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FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER
This First Amendment and Waiver ("Amendment") amends that certain Credit
Agreement ("Agreement"), dated December 2, 1998, by and between Imperial Bank
("Bank") and Eco Soil Systems, Inc., a Nebraska Corporation, Aspen Consulting
Companies, Inc., a Colorado Corporation, Turf Specialty, Inc., a Delaware
Corporation, Eco Turf Products, Inc., a Delaware Corporation, Mitigation
Services, Inc., a Delaware Corporation, Agricultural Supply, Inc., a Delaware
Corporation, Xxxxxx Chemical Corporation, a Michigan Corporation, Turf
Acquisition Sub, Inc., a Delaware Corporation, and Yuma Acquisition Sub,
Inc., a Delaware Corporation (collectively, "Borrower") and waives certain
covenant breaches in the Agreement as follows:
I. Borrower is in default of the following sections of the Agreement:
4.05(a) MONTHLY FINANCIAL STATEMENT. As soon as available, and in any
event within thirty (30) days after the close of each month, a
consolidated balance sheet, profit and loss statement and reconcilation
of Borrower's capital balance accounts as of the close of such period
and covering operations for the portion of Borrower's fiscal year
ending on the last day of such period, all in reasonable detail and
reasonably acceptable to Bank, in accordance with generally accepted
accounting principles on a basis consistently maintained by Borrower
and certified by an appropriate officer of Borrower.
Borrower is currently past due for the January 31, 1999 monthly
financial statement.
4.06 MODIFIED QUICK RATIO. Maintain at all times a consolidated
minimum ratio of total accounts receivable divided by total Trading
Liabilities (meaning the total of Revolving Loans, accounts payable and
accrued liabilities) of .85 to 1.00.
The modified quick ratio as of December 31, 1998 was approximately
.63:1.00 which is below the minimum.
4.07 TRADING CAPITAL. Maintain at all times consolidated Trading
Capital (meaning total accounts receivable and inventory minus total
Trading Liabilities as defined in section 4.06) of not less than
fifteen million dollars ($15,000,000).
The trading capital as of December 31, 1998 was approximately
$12,503,000 which is below the minimum.
4.08 EFFECTIVE TANGIBLE NET WORTH. Maintain at all times a
consolidated Effective Tangible Net Worth (defined as (a) stockholder's
equity (including without limitation preferred stock) less any value
for goodwill, trademarks, patents, copyrights, leaseholds, organization
expense and other similar intangible items, and any amounts due from
stockholders, officers and affiliates plus (b) subordinated debt
including, without limitation, the $15,000,000.00 offering of senior
subordinated notes with detachable warrants offered pursuant to the
Note and Warrant Purchase Agreement and the Common Stock Purchase
Warrant, each dated as of August 25, 1998) of not less than thirty-six
million dollars ($36,000,000).
The Effective Tangible Net Worth as of December 31, 1998 was
approximately $29,752,000 which is below the minimum.
4.09 TOTAL LIABILITIES TO EFFECTIVE TANGIBLE NET WORTH. Maintain at all
times a consolidated ratio of total liabilities to Effective Tangible
Net Worth (as defined in section 4.08) of not greater than .75 to 1.00.
The ratio of total liabilities to Effective Tangible Net Worth as of
December 31, 1998 was approximately .79:1.00 which is above the maximum.
4.10 PROFITABILITY. Maintain on a consolidated basis, profitable
operations (meaning a net profit after taxes) of at least one dollar
($1) on an annual (calendar year) basis.
Profitable operations as of December 31, 1998 was a negative value
which is below the minimum.
ECO SOIL SYSTEMS INC.
AMENDMENT NO. 1
PAGE 2
5.06 LOSSES. Incur losses in the first quarter of fiscal 1999 (ended
March 31) of greater than two million five hundred thousand dollars
($2,500,000) or incur quarterly losses in excess of one dollar ($1) in
any two consecutive calendar quarters.
Quarterly losses as of 4th quarter ending December 31, 1998 were
approximately $12,170,000 and 1st quarter losses ending March 31, 1999
are anticipated to be approximately $2,675,000 which together are a
violation of this covenant.
2. Bank hereby waives the aforementioned covenant defaults for the periods
ending December 31, 1998 and March 31, 1999 only. The waiver contained herein
is specific as to contents and time as shall not be construed as waiving any
other past, presently existing or future noncompliance with any covenant of
the Agreement and in no way affects any rights and remedies that Bank may
have with respect to any other noncompliance with any other covenant of the
Agreement.
3. Section 4.05(a) of the Agreement is hereby amended to read in its
entirety as follows:
"MONTHLY FINANCIAL STATEMENT. As soon as available, and in any event
within thirty (30) days after the close of each month, a consolidated
balance sheet, profit and loss statement and reconcilation of
Borrower's capital balance accounts as of the close of such period and
covering operations for the portion of Borrower's fiscal year ending on
the last day of such period, all in reasonable detail and reasonably
acceptable to Bank, in accordance with generally accepted accounting
principles on a basis consistently maintained by Borrower and certified
by an appropriate officer of Borrower."
4. Section 4.06 of the Agreement is hereby amended to read in its
entirety as follows:
"MODIFIED QUICK RATIO. Maintain at all times a consolidated minimum
ratio of total accounts receivable divided by total Trading Liabilities
(meaning the total of Revolving Loans, accounts payable and accrued
liabilities) of .55 to 1.00."
5. Section 4.07 of the Agreement is hereby amended to read in its entirety
as follows:
"WORKING CAPITAL. Maintain at all times consolidated Working Capital of
not less than eleven million five hundred thousand dollars
($11,500,000)."
6. Section 4.08 of the Agreement is hereby amended to read in its entirety
as follows:
"EFFECTIVE TANGIBLE NET WORTH. Maintain at all times a consolidated
Effective Tangible Net Worth (defined as (a) stockholder's equity
(including without limitation preferred stock) less any value for
goodwill, trademarks, patents, copyrights, leaseholds, organization
expense and other similar intangible items, and any amounts due from
stockholders, officers and affiliates plus (b) subordinated debt
including, without limitation, the $15,000,000.00 offering of senior
subordinated notes with detachable warrants offered pursuant to the
Note and Warrant Purchase Agreement and the Common Stock Purchase
Warrant, each dated as of August 25, 1998) of not less than
twenty-seven million two hundred fifty thousand dollars ($27,250,000)."
7. Section 4.09 of the Agreement is hereby amended to read in its entirety
as follows:
"TOTAL LIABILITIES TO EFFECTIVE TANGIBLE NET WORTH. Maintain at all
times a consolidated ratio of total liabilities to Effective Tangible
Net Worth (as defined in section 4.08) of not greater than 1.25 to 1.00"
ECO SOIL SYSTEMS INC.
AMENDMENT NO. 1
PAGE 3
8. Section 4.10 of the Agreement is hereby amended to read in its entirety
as follows:
"Maintain, at all times, from June 30, 1999, through December 31, 1999,
on a consolidated basis, year to date profitability of at least one
dollar ($1.00)."
9. A new Section 5.07 is hereby added to the agreement to read in its
entirety as follows:
"PREPAYMENT ON DEBT. Make any principal prepayments on any of
Borrower's obligations, including but not limited to the $15,000,000.00
offering of senior subordinated notes with detachable warrants offered
pursuant to the Note and Warrant Purchase Agreement and the Common
Stock Purchase Warrant, each dated as of August 25, 1998."
10. A new Section 6.11 is hereby added to the Agreement to read in its
entirety as follows:
"LOAN RESTRUCTURE. Failure of Borrower to complete, by April 16, 1999,
documentation to replace the Revolving Line of Credit with a
formula-based accounts receivable inventory line of credit with a 75%
advance rate on eligible accounts receivable and a 35% advance rate on
eligible inventory, with advances thereunder bearing interest at the one
percent (1.00%) in excess of the Prime Rate and with Borrower required
to submit a monthly borrowing base certificate along with accounts
receivable and accounts payable agings and an inventory certificate in
form acceptable to Bank. This restructuring shall include establishment
of a lock box service with Bank and appropriate notices to Borrower's
account debtors regarding lock box payments."
11. Except as provided above, the Agreement remains unchanged and the
parties hereby confirm that the Agreement as herein amended is in full
force and effect.
12. This Amendment is effective as of March 31, 1999, and upon (i)
Borrower's payment to Bank of a waiver fee in the amount of $25,000 and (ii)
Bank's receipt of a fully executed waiver, satisfactory to Bank of any Event
of Default or Potential Event of Default (all as defined therein) under
Borrower's 12.00% Senior Subordinated Note due 2003, and the parties hereby
confirm that the Agreement as amended is in full force and effect.
ECO SOIL SYSTEMS, INC.
"Borrower"
By: /s/ Xxxxxxx X. Xxxxx
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Title: CEO
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IMPERIAL BANK
"Bank"
By: /s/ Xxxxx X. Xxxxx
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Title: Assistant Vice President
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