Chief Executive Office:
----------------------
3697 Mount Diablo Boulevard
Suite 310
Lafayette, California 94549
(SIGNATURES CONTINUE ON NEXT PAGE)
-68-
<PAGE>
(SIGNATURES CONTINUED FROM PREVIOUS PAGE)
EZELL NURSERY SUPPLY, INC.
By: /s/ Robert B. Jones
--------------------------
Title: V.P. Finance
-----------------------
Chief Executive Office:
----------------------
3697 Mount Diablo Boulevard
Suite 310
Lafayette, California 94549
-69-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-START> MAR-29-1998
<PERIOD-END> JUN-27-1998
<CASH> 18,578
<SECURITIES> 0
<RECEIVABLES> 206,954
<ALLOWANCES> 6,692
<INVENTORY> 277,245
<CURRENT-ASSETS> 520,695
<PP&E> 144,859
<DEPRECIATION> 63,674
<TOTAL-ASSETS> 977,863
<CURRENT-LIABILITIES> 248,685
<BONDS> 0
0
0
<COMMON> 298
<OTHER-SE> 16
<TOTAL-LIABILITY-AND-EQUITY> 977,863
<SALES> 502,183
<TOTAL-REVENUES> 502,183
<CGS> 397,815
<TOTAL-COSTS> 69,076
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,633
<INCOME-PRETAX> 32,659
<INCOME-TAX> 13,720
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,939
<EPS-PRIMARY> .61
<EPS-DILUTED> .56
</TABLE>
