ECO SOIL SYSTEMS, INC.
00000 XXXXXXXXX XXXX
XXX XXXXX, XXXXXXXXXX 00000
Dated as of December 21, 1999
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED ANNEX 1
Amendment No. 4 to
Note and Warrant Purchase Agreement
-----------------------------------
Ladies and Gentlemen:
Reference is made to the Note and Warrant Purchase
Agreement, dated as of August 25, 1998, as amended by letter agreements dated
March 31, 1999, June 30, 1999 and November 12, 1999 (as so amended, the "Note
Agreement"), among Eco Soil Systems, Inc., a Nebraska corporation (the
"Company"), and Albion Alliance Mezzanine Fund, L.P. and Paribas Capital
Funding LLC (collectively, the "Purchasers"). The Purchasers hold 100% of the
Notes outstanding under the Note Agreement. Capitalized terms used herein
without definition have the meanings specified therefor in the Note Agreement.
The Company requests the consent of the Purchasers to
certain amendments of the Notes, the Warrants and the Note Agreement, and the
Purchasers are willing to consent to such amendments, on the terms and
subject to the conditions set forth herein.
The parties agree as follows:
1. AMENDMENTS. 1.1. AMENDMENT OF SECTION 9.1. Section 9.1
of the Note Agreement is hereby amended and restated to read in its entirety
as follows:
"9.1. OPTIONAL PREPAYMENTS. The Company may, at its
option, upon notice as provided in section 9.4, prepay at any time
all, or from time to time any part (in an amount of at least
$1,000,000 in the aggregate or an integral multiple of $1,000 in
excess thereof) of, the Notes at the principal amount so prepaid,
without premium."
1.2. AMENDMENT OF SECTION 9.3. Section 9.3 of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"9.3. PREPAYMENT PREMIUM. Except as may otherwise
be provided for in sections 9.2 and 11, no premium shall be due and
payable by the Company upon the prepayment of the Notes."
1.3. AMENDMENT OF SECTION 9.8. Section 9.8 of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"9.8. MANDATORY PREPAYMENT UPON SALE OF EQUITY. In
the event that at any time there shall be Equity Proceeds, the Company
shall give prompt written notice thereof to each holder of the Notes,
by facsimile transmission or registered mail (and shall confirm such
notice by prompt telephonic advice to an investment officer of each
such holder). The Company shall promptly (but in no event later than
five days after the Company's receipt thereof) apply such Equity
Proceeds to the prepayment of the Notes, at the principal amount so
prepaid, together with interest on such principal amount accrued to
such date, in accordance with the following:
"(a) the first $7,500,000 of any of such Equity
Proceeds received by the Company after December 21, 1999 shall
be applied by it to the prepayment of the Notes and accrued
interest thereon;
"(b) the Company may retain the next $2,500,000 of
Equity Proceeds it receives; and
"(c) the Company shall apply 50% of all Equity
Proceeds it receives after the first $10,000,000 to the
prepayment of the Notes and accrued interest thereon.
"In the event that there shall have been a partial prepayment of the
Notes under this section 9.8, the Company shall promptly give notice to
the holders of the Notes, accompanied by an Officers' Certificate
setting forth the principal amount of each of the Notes that was
prepaid and specifying how each such amount was determined."
1.4. AMENDMENT OF SECTION 10.1. Section 10.1 is hereby amended
by adding at the end of the first paragraph thereof the following new sentence:
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"References herein to section 10.2 shall be interpreted to be
references to section 10.2 as in effect prior to the amendments
contained in Amendment No. 4."
1.5. AMENDMENT OF SECTIONS 10.2(a), (b) AND (c). Section
10.2(a), (b) and (c) of the Note Agreement are hereby amended and restated to
read in their entirety as follows:
"10.2. FINANCIAL COVENANTS. (a) LIMITATION ON SENIOR
SECURED FUNDED DEBT. The Company will not permit the ratio of (i)
Senior Secured Funded Debt as of each date listed in the table below,
to (ii) Consolidated EBITDA for the period of four consecutive fiscal
quarters of the Company ending on such date, to be greater than the
ratio set forth opposite such date in the table below:
Quarter End Date Ratio
---------------- -----
September 30, 1998 3.75 to 1.0
December 31, 1998 3.00 to 1.0
March 31, 1999 3.00 to 1.0
June 30, 1999 6.50 to 1.0
September 30, 1999 3.52 to 1.0
September 30, 2000 7.10 to 1.0
December 31, 2000 3.00 to 1.0
March 31, 2001 2.50 to 1.0
and thereafter
"No limitations will be applicable to the quarter-end dates December
31, 1999, March 31, 2000 or June 30, 2000. The limitation applicable to
the quarter-end date September 30, 1999, is subject to the waiver
granted by Amendment No. 3.
"(b) LIMITATION ON TOTAL FUNDED DEBT. The Company
will not permit the ratio of (i) total Funded Debt as of each date
listed in the table below, to (ii) Consolidated EBITDA for the period
of four consecutive fiscal quarters of the Company ending on such date,
to be greater than the ratio set forth opposite such date in the table
below:
Quarter End Date Ratio
---------------- -----
September 30, 1998 7.00 to 1.0
December 31, 1998 5.00 to 1.0
March 31, 1999 5.00 to 1.0
June 30, 1999 10.55 to 1.0
September 30, 1999 5.30 to 1.0
September 30, 2000 11.00 to 1.0
December 31, 2000 5.00 to 1.0
March 31, 2001 3.50 to 1.0
and thereafter
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"No limitations will be applicable to the quarter-end dates December
31, 1999, March 31, 2000 or June 30, 2000. The limitation applicable to
the quarter-end date September 30, 1999, is subject to the waiver
granted by Amendment No. 3.
"(c) MINIMUM INTEREST COVERAGE. The Company will not
permit the ratio of (i) Consolidated EBITDA for the period of four
consecutive fiscal quarters of the Company ending on each date listed
in the table below, to (ii) Interest Expense for such period, to be
less than the ratio set forth opposite such date in the table below:
Quarter End Date Ratio
---------------- -----
September 30, 1998 1.60 to 1.0
December 31, 1998 2.00 to 1.0
March 31, 1999 2.50 to 1.0
June 30, 1999 1.10 to 1.0
September 30, 1999 2.33 to 1.0
September 30, 2000 1.25 to 1.0
December 31, 2000 and thereafter 2.50 to 1.0
"No limitations will be applicable to the quarter-end dates December
31, 1999, March 31, 2000 or June 30, 2000. The limitation applicable to
the quarter-end date September 30, 1999, is subject to the waiver
granted by Amendment No. 3."
1.6. AMENDMENT OF SECTION 10.2(d). Section 10.2(d) of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"(d) LIMITATION ON CAPITAL EXPENDITURES. The Company
will not make or commit to make any Capital Expenditure if the amount
thereof, taken together with all other Capital Expenditures made by the
Company during the then fiscal year, would exceed (i) $1,000,000 in the
case of fiscal year 2000 and (ii) $17,500,000 in the case of all fiscal
years thereafter."
1.7. ADDITION OF SECTION 10.2(e). The Note Agreement is hereby
amended by adding new section 10.2(e) immediately following section 10.2(d)
thereof:
"(e) MINIMUM EBITDA. The Company shall not permit
Consolidated EBITDA for each of the quarters ending on the dates set
forth below to be less than the amount indicated opposite each such
date:
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Quarter End Date Minimum EBITDA
---------------- --------------
December 31, 1999 $ (2,000,000.00)
March 31, 2000 $ (2,000,000.00)
June 30, 2000 $ 2,700,000.00
September 30, 2000 $ 4,500,000.00
December 31, 2000 $ 1,000,000.00"
1.8. AMENDMENT OF SECTION 10.5. Section 10.5 of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"10.5. RESTRICTED PAYMENTS. The Company will not, and
will not permit any Subsidiary to, directly or indirectly declare,
order, pay, make or set apart any sum or property for any Restricted
Payment unless, immediately after giving effect to any such proposed
action:
"(a) no condition or event shall exist which
constitutes an Event of Default or Potential Event of Default;
and
"(b) the aggregate amount of all sums and
property included in all Restricted Payments directly or
indirectly declared, ordered, paid, made or set apart by the
Company during the period from the Closing Date to and
including the date of such proposed action shall not exceed
25% (but, in the case of a deficit, 100%) of Consolidated Net
Income for such period."
1.9. ADDITION OF SECTION 10.18. The Note Agreement is hereby
amended by adding new section 10.18 immediately following section 10.17 thereof:
"10.18. ISSUANCE OF CONTINGENT SHARES. If the Company
shall have failed to prepay the Notes in full, including all accrued
interest thereon, on or prior to April 3, 2000, the Company shall issue
a number of shares of Common Stock (the "Contingent Shares") equal to X
in the following formula (each holder of the Notes to receive its PRO
RATA share of such number of shares):
"X=[the greater of Y and Z] x (P1/P2)
"where
"Y=1,000,000 (adjusted for splits, combinations and
the like to the date of issuance of the
Contingent Shares);
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"Z=5% of the Common Stock on March 31, 2000,
calculated on a fully-diluted basis (giving
effect to the issuance of all shares of Common
Stock issuable upon the conversion, exchange or
exercise of all outstanding securities of the
Company convertible into or exchangeable or
exercisable for shares of Common Stock);
"P(1)=the principal amount of the Notes outstanding on
March 31, 2000; and
"P(2)=the original principal amount of the Notes."
1.10. ADDITION OF SECTION 10.19. The Note Agreement is hereby
amended by adding new section 10.19 immediately following new section 10.18:
"10.19. SALE OF EQUITY SECURITIES. Without the
consent of the holders of at least 60% in principal amount of the Notes
at the time outstanding, the Company will not, and will not permit any
Subsidiary to, issue or sell any shares of its capital (other than
pursuant to the exercise of employee stock options and warrants) or
securities convertible into or exchangeable or exercisable for shares
of its capital stock, except that any Subsidiary may issue such shares
or other securities to the Company. At a minimum (but without
limitation), the holders of the Notes will require that, concurrently
with the issuance of any such shares or other securities, the Company
(a) repay the loan outstanding under the Loan and Security Agreement
between the Company and Coast Business Credit, (b) pay in advance the
interest payment to become due on the Notes on February 25, 2000, and
(c) pay the fees and disbursements of the Noteholders' special counsel
incurred in connection with the transactions contemplated by Amendment
No. 3 and Amendment No. 4."
1.11. ADDITION OF SECTION 10.20. The Note Agreement is hereby
amended by adding new section 10.20 immediately following new section 10.19:
"10.20. REGULATED HOLDERS. If any Regulated Holder
shall advise the Company that the receipt by such Regulated Holder of
Warrant Shares or Contingent Shares, as the case may be, would cause
such Regulated Holder to violate any provision of Applicable Law with
respect to its ownership of securities of the Company, then at the
option of such Regulated Holder (i) the Company shall cooperate in any
reasonable efforts by such Regulated Holder to dispose of Warrant
Shares or Contingent Shares, as the case may be, to an extent and in a
manner sufficient in the written
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opinion of counsel to such Regulated Holder (which may be internal
counsel) to prevent such violation; such efforts to include providing
(and authorizing such Regulated Holder to provide) financial and other
information concerning the Company to any prospective purchaser of
such securities (subject to an appropriate confidentiality agreement);
or (ii) the Company shall use its best efforts (including using its
best efforts to cause its Certificate to be amended) to create an
Equivalent Nonvoting Security with respect to such number of Warrant
Shares or Contingent Shares, as the case may be, as such Regulated
Holder may specify, and such Regulated Holder shall be entitled to
receive upon such exercise or exchange, in lieu of such number of
Warrant Shares or Contingent Shares otherwise receivable by such
Regulated Holder, the same number of shares or other units of such
Equivalent Nonvoting Security."
1.12. AMENDMENT TO SECTION 11(c). Section 11(c) of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"(c) if the Company shall default in the performance
of or compliance with any term contained in sections 10.2, 10.5, 10.7,
10.18 or 10.19."
1.13. ADDITIONAL DEFINITIONS. The following defined terms are
hereby added to section 14 of the Note Agreement in the appropriate alphabetical
order:
"AMENDMENT NO. 3: Amendment No. 3 to this Agreement,
dated as of November 12, 1999.
"AMENDMENT NO. 4: Amendment No. 4 to this Agreement,
dated as of December 21, 1999.
"AMENDMENT SHARES: the 402,208 shares of Common Stock
issued by the Company to the Noteholders pursuant to section 3.2 of
Amendment No. 4.
"APPLICABLE LAW: all provisions of laws, statutes,
ordinances, rules, regulations, permits or certificates of any
Governmental Authority applicable to any Person or any of its assets or
property, and all judgments, injunctions, orders and decrees of all
courts, arbitrators or Governmental Authorities in proceedings or
actions in which any such Person is a party or by which any of its
assets or properties are bound.
"CERTIFICATE: the Articles of Incorporation of the
Company, as amended from time to time.
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"CONTINGENT SHARES: the meaning specified therefor in
section 10.18.
"EQUITY PROCEEDS: as of any date of determination,
the aggregate amount of the net cash proceeds received by the Company
or any of its Subsidiaries from the sale of shares of its capital stock
(other than pursuant to the exercise of employee stock options or
warrants) or securities convertible into or exchangeable or exercisable
for shares of its capital stock, during the period from the date of
Amendment No. 4 to and including the date of determination; PROVIDED,
however, that the first $5,000,000 of net cash proceeds received by the
Company from the sale of equity securities in compliance with section
10.19 shall be excluded from any determination of Equity Proceeds.
"EQUIVALENT NONVOTING SECURITY: with respect to any
security issued or to be issued by any Person, a security of such
Person that is identical in rights and benefits to such first security,
except that (a) the equivalent security shall not be entitled to vote
on any matter on which holders of voting securities of such Person are
entitled to vote, other than as required by Applicable Law or with
respect to any amendment or repeal of any provision of the
Organizational Documents of such Person or any other agreement or
instrument pursuant to which the equivalent security was issued which
provision specifically affects such equivalent security, (b) subject to
such reasonable restrictions as any affected Regulated Holder may
request (including any restriction necessary to prevent the violation
by such Regulated Holder of any provision of Applicable Law with
respect to its ownership of voting securities), the equivalent security
shall be convertible on a one-to-one ratio into the first security and
(c) the terms of the equivalent security shall include such provisions
requested by any affected Regulated Holder as are reasonable and
equitable to ensure that (i) the equivalent security is treated
comparably to the first security with respect to dividends,
distributions, stock or unit splits, reclassifications, capital
reorganizations, mergers, consolidations and other similar events and
transactions, (ii) the conversion right provided in clause (b) above is
equitably protected and (iii) the acquisition of the equivalent
security will not cause such Regulated Holder to violate Applicable
Law.
"GOVERNMENTAL AUTHORITY: any federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, or any court, in each case whether of the
United States of America or foreign.
8
"ORGANIZATIONAL DOCUMENTS: with respect to any
Person, each instrument or other document that (a) defines the
existence of such Person, including its articles or certificate of
incorporation or certificate of formation, as filed or recorded with an
applicable Governmental Authority or (b) governs the internal affairs
of such Person, including its bylaws, operating agreement, regulations
or partnership agreement, in each case as amended, supplemented or
restated.
"OTHER SECURITIES: any stock (other than Common
Stock) and other securities of the Company or any other Person
(corporate or otherwise) which the holders of the Warrants at any time
shall be entitled to receive, or shall have received, upon the exercise
of the Warrants, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or
in replacement of Common Stock or Other Securities pursuant to section
3 of the Warrants or otherwise.
"REGULATED HOLDER: any holder (i) that directly, or
indirectly because of its ownership by an entity that is subject to
Regulation Y, is subject to the provisions of Regulation Y and (ii)
that holds shares of Common Stock or Warrants.
"REGULATION Y: Regulation Y of the Board of Governors
of the Federal Reserve System, 12 C.F.R. Part 225, or any successor
thereto.
"WARRANT SHARES: (a) any shares of Common Stock or
Other Securities issued or issuable upon exercise of the Warrants and
(b) any securities issued or issuable with respect to any Common Stock
or Other Securities referred to in subdivision (a) by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or
otherwise."
1.14. AMENDMENT OF CERTAIN DEFINITIONS. The following defined
terms used in the definition of "Make Whole Premium" are hereby amended and
restated to read in their entirety as follows:
"CALLED PRINCIPAL: with respect to any Note, the
principal of such Note that is declared to be immediately due and
payable pursuant to section 11.
"SETTLEMENT DATE: with respect to the Called
Principal of any Note, the date on which such Called Principal is
declared to be immediately due and payable pursuant to section 11."
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1.15. REFERENCES TO "WARRANTS". From and after the
effectiveness of this Amendment No. 4 and the execution and delivery of the
amended Warrants as contemplated by section 3.1, any reference to the "Warrants"
in the Note Agreement shall be deemed to refer to the Warrants as amended
pursuant to this Amendment No. 4.
1.16. AMENDMENT OF SCHEDULES AND EXHIBITS. Each of Schedules
A, C and D and Exhibit B to the Note Agreement is hereby amended and restated to
read in its entirety as set forth in Annexes 1, 2, 3 and 4, respectively,
attached to this Amendment No. 4.
2. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants that:
2.1. ORGANIZATION, STANDING, ETC. The Company and each of its
Subsidiaries listed in Annex 2 is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
and the Company has all requisite corporate power and authority (a) to own and
operate its properties; (b) to carry on its business as now conducted and as
proposed to be conducted; (c) to enter into and carry out the terms of this
Amendment No. 4; (d) to issue the shares issued or to be issued as contemplated
by sections 1.9 and 3.2 of this Amendment No. 4; and (e) to issue, and carry out
the terms of, the Warrants (as amended as contemplated hereby).
2.2. CAPITAL STOCK AND RELATED MATTERS. The authorized
capital stock of the Company consists of 50,000,000 shares of Common Stock
and 5,000,000 shares of Preferred Stock, par value $.005. After giving effect
to the transactions contemplated hereby (but excluding the shares to be
issued as contemplated by section 1.9 of this Amendment No. 4), 18,322,963
shares of Common Stock and no shares of Preferred Stock will be issued and
outstanding. All of the outstanding shares of capital stock of the Company
and each of its Subsidiaries are validly issued, fully paid and
non-assessable, and all such shares indicated in Annex 2 as owned by the
Company or by any other Subsidiary are so owned beneficially and of record by
the Company or by such other Subsidiary free and clear of any Lien except
such as are of the character permitted by section 10.3 of the Note Agreement.
The shares of Common Stock issuable upon the exercise of the Warrants, as
amended as contemplated by this Amendment No. 4, have been duly authorized
and validly reserved for issuance upon such exercise and, when so issued,
will be validly issued, fully paid and non-assessable. As of the date hereof,
the Company will not have outstanding securities convertible into or
exchangeable for any shares of its capital stock, nor will it have
outstanding any rights to subscribe for or to purchase, or any options for
the purchase of, or any
10
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, any shares of its
capital stock or any securities convertible into or exchangeable for any
shares of its capital stack, other than those listed on Annex 3.
2.3. NO DEFAULTS. As of the date hereof, no condition or
event exists which constitutes an Event of Default or Potential Event of
Default.
3. CONDITIONS TO EFFECTIVENESS. The effectiveness of the
waivers, amendments and other agreements contemplated hereby is subject to the
fulfillment, to the satisfaction of the Purchasers, of the following conditions:
3.1. AMENDED WARRANTS. The Company shall have executed and
delivered to each of the Purchasers an amended and restated Warrant,
substantially in the form set out in Annex 4 hereto, for the purchase by the
Purchasers of an aggregate of 662,461 shares of Common Stock, against surrender
by each such Purchaser of the original Warrants for cancellation.
3.2. ISSUANCE OF SHARES OF COMMON STOCK. As consideration for
the agreement of the Purchasers to amend certain covenants and to forego
prepayment premiums and the other agreements of the Purchasers contained herein,
the Company shall have issued to each of the Purchasers the number of shares of
Common Stock specified opposite such Purchaser's name in Annex 1 attached hereto
under the heading "Number of Shares of Common Stock", and the Company shall have
delivered to such Purchaser certificates representing such shares.
3.3. REGISTRATION RIGHTS AGREEMENT. The Company shall have
executed and delivered to each of the Purchasers the Registration Rights
Agreement, substantially in the form of Annex 5.
3.4. NO DEFAULT. The Company shall have delivered to each of
the Purchasers an Officer's Certificate stating that as of the date hereof, and
after giving effect to the transactions contemplated hereby, no Event of Default
or Potential Event of Default has occurred and is continuing.
3.5. CONSENTS, AGREEMENTS. The Company shall have obtained
all other consents and waivers necessary in connection with the transactions
contemplated hereby, and such consents and waivers shall be in full force and
effect on the date hereof. A complete and correct copy of each of such
consents and waivers shall have been delivered to the Purchasers.
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3.6. PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by this
Agreement and all documents and instruments incident to such transactions
shall be satisfactory to the Purchasers and their special counsel, and the
Purchasers and their special counsel shall have received all such counterpart
originals or certified or other copies of such documents as it or they may
reasonably request.
3.7. OPINION OF COUNSEL. The Purchasers shall have received
from Xxxxxx & Xxxxxxx, counsel for the Company, and from Fitzgerald, Schorr,
Xxxxxxxxxx & Xxxxxxx, P.C., Nebraska counsel for the Company, favorable
opinions substantially in the form set forth in Annex 6-A and 6-B,
respectively, addressed to the Purchasers, dated the effective date of this
Amendment No. 4 and otherwise satisfactory in substance and form to the
Purchasers.
4. INTENT OF PURCHASERS. Each Purchaser represents that (A)
it is acquiring the shares of Common Stock and amended Warrants hereunder for
its own account, not with a view to the distribution thereof or with any
present intention of distributing or selling any of such shares or amended
Warrants except in compliance with the Securities Act and any applicable
state securities laws, PROVIDED that the disposition of each Purchaser's
property shall at all times be within its control and (B) it is an
"accredited investor" within the meaning of Rule 502 of the Securities Act.
5. RATIFICATION. Except as amended hereby, all of the
provisions of the Note Agreement shall remain in full force and effect.
6. MISCELLANEOUS. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, whether so expressed or not. THIS AGREEMENT
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK. The headings in this Agreement are for purposes of
12
reference only and shall not limit or otherwise affect the meaning hereof. This
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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If the Purchasers are in agreement with the foregoing,
please sign the form of agreement on the accompanying counterparts of this
letter and return one of the same to the Company, whereupon this letter shall
become a binding agreement between the Purchasers and the Company.
Very truly yours,
ECO SOIL SYSTEMS, INC.
By:
--------------------------
The foregoing Amendment is
hereby agreed to as of the
date hereof.
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC,
its General Partner
By:
-------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Senior Vice President
PARIBAS CAPITAL FUNDING LLC
By:
-------------------------
Name: Xxxx Xxxxx
Title: Managing Director
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