-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N64xHibwaA/0MKxxOHQE2VmENNoYQZTg+PMlHQffvIL/312qmhd1YxrdJ6j+SaLE TM4Mxfq/uY6tWjDfVOsdGA== /in/edgar/work/20000814/0000950148-00-001772/0000950148-00-001772.txt : 20000921 0000950148-00-001772.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950148-00-001772 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEMINIS INC CENTRAL INDEX KEY: 0001078259 STANDARD INDUSTRIAL CLASSIFICATION: [0100 ] IRS NUMBER: 360769130 STATE OF INCORPORATION: IL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26519 FILM NUMBER: 698598 BUSINESS ADDRESS: STREET 1: 1905 LIRIO AVENUE CITY: SATICOY STATE: CA ZIP: 93004-4206 MAIL ADDRESS: STREET 1: 1905 LIRIO AVENUE CITY: SATICOY STATE: CA ZIP: 93004-4206 10-Q 1 e10-q.txt FORM 10-Q 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q ------------------------ (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 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ . COMMISSION FILE NUMBER 000-26519 SEMINIS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-0769130 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER) 2700 CAMINO DEL SOL, CALIFORNIA 93030 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 805-918-2740 1905 LIRIO AVENUE, CALIFORNIA, 93004 (FORMER NAME, 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. YES [X] NO [ ] As of August 7, 2000, the Registrant had 13,975,764 registered shares of Class A Common Stock, $0.01 par value per share, issued and outstanding, and 45,848,622 unregistered shares of Class B Common Stock, $0.01 par value per share, issued and outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 SEMINIS, INC. TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2000 and September 30, 1999.......................................... 1 Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2000 and 1999......................... 2 Consolidated Statements of Stockholders' Equity for the Nine Months Ended June 30, 2000.................................. 3 Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2000 and 1999................................ 4 Notes to Consolidated Financial Statements.................. 5 Management's Discussion and Analysis of Financial Condition Item 2. and Results of Operations................................... 8 Quantitative and Qualitative Disclosures About Market Item 3. Risk........................................................ 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 13 Item 6. Exhibits and Reports on Form 8-K............................ 14 Signatures.................................................. 15 Exhibit Index............................................... 16
i 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SEMINIS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
AS OF AS OF JUNE 30, SEPTEMBER 30, 2000 1999 ----------- ------------- (UNAUDITED) Current assets Cash and cash equivalents................................. $ 13,421 $ 19,068 Accounts receivable, net.................................. 196,393 171,283 Inventories............................................... 316,075 301,744 Refundable income taxes................................... -- 4,144 Prepaid expenses and other current assets................. 5,511 3,582 ---------- --------- Total current assets............................... 531,400 499,821 Property, plant and equipment, net.......................... 235,333 226,635 Intangible assets, net...................................... 241,192 242,275 Other assets................................................ 18,768 24,631 ---------- --------- $1,026,693 $ 993,362 ========== ========= LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY Current liabilities Short-term borrowings..................................... $ 25,113 $ 6,591 Current maturities of long-term debt...................... 29,967 20,563 Accounts payable.......................................... 42,959 54,681 Accrued liabilities....................................... 85,489 68,811 ---------- --------- Total current liabilities.......................... 183,528 150,646 Long-term debt.............................................. 311,441 315,424 Deferred income taxes....................................... 7,227 30,453 Minority interest in subsidiaries........................... 1,553 1,124 ---------- --------- Total liabilities.................................. 503,749 497,647 ---------- --------- Commitments and contingencies Mandatorily redeemable stock Class B Redeemable Preferred Stock, $0.01 par value; 25 shares authorized as of June 30, 2000 and September 30,1999; 25 shares issued and outstanding as of June 30, 2000 and September 30, 1999............................. 25,000 25,000 ---------- --------- Total mandatorily redeemable stock................. 25,000 25,000 ---------- --------- Stockholders' equity Class C Preferred Stock, $0.01 par value; 12 and 9 shares authorized as of June 30, 2000 and September 30, 1999, respectively; 9 and 4 shares issued and outstanding as of June 30, 2000 and September 30, 1999, respectively... 1 1 Class A Common Stock, $0.01 par value; 91,000 shares authorized as of June 30, 2000 and September 30, 1999; 13,976 and 13,750 shares issued and outstanding as of June 30, 2000 and September 30, 1999, respectively...... 140 138 Class B Common Stock, $0.01 par value; 60,229 shares authorized as of June 30, 2000 and September 30, 1999; 45,848 and 46,074 shares issued and outstanding as of June 30, 2000 and September 30, 1999, respectively...... 459 461 Additional paid-in capital................................ 686,517 640,357 Accumulated deficit....................................... (179,865) (155,299) Accumulated other comprehensive loss...................... (9,308) (14,943) ---------- --------- Total stockholders' equity......................... 497,944 470,715 ---------- --------- $1,026,693 $ 993,362 ========== =========
The accompanying notes are an integral part of these consolidated financial statements. 1 4 SEMINIS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------- -------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (UNAUDITED) (UNAUDITED) Net sales....................................... $114,360 $124,745 $382,150 $407,056 Cost of goods sold.............................. 59,636 47,573 165,227 154,184 -------- -------- -------- -------- Gross profit.................................. 54,724 77,172 216,923 252,872 -------- -------- -------- -------- Operating expenses Research and development expenses............. 14,517 16,494 43,739 47,719 Selling, general and administrative expenses................................... 61,660 49,042 163,082 149,155 Amortization of intangible assets............. 7,464 6,760 22,455 20,417 -------- -------- -------- -------- Total operating expenses.............. 83,641 72,296 229,276 217,291 -------- -------- -------- -------- Income (loss) from operations................... (28,917) 4,876 (12,353) 35,581 -------- -------- -------- -------- Other income (expense) Interest income............................... 755 1,524 2,037 4,104 Interest expense.............................. (9,229) (12,754) (24,285) (39,018) Foreign currency gain (loss).................. (479) (719) (3,204) 946 Other, net.................................... 10,023 619 10,786 (1,208) -------- -------- -------- -------- 1,070 (11,330) (14,666) (35,176) Income (loss) before income taxes and extraordinary items........................... (27,847) (6,454) (27,019) 405 Income tax benefit (expense).................... 8,600 1,821 8,113 (952) -------- -------- -------- -------- Net loss before extraordinary items............. (19,247) (4,633) (18,906) (547) -------- -------- -------- -------- Extraordinary items, net of tax of $2,435....... -- (3,973) -- (3,973) -------- -------- -------- -------- Net loss........................................ (19,247) (8,606) (18,906) (4,520) Preferred stock dividends....................... (2,366) (1,306) (5,660) (2,644) Accretion of Old Class B Redeemable Common Stock......................................... -- (699) -- (2,223) -------- -------- -------- -------- Net loss available for common stockholders...... $(21,613) $(10,611) $(24,566) $ (9,387) ======== ======== ======== ======== Net loss available for common stockholders per common share, basic and diluted: Loss before extraordinary items available for common stockholders........................... $ (0.36) $ (0.17) $ (0.41) $ (0.14) Extraordinary items............................. -- (0.10) -- (0.10) -------- -------- -------- -------- Net loss available for common stockholders...... $ (0.36) $ (0.27) $ (0.41) $ (0.24) ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 2 5 SEMINIS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE DATA)
CLASS C CLASS A CLASS B ACCUMULATED PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL OTHER --------------- --------------- --------------- PAID-IN ACCUMULATED COMPREHENSIVE NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT CAPITAL DEFICIT LOSS ------ ------ ------ ------ ------ ------ ---------- ----------- ------------- BALANCE, SEPTEMBER 30, 1999..... 4 $1 13,750 $138 46,074 $461 $640,357 $(155,299) $(14,943) Comprehensive income Net loss (Unaudited).......... -- -- -- -- -- -- -- (18,906) -- Translation adjustment (Unaudited)................. -- -- -- -- -- -- -- -- 5,635 Conversion of shares (Unaudited)................... -- -- 226 2 (226) (2) -- -- -- Issuance of Class C Preferred Stock (Unaudited)............. 4 -- -- -- -- -- 42,000 -- -- Dividends on Class B Redeemable Preferred Stock (Unaudited)... -- -- -- -- -- -- -- (1,500) -- Dividends on Class C Preferred Stock (Unaudited)............. 1 -- -- -- -- -- 4,160 (4,160) -- -- -- ------ ---- ------ ---- -------- --------- -------- BALANCE, JUNE 30, 2000 (UNAUDITED)................... 9 $1 13,976 $140 45,848 $459 $686,517 $(179,865) $ (9,308) == == ====== ==== ====== ==== ======== ========= ======== TOTAL STOCKHOLDERS' EQUITY ------------- BALANCE, SEPTEMBER 30, 1999..... $470,715 -------- Comprehensive income Net loss (Unaudited).......... (18,906) Translation adjustment (Unaudited)................. 5,635 -------- (13,271) Conversion of shares (Unaudited)................... -- Issuance of Class C Preferred Stock (Unaudited)............. 42,000 Dividends on Class B Redeemable Preferred Stock (Unaudited)... (1,500) Dividends on Class C Preferred Stock (Unaudited)............. -- -------- BALANCE, JUNE 30, 2000 (UNAUDITED)................... $497,944 ========
The accompanying notes are an integral part of these consolidated financial statements. 3 6 SEMINIS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE NINE MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- ------- (UNAUDITED) Cash flows from operating activities: Net loss.................................................. $(18,906) $(4,520) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.......................... 36,322 34,747 Deferred income tax benefit............................ (24,690) (2,464) Other.................................................. (9,816) 6,483 Changes in assets and liabilities: Accounts receivable.................................. (31,994) (64,932) Inventories.......................................... (20,212) (21,382) Prepaid expenses and other assets.................... 4,470 (1,789) Current income taxes................................. 14,961 (2,377) Accounts payable..................................... (10,665) (20,108) Other liabilities.................................... 7,445 (3,478) -------- ------- Net cash used in operating activities............. (53,085) (79,820) -------- ------- Cash flows from investing activities: Purchases of fixed and intangible assets.................. (32,664) (33,971) Proceeds from disposition of assets....................... 5,509 1,738 Exercise of Hungnong put option........................... -- (8,673) Agroceres acquisition, net of cash acquired............... -- (19,695) Proceeds from sale of MBS' assets......................... 9,712 -- Other..................................................... (898) (2,280) -------- ------- Net cash used in investing activities............. (18,341) (62,881) -------- ------- Cash flows from financing activities: Borrowings under long-term debt........................... 57,872 79,432 Repayments of long-term debt.............................. (51,421) -- Demand note from bank..................................... -- 8,975 Net short-term borrowings................................. 19,188 -- Intercompany advance from Savia........................... -- 20,000 Class B Redeemable Preferred Stock dividends.............. (1,500) (1,500) Issuance of Class C Preferred Stock....................... 42,000 30,000 -------- ------- Net cash provided by financing activities......... 66,139 136,907 -------- ------- Effect of exchange rate changes on cash and cash equivalents............................................... (360) (104) -------- ------- Decrease in cash and cash equivalents....................... (5,647) (5,898) Cash and cash equivalents, beginning of period.............. 19,068 28,895 -------- ------- Cash and cash equivalents, end of period.................... $ 13,421 $22,997 ======== =======
The accompanying notes are an integral part of these consolidated financial statements. 4 7 SEMINIS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Seminis, Inc. ("Seminis" or the "Company") is the largest developer, producer and marketer of vegetable and fruit seeds in the world. The Company is a majority-owned subsidiary of Savia, S.A. de C.V. ("Savia") and effectively began operations when it purchased Asgrow Seed Company in December 1994. Basis of Presentation The consolidated financial statements include the accounts of the Company and its majority controlled and owned subsidiaries. Investments in unconsolidated entities, representing ownership interests between 20% and 50%, are accounted for using the equity method of accounting. All material intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior periods to conform to the current quarter presentation. Seminis generally operates on a thirteen week calendar closing on the Friday closest to the natural calendar quarter, except for the fiscal year end which closes on September 30. For convenience, all quarters are described by their natural calendar dates. The unaudited consolidated financial statements included herein reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The Company's business is subject to seasonal fluctuation and, therefore, the results of operations for periods less than one year are not necessarily indicative of results which may be expected for any other interim period or for the fiscal year as a whole. Supplementary Cash Flow Information
NINE MONTHS ENDED JUNE 30, ------------------ 2000 1999 ------- ------- (UNAUDITED) Cash paid for interest...................................... $24,087 $42,995 Cash paid for income taxes.................................. 1,616 5,793 Supplemental non-cash transactions: Issuance of preferred stock in payment of Class C Preferred Stock dividends.............................. 4,160 1,144 Conversion of subordinated debt due Savia................. -- 35,857 Conversion of Old Class B Redeemable Common Stock......... -- 50,639
Income (Loss) per Common Share Net income (loss) per common share has been computed pursuant to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic net income (loss) per common share is computed by dividing net income (loss) available for common stockholders by the average number of common shares outstanding during each period. Net income (loss) available for common stockholders represents reported net income (loss) less preferred stock dividends and, in fiscal year 1999, accretion of redemption value for Old Class B Redeemable Common Stock. Diluted net income (loss) per common share reflects the potential dilution that could occur if dilutive securities and other contracts were exercised or converted into common stock or resulted in the issuance of common stock. The following table provides a reconciliation of net income (loss) before extraordinary items available for common stockholders and sets 5 8 SEMINIS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) forth the computation for basic and diluted net income (loss) before extraordinary items available for common stockholders per share.
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2000 1999 2000 1999 -------- ------- -------- ------- (UNAUDITED) (UNAUDITED) Numerator for Basic and Diluted: Loss before extraordinary items................... $(19,247) $(4,633) $(18,906) $ (547) Preferred stock dividends......................... (2,366) (1,306) (5,660) (2,644) Accretion of Old Class B Redeemable Common Stock........................................... -- (699) -- (2,223) -------- ------- -------- ------- Loss available for common stockholders (basic & diluted)................................. $(21,613) $(6,638) $(24,566) $(5,414) ======== ======= ======== ======= Denominator -- Shares: Weighted average common shares outstanding (basic)......................................... 59,824 39,867 59,824 38,639 Add potential common shares: Old Class B Redeemable Common Stock............. -- 6,207 -- 6,583 Exercisable stock options....................... -- -- -- -- Less antidilutive effect of potential common shares.......................................... -- (6,207) -- (6,583) -------- ------- -------- ------- Weighted average common shares outstanding (diluted).................................. 59,824 39,867 59,824 38,639 ======== ======= ======== ======= Loss before extraordinary items available for common stockholders per common share: Basic........................................ $ (0.36) $ (0.17) $ (0.41) $ (0.14) Diluted...................................... (0.36) (0.17) (0.41) (0.14) ======== ======= ======== =======
NOTE 2 -- INVENTORIES Inventories consist of the following:
JUNE 30, SEPTEMBER 30, 2000 1999 ----------- ------------- (UNAUDITED) Seed............................................... $269,405 $257,774 Unharvested crop growing costs..................... 13,746 28,504 Supplies........................................... 32,924 15,466 -------- -------- $316,075 $301,744 ======== ========
NOTE 3 -- GLOBAL RESTRUCTURING AND OPTIMIZATION PLAN In February 2000, the Company announced a global cost saving initiative designed to streamline operations, increase utilization of facilities and improve efficiencies. The first phase of the initiative focused on North American operations. In June 2000, the Company announced the second phase, which was targeted at its global operations. The key elements to Seminis' global restructuring and optimization plan involve: - Reorganizing its 10 legacy seed companies into four geographical regions; - Reducing operation and production facilities from 21 to 6; - Reducing headcount resulting from the reorganization and facility consolidation; 6 9 SEMINIS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) - Rationalizing the product portfolio; - Implementing an advanced global logistics management information system; and - Divesting non-strategic assets. In connection with the restructuring plan, the Company recorded nonrecurring pre-tax charges to operations of approximately $34.2 million for restructuring costs that included severance and other exit costs, inventory write-downs and costs associated with streamlining the products portfolio. Of this amount, $18.4 million was included in cost of goods sold for inventory write-downs, $7.7 million of which was recorded in the second quarter. The remaining $15.8 million was included in selling, general and administrative expenses, $0.6 million of which was recorded in the second quarter, and consists primarily of severance costs. These relate to approximately 600 employees worldwide in both operation and administrative groups. The Company commenced the restructuring during fiscal 2000, and expects to complete the plan by fiscal 2001. Further elements of the plan will be initiated in the future and should be completed by fiscal 2002. Components of the restructuring charges are as follows:
BALANCE AT TOTAL AMOUNTS JUNE 30, CHARGES INCURRED 2000 ------- -------- ---------- Write-downs of inventory............................... $18.4 $18.4 $ -- Severance and related expenses......................... 14.0 -- 14.0 Other.................................................. 1.8 1.8 -- ----- ----- ----- Total........................................ $34.2 $20.2 $14.0 ===== ===== =====
As part of the strategy to divest of non-strategic assets, in June 2000, the Company sold the assets of MBS, Inc., a U.S. subsidiary in the soybean seed business. The total purchase price was $11.9 million, from which the Company recorded a gain of $10.6 million, which is included in other non-operating income. NOTE 4 -- BORROWINGS In June 2000, the Company amended its credit agreement to provide for more relaxed financial covenant ratios as well as to allow for the needed expenses related to the Global Restructuring and Optimization Plan. The Company also entered into a security agreement with its lenders that collateralized its receivables, general intangibles and inventory. NOTE 5 -- CLASS C PREFERRED STOCK CONVERSIONS In April, May and June 2000, the Company received advances of $22.0 million, $14.0 million and $6.0 million, respectively, from Savia to finance additional working capital requirements. These advances were converted to Class C Preferred Stock that pays dividends quarterly in kind at 10% per annum. 7 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto of the Company included elsewhere herein. The following discussion and analysis contains certain "forward-looking statements" which are subject to certain risks, uncertainties and contingencies which could cause Seminis' actual business, results of operations or financial condition to differ materially from those expressed in, or implied by, such statements. OVERVIEW Seminis is the largest developer, producer and marketer of vegetable and fruit seeds in the world. Seminis produces more than 60 species and 8,000 distinct varieties of vegetable and fruit seeds. Seminis has established a worldwide presence and global distribution network that spans 120 countries with 70 research stations in 19 countries and production sites in 32 countries. Seminis is a majority owned subsidiary of Savia, S.A. de C. V. ("Savia"). In order to achieve its position as the premier vegetable and fruit seed company, Seminis has completed nine acquisitions since its formation in 1994 and has incurred significant expenses related to the development of its infrastructure, including its human resource capability, information systems and brand marketing teams, and its research and development capability. Seminis expenses its investments in research and development and in the creation of its worldwide sales capability. The comparability of Seminis' results of operations from period to period has also been affected by the impact of acquisition accounting under purchase accounting principles, interest expense attributable to acquisition financing and exposure to foreign currency fluctuations. RESULTS OF OPERATIONS The table below sets forth Seminis' results of operations data expressed as a percentage of net sales.
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 2000 1999 2000 1999 ------ ------ ------ ------ (UNAUDITED) (UNAUDITED) Net sales............................................. 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- Gross profit.......................................... 47.8 61.9 56.8 62.1 Research and development expenses..................... 12.7 13.2 11.4 11.7 Selling, general and administrative expenses.......... 53.9 39.3 42.7 36.6 Amortization of intangible assets..................... 6.5 5.4 5.9 5.0 ----- ----- ----- ----- Income (loss) from operations......................... (25.3) 4.0 (3.2) 8.8 Interest expense, net................................. (7.4) (9.0) (5.8) (8.6) Other non-operating income (expense), net............. 8.4 (0.1) 2.0 (0.1) ----- ----- ----- ----- Income (loss) before income taxes and extraordinary items............................................... (24.3) (5.1) (7.0) 0.1 Income tax benefit (expense).......................... 7.5 1.5 2.1 (0.2) ----- ----- ----- ----- Net loss before extraordinary items................... (16.8) (3.6) (4.9) (0.1) Extraordinary items, net of tax....................... -- (3.2) -- (1.0) ----- ----- ----- ----- Net loss.............................................. (16.8)% (6.8)% (4.9)% (1.1)% ===== ===== ===== =====
NINE MONTHS ENDED JUNE 30, 2000 COMPARED WITH NINE MONTHS ENDED JUNE 30, 1999 Net Sales Net sales decreased 6.1% to $382.2 million for the nine months ended June 30, 2000 from $407.1 million for the same period ended June 30, 1999. The decrease is primarily due to the $16.5 million impact from currency fluctuation and the unfavorable horticultural industry in North America. The Euro weakened during the nine months ended June 30, 2000 and was weaker overall compared to the same period of fiscal year 1999. Geographically, sales decreased in North America due to the prolonged slump in the fresh produce prices at the grower level that led to reductions in planted acreage, particularly in fresh market tomato, onion and 8 11 lettuce. The South American market continued with strong performance in Colombia and Venezuela, even though vegetable prices were depressed in Argentina, Chile and Ecuador due to reduced consumption. Europe and the Middle East are slightly behind last year due to adverse climatic condition. The Far East outperformed last year both in volume and margin. The Company's business is subject to seasonal fluctuations and, therefore, the sales for the first nine months of a fiscal year are not necessarily indicative of those to be expected in any other interim period or for an entire fiscal year. Gross Profit Gross profit decreased 14.2% to $216.9 million for the nine months ended June 30, 2000 from $252.9 million for the nine months ended June 30, 1999. Gross margin decreased to 56.8% for the nine months ended June 30, 2000 from 62.1% for the nine months ended June 30, 1999. The primary contributing factor to a lower gross margin in fiscal year 2000 was the $18.4 million inventory written-off in connection with the implementation of the Company's Global Restructuring and Optimization Plan. Research and Development Expenses Research and development expenses decreased 8.3% to $43.7 million for the nine months ended June 30, 2000 from $47.7 million for the nine months ended June 30, 1999. This decrease was primarily due to the impact of the weaker Euro as the Company has significant research and development activities in the Netherlands, France, Spain and Italy. Selling, General and Administrative Expenses Selling, general and administrative expenses increased 9.3% to $163.1 million for the nine months ended June 30, 2000 from $149.2 million for the nine months ended June 30, 1999. The increase is due to approximately $14.0 million in severance costs and approximately $1.8 million of expenses due to programs designed to maximize the efficiency of Seminis' product pipeline that related to the Company's Global Restructuring and Optimization Plan. Offsetting these increases were lower overhead expenses resulting from the Company's continued cost containing measures. Amortization of Intangible Assets Amortization of intangible assets increased 10.0% to $22.5 million for the nine months ended June 30, 2000 from $20.4 million for the nine months ended June 30, 1999. This increase was primarily due to amortization of goodwill relating to the acquisition of an additional 25% of Hungnong Seed Co., Ltd., a South Korean subsidiary, in August 1999. In addition, the Korean Won strengthened during the first nine months of fiscal 2000 compared to the same period in fiscal 1999, resulting in additional amortization recorded in U.S. dollars. Also, in the nine months ended June 30, 2000, the Company recorded amortization as a result of the purchase of the seedless watermelon germplasm of Barham Seeds, Inc. in July 1999. Interest Expense, Net Interest expense, net, decreased 36.3% to $22.2 million for the nine months ended June 30, 2000 from $34.9 million for the nine months ended June 30, 1999. Both the 1999 refinancing of Seminis' credit agreements and the repayment of debt using the proceeds from the Company's initial public offering in July 1999 resulted in a lower average debt balance for the nine months ended June 30, 2000 compared to the same period in fiscal year 1999. Other Non-Operating Income (Expense), Net Seminis had other non-operating income, net, of $7.6 million for the nine months ended June 30, 2000 as compared to other non-operating expense, net, of $0.3 million for the nine months ended June 30, 1999. Other non-operating income, net, for the nine months ended June 30, 2000 included a gain on the asset sale of MBS, a soybean subsidiary, of $10.6 million, a foreign currency loss of $3.2 million and other gains from the disposition of fixed assets. The foreign currency loss was principally due to a charge recorded by SVS Holland 9 12 on its U.S. dollar denominated loan. Other non-operating expense, net, for the nine months ended June 30, 1999 included a foreign currency gain of $0.9 million primarily due to the Hungnong intercompany loan and a minority interest provision of $1.1 million related to the 25% minority interest in Hungnong. Income Tax Benefit (Expense) Income tax benefit increased to $8.1 million for the nine months ended June 30, 2000 from income tax expense of $1.0 million for the nine months ended June 30, 1999. The increase in income tax benefit was the result of lower consolidated pretax income. Loss before Extraordinary Items Loss before extraordinary items was $18.9 million for the nine months ended June 30, 2000 as compared to $0.5 million for the nine months ended June 30, 1999. This increase in loss was due primarily to lower overall sales, reduced gross margins and non-recurring expenses partially offset by lower interest expense, net. Extraordinary Items The extraordinary item for the nine months ended June 30, 1999 was the write-off of unamortized loan fees of $4.0 million, net of taxes. The fee was written-off in connection with Seminis' borrowing of $473.0 million under the fiscal year 1999 credit agreement and the repayment of the old credit agreement. Net Loss Net loss was $18.9 million for the nine months ended June 30, 2000 as compared to $4.5 million for the nine months ended June 30, 1999. The same factors discussed earlier contributed to the increase. THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999 Net Sales Net sales decreased 8.3% to $114.4 million for the three months ended June 30, 2000 from $124.7 million for the three months ended June 30, 1999. The decrease was primarily due to the effect of currency fluctuation and the depressed North American vegetable market. The currency impact of $4.5 million was mainly due to the weakening of the Euro during the third quarter of fiscal 2000; the Euro was weaker overall compared to the same period in fiscal 1999. The prolonged decline in fresh produce prices at the grower level in North America resulted in the reduction of planted acreage that in turn affected seed sales. Europe and the Middle East bounced back considerably after a lackluster performance in the first half of fiscal 2000. The Far East continued in its growth mode with volume increases complimented by price increases. South America edged forward despite consumption set backs in Argentina, Chile and Ecuador. The Company's business is subject to seasonal fluctuations and, therefore, the sales for the third quarter of a fiscal year are not necessarily indicative of those to be expected in any other interim period or for an entire fiscal year. Gross Profit Gross profit decreased 29.1% to $54.7 million for the three months ended June 30, 2000 from $77.2 million for the three months ended June 30, 1999. Gross margin decreased to 47.8% for the three months ended June 30, 2000 from 61.9 % for the three months ended June 30, 1999. The decrease in gross margin was primarily due to a $10.7 million inventory write-off in connection with the implementation of the Company's Global Restructuring and Optimization Plan. The weak agricultural economy, particularly in North America, also generated demand for less expensive seeds that further deteriorated the margin. Without the aforementioned inventory write-off, gross margin would have been 57.2% for the third quarter of fiscal 2000. 10 13 Research and Development Expenses Research and development expenses decreased 12.0% to $14.5 million for the three months ended June 30, 2000 from $16.5 million for the three months ended June 30, 1999. This decrease was primarily due to a $2.2 million charge related to Seminis' research incentive program taken in the third quarter of fiscal 1999. The incentive program, launched in the second quarter of fiscal 1999, is part of Seminis' continuing efforts to attract and retain industry leading breeders and research personnel. Selling, General and Administrative Expenses Selling, general and administrative expenses increased 25.7% to $61.7 million for the three months ended June 30, 2000 from $49.0 million for the three months ended June 30, 1999. The increase was due to approximately $13.4 million in severance costs and approximately $0.8 million of expenses due to programs designed to maximize the efficiency of Seminis' product pipeline that related to the Company's Global Restructuring and Optimization Plan. Offsetting these increases were lower overhead expenses resulting from the Company's continued cost containing measures. Amortization of Intangible Assets Amortization of intangible assets increased 10.4% to $7.5 million for the three months ended June 30, 2000 from $6.8 million for the three months ended June 30, 1999. This increase was primarily due to amortization of goodwill and intangible assets relating to the acquisition of an additional 25% of Hungnong Seed Co., Ltd., a South Korean subsidiary, in August 1999. In addition, the Korean Won strengthened during the three months ended June 30, 2000 compared to the same fiscal period last year, resulting in additional amortization recorded in U.S. dollars. Also in the three months ended June 30, 2000, the Company recorded amortization as a result of the purchase of the seedless watermelon germplasm of Barham Seeds, Inc. in July 1999. Interest Expense, Net Interest expense, net, decreased 24.5% to $8.5 million for the three months ended June 30, 2000 from $11.2 million for the three months ended June 30, 1999. Both the 1999 refinancing of Seminis' credit agreements and the repayment of debt using the proceeds from the Company's initial public offering in July 1999 resulted in a lower average debt balance for the three months ended June 30, 2000 compared to the same period in fiscal year 1999. Other Non-Operating Income (Expense), Net Seminis had other non-operating income, net, of $9.5 million for the three months ended June 30, 2000 as compared to other non-operating expense, net, of $0.1 million for the three months ended June 30, 1999. Other non-operating income, net, for the three months ended June 30, 2000 included a $10.6 million gain on the asset sale of MBS, a soybean subsidiary, a foreign currency loss of $0.5 million and a minority interest provision of $0.5 million. The foreign currency loss is principally due to a loss recorded by SVS Holland on its U.S. dollar denominated loan. Other non-operating expense, net, for the three months ended June 30, 1999 included a foreign currency loss of $0.7 million primarily relating to the unhedged U.S. dollar denominated loan held by SVS Holland and a minority interest benefit of $0.5 million related to the 25% minority interest in Hungnong. Income Tax Benefit (Expense) Income tax benefit increased to $8.6 million for the three months ended June 30, 2000 from $1.8 million for the three months ended June 30, 1999. The increase in income tax benefit was a result of higher pre-tax loss related to the aforementioned factors. 11 14 Loss before Extraordinary Items Loss before extraordinary items was $19.2 million for the three months ended June 30, 2000 as compared to $4.6 million for the three months ended June 30, 1999. This increase was due primarily to lower overall sales, reduced gross margins and non-recurring expenses partially offset by lower interest expense, net. Extraordinary Items The extraordinary item for the three months ended June 30, 1999 was the write-off of unamortized loan fees of $4.0 million, net of tax. The fees were written-off in connection with Seminis' borrowing of $473.0 million under the fiscal year 1999 credit agreement and the repayment of the old credit agreement. Net Loss Net loss increased to $19.2 million for the three months ended June 30, 2000 as compared to $8.6 million for the same period ended June 30, 1999. The same factors discussed earlier contributed to the increase. Seasonality The seed business is highly seasonal. Generally, net sales are highest in the second fiscal quarter due to increased demand from northern hemisphere growers who plant seed in the early spring. Seminis recorded 37.2% of its fiscal year 1999 net sales during its second fiscal quarter. Seminis has historically operated at a loss during the first and third fiscal quarters due to lower sales during such quarters. Seminis' results in any particular quarter should not be considered indicative of those to be expected for any other quarter or for a full year. Liquidity and Capital Resources Seminis has historically relied on commercial bank borrowings to finance its operations and internal infrastructure, on commercial bank borrowings and equity investments by its stockholders to finance its acquisition and internal investment programs and on advances from Savia to finance working capital requirements. Net cash used in operating activities decreased to $53.1 million in the first nine months of fiscal year 2000 from $79.8 million for the comparable period in fiscal year 1999. The decrease was mainly due to lower accounts receivable that resulted from lower sales in the first nine months of fiscal 2000 in comparison to the same period in fiscal 1999. Other changes in working capital included an increase in accounts payable due to higher inventory levels and an increase in other liabilities due to the restructuring accrual. Net cash used in investing activities decreased to $18.3 million for the nine months ended June 30, 2000 compared to $62.9 million for the nine months ended June 30, 1999. The change is primarily the result of the Company's acquisition of Agroceres in November 1998 and the acquisition of an additional 5% of Hungnong from minority shareholders in December 1998 compared to no acquisition or purchase activities during the nine months ended June 30, 2000. The decrease in net cash used in investing activities was also due to the proceeds from the sale of MBS' assets. Seminis' total indebtedness as of June 30, 2000 was $366.5 million, of which $310.8 million were borrowings under the current credit agreement. Other borrowings consisted of $19.1 million within the U.S., $8.9 million and $8.0 million by the Chilean and South Korean subsidiaries, respectively, and $19.7 million by other foreign subsidiaries. In April, May and June 2000, the Company received advances of $22.0 million, $14.0 million and $6.0 million from Savia, respectively, to finance additional working capital requirements. These advances were converted to Class C Preferred Stock that pay dividends quarterly in kind at 10% per annum. In June 2000, the Company amended its credit agreement to provide for more relaxed financial covenant ratios as well as to allow for the needed expenses related to the Global Restructuring and Optimization Plan. 12 15 The Company also entered into a security agreement with its lenders that collateralized its receivables, general intangibles and inventory. Seminis believes that existing cash balances and available financing from Savia will be sufficient to meet anticipated cash requirements for the foreseeable future based on Seminis' current level of operations. There can be no assurance that additional capital beyond the amounts currently forecasted by Seminis will not be required or that any such required additional capital will be available on reasonable terms, if at all, at such time as required by Seminis. Except for the SVS Holland debt described below, Seminis' exposure to foreign currency fluctuations is primarily foreign currency gains or losses that occur from intercompany loans and receivables between Seminis Vegetable Seeds, Inc., the Company's main U.S. operating subsidiary, and its foreign subsidiaries. SVS Holland, whose functional currency is the Dutch Guilder, owes approximately $44.3 million in U.S. dollar denominated debt. SVS Holland hedged the majority of its debt position during the first quarter of fiscal year 2000 through forward foreign exchange contracts. In late December 1999, SVS Holland terminated its foreign forward exchange contracts. As of June 30, 2000, SVS Holland had an unhedged U.S. dollar liability of approximately $44.3 million. Impact of the Year 2000 Issue The Year 2000 issue involves the potential for system and processing failures of date-related information resulting from computer-controlled systems using two digits rather than four to define the applicable year. Any computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. Seminis has not experienced any system failures or miscalculations causing disruptions of operations as a result of the Year 2000 issue. During fiscal year 1999, Seminis installed a new corporate-wide management information system in its efforts to become Year 2000 compliant. The Company spent approximately $24.2 million to become Year 2000 compliant. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our market risk disclosures set forth in the 1999 Form 10-K filed December 28, 1999 have not changed significantly through the third quarter ended June 30, 2000. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved from time to time as a defendant in various lawsuits arising in the normal course of business. Seminis believes that no current claims, individually or in the aggregate, will have a material adverse effect on Seminis' business, results of operations or financial condition. Since our 1999 Form 10-K filed December 28, 1999, there have been no material changes in legal proceedings discussed in such Form 10-K. 13 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K for the quarter ended June 30, 2000.
EXHIBIT NUMBER DESCRIPTION - ------- ----------- (a)1 Form of Underwriting Agreement (c)2 Merger Agreement by and between Seminis, Inc., an Illinois corporation and Seminis, Inc., a Delaware corporation (c)3.1 Certificate of Incorporation (c)3.2 Certificate of Designations of Class A Mandatorily Redeemable Preferred Stock and Class B Mandatorily Redeemable Preferred Stock of Seminis, Inc. (c)3.3 Certificate of Designations of Class C Redeemable Preferred Stock of Seminis, Inc. (c)3.4 By-Laws (c)4.1 Form of Class A Common Stock Certificate (a)4.2 Registration Rights Agreement by and among Seminis, Inc. and certain shareholders of Seminis, dated October 1, 1995 (c)5 Opinion of Milbank, Tweed, Hadley & McCloy LLP (a)10.1 Seminis, Inc. 1998 Stock Option Plan (b)10.2 Amended and Restated Seminis, Inc. 1998 Stock Option Plan (a)10.3 Share Subscription Agreement by and between Seminis, Inc. and Hungnong Seed Co., Ltd., dated June 12, 1998 (c)10.4 Form of New Credit Facility among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of June 28, 1999 (c)10.5 Form of Letter Agreement between Savia, S.A. de C.V. and Seminis, Inc. dated as of June 21, 1999 (d)10.6 Second Amendment and Waiver to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of June 29, 2000, effective March 31, 2000 (d)10.7 Security Agreement Re: Accounts, Inventory and General Intangibles among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of June 29, 2000 (b)21 Subsidiaries of Registrant 27.1 Financial Data Schedule
- --------------- (a) Incorporated by reference to Seminis' Form S-1 filed on February 11, 1999. (b) Incorporated by reference to Seminis' Amendment No. 2 to Form S-1 filed on May 27, 1999. (c) Incorporated by reference to Seminis' Amendment No. 3 to Form S-1 filed on June 21, 1999. (d) Filed with this form 10Q. 14 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 2000 SEMINIS, INC. /s/ ALEJANDRO RODRIGUEZ GRAUE -------------------------------------- Alejandro Rodriguez Graue President (Principal Executive Officer) /s/ OCTAVIO HERNANDEZ -------------------------------------- Octavio Hernandez Chief Financial Officer (Principal Financial Officer) 15 18 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- (a)1 Form of Underwriting Agreement (c)2 Merger Agreement by and between Seminis, Inc., an Illinois corporation and Seminis, Inc., a Delaware corporation (c)3.1 Certificate of Incorporation (c)3.2 Certificate of Designations of Class A Mandatorily Redeemable Preferred Stock and Class B Mandatorily Redeemable Preferred Stock of Seminis, Inc. (c)3.3 Certificate of Designations of Class C Redeemable Preferred Stock of Seminis, Inc. (c)3.4 By-Laws (c)4.1 Form of Class A Common Stock Certificate (a)4.2 Registration Rights Agreement by and among Seminis, Inc. and certain shareholders of Seminis, dated October 1, 1995 (c)5 Opinion of Milbank, Tweed, Hadley & McCloy LLP (a)10.1 Seminis, Inc. 1998 Stock Option Plan (b)10.2 Amended and Restated Seminis, Inc. 1998 Stock Option Plan (a)10.3 Share Subscription Agreement by and between Seminis, Inc. and Hungnong Seed Co., Ltd., dated June 12, 1998 (c)10.4 Form of New Credit Facility among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of June 28, 1999 (c)10.5 Form of Letter Agreement between Savia, S.A. de C.V. and Seminis, Inc. dated as of June 21, 1999 (d)10.6 Second Amendment and Waiver to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of June 29, 2000, effective March 31, 2000 (d)10.7 Security Agreement Re: Accounts, Inventory and General Intangibles among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of June 29, 2000 (b)21 Subsidiaries of Registrant 27.1 Financial Data Schedule
- --------------- (a) Incorporated by reference to Seminis' Form S-1 filed on February 11, 1999. (b) Incorporated by reference to Seminis' Amendment No. 2 to Form S-1 filed on May 27, 1999. (c) Incorporated by reference to Seminis' Amendment No. 3 to Form S-1 filed on June 21, 1999. (d) Filed with this form 10Q. 16 EX-10.6 2 ex10-6.txt EXHIBIT 10.6 1 EXHIBIT 10.6 SEMINIS, INC. SEMINIS VEGETABLE SEEDS, INC. SVS HOLLAND B.V. SECOND AMENDMENT AND WAIVER TO CREDIT AGREEMENT Harris Trust and Savings Bank Chicago, Illinois The Banks party to the Credit Agreement referred to below Ladies and Gentlemen: Reference is hereby made to that certain Credit Agreement dated as of June 28, 1999, as amended (the "Credit Agreement") among the undersigned, SEMINIS, INC., a Delaware corporation ("Seminis"), SEMINIS VEGETABLE SEEDS, INC., a California corporation ("SVS" ) and SVS HOLLAND B.V., a private company with limited liability incorporated under the laws of The Netherlands ("SVS Holland" and, together with Seminis and SVS, individually a "Borrower" and collectively the "Borrowers"), you (the "Banks") and Harris Trust and Savings Bank, as administrative agent for the Banks (the "Administrative Agent"). All capitalized terms used herein shall have the same meaning as in the Credit Agreement unless otherwise defined herein. The Administrative Agent, the Banks and the Borrowers wish to amend certain provisions of the Credit Agreement, all in the manner set forth in this Amendment. 1. AMENDMENTS. Upon satisfaction of all of the conditions precedent set forth in Section 3 hereof, the following provisions of the Credit Agreement shall be amended, effective as of March 31, 2000, as follows: 1.1. The first sentence in Section 1.8(b) of the Credit Agreement shall be amended by adding the proviso "; provided, however, such liens and security interests shall not be terminated or released prior to December 31, 2001" immediately before the period at the end of the sentence thereof. 1.2. The following definitions appearing in Section 4.1 of the Credit Agreement shall be amended and restated in their entirety to read as follows: 2 "Applicable Margin" shall mean with respect to the commitment fee and each type of Portion of the Revolving Credit Loans and the Term Loans described below, the rate of interest per annum shown below for the range of Debt Ratio specified below:
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI Debt Ratio < 2.50 to 1 > 2.50 to 1 >3.00 to 1 > 3.50 to 1 >3.75 to 1 >4.00 to 1 - - - - - < 2.99 to 1 <3.49 to 1 < 3.74 to 1 < 3.99 to 1 - - - - Base Rate Portion 0% 0% 0% 0.25% 0.50% 0.75% LIBOR Portion 1.25% 1.375% 1.50% 1.75% 2.00% 2.50% Commitment Fee 0.25% 0.30% 0.35% 0.40% 0.50% 0.50%
provided, however, that if and so long as any Event of Default has occurred and is continuing, the Applicable Margins other than the Applicable Margin for the commitment fee as otherwise computed hereunder shall be increased by adding 2% per annum thereto. The Applicable Margins will be adjusted upon receipt of Seminis' quarterly financial statements for each fiscal quarter of Seminis and the related Compliance Certificate, commencing with the quarter ended June 30, 2000. Not later than 5 Business Days after receipt by the Administrative Agent of the financial statements called for by Section 7.4 hereof for each fiscal quarter of Seminis, the Administrative Agent shall determine the Debt Ratio for the applicable period and shall promptly notify the Borrowers and the Banks of such determination and of any change in the Applicable Margins resulting therefrom. Any such change in the Applicable Margins shall be effective as of the date the Administrative Agent so notifies the Borrowers and the Banks with respect to all Loans outstanding on such date, and such new Applicable Margins shall continue in effect until the effective date of the next redetermination in accordance with this Section. Each determination of the Debt Ratio and Applicable Margins by the Administrative Agent in accordance with this Section shall be conclusive and binding on the Borrowers and the Banks absent manifest error. From June __, 2000 until the Applicable Margins are first adjusted pursuant hereto, the Applicable Margins shall be those set forth in Level VI. "EBITDA" shall mean, with reference to any period, Net Income for such period plus all amounts deducted in arriving at such Net Income amount in respect of (i) Interest Expense for such period, plus (ii) federal, state and local income taxes for such period, plus (iii) all amounts properly charged for depreciation of fixed assets and amortization of intangible assets during such period on the books of Seminis and its Subsidiaries, minus (in the case of gains) or plus (in the case of losses) (iv) non-cash charges relating to foreign currency gains or losses attributable to (a) intercompany loans from Seminis and its Domestic Subsidiaries to Seminis' Foreign Subsidiaries and (b) any indebtedness of SVS Holland under this Agreement, plus (v) the write-off of unamortized loan origination fees associated with credit facilities entered into prior to the date of this Agreement, plus (vi) non-cash charges with respect to purchase accounting adjustments -2- 3 associated with acquisitions permitted by this Agreement, plus (vii) an aggregate amount of up to $19,000,000 of write-offs of non-cash inventory taken during Seminis' fiscal year ending September 30, 2000, plus (viii) an aggregate amount of up to $14,000,000 of restructuring charges through December 31, 2000; provided that for purposes of determining EBITDA for any period prior to any acquisition permitted hereunder the acquired entity shall be treated as though it had been a Subsidiary of Seminis at all times during the relevant period, and provided further that for purposes of determining EBITDA for any period prior to a disposition of any Subsidiary permitted by this Agreement such entity shall be treated as though it had not been a Subsidiary of Seminis during the relevant period. 1.3. Section 4.1 of the Credit Agreement shall be amended by adding the following definitions thereto in the appropriate alphabetical order: "Class A Common Stock" shall mean the Class A Common Stock, par value $.01 per share, of Seminis. "Class B Preferred Stock" shall mean the Class B Redeemable Preferred Stock, par value $.01 per share, of Seminis. "Class C Preferred Stock" shall mean the Class C Redeemable PIK Preferred Stock, par value $.01 per share, of Seminis. "Class D Preferred Stock" shall mean the Class D Redeemable Convertible PIK Preferred Stock, par value $.01 per share, of Seminis. "Current Asset Security Agreement" shall mean the Security Agreement re: Accounts, Inventory and General Intangibles among the Domestic Borrowers and the Administrative Agent, as the same may be supplemented and amended from time to time. 1.4. The definition of the term "Security Documents" appearing in Section 4.1 of the Credit Agreement shall be amended by adding the phrase "the Current Asset Security Agreement," immediately after the phrase "shall mean" appearing in the first line thereof. 1.5. Section 7.8 of the Credit Agreement shall be amended by adding the following sentence immediately at the end thereof: "Notwithstanding anything contained in this Section 7.8 to the contrary, prior to December 31, 2001, the Borrowers will not, and will not permit any Subsidiary to, use, issue, incur, assume, create or have outstanding any Debt, nor be or remain liable, whether as endorser, surety, guarantor or otherwise, for or in respect of any Debt of any other Person in connection with any acquisition, merger or investment otherwise permitted under this Agreement." -3- 4 1.6. Section 7.18 of the Credit Agreement shall be amended and restated in its entirety to read as follows: "Section 7.18. Capital Expenditures. Each Borrower will not, and will not permit any Subsidiary to, expend for Capital Expenditures, net of (x) the amount of proceeds of the sale of capital assets of such Borrower and its Subsidiaries and (y) Capital Expenditures incurred in such fiscal year in connection with the acquisition and construction of the Oxnard Facilities in an aggregate of up to $30,000,000 during the term of this Agreement, in any fiscal year in an amount in excess of (a) $25,000,000 in each of the fiscal years ending September 30, 2000 and September 30, 2001, and (b) $40,000,000 in any fiscal year of Seminis thereafter, provided, that any portion of any such amount which is not expended in the fiscal year for which it is permitted above (commencing with the fiscal year ending September 30, 2001), but not to exceed $10,000,000 for any fiscal year, may be carried over and added to the amount which is to be available for expenditure by Seminis and its Subsidiaries in the next following year, commencing with Seminis' fiscal year ending September 30, 2002." 1.7. Section 7.20 of the Credit Agreement shall be amended and restated in its entirety to read as follows: "Section 7.20. Minimum Interest Coverage Ratio. Seminis shall maintain an Interest Coverage Ratio as of the last day of each fiscal quarter of Seminis of not less than the ratio specified for such date below:
INTEREST COVERAGE RATIO FISCAL QUARTER ENDING SHALL NOT BE LESS THAN June 30, 2000 2.50 to 1 September 30, 2000 2.50 to 1 December 31, 2000 2.50 to 1 March 31, 2001 2.50 to 1 June 30, 2001 2.50 to 1 September 30, 2001 3.00 to 1 December 31, 2001 3.50 to 1 March 31, 2002 and thereafter 4.00 to 1"
1.8. Section 7.22 of the Credit Agreement shall be amended and restated in its entirety to read as follows: "Section 7.22. Maximum Debt Ratio. Seminis shall not permit, as of the last day of any fiscal quarter, its Debt Ratio to be greater than the ratio specified for such date below: -4- 5
DEBT RATIO SHALL NOT BE FISCAL QUARTER ENDING GREATER THAN June 30, 2000 4.25 to 1 September 30, 2000 4.25 to 1 December 31, 2000 3.75 to 1 March 31, 2001 4.00 to 1 June 30, 2001 3.75 to 1 September 30, 2001 and thereafter 3.25 to 1"
1.9. Section 7.26 of the Credit Agreement shall be amended by deleting subsections (i) and (ii) thereof and inserting the following provisions as subsections (i), (ii), (iii) and (iv) thereof: "(i) that so long as no Event of Default or Potential Default shall exist both before and after giving effect thereto, Seminis may make the following Restricted Payments: (A) Seminis may pay dividends in an aggregate amount of up to $2,000,000 in each year on its Class B Preferred Stock; (B) Seminis may pay dividends on its Class C Preferred Stock so long as such dividends are paid solely in additional shares of Class C Preferred Stock; and (C) Seminis may pay dividends on its Class D Preferred Stock so long as such dividends are paid solely in additional shares of Class D Preferred Stock or shares of Class A Common Stock, as the case may be; (ii) so long as Seminis' financial statements as of December 31, 2001 show that no Event of Default or Potential Default has occurred and is continuing, Seminis may make any Restricted Payment at any time after the Administrative Agent's receipt of such financial statements, provided, however, that no Event of Default or Potential Default shall exist both before and after giving effect thereto, and provided, further, that a minimum available amount of $75,000,000 under the Revolving Credit Commitments exists after giving effect thereto; (iii) Seminis may redeem for cash shares of Class C Preferred Stock owned by Savia so long as such redemption is made solely with the cash proceeds of the issuance and sale of its Class D Preferred Stock pursuant to a rights offering registered with the Securities and Exchange Commission to any Person other than Savia; and (iv) Seminis may redeem for cash any fractional shares remaining outstanding after the conversion of Class D Preferred Stock into Class A Common Stock, provided that the aggregate amount of all such redemptions shall not exceed $100,000." -5- 6 1.10. The Credit Agreement shall be amended by adding the following provision thereto as Section 7.28 thereof: "Section 7.28. Collateral of Subsidiaries. Seminis will not permit its Domestic Subsidiaries (other than MBS, Inc.) to have Inventory with an aggregate value (being the lower of cost of market value) in excess of $5,000,000 or accounts receivable in an aggregate amount in excess of $5,000,000 unless such Domestic Subsidiaries have first become parties to the Current Asset Security Agreement and granted to the Administrative Agent for the benefit of the Banks a perfected first priority security interest in such Domestic Subsidiary's Collateral (as defined in the Current Asset Security Agreement)." 2. WAIVER. 2.1. The Borrowers acknowledge that prior to giving effect to this Amendment, Seminis is in default of its obligations under Sections 7.22 of the Credit Agreement as of March 30, 2000 (the "Existing Default"). Upon satisfaction of the conditions precedent set forth in Section 3 hereof, the Required Banks hereby waive the Existing Default. 2.2. The waiver contained in Section 2.1 of this Amendment is limited to the matters set forth in that Section, and the Borrowers agree that they remain obligated to comply with the terms of the Credit Agreement and the other Loan Documents and that the Banks shall not be obligated in the future to waive any provision of the Credit Agreement or the other Loan Documents as a result of having provided the waiver contained herein. 3. CONDITIONS PRECEDENT. This Amendment shall become effective upon the satisfaction of all of the following conditions precedent: 3.1. The Administrative Agent, the Banks and the Borrowers shall have executed and delivered this Amendment. 3.2. The Administrative Agent, Seminis and SVS shall have executed and delivered the Security Agreement re: Accounts, Inventory and General Intangibles. 3.3. The Administrative Agent shall have received for the ratable benefit of the Banks that execute this Amendment (the "Approving Banks") an amendment fee in an amount equal to three-eighths of one percent (0.375%) of the maximum amount of the Exposure of each of the Approving Banks. 3.4. Seminis shall have issued to Savia its Class C Preferred Stock in exchange for the satisfaction in full of intercompany loans and advances in an aggregate principal amount of -6- 7 $42,000,000 plus accrued and unpaid interest thereon previously made by Savia to Seminis, all on terms and conditions acceptable to the Administrative Agent. 3.5. Each of the representations and warranties set forth in Section 5 of the Credit Agreement shall be and remain true and correct as to each of the Borrowers, except that the representations and warranties made under Section 5.2 (except the last sentence thereof) shall be deemed to refer to the most recent financial statements furnished to the Banks pursuant to Section 7.4 of the Credit Agreement. 3.6. No Potential Default or Event of Default shall have occurred and be continuing. 4. REPRESENTATIONS AND WARRANTIES. The Borrowers represent and warrant to the Administrative Agent and the Banks as follows: 4.1. Each of the representations and warranties set forth in Section 5 of the Credit Agreement are true and correct as to each of the Borrowers as of the effective date hereof, except that the representations and warranties made under Section 5.2 (except the last sentence thereof) shall be deemed to refer to the most recent financial statements furnished to the Banks pursuant to Section 7.4 of the Credit Agreement. 4.2. The Borrowers are in full compliance with all of the terms and conditions of the Loan Documents and no Event of Default or Potential Default shall have occurred and be continuing thereunder or shall result after giving effect to this Amendment. 5. MISCELLANEOUS. 5.1. The Borrowers have heretofore executed and delivered to the Administrative Agent certain Security Documents, and the Borrowers hereby agree that the Security Documents shall secure all of the Borrowers' indebtedness, obligations and liabilities to the Administrative Agent and the Banks under the Credit Agreement as amended by this Amendment, that notwithstanding the execution and delivery of this Amendment, the Security Documents shall be and remain in full force and effect and that any rights and remedies of the Administrative Agent thereunder, obligations of the Borrowers thereunder and any liens or security interests created or provided for thereunder shall be and remain in full force and effect and shall not be affected, impaired or discharged thereby. Nothing herein contained shall in any manner affect or impair the priority of the liens and security interests created and provided for by the Security Documents as to the indebtedness which would be secured thereby prior to giving effect to this Amendment. 5.2. Reference to this specific Amendment need not be made in any note, document, letter, certificate, the Credit Agreement itself, or any communication issued or made pursuant to or with respect to the Credit Agreement, any reference to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby. -7- 8 5.3. This Amendment may be executed in any number of counterparts, and by the different parties on different counterparts, all of which taken together shall constitute one and the same agreement. Any of the parties hereby may execute this Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois. -8- 9 Upon acceptance hereof by the Administrative Agent and the Banks in the manner hereinafter set forth, this Amendment shall be a contract between us for the purposes hereinabove set forth. Dated as of June ___, 2000 but effective as of March 31, 2000. SEMINIS, INC. By Its --------------------------------------------- SEMINIS VEGETABLE SEEDS, INC. By Its --------------------------------------------- SVS HOLLAND B.V By Its --------------------------------------------- -9- 10 Accepted and agreed to as of the day and year last above written. HARRIS TRUST AND SAVINGS BANK, individually and as Administrative Agent By Its Vice President CREDIT AGRICOLE INDOSUEZ By Its --------------------------------------- By Its --------------------------------------- BANK OF AMERICA, N.A. By Its --------------------------------------- THE BANK OF NOVA SCOTIA By Its --------------------------------------- COMERICA BANK By Its --------------------------------------- BANK ONE, NA By Its --------------------------------------- -10- 11 BNP PARIBAS By Its --------------------------------------- By Its --------------------------------------- UNION BANK OF CALIFORNIA, N.A. By Its --------------------------------------- FLEET NATIONAL BANK By Its --------------------------------------- MEESPIERSON CAPITAL CORP. By Its --------------------------------------- RABOBANK INTERNATIONAL By Its --------------------------------------- SANWA BANK CALIFORNIA By Its --------------------------------------- -11- 12 THE FUJI BANK, LIMITED By Its --------------------------------------- THE MITSUBISHI TRUST & BANKING CORPORATION By Its --------------------------------------- US BANCORP AG CREDIT, INC. By Its --------------------------------------- THE DAI-ICHI KANGYO BANK, LTD. By Its --------------------------------------- -12- EX-10.7 3 ex10-7.txt EXHIBIT 10.7 1 EXHIBIT 10.7 SEMINIS, INC. SEMINIS VEGETABLE SEEDS, INC. SECURITY AGREEMENT RE: ACCOUNTS, INVENTORY AND GENERAL INTANGIBLES This Security Agreement Re: Accounts, Inventory and General Intangibles (the "Agreement") is dated as of June 29, 2000, by and among Seminis, Inc., a Delaware corporation (the "Company"), and the other parties executing this Agreement under the heading "Debtors" (the Company and such other parties being hereinafter referred to collectively as the "Debtors" and individually as a "Debtor"), each with its mailing address as set forth on its signature page hereto, and Harris Trust and Savings Bank, an Illinois banking corporation ("Harris"), with its mailing address at 111 West Monroe Street, P.O. Box 755, Chicago, Illinois 60690, acting as agent hereunder for the Lenders hereinafter identified and defined (Harris acting as such agent and any successor or successors to Harris acting in such capacity being hereinafter referred to as the "Agent"); PRELIMINARY STATEMENTS A. The Company, Seminis Vegetable Seeds, Inc., a California corporation ("SVS"), SVS Holland B.V., a private company with limited liability incorporated under the laws of The Netherlands ("SVS Holland" and, together with the Company and SVS, individually a "Borrower" and collectively the "Borrowers"), and Harris, individually and as agent, have entered into a Credit Agreement dated as of June 28, 1999 (such Credit Agreement as the same has been and hereafter may be amended, modified or restated from time to time being hereinafter referred to as the "Credit Agreement"), pursuant to which Harris and other lenders which are and from time to time become party to the Credit Agreement (Harris and such other lenders which are and from time to time hereafter become party to the Credit Agreement being hereinafter referred to collectively as the "Lenders" and individually as a "Lender") have agreed, subject to certain terms and conditions, to extend credit and make certain other financial accommodations available to the Borrowers. B. The Borrowers may from time to time enter into one or more Interest Rate Protection Agreements with one or more of the Lenders party to the Credit Agreement for the purpose of hedging or otherwise protecting the Borrowers against changes in interest rates applicable to Term Loans under the Credit Agreement (the liability of the Borrowers in respect of such agreements with such Lenders being hereinafter referred to as the "Hedging Liability"). C. As a condition to extending credit to the Borrowers under the Credit Agreement, the Lenders have required, among other things, that each Debtor grant to the Agent a lien on and security interest in the personal property of such Debtor described herein subject to the terms and conditions hereof. D. The Company owns, directly or indirectly, all or substantially all of the equity interests in each other Debtor and the Company provides each other Debtor with financial, 2 management, administrative, and technical support which enables such Debtor to conduct its business in an orderly and efficient manner in the ordinary course. E. Each Debtor will benefit, directly or indirectly, from credit and other financial accommodations extended by the Lenders to the Borrowers. NOW, THEREFORE, for and in consideration of the execution and delivery by the Lenders of the Credit Agreement, and other good and valuable consideration, receipt whereof is hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Terms defined in Credit Agreement. All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. The term "Debtor" and "Debtors" as used herein shall mean and include the Debtors collectively and also each individually, with all grants, representations, warranties and covenants of and by the Debtors, or any of them, herein contained to constitute joint and several grants, representations, warranties and covenants of and by the Debtors; provided, however, that unless the context in which the same is used shall otherwise require, any grant, representation, warranty or covenant contained herein related to the Collateral shall be made by each Debtor only with respect to the Collateral owned by it or represented by such Debtor as owned by it. Section 2. Grant of Security Interest in the Collateral; Obligations Secured. (a) Each Debtor hereby grants to the Agent for the benefit of itself and the other Lenders a lien on and security interest in, and right of set-off against, and acknowledges and agrees that the Agent has and shall continue to have for the benefit of itself and the other Lenders a continuing lien on and security interest in, and right of set-off against, any and all right, title and interest of each Debtor, whether now owned or existing or hereafter created, acquired or arising, in and to the following: (i) Receivables. All Receivables, whether now owned or existing or hereafter created, acquired or arising, and however evidenced or acquired, or in which such Debtor now has or hereafter acquires any rights and any and all instruments, notes, drafts, acceptances, documents and chattel evidencing any Receivables of such Debtor, and all contract rights of such Debtor arising from or relating to any of the foregoing (the term "Receivables" means and includes all accounts, accounts receivable, and any other right of such Debtor to payment for goods sold or leased or for services rendered, whether or not earned by performance, and all other forms of obligations owing to such Debtor, and all of such Debtor's rights to any merchandise or other goods (including without limitation any returned or repossessed goods and the right of stoppage in transit) which is represented by, arises from or is related to any of the foregoing); (ii) General Intangibles. All General Intangibles, whether now owned or existing or hereafter created, acquired or arising, or in which such Debtor now has or hereafter acquires any rights (the term "General Intangibles" means and includes all general intangibles, all patents, patent applications, patent licenses, trademarks, trademark registrations, trademark licenses, trade styles, trade names, copyrights, copyright registrations, copyright licenses and other licenses and similar intangibles, all customer, client and supplier lists (in whatever form maintained), all rights in leases and other -2- 3 agreements relating to real or personal property, all causes of action and tax refunds of every kind and nature, all privileges, franchises, immunities, licenses, permits and similar intangibles, all rights to receive payments in connection with the termination of any pension plan or employee stock ownership plan or trust established for the benefit of employees of such Debtor); (iii) Inventory. All Inventory, whether now owned or existing or hereafter created, acquired or arising, or in which such Debtor now has or hereafter acquires any rights and all documents of title at any time evidencing or representing any part thereof (the term "Inventory" means and includes all inventory and other goods which are held for sale or lease or are to be furnished under contracts of service or consumed in such Debtor's business, all goods which are raw materials, work-in-process, finished goods, materials or supplies of every kind and nature, in each case used or usable in connection with the acquisition, manufacture, processing, supply, servicing, storing, packing, shipping, advertising, selling, leasing or furnishing of such goods, and any constituents or ingredients thereof, and all goods which are returned or repossessed goods); (iv) Records. All supporting evidence and documents relating to any of the above-described property, including, without limitation, computer programs, disks, tapes and related electronic data processing media, and all rights of such Debtor to retrieve the same from third parties, written applications, credit information, account cards, payment records, correspondence, delivery and installation certificates, invoice copies, delivery receipts, notes and other evidences of indebtedness, insurance certificates and the like, together with all books of account, ledgers and cabinets in which the same are reflected or maintained, all whether now existing or hereafter arising; (v) Accessions and Additions. All accessions and additions to and substitutions and replacements of any and all of the foregoing, whether now existing or hereafter arising; and (vi) Proceeds and Products. All proceeds and products of the foregoing and all insurance of the foregoing and proceeds thereof, whether now existing or hereafter arising; all of the foregoing being herein sometimes referred to as the "Collateral". All terms which are used herein which are defined in the Uniform Commercial Code of the State of Illinois ("UCC") shall have the same meanings herein as such terms are defined in the UCC, unless this Agreement shall otherwise specifically provide. (b) This Agreement is made and given to secure, and shall secure, the prompt payment and performance of (i) any and all indebtedness, obligations and liabilities of the Debtors, and of any of them individually, to the Agent and the Lenders, and to any of them individually, under or in connection with or evidenced by the Credit Agreement, the Notes of the Borrowers heretofore or hereafter issued under the Credit Agreement and the obligations of the Borrowers to reimburse the Agent and the Lenders for the amount of all drawings on all L/Cs issued for the account of the Borrowers pursuant to the Credit Agreement, and all other obligations of the Borrowers -3- 4 under any and all applications for L/Cs, and any and all liability of the Debtors, and of any of them individually, arising under or in connection with or otherwise evidenced by agreements with any one or more of the Lenders with respect to any Hedging Liability, and any and all liability of the Debtors, and of any of them individually, arising under any guaranty issued by it relating to the foregoing or any part thereof, in each case whether now existing or hereafter arising (and whether arising before or after the filing of a petition in bankruptcy), due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired and (ii) subject to Section 12.8 of the Credit Agreement, any and all expenses and charges, legal or otherwise, suffered or incurred by the Agent and the Lenders, and any of them, in collecting or enforcing any of such indebtedness, obligations and liabilities or in realizing on or protecting or preserving any security therefor, including, without limitation, the lien and security interest granted hereby (all of the indebtedness, obligations, liabilities, expenses and charges described above being hereinafter referred to as the "Obligations"). Notwithstanding anything in this Agreement to the contrary, the right of recovery against any Debtor (other than the Company to which this limitation shall not apply) under this Agreement shall not exceed $1.00 less than the amount which would render such Debtor's obligations under this Agreement void or voidable under applicable law, including fraudulent conveyance law. Section 3. Covenants, Agreements, Representations and Warranties. The Debtors hereby covenant and agree with, and represent and warrant to, the Agent and the Lenders that: (a) Each Debtor is duly organized, validly existing and in good standing under the laws of the state of its incorporation or organization, is the sole and lawful owner of the Collateral granted by it hereunder and has the power and authority to enter into this Agreement and to perform each and all of the matters and things herein provided for. Each Debtor's Federal tax identification number is set forth under its name on Schedule A. (b) As of the date of this Agreement, (i) each Debtor's respective chief executive office is at the location listed on Schedule A attached hereto opposite such Debtor's name; and (ii) such Debtor has no other executive offices or places of business other than those listed on Schedule A attached hereto opposite such Debtor's name. The Collateral owned or leased by each Debtor is and shall remain in such Debtor's possession or control at the locations listed on Schedule A attached hereto opposite such Debtor's name (such locations, together with any locations as to which a Debtor has given the Agent notice pursuant to the following sentence, are referred to collectively for each Debtor as the "Permitted Collateral Locations"), except as to any Collateral sold or otherwise disposed of in accordance with this Agreement and Section 7.11 of the Credit Agreement. If for any reason any Collateral is at any time kept or located at a location other than a Permitted Collateral Location, the Agent shall nevertheless have and retain a lien on and security interest therein. No Debtor shall move its chief executive office or maintain a place of business at a location other than those specified on Schedule A or permit any Collateral to be located at a location other than a Permitted Collateral Location, except as to any Collateral sold or otherwise disposed of in accordance with this Agreement and Section 7.11 of the Credit Agreement, in each case without first providing the Agent 30 days' prior written notice of the Debtor's intent to do so; provided -4- 5 that each Debtor shall at all times maintain its chief executive office and places of business and Permitted Collateral Locations in the United States of America and, with respect to any new chief executive office or place of business or location of Collateral, such Debtor shall have taken all action reasonably requested by the Agent to maintain the lien and security interest of the Agent in the Collateral at all times fully perfected and in full force and effect. (c) The Collateral and every part thereof is and shall be free and clear of all security interests, liens (including, without limitation, mechanics', laborers' and statutory liens), attachments, levies and encumbrances of every kind, nature and description and whether voluntary or involuntary, except for the lien and security interest of the Agent therein and other Liens permitted by Sections 7.9(a), (e), (f) and (k) of the Credit Agreement (herein, the "Permitted Encumbrances"). Each Debtor shall warrant and defend the Collateral against any claims and demands of all persons at any time claiming the same or any interest in the Collateral materially adverse to the Agent or any Lender. (d) Each Debtor will promptly pay when due all material taxes, assessments and governmental charges and levies upon or against it or its Collateral, in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith by appropriate proceedings which preclude interference with the operation of its business in the ordinary course and such Debtor shall have established adequate reserves therefor. (e) Each Debtor agrees it will not waste or destroy the Collateral or any material part thereof and will not be negligent in the care or use of any Collateral. Each Debtor agrees it will not use, manufacture, sell or distribute any Collateral in violation of any statute, ordinance or other governmental requirement, which violation could reasonably be expected to have a material adverse effect on the financial condition or the results of operations of the Company and its Subsidiaries taken as a whole. Each Debtor will perform in all material respects its obligations under any contract or other agreement constituting part of the Collateral where the failure to do so could reasonably be expected to have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries taken as a whole, it being understood and agreed that the Agent and the Lenders have no responsibility to perform such obligations. (f) Subject to Sections 4(b), 5(a), 6(b) and 6(c) hereof, each Debtor agrees it will not, without the Agent's prior written consent, sell, assign, mortgage, lease or otherwise dispose of the Collateral or any interest therein. (g) Each Debtor will insure its Collateral which is insurable against such risks as is usually carried by companies engaged in similar business and owning similar Properties in the same general areas in which such Debtor operates and under policies containing loss payable clauses to the Agent as its interest may appear (and, if the Agent requests, naming the Agent and the Lenders as additional insureds therein) by insurers reasonably acceptable to the Agent. All premiums on such insurance shall be paid by the Debtors and the policies of such insurance (or certificates therefor) delivered to the -5- 6 Agent. All insurance required hereby shall provide that any loss shall be payable notwithstanding any act or negligence of the relevant Debtor, shall provide that no cancellation thereof shall be effective until at least 30 days after receipt by the relevant Debtor and the Agent of written notice thereof, and shall be reasonably satisfactory to the Agent in all other respects. In case of any material loss, damage to or destruction of the Collateral or any material part thereof, the relevant Debtor shall promptly give written notice thereof to the Agent generally describing the nature and extent of such damage or destruction. In case of any material loss, damage to or destruction of the Collateral or any material part thereof, the relevant Debtor may, in its sole discretion, apply the insurance proceeds, if any, received on account of such damage or destruction to repair or replace the Collateral so lost, damaged or destroyed. In the event any Debtor shall receive any proceeds of such insurance after an Event of Default shall have occurred and be continuing such Debtor will immediately pay over such proceeds to the Agent, and in the event the Agent shall receive any proceeds of such insurance at any time when no Event of Default is in existence the Agent will immediately pay over such proceeds to the relevant Debtor. Each Debtor hereby authorizes the Agent, at the Agent's option, to adjust, compromise and settle any losses under any insurance afforded at any time after the occurrence and during the continuation of any Event of Default, and such Debtor does hereby irrevocably constitute the Agent, its officers, agents and attorneys, as such Debtor's attorneys-in-fact, with full power and authority after the occurrence and during the continuation of any Event of Default to effect such adjustment, compromise and/or settlement and to endorse any drafts drawn by an insurer of the Collateral or any part thereof and to do everything necessary to carry out such purposes and to receive and receipt for any unearned premiums due under policies of such insurance. Insurance proceeds received by the Agent under any policy or policies of insurance covering the Collateral or any part thereof at any time prior to the occurrence of an Event of Default shall be released to the relevant Debtor. Net insurance proceeds received by the Agent under the provisions hereof or under any policy or policies of insurance covering the Collateral or any part thereof after the occurrence and during the continuation of an Event of Default shall be applied to the reduction of the Obligations (whether or not then due). UNLESS THE DEBTORS PROVIDE THE AGENT WITH EVIDENCE OF THE INSURANCE COVERAGE REQUIRED BY THIS AGREEMENT, THE AGENT MAY PURCHASE INSURANCE AT THE DEBTORS' EXPENSE TO PROTECT THE AGENT'S INTERESTS IN THE COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT, PROTECT ANY DEBTOR'S INTERESTS IN THE COLLATERAL. THE COVERAGE PURCHASED BY THE AGENT MAY NOT PAY ANY CLAIMS THAT ANY DEBTOR MAKES OR ANY CLAIM THAT IS MADE AGAINST SUCH DEBTOR IN CONNECTION WITH THE COLLATERAL. THE DEBTORS MAY LATER CANCEL ANY SUCH INSURANCE PURCHASED BY THE AGENT, BUT ONLY AFTER PROVIDING THE AGENT WITH EVIDENCE THAT THE DEBTORS HAVE OBTAINED INSURANCE AS REQUIRED BY THIS AGREEMENT. IF THE AGENT PURCHASES INSURANCE FOR THE COLLATERAL, THE DEBTORS WILL BE RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING INTEREST AND ANY OTHER CHARGES THAT THE AGENT MAY IMPOSE IN CONNECTION WITH THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY BE ADDED TO THE OBLIGATIONS SECURED HEREBY. THE COSTS OF THE -6- 7 INSURANCE MAY BE MORE THAN THE COST OF INSURANCE THE DEBTORS MAY BE ABLE TO OBTAIN ON THEIR OWN. (h) If any Collateral is in the possession or control of any agents or processors of a Debtor and the Agent so requests during the existence of an Event of Default, such Debtor agrees to notify such agents or processors in writing of the Agent's security interest therein and instruct them to hold all such Collateral for the Agent's account and subject to the Agent's instructions. Each Debtor will, upon request of the Agent during the existence of an Event of Default, authorize and instruct all bailees and any other parties, if any, at any time processing, labeling, packaging, holding, storing, shipping or transferring all or any part of the Collateral to permit the Agent and its representatives to examine and inspect any of the Collateral then in such party's possession and to verify from such party's own books and records any information concerning the Collateral or any part thereof which the Agent or its representatives may seek to verify. As to any premises not owned by a Debtor wherein the Collateral having an aggregate value in excess of $5,000,000 is located, if any, such Debtor shall, upon the Agent's request, use reasonable efforts to cause each party having any right, title or interest in, or lien on, any of such premises to enter into an agreement (any such agreement to contain a legal description of such premises) whereby such party disclaims any right, title and interest in, and lien on, the Collateral, allowing the removal of such Collateral by the Agent and otherwise in form and substance reasonably acceptable to the Agent. (i) During the existence of an Event of Default (i) upon the Agent's reasonable request, each Debtor agrees from time to time to deliver to the Agent such evidence of the existence, identity and location of its Collateral and of its availability as collateral security pursuant hereto (including, without limitation, schedules describing all Receivables created or acquired by such Debtor, copies of customer invoices or the equivalent and original shipping or delivery receipts for all merchandise and other goods sold or leased or services rendered by it, together with such Debtor's warranty of the genuineness thereof, and reports stating the book value of its Inventory by major category and location), in each case as the Agent may reasonably request, and (ii) the Agent shall have the right to verify all or any part of the Collateral in any manner, and through any medium, which the Agent considers appropriate (including, without limitation, the verification of Collateral by use of a fictitious name), and each Debtor agrees to furnish all assistance and information, and perform any acts, which the Agent may reasonably require in connection therewith. (j) Each Debtor will comply in all material respects with the terms and conditions of any and all leases, easements, right-of-way agreements and other agreements binding upon such Debtor and affecting the Collateral, in each case which cover the premises wherein the Collateral is located, and any applicable orders, ordinances, laws or statutes of any city, state or other governmental entity, department or agency having jurisdiction with respect to such premises or the conduct of business thereon. -7- 8 (k) As of the date of this Agreement, no Debtor has invoiced Receivables or otherwise transacted business, and does not invoice Receivables or otherwise transact business, under any trade names other than its name set forth on its signature page to this Agreement or as otherwise set forth on Schedule B hereto. Each Debtor agrees it will not change its name or transact business under any other trade name, in each case without first giving the Agent 30 days' prior written notice of its intent to do so. (l) Each Debtor agrees to execute and deliver to the Agent such further agreements, assignments, instruments and documents, and to do all such other things, as the Agent may reasonably deem necessary or appropriate to assure the Agent its lien and security interest hereunder, including without limitation, (i) executing such financing statements, assignments or other instruments and documents as the Agent may from time to time reasonably require to comply with the UCC, and (ii) executing such patent, trademark, and copyright security agreements as the Agent may from time to time reasonably require to comply with the filing requirements of the United States Patent and Trademark Office and the United States Copyright Office. Each Debtor hereby agrees that a carbon, photographic or other reproduction of this Agreement or any such financing statement is sufficient for filing as a financing statement by the Agent without prior notice thereof to such Debtor wherever the Agent reasonably deems necessary or desirable to perfect or protect the security interest granted hereby. The Agent shall provide copies of such filings to the applicable Debtor, provided the failure to give such notice shall not affect the validity or enforceability of the relevant filing. In the event for any reason the law of any jurisdiction other than Illinois becomes or is applicable to the Collateral or any part thereof, or to any of the Obligations, each Debtor agrees to execute and deliver all such instruments and documents and to do all such other things as the Agent reasonably deems necessary or appropriate to preserve, protect and enforce the security interest of the Agent in the Collateral under the law of such other jurisdiction. (m) Upon failure of a Debtor to perform any of the covenants and agreements herein contained and the expiration of any applicable grace period under Section 8.1 of the Credit Agreement, the Agent may, at its option, perform the same as the Agent may reasonably deem necessary or appropriate to preserve, protect and enforce the Agent's security interest in the Collateral or its right under this Agreement and in so doing may expend such sums as the Agent reasonably deems advisable in the performance thereof, including, without limitation, the payment of any insurance premiums, the payment of any taxes, liens and encumbrances, expenditures made in defending against any adverse claims, and all other expenditures which the Agent may be compelled to make by operation of law or which the Agent may make by agreement or otherwise for the protection of the security hereof. All such sums and amounts so expended shall be repayable by such Debtor immediately, shall constitute additional Obligations secured hereunder, and shall bear interest from the date said amounts are expended at the rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days elapsed) determined by adding 2% to the Base Rate from time to time in effect plus the Applicable Margin as set forth in the Credit Agreement with any change in such rate per annum as so determined by reason of a change in such Base Rate to be effective on the date of such change in said Base Rate (such rate per annum as so -8- 9 determined being hereinafter referred to as the "Default Rate"). No such performance of any covenant or agreement by the Agent on behalf of a Debtor, and no such advancement or expenditure therefor, shall relieve any Debtor of any default under the terms of this Agreement or in any way obligate the Agent or any Lender to take any further or future action with respect thereto. The Agent in making any payment hereby authorized may do so according to any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim. The Agent in performing any act hereunder shall be the sole judge (which judgment shall be reasonably exercised) of whether the relevant Debtor is required to perform the same under the terms of this Agreement. The Agent is hereby authorized to charge any depository or other account of any Debtor maintained with the Agent for the amount of such sums and amounts so expended. Section 4. Special Provisions Re: Receivables. (a) As of the time any Receivable becomes subject to the security interest provided for hereby and at all times thereafter, each Debtor shall be deemed to have warranted as to each and all of its Receivables that all warranties of such Debtor set forth in this Agreement are true and correct with respect to each such Receivable; that each of its Receivable and all papers and documents relating thereto are genuine and in all respects what they purport to be; that each of its Receivable is valid and existing and, if such Receivable is an account, arises out of a bona fide sale of goods sold and delivered by such Debtor to, or in the process of being delivered to, or out of and for services theretofore actually rendered by such Debtor to, the account debtor named therein; that no such Receivable is evidenced by any instrument or chattel paper unless such instrument or chattel paper has theretofore been endorsed by such Debtor and delivered to the Agent (except to the extent the aggregate unpaid amount of such instruments and chattel paper not so endorsed and delivered is less than $5,000,000 at any one time outstanding); and that no surety bond was required or given in connection with such Receivable or the contracts or purchase orders out of which the same arose. If any Receivable arises out of a contract with the United States of America or any of its departments, agencies or instrumentalities, after the occurrence and during the continuance of any Event of Default, the relevant Debtor agrees to notify the Agent and, at the request of the Agent or the Required Banks, execute whatever instruments and documents are required by the Agent in order that such Receivable shall be assigned to the Agent and that proper notice of such assignment shall be given under the federal Assignment of Claims Act (or any successor statute) or any similar statute relating to the assignment of such Receivables. (b) Unless and until an Event of Default hereunder occurs and is continuing, any merchandise or other goods which are returned by a customer or account debtor or otherwise recovered may be resold by the relevant Debtor in the ordinary course of its business as presently conducted in accordance with Section 6(b) hereof; upon the occurrence and during the continuation of any Event of Default hereunder, such merchandise and other goods shall be set aside at the request of the Agent and held by such Debtor as trustee for the Agent and the Lenders and shall remain part of the Collateral. Unless and until an Event of Default hereunder occurs and is continuing, the relevant Debtor may settle and adjust disputes and claims with its customers and account debtors, handle returns and recoveries and grant discounts, credits and allowances in the ordinary course of its business as presently conducted for amounts and on -9- 10 terms which such Debtor in good faith considers advisable. Upon the occurrence and during the continuation of any Event of Default hereunder, unless the Agent requests otherwise, each Debtor shall notify the Agent promptly of all returns and recoveries and, on the Agent's request, deliver any such merchandise or other goods to the Agent. Upon the occurrence and during the continuation of any Event of Default hereunder, unless the Agent requests otherwise, each Debtor shall also notify the Agent promptly of all disputes and claims and settle or adjust them at no expense to the Agent or the Lenders hereunder, but no discount, credit or allowance other than on normal trade terms in the ordinary course of business as presently conducted shall be granted to any customer or account debtor and no returns of merchandise or other goods shall be accepted by any Debtor other than on normal trade terms in the ordinary course of business as presently conducted without the Agent's consent. The Agent may, at all times upon the occurrence and during the continuation of any Event of Default hereunder, settle or adjust disputes and claims directly with customers or account debtors for amounts and upon terms which the Agent considers advisable. Section 5. Collection of Receivables. (a) Except as otherwise provided in this Agreement, each Debtor shall make collection of all of its Receivables and may use the same to carry on its business in the ordinary course of its business including any transaction not prohibited by the Credit Agreement, and otherwise subject to the terms hereof. (b) Upon the occurrence and during the continuation of any Event of Default hereunder, whether or not the Agent has exercised any or all of its rights under other provisions of this Section 5, in the event the Agent requests any Debtor to do so: (i) all instruments and chattel paper at any time constituting part of the Receivables (including any postdated checks) shall, upon receipt by such Debtor, be immediately endorsed to and deposited with the Agent; and/or (ii) such Debtor shall instruct all of its customers and account debtors to remit all payments in respect of its Receivables to a lockbox or lockboxes under the sole custody and control of the Agent and which are maintained at post offices selected by the Agent. (c) Upon the occurrence and during the continuation of any Event of Default hereunder, whether or not the Agent has exercised any or all of its rights under other provisions of this Section 5, the Agent or its designee may notify the relevant Debtor's customers and account debtors at any time that Receivables have been assigned to the Agent or of the Agent's security interest therein, and either in its own name, or such Debtor's name, or both, demand, collect (including, without limitation, through a lockbox analogous to that described in Section 5(b)(ii) hereof), receive, receipt for, sue for, compound and give acquittance for any or all amounts due or to become due on Receivables, and in the Agent's discretion file any claim or take any other action or proceeding which the Agent may deem reasonably necessary or appropriate to protect and realize upon the security interest of the Agent in the Receivables. (d) Any proceeds of Receivables or other Collateral transmitted to or otherwise received by the Agent pursuant to any of the provisions of Sections 5(b) or 5(c) hereof may be handled -10- 11 and administered by the Agent in and through a remittance account or accounts maintained at the Agent or by the Agent at a commercial bank or banks selected by the Agent (collectively the "Depositary Banks" and individually a "Depositary Bank"), and each Debtor acknowledges that the maintenance of such remittance accounts by the Agent is solely for the Agent's convenience and that the Debtors do not have any right, title or interest in such remittance accounts or any amounts at any time standing to the credit thereof. The Agent may apply all or any part of any proceeds of Receivables or other Collateral received by it from any source to the payment of the Obligations (whether or not then due and payable), such applications to be made daily in such amounts, in such manner and order as the Agent may from time to time in its discretion determine. The Agent need not apply or give credit for any item included in proceeds of Receivables or other Collateral until the Depositary Bank has received final payment therefor at its office in cash or final solvent credits current at the site of deposit acceptable to the Agent and the Depositary Bank as such. However, if the Agent does permit credit to be given for any item prior to a Depositary Bank receiving final payment therefor and such Depositary Bank fails to receive such final payment or an item is charged back to the Agent or any Depositary Bank for any reason, the Agent may at its election in either instance charge the amount of such item back against any such remittance accounts or any depository account of any Debtor maintained with the Agent, together with interest thereon at the rate applicable to Base Rate Portions of the Revolving Credit Loans. Concurrently with each transmission of any proceeds of Receivables or other Collateral to any remittance account, upon the Agent's request, the relevant Debtor shall furnish the Agent with a report in such form as the Agent shall reasonably require identifying the particular Receivable or such other Collateral from which the same arises or relates. The Agent and the Lenders shall have no liability or responsibility to any Debtor for the Agent or any other Depositary Bank accepting any check, draft or other order for payment of money bearing the legend "payment in full" or words of similar import or any other restrictive legend or endorsement whatsoever or be responsible for determining the correctness of any remittance. Section 6. Special Provisions Re: Inventory. (a) Each Debtor shall at its own cost and expense maintain, keep and preserve its Inventory in good and merchantable condition. (b) Each Debtor may, until an Event of Default has occurred and is continuing and thereafter until otherwise notified by the Agent, use, consume and sell the Inventory in the ordinary course of its business, but a sale in the ordinary course of business shall not under any circumstance include any transfer or sale in satisfaction, partial or complete, of a debt owing by such Debtor. (c) As of the time any Inventory of a Debtor becomes subject to the security interest provided for hereby and at all times thereafter, such Debtor shall be deemed to have warranted as to any and all of such Inventory that all warranties of such Debtor set forth in this Agreement are true and correct with respect to such Inventory; and that all of such Inventory is located at a location set forth pursuant to Section 3(b) hereof. Each Debtor warrants and agrees that no material part of its Inventory is or will be consigned to any other person or entity without the Agent's prior written consent. -11- 12 (d) If any of the Inventory having an aggregate value in excess of $5,000,000 is at any time evidenced by a document of title, such document shall be promptly delivered by the relevant Debtor to the Agent. Section 7. Power of Attorney. In addition to any other powers of attorney contained herein, each Debtor hereby appoints the Agent, its nominee, or any other person whom the Agent may designate as such Debtor's attorney-in-fact, with full power to sign such Debtor's name on verifications of accounts and other Collateral; to send requests for verification of Collateral to such Debtor's customers, account debtors and other obligors; to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all sums or properties which may be or become due, payable or distributable in respect of the Collateral or any part thereof, with full power to settle, adjust or compromise any claim thereunder or therefor as fully as such Debtor could itself do; to endorse such Debtor's name on any assignments, or other instruments of transfer and on any checks, notes, acceptances, money orders, drafts and any other forms of payment or security that may come into the Agent's possession; to endorse the Collateral in blank or to the order of the Agent or its nominee; to sign such Debtor's name on any invoice or bill of lading relating to any Collateral, on claims to enforce collection of any Collateral, on notices to and drafts against customers and account debtors and other obligors, on schedules and assignments of Collateral, on notices of assignment and on public records; to notify the post office authorities to change the address for delivery of such Debtor's mail to an address designated by the Agent; to receive, open and dispose of all mail addressed to such Debtor; and to do all things necessary to carry out this Agreement. Each Debtor hereby ratifies and approves all acts of any such attorney and agrees that neither the Agent nor any such attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law other than such person's gross negligence or willful misconduct. The Agent may file one or more financing statements disclosing its security interest in any or all of the Collateral without any Debtor's signature appearing thereon, and each Debtor also hereby grants the Agent a power of attorney to execute any such financing statements, or amendments and supplements to financing statements, as the Agent may reasonably deem necessary or appropriate to assure the Agent its lien and security interest hereunder on behalf of such Debtor without notice thereof to any Debtor (and The Agent agrees to provide the relevant Debtor notice and copies of any such filing after it is made pursuant to this provision, provided the failure to give such notice shall not affect the validity or enforceability of the relevant filing). The foregoing powers of attorney, being coupled with an interest, are irrevocable until this Agreement shall have terminated in accordance with Section 10 hereof; provided, however, that the Agent agrees, as a personal covenant to the relevant Debtor, not to exercise the powers of attorney set forth in this Section unless an Event of Default has occurred and is continuing. Section 8. Defaults and Remedies. (a) The occurrence of any event or the existence of any condition which is specified as an "Event of Default" under the Credit Agreement shall constitute an "Event of Default" hereunder. (b) Upon the occurrence and during the continuation of any Event of Default (i) the Agent shall have, in addition to all other rights provided herein or by law, the rights and remedies of a secured party under the UCC (regardless of whether the UCC is the law of the jurisdiction where the rights or remedies are asserted and regardless of whether the UCC applies to the -12- 13 affected Collateral), and (ii) further the Agent may, without demand and without advertisement, notice, hearing or process of law, all of which each Debtor hereby waives to the extent permitted by applicable law, at any time or times, sell and deliver any or all Collateral held by or for it at public or private sale, or at any of the Agent's offices or elsewhere, for cash, upon credit or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion. In the exercise of any such remedies, the Agent may sell the Collateral as a unit even though the sales price thereof may be in excess of the amount remaining unpaid on the Obligations. Also, if less than all the Collateral is sold, the Agent shall have no duty to marshal or apportion the part of the Collateral so sold as between the Debtors, or any of them, but may sell and deliver any or all of the Collateral without regard to which of the Debtors are the owners thereof. Any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Debtors in accordance with Section 12(b) hereof at least 10 days before the time of sale or other event giving rise to the requirement of such notice; provided, however, no notification need be given to a Debtor if such Debtor has signed, after an Event of Default hereunder has occurred, a statement renouncing any right to notification of sale or other intended disposition. The Agent shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. The Agent or any Lender may be the purchaser at any such sale. Each Debtor hereby waives all of its rights of redemption from any such sale. Subject to the provisions of applicable law, the Agent may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, be made at the time and place to which the sale was postponed or the Agent may further postpone such sale by announcement made at such time and place. (c) Without in any way limiting the foregoing, upon the occurrence and during the continuation of any Event of Default hereunder, the Agent shall have the right, in addition to all other rights provided herein or by law, to take physical possession of any and all of the Collateral and anything found therein, the right for that purpose to enter without legal process any premises where the Collateral may be found (provided such entry be done lawfully), and the right to maintain such possession on the relevant Debtor's premises (each Debtor hereby agreeing, to the extent it may lawfully do so, to lease such premises without cost or expense to the Agent or its designee if the Agent so requests) or to remove the Collateral or any part thereof to such other places as the Agent may desire. Upon the occurrence and during the continuation of any Event of Default hereunder, the Agent shall have the right to exercise any and all rights with respect to deposit accounts of each Debtor maintained with the Agent or any Lender, including, without limitation, the right to collect, withdraw and receive all amounts due under each such deposit account. Upon the occurrence and during the continuation of any Event of Default hereunder, each Debtor shall, upon the Agent's demand, assemble the Collateral and make it available to the Agent at a place designated by the Agent. If the Agent exercises its right to take possession of the Collateral, each Debtor shall also at its expense perform any and all other steps requested by the Agent to preserve and protect the security interest hereby granted in the Collateral, such as placing and maintaining signs indicating the security interest of the Agent, appointing overseers for the Collateral and maintaining Collateral records. (d) The powers conferred upon the Agent hereunder are solely to protect its interest in the Collateral and shall not impose on it any duties to exercise such powers. The Agent shall be -13- 14 deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equivalent to that which the Agent accords its own property, it being understood, however, that the Agent shall have no responsibility for (i) ascertaining or taking any action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Collateral, whether or not the Agent has or is deemed to have knowledge of such matters, (ii) taking any necessary steps to preserve rights against any parties with respect to any Collateral, or (iii) initiating any action to protect the Collateral or any part thereof against the possibility of a decline in market value. (e) Without in any way limiting the foregoing, each Debtor hereby grants to the Agent for the benefit of the Lenders a royalty-free non-exclusive irrevocable license and right to use all of such Debtor's patents, patent applications, patent licenses, trademarks, trademark registrations, trademark licenses, trade names, trade styles, and similar intangibles in connection with any foreclosure or other realization by the Agent on all or any part of the Collateral to the extent permitted by law and the applicable license or other intellectual property agreement. The license and right granted the Agent hereby shall be without any royalty or fee or charge whatsoever. (f) Failure by the Agent to exercise any right, remedy or option under this Agreement or any other agreement between any Debtor and the Agent or provided by law, or delay by the Agent in exercising the same, shall not operate as a waiver; and no waiver shall be effective unless it is in writing, signed in accordance with Section 12.1 of the Credit Agreement and then only to the extent specifically stated. Neither the Agent, nor any Lender, nor any party acting as attorney for the Agent or any Lender, shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct. The rights and remedies of the Agent and the Lenders under this Agreement shall be cumulative and not exclusive of any other right or remedy which the Agent or the Lenders may have. For purposes of this Agreement, an Event of Default shall be construed as continuing after its occurrence until the same is cured or waived in writing by the Lenders or the Required Banks, as the case may be, in accordance with the Credit Agreement. Section 9. Application of Proceeds. The proceeds and avails of the Collateral at any time received by the Agent upon the occurrence and during the continuation of any Event of Default shall, when received by the Agent in cash or its equivalent, be applied by the Agent in reduction of, or held as collateral security for, the Obligations in accordance with the terms of Section 3.5 of the Credit Agreement. The Debtors shall remain liable to the Agent and the Lenders for any deficiency. Any surplus remaining after the full payment and satisfaction of the Obligations shall be returned to the Company, as agent for the Debtors, or to whomsoever the Agent reasonably determines is lawfully entitled thereto. Section 10. Continuing Agreement. This Agreement shall be a continuing agreement in every respect and shall remain in full force and effect until (i) the commitments of the Lenders to extend credit to or for the account of the Company under the Credit Agreement have expired or otherwise terminated and all of the Obligations, both for principal and interest then due and payable, have been fully paid and satisfied, or (ii) the lien and security interests shall have terminated pursuant to Section 1.8(b) of the Credit Agreement. Upon such termination of this -14- 15 Agreement, the Agent shall, upon the request and at the expense of the Debtors, forthwith release its security interest hereunder and deliver termination of all financing statements. Section 11. The Agent. In acting under or by virtue of this Agreement, the Agent shall be entitled to all the rights, authority, privileges and immunities provided in Section 10 of the Credit Agreement, all of which provisions of said Section 10 are incorporated by reference herein with the same force and effect as if set forth herein in their entirety. The Agent hereby disclaims any representation or warranty to the Lenders or any other holders of the Obligations concerning the perfection of the liens and security interests granted hereunder or in the value of any of the Collateral. Section 12. Miscellaneous. (a) This Agreement cannot be changed or terminated orally. This Agreement shall create a continuing lien on and security interest in the Collateral and shall be binding upon each Debtor, its successors and assigns and shall inure, together with the rights and remedies of the Agent and the Lenders hereunder, to the benefit of the Agent, the Lenders and their successors and permitted assigns; provided, however, that no party hereto may assign its rights or delegate its duties hereunder except as provided in Sections 10.13, 12.10, 12.16 and 12.17 of the Credit Agreement. Without limiting the generality of the foregoing, and subject to the provisions of the Credit Agreement, any Lender may assign or otherwise transfer any indebtedness held by it secured by this Agreement to any other person, and such other person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise. (b) All communications provided for herein shall be in writing, except as otherwise specifically provided for hereinabove, and shall be deemed to have been given or made, if to any Debtor when given to such Debtor in accordance with Section 12.7 of the Credit Agreement, or if to the Agent or any Lender, when given to such party in accordance with Section 12.7 of the Credit Agreement. (c) No Lender shall have the right to institute any suit, action or proceeding in equity or at law for the foreclosure or other realization upon any Collateral subject to this Agreement or for the execution of any trust or power hereof or for the appointment of a receiver, or for the enforcement of any other remedy under or upon this Agreement; it being understood and intended that no one or more of the Lenders shall have any right in any manner whatsoever to affect, disturb or prejudice the lien and security interest of this Agreement by its or their action or to enforce any right hereunder, and that all proceedings at law or in equity shall be instituted, had and maintained by the Agent in the manner herein provided for the benefit of the Lenders. (d) In the event that any provision hereof shall be deemed to be invalid or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision, but only as to such jurisdictions where such law or interpretation is operative, and the invalidity or unenforceability of such provision shall not affect the validity of any remaining provisions hereof, and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect. Without limiting the generality of the foregoing, in the event that this Agreement shall be deemed to be invalid or otherwise unenforceable with respect to any Debtor, -15- 16 such invalidity or unenforceability shall not affect the validity of this Agreement with respect to the other Debtors. (e) The lien and security interest herein created and provided for stand as direct and primary security for the Obligations of the Borrowers arising under or otherwise relating to the Credit Agreement as well as for any of the other Obligations. No application of any sums received by the Lenders in respect of the Collateral or any disposition thereof to the reduction of the Obligations or any part thereof shall in any manner entitle any Debtor to any right, title or interest in or to the Obligations or any collateral or security therefor, whether by subrogation or otherwise, unless and until this Agreement shall have terminated in accordance with Section 10 hereof. Each Debtor acknowledges that the lien and security interest hereby created and provided are absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of the Agent, any Lender or any other holder of any Obligations, and without limiting the generality of the foregoing, the lien and security interest hereof shall not be impaired by any acceptance by the Lenders or any other holder of any Obligations of any other security for or guarantors upon any of the Obligations or by any failure, neglect or omission on the part of the Agent, any Lender or any other holder of any Obligations to realize upon or protect any of the Obligations or any collateral or security therefor. The lien and security interest hereof shall not in any manner be impaired or affected by any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, alteration, substitution, exchange, change in, modification or disposition of any of the Obligations or of any collateral or security therefor, or of any guaranty thereof, or of any instrument or agreement setting forth the terms and conditions pertaining to any of the foregoing. The Lenders may at their discretion at any time grant credit to the Borrowers without notice to the other Debtors in such amounts and on such terms as the Lenders may elect (all of such to constitute additional Obligations) without in any manner impairing the lien and security interest created and provided for herein. In order to realize hereon and to exercise the rights granted the Agent and the Lenders hereunder and under applicable law, there shall be no obligation on the part of the Agent, any Lender or any other holder of any Obligations at any time to first resort for payment to the Borrowers or to any other Debtor or to any guaranty of the Obligations or any portion thereof or to resort to any other collateral, security, property, liens or any other rights or remedies whatsoever, and the Agent and the Lenders shall have the right to enforce this Agreement against any Debtor or any of its Collateral irrespective of whether or not other proceedings or steps seeking resort to or realization upon or from any of the foregoing are pending. (f) This Agreement shall be deemed to have been made in the State of Illinois and shall be governed by, and construed in accordance with, the laws of the State of Illinois. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. (g) Each Debtor hereby submits to the non-exclusive jurisdiction of the United States District Court for the Northern District of Illinois and of any Illinois state court sitting in the City of Chicago for purposes of all legal proceedings arising out of or relating to this Agreement, the other Loan Documents or the transactions contemplated hereby or thereby. Each Debtor irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any -16- 17 claim that any such proceeding brought in such a court has been brought in an inconvenient form. EACH DEBTOR, THE AGENT, AND EACH LENDER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. (h) This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterpart signature pages, each constituting an original, but all together one and the same agreement. [SIGNATURE PAGES TO FOLLOW] -17- 18 IN WITNESS WHEREOF, each Debtor has caused this Agreement to be duly executed and delivered in Chicago, Illinois as of the date first above written. "DEBTORS" SEMINIS, INC. By Its ---------------------------------------- Address: 2700 Camino del Sol Oxnard, California 93030-7967 Attention: ----------------------------- SEMINIS VEGETABLE SEEDS, INC. By Its ---------------------------------------- Address: 2700 Camino del Sol Oxnard, California 93030-7967 Attention: ----------------------------- -18- 19 Accepted and agreed to in Chicago, Illinois as of the date first above written. HARRIS TRUST AND SAVINGS BANK, as Agent as aforesaid for the Lenders By Its Vice President Address: 111 West Monroe Street P.O. Box 755 Chicago, Illinois 60690 Attention: Agribusiness Division -19- 20 SCHEDULE A LOCATIONS 1. Seminis, Inc. Federal Tax I.D. Number: 36-0769130 Chief Executive Office: 2700 Camino del Sol Ventura County Oxnard, California 93030-7967 Additional Collateral Locations: None 2. Seminis Vegetable Seeds, Inc. Federal Tax I.D. Number: 95-2252858 Chief Executive Office: 2700 Camino del Sol Ventura County Oxnard, California 93030-7967 Additional Collateral Locations:
LOCATION OF PROPERTY CITY ST COUNTY 1 2896 E. Hwy 95 Yuma AZ Yuma 2. 3832 E. 24th Place Yuma AZ Yuma 3. #1 Peto Rd (Corner of Peto & Theatre Rd) Williams CA Colusa 4. 803 Main St./ El Centro CA Imperial 75 S. Evan Hewes Hwy 5. 13720 Rock Pile Road Arvin CA Kern 6. Fwy 101 So.(425 Alta St) Gonzales CA Monterey 7. 1081-A Harkins Rd. Salinas CA Monterey 8. 124-A Griffin St. Salinas CA Monterey 9. 2700 Camino del Sol Oxnard CA Ventura/Comb 10. 1905 Lirio Ave Saticoy CA Ventura 11. 910 Duncan RD San Juan Bautista CA San Benito 12. 500 Lucy Brown Lane San Juan Bautista CA San Benito
21
LOCATION OF PROPERTY CITY ST COUNTY 13. 650 Leanna Drive Arroyo Grande CA San Luis Obispo 14. 37437 State Highway 16 Woodland CA Yolo 15. 3065 Pacheco Pass Highway Gilroy CA Santa Clara 16. 810 SW 1st Street Homestead FL Dade 17. 8200 Immokalee Road - sold 1/99 Naples FL Collier 18. 1402 Rail Head Blvd. Naples FL Collier 19. 5884 State Rd, 29 North Felda FL Hendry 20. 1282 SW Pelican Circle Palm City FL Martin 21. 4420 A Banker's Circle Doraville GA Dekalb 22. 432 TYTY Omega RD Tifton GA Tift 23. 10721 Scotch Pine RD Payette ID Payette 24. 1 Mile E. Filer on Highway #30 Twin Falls ID Twin Falls 25. 529 North Street Filer ID Twin Falls 26. 1811 East Florida Street Nampa ID Canyon 27. 22479 Fargo Road Wilder ID Canyon 28. 1740 East Oak RD Vineland NJ Cumberland 29. 291 Telegraph Rd Alloway NJ Salem 30. 4515 Opitz Road Berino NM Dona Ana 31. 5271 North Flat Street Hall NY Ontario 32. E State Highway 83 Weslaco TX Hidalgo 33. 2 Mile N493 1/4 mile W of Sioux Rd Donna TX Hidalgo Block 12 (where La Blance Rd ends) Donna TX Hidalgo 34. 723 Central Avenue South Quincy WA Grant 35. 115 East First North Warden WA Grant 36. 1669 La Conner-Whitney Rd Mt Vernon WA Skagit 37. 7202 Portage Rd DeForest WI Dane
-2- 22 SCHEDULE B TRADE NAMES TRADE NAMES OF NAME OF DEBTOR SUCH DEBTOR Seminis, Inc. Seminis Seminis Vegetable Seeds, Inc. Petoseed Genecorp Bruinsma California EX-27.1 4 ex27-1.txt FINANCIAL DATA SCHEDULE
5 9-MOS SEP-30-2000 OCT-01-1999 JUN-30-2000 13,421 0 201,686 (13,781) 316,075 531,400 289,596 (54,263) 1,206,693 183,528 0 25,000 1 599 497,344 1,026,693 382,150 382,150 165,227 165,227 229,276 0 (24,285) (27,019) 8,113 (18,906) 0 0 0 (18,906) (.41) (.41)
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