Exhibit 99.3
February 25, 2003
X. Xxxxxxx Xxxxxxxxx
Xxxxxxx Xxxxxxxxx
Xxxxxxx Xxxxxxxxx
Xxxxxx Xxxxxxxxx
Re: Credit Enhancement
Dear Messrs. Xxxxxxxxx:
This letter confirms the agreement reached between each of you and N-Viro
International Corporation, a Delaware corporation (the "Company") with respect
to your joint provision of certain Additional Collateral, as more particularly
described below, to assist the Company in obtaining a new $550,000.00 working
capital line of credit as well as a term loan in the original principal amount
of $295,003.00 (collectively, the "Credit Facility") from Monroe Bank & Trust
("Lender"). As you are aware, as a condition to providing the Credit Facility to
the Company, Xxxxxx has required that the Company grant to it a first priority
security interest in substantially all of the assets of the Company as well as a
first or second mortgage on one or more parcels of real property owned by third
parties and having lendable value in excess of $100,000.00. For purposes of the
preceding sentence, the phrase "lendable value" means such amount as equals
ninety percent (90%) of the appraised value of such parcel or parcels of real
property less the aggregate amount of all mortgages and security interests
senior to those to be provided to Lender. It is further understood that Xxxxxx's
lien on the parcel or parcels of real property that will constitute the
Additional Collateral shall take the form of a first or second mortgage in form
and substance mutually satisfactory to Lender and the title holder of such
property (the "Mortgage").
The Company understands that the four of you are amenable to providing the
Additional Collateral requested by Xxxxxx as a condition precedent to providing
the Company with the Credit Facility. The paragraphs that follow summarize the
terms and conditions pursuant to which one or more of you agree to execute and
deliver to Lender the Mortgage as well as to cause the Mortgage to remain in
full force and effect throughout the earlier of (1) the term of the term note
constituting a portion of the Credit Facility and (2) four years from the date
of origination of the Credit Facility.
As promptly as possible following the date hereof, you and Lender shall agree
upon one or more parcels of real property that may be used by the Company as
additional collateral (the "Additional Collateral") to support the indebtedness
of the Company under and pursuant to the terms of the Credit Facility. Once the
Additional Collateral has been identified, you and Lender expeditiously shall
agree upon the form and content of the Mortgage or Mortgages in an amount equal
to $100,000.00 to be granted in favor of Lender to secure a portion of the
Company's indebtedness to Lender under and pursuant to the terms of the Credit
Facility. On the date of closing of the Credit Facility, you shall execute and
deliver to Lender the Mortgage or Mortgages and shall cause the same to remain
in full force and effect throughout the earlier of (1) the term of the term note
included in the Credit Facility, and (2) the release of the Additional
Collateral by the Lender, and (3) four years from the date of initial funding of
the Credit Facility.
Notwithstanding the foregoing, with the consent of Lender, you shall be
permitted to substitute other collateral for the Additional Collateral so long
as such substitution does not have a material adverse effect upon the Credit
Facility or the Company's ability to borrow thereunder. Furthermore, the Company
shall have the right to substitute an alternate credit facility, provided by
Lender or another commercial financial institution, for the Credit Facility (a
"Substitute Loan"). You covenant and agree that you shall grant a mortgage or
mortgages substantially similar to the Mortgage or Mortgages to be granted to
Lender hereunder to any other lender of the Company in connection with the
Company's request for a Substitute Loan provided that (1) the aggregate
indebtedness of the Company under and pursuant to the terms of the Substitute
Loan does not exceed the amount of the Company's indebtedness under the Credit
Facility as of the date of origination of the Substitute Loan, and (2) your
obligation to continue to provide a Mortgage or Mortgages securing an interest
in the Additional Collateral does not survive for a period of more than four
years following the date of origination of the initial Credit Facility.
In exchange for your commitment to provide the Additional Collateral, the
Company has agreed to (1) pay to the four of you, in the aggregate, an annual
fee in an amount equal to two percent (2%) of the aggregate value of the
Mortgage or Mortgages encumbering the Additional Collateral, which fee
originally shall be $2,000.00 per annum, (2) pay you interest at an annual rate
of 5% of the aggregate value of the Mortgage or Mortgages encumbering the
Additional Collateral beginning on the first anniversary date of the closing of
the Credit Facility, and (3) grant to the four of you, jointly, a warrant (the
"Warrant") to acquire, in the aggregate, 50,000 shares of the Company's voting,
common stock at a purchase price of $0.90 per share. The Warrant shall be
exercisable, in whole or in part, for a period of three years following the date
of closing of the Credit Facility. The Warrant shall be in such form as is
attached hereto as Exhibit A. The initial two percent (2%) annual fee due to you
shall be due and payable on the date of closing of the Credit Facility.
Thereafter, the annual fee shall be paid on the first business day after the
anniversary date of the closing of the Credit Facility.
Additionally, the Company shall indemnify you and save you harmless from and
against any losses that you may suffer as a result of the forfeiture of the
Additional Collateral as a result of a default by the Company with respect to
its obligations under the Credit Facility. Furthermore, to secure the Company's
indemnification obligation as described in the preceding sentence, the Company
hereby grants to you a lien upon all of the Company's inventory and accounts
receivable as well as the proceeds therefrom. You acknowledge and agree that
this lien shall be subordinate to both (1) all existing liens on the Company's
assets and (2) all liens granted by the Company in favor of Xxxxxx as well as
all other financial institutions that hereafter may provide a Substitute Loan.
You and the Company agree that this letter constitutes a security agreement
between the Company and you with respect to the collateral described herein, all
of the Company's accounts receivable and inventory. The Company hereby
authorizes you to file financing statements in the appropriate jurisdictions to
evidence the security interest granted to you hereunder. Upon release of the
Mortgage, the security interest granted to you shall terminate.
Once you are permitted to withdraw the Additional Collateral, either as a result
of the expiration of your obligations under and pursuant to the terms of this
letter or based on the Company obtaining an alternate credit facility that does
not require the provision of the Additional Collateral, you no longer shall be
entitled to the annual fee. However, upon the initial funding of the Credit
Facility, your rights under the Warrant shall be irrevocable.
If the terms and conditions set forth in this letter are acceptable to you,
please so indicate by executing the enclosed acknowledgment copy of this letter
and returning it to the undersigned via facsimile or hand delivery as well as
via regular U.S. mail. Upon execution by you and delivery to the Company, this
letter shall constitute a binding obligation of you and the Company. The offer
set forth in this letter remains available for your acceptance until 5:00 p.m.
Eastern Standard Time on February 26, 2003. If you have not executed and
delivered the acknowledgment copy of this letter to the Company by such time,
the offer set forth in this letter shall be deemed to have been withdrawn.
On behalf of the Company, the Board of Directors and shareholders, I wish to
thank you for your willingness to provide the additional collateral and assist
the Company in obtaining the Credit Facility.
Very truly yours,
/s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx,
Chief Executive Officer and President
ACKNOWLEDGED AND AGREED:
/s/ X. Xxxxxxx Xxxxxxxxx Date: 2/26/03
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X. Xxxxxxx Xxxxxxxxx
/s/ Xxxxxxx Xxxxxxxxx Date: 2/26/03
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Xxxxxxx Xxxxxxxxx
/s/ Xxxxxxx Xxxxxxxxx Date: 2/26/03
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Xxxxxxx Xxxxxxxxx
/s/ Xxxxxx Xxxxxxxxx Date: 2/26/03
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Xxxxxx Xxxxxxxxx
