Exhibit 10.54

 

 

CREDIT AGREEMENT

 

by and among

 

APIO, INC.,

 

as Borrower,

 

CAL EX TRADING COMPANY

 

and

 

WELLS FARGO BANK, NATIONAL ASSOCIATION,

 

as Bank

 

Dated as of September 1, 2004

 

 

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Table of Contents

 

ARTICLE I

 

 

 

 

 

 

 

Section 1.1.

Definitions

 

 

Section 1.2.

Other Definitional Terms; Rules of Interpretation

 

 

 

 

 

ARTICLE II

 

 

 

 

 

 

 

Section 2.1.

Line of Credit

 

 

(a)

 

Advances

 

 

(b)

 

Payments to Sellers

 

 

(c)

 

Overadvances

 

 

(d)

 

Procedures for Requesting Advances

 

 

Section 2.2.

Letter of Credit Subfeature

 

 

(a)

 

Letters of Credit

 

 

(b)

 

Term

 

 

(c)

 

Deemed Representation

 

 

(d)

 

Special Account

 

 

(e)

 

Payment of Amounts Drawn Under Letters of Credit; Obligation of Reimbursement

 

 

(f)

 

Obligations Absolute

 

 

Section 2.3.

Term Commitment

 

 

Section 2.4.

Term Loan

 

 

(a)

 

Term Loan

 

 

(b)

 

Repayment

 

 

(c)

 

Prepayment

 

 

Section 2.5.

Interest; Default Interest; Participations; Usury; Collection of Payments

 

 

(a)

 

Notes

 

 

(b)

 

Default Interest Rate

 

 

(c)

 

Swap Agreements

 

 

(d)

 

Participations

 

 

(e)

 

Usury

 

 

(f)

 

Collection of Payments

 

 

Section 2.6.

Fees

 

 

(a)

 

Commitment Fee

 

 

(b)

 

Collateral Monitoring Fees

 

 

(c)

 

Letter of Credit Fees

 

 

(d)

 

Letter of Credit Administrative Fees

 

 

(e)

 

Prepayment Fees

 

 

(f)

 

Unused Line Fee

 

 

(g)

 

Audit Fees

 

 

(h)

 

Other Fees

 

 

Section 2.7.

Increased Costs; Capital Adequacy; Funding Exceptions

 

 

(a)

 

Increased Costs; Capital Adequacy

 

 

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Section 2.8.

Lockbox

 

 

Section 2.9.

 

Mandatory Prepayment

 

 

Section 2.10.

Line of Credit Advances to Pay Obligations

 

 

Section 2.11.

Liability Records

 

 

 

 

 

 

ARTICLE III

 

 

 

 

 

 

 

 

Section 3.1.

Grant of Security Interest

 

 

Section 3.2.

Financing Statements

 

 

 

 

 

ARTICLE IV

 

 

 

 

 

 

Section 4.1.

Conditions Precedent to the Initial Advances and Letter of Credit

 

 

 

 

 

 

ARTICLE V

 

 

 

 

 

 

 

 

Section 5.1.

Existence and Power; Name; Chief Executive Office; Inventory and Equipment
Locations; Federal Employer Identification Number

 

 

Section 5.2.

Capitalization

 

 

Section 5.3.

Authorization of Borrowing; No Conflict as to Law or Agreements

 

 

Section 5.4.

Legal Agreements

 

 

Section 5.5.

Subsidiaries

 

 

Section 5.6.

Financial Condition; No Adverse Change

 

 

Section 5.7.

Litigation

 

 

Section 5.8.

Regulation U

 

 

Section 5.9.

Taxes

 

 

Section 5.10.

Titles and Liens

 

 

Section 5.11.

Intellectual Property Rights

 

 

(a)

 

Owned Intellectual Property

 

 

(b)

 

Agreements with Employees and Contractors

 

 

(c)

 

Intellectual Property Rights Licensed from Others

 

 

(d)

 

Other Intellectual Property Needed for Business

 

 

(e)

 

Infringement

 

 

Section 5.12.

Plans

 

 

Section 5.13.

Default

 

 

Section 5.14.

Environmental Matters

 

 

Section 5.15.

Submissions to Bank

 

 

Section 5.16.

Financing Statements

 

 

Section 5.17.

Rights to Payment

 

 

Section 5.18.

Eligible Accounts

 

 

Section 5.19.

Equipment

 

 

Section 5.20.

Fraudulent Transfer

 

 

Section 5.21.

Permits, Franchises

 

 

Section 5.22.

No Subordination

 

 

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ARTICLE VI

 

 

 

 

 

 

 

 

Section 6.1.

Punctual Payments

 

 

Section 6.2.

Reporting Requirements

 

 

(a)

 

Annual Financial Statements

 

 

(b)

 

Monthly Financial Statements

 

 

(c)

 

Collateral Reports

 

 

(d)

 

Projections

 

 

(e)

 

Litigation

 

 

(f)

 

Defaults

 

 

(g)

 

Plans

 

 

(h)

 

Disputes

 

 

(i)

 

Officers and Directors

 

 

(j)

 

Collateral

 

 

(k)

 

Commercial Tort Claims

 

 

(l)

 

Intellectual Property

 

 

(m)

 

Reports to Owners

 

 

(n)

 

SEC Filings

 

 

(o)

 

Violations of Law

 

 

(p)

 

Other Reports

 

 

Section 6.3.

Financial Covenants

 

 

(a)

 

Minimum EBITDA Coverage Ratio

 

 

(b)

 

Minimum Tangible Net Worth

 

 

(c)

 

Minimum Net Income

 

 

(d)

 

Capital Expenditures

 

 

(e)

 

Maximum Leverage

 

 

Section 6.4.

Permitted Liens; Financing Statements

 

 

Section 6.5.

Indebtedness

 

 

Section 6.6.

Guaranties

 

 

Section 6.7.

 

Investments and Subsidiaries

 

 

Section 6.8.

Dividends and Distributions

 

 

Section 6.9.

Salaries

 

 

Section 6.10.

Key Person Life Insurance

 

 

Section 6.11.

Books and Records; Inspection and Examination

 

 

Section 6.12.

Account Verification

 

 

Section 6.13.

Compliance with Laws

 

 

Section 6.14.

Payment of Taxes and Other Claims

 

 

Section 6.15.

Maintenance of Properties

 

 

Section 6.16.

Insurance

 

 

Section 6.17.

Preservation of Existence

 

 

Section 6.18.

Delivery of Instruments, etc

 

 

Section 6.19.

Sale or Transfer of Assets; Suspension of Business Operations

 

 

Section 6.20.

Consolidation and Merger; Asset Acquisitions

 

 

Section 6.21.

Sale and Leaseback

 

 

Section 6.22.

Restrictions on Nature of Business

 

 

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Section 6.23.

Accounting

 

 

Section 6.24.

Discounts, etc

 

 

Section 6.25.

Plans

 

 

Section 6.26.

Place of Business; Name

 

 

Section 6.27.

Constituent Documents

 

 

Section 6.28.

Transactions With Affiliates

 

 

Section 6.29.

Use of Funds

 

 

Section 6.30.

Subordination of Debt

 

 

Section 6.31.

Management Fees

 

 

Section 6.32.

Maintenance of Accounts with Bank

 

 

Section 6.33.

Grower Contracts

 

 

Section 6.34.

Performance by Bank

 

 

 

 

 

 

ARTICLE VII

 

 

 

 

 

 

 

 

Section 7.1.

Events of Default

 

 

Section 7.2.

Rights and Remedies

 

 

Section 7.3.

Disclaimer of Warranties

 

 

Section 7.4.

Compliance With Laws

 

 

Section 7.5.

No Marshalling

 

 

Section 7.6.

Borrower to Cooperate

 

 

Section 7.7.

Application of Proceeds

 

 

Section 7.8.

Remedies Cumulative

 

 

Section 7.9.

Bank Not Liable For The Collateral

 

 

 

 

 

 

ARTICLE VIII

 

 

 

 

 

 

 

 

Section 8.1.

No Waiver

 

 

Section 8.2.

Amendments, Etc

 

 

Section 8.3.

Addresses for Notices; Requests for Accounting

 

 

Section 8.4.

Further Documents

 

 

Section 8.5.

Costs and Expenses

 

 

Section 8.6

Indemnity

 

 

Section 8.7.

Participants

 

 

Section 8.8.

Advertising and Promotion

 

 

Section 8.9.

Execution in Counterparts; Telefacsimile Execution

 

 

Section 8.10.

Retention of Borrower’s Records

 

 

Section 8.11.

Binding Effect; Assignment; Complete Agreement; Exchanging Information

 

 

Section 8.12.

Severability of Provisions

 

 

Section 8.13.

Revival and Reinstatement of Obligations

 

 

Section 8.14.

Headings

 

 

Section 8.15.

GOVERNING LAW

 

 

Section 8.16.

SUBMISSION TO JURISDICTION

 

 

Section 8.17.

WAIVER OF JURY TRIAL

 

 

Section 8.18.

Arbitration

 

 

(a)

 

Arbitration

 

 

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(b)

 

Governing Rules

 

 

(c)

 

No Waiver of Provisional Remedies, Self-Help and Foreclosure

 

 

(d)

 

Arbitrator Qualifications and Powers

 

 

(e)

 

Discovery

 

 

(f)

 

Class Proceedings and Consolidations

 

 

(g)

 

Payment Of Arbitration Costs And Fees

 

 

(h)

 

Real Property Collateral; Judicial Reference

 

 

(i)

 

Miscellaneous

 

 

Section 8.19.

Confidentiality

 

 

 

 

 

 

ARTICLE IX

 

 

 

 

 

 

 

 

Section 9.1.

Joint and Several Liability

 

 

Section 9.2.

Primary Obligation; Waiver of Marshalling

 

 

Section 9.3.

Financial Condition of Borrower

 

 

Section 9.4.

Continuing Liability

 

 

Section 9.5.

Additional Waivers

 

 

Section 9.6.

Settlement or Releases

 

 

Section 9.7.

No Election

 

 

Section 9.8.

Indefeasible Payment

 

 

Section 9.9.

Single Loan Account

 

 

Section 9.10.

Apportionment of Proceeds of Loans

 

 

Section 9.11

Bank Held Harmless

 

 

Section 9.12.

Borrower and Cal Ex’s Integrated Operations

 

 

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CREDIT AGREEMENT

 

THIS CREDIT AGREEMENT (this “Agreement”) is dated and made as of September 1,
2004, by and among APIO, INC., a Delaware corporation (“Borrower”), CAL EX
TRADING COMPANY, a Delaware corporation (“Cal Ex”), and WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Bank”).

 

RECITALS

 

WHEREAS, Borrower has requested that Bank extend or continue credit to Borrower
as described below, and Bank has agreed to provide such credit to Borrower on
the terms and conditions contained herein.

 

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Bank, Borrower and Cal Ex hereby agree as follows:

 

ARTICLE I
DEFINITIONS

 

Section 1.1.                                   Definitions.  For all purposes of
this Agreement, except as otherwise expressly provided, the following terms
shall have the meanings assigned to them in this Section or in the
Section referenced after such term:

 

“Acceptable Grower Contract” means a contract between Borrower and a grower of
goods pursuant to which Borrower acquires goods in the ordinary course of
business and for which each of the following requirements has been satisfied: 
(i) a copy of such contract, together with all amendments, modifications,
supplements and replacements thereto, has been provided to and approved by Bank,
in its reasonable discretion, and (ii) the contract, as amended, modified,
supplemented, or replaced, provides that Borrower’s obligations to make payment
to the related grower shall not be due and payable before the Friday of the
fifth (5th) week following the week of delivery of goods to Borrower from such
grower.

 

“Acceptable Wells Fargo Deposit Account” has the meaning given in Section 6.10.

 

“Account Debtor” means any Person who is or who may become obligated under, with
respect to, or on account of, an Account, chattel paper, or a General
Intangible.

 

“Accounts” means all of Borrower’s now owned or hereafter acquired right, title,
and interest with respect to “accounts” (as that term is defined in the UCC),
and any and all supporting obligations in respect thereof.

 

“Advance” means a Line of Credit Advance or a Term Commitment Advance.

 

“Affiliate” means, as applied to any Person, any other Person who, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person.  For purposes of this

 

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definition, “control” means the possession, directly or indirectly, of the power
to direct the management and policies of a Person, whether through the ownership
of stock, by contract, or otherwise; provided, however, that, in any event: (a)
any Person which owns directly or indirectly 10% or more of the securities
having ordinary voting power for the election of directors or other members of
the governing body of a Person or 10% or more of the partnership or other
ownership interests of a Person (other than as a limited partner of such Person)
shall be deemed to control such Person, (b) each director (or comparable
manager) of a Person shall be deemed to be an Affiliate of such Person, and (c)
each partnership or joint venture in which a Person is a partner or joint
venturer shall be deemed to be an Affiliate of such Person.

 

“Agreement” means this Credit Agreement.

 

“Aggregate Stated Amount” has the meaning given in Section 2.6(c).

 

“Apio Cooling” means Apio Cooling, a California limited partnership.

 

“Availability” means the lesser of (i) the Borrowing Base Availability and
(ii) the Line of Credit Commitment Availability.

 

“Bankruptcy Code” means the Bankruptcy Reform Act, Title 11 of the United States
Code.

 

“Borrowing Base” means, as of any date of determination, (i) 80% of Eligible
Accounts, less, (ii) the Dilution Reserve, if any, less, (iii) the Grower
Reserve, if any; provided, however, Bank may create additional reserves against
the Eligible Accounts if it reasonably determines that there has occurred a
Material Adverse Effect.

 

“Borrowing Base Availability” means, as of any date of determination, and only
if a positive number, the Borrowing Base minus the sum of:  (i) the outstanding
principal balance of the Line of Credit and (ii) the L/C Amount.

 

“Business Day” means any day except a Saturday, Sunday or any other day on which
commercial banks in California are authorized or required by law to close.

 

“Cal Ex” means Cal Ex Trading Company, a Delaware corporation.

 

“Cal Ex Accounts” has the meaning of “Accounts” under the Cal Ex Loan Agreement.

 

“Cal Ex Line of Credit” has the meaning of “Line of Credit” under the Cal Ex
Loan Agreement.

 

“Cal Ex Line of Credit Note” has the meaning of “Note” under the Cal Ex Loan
Agreement.

 

“Cal Ex Loan Agreement” means that certain Ex-Im Credit Agreement, dated as of
even date herewith, among Cal Ex, as borrower, Borrower and Bank.

 

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“Cal Ex Loan Documents” has the meaning of “Loan Documents” under the Cal Ex
Loan Agreement.

 

“Cal Ex Obligations” has the meaning of “Obligations” under the Cal Ex Loan
Agreement.

 

“Capital Expenditures” means for a period, any expenditure of money during such
period for the purchase or construction of assets, or for improvements or
additions thereto, which are capitalized on Borrower’s balance sheet.

 

“Cash Equivalents” has the meaning set forth in Section 6.7(a).

 

“Change of Control” means the occurrence of any of the following events:

 

(a)                                  any Person or “group” (as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), other than
Parent, is or becomes the “beneficial owner” (as defined in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934, except that a Person will be
deemed to have “beneficial ownership” of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than twenty-five percent
of the voting power of all classes of voting stock of Borrower; or

 

(b)                                 during any consecutive two-year period,
individuals who at the beginning of such period constituted the board of
Directors of Borrower (together with any new Directors whose election to such
board of Directors, or whose nomination for election by the owners of Borrower,
was approved by a vote of 66-2/3% of the Directors then still in office who were
either Directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the board of Directors of Borrower then in office.

 

“Closing Date” means September 1, 2004.

 

“Collateral” means (a) ”Collateral” as such term is defined in the Security
Agreement plus (b) all collateral subject to the Lien of any Security Document
other than the Security Agreement.

 

“Companies” means Borrower, Cal Ex and Apio Cooling.

 

“Constituent Documents” means with respect to any Person, as applicable, such
Person’s certificate of incorporation, articles of incorporation, by-laws,
certificate of formation, articles of organization, limited liability company
agreement, management agreement, operating agreement, shareholder agreement,
partnership agreement or similar document or agreement governing such Person’s
existence, organization or management or concerning disposition of ownership
interests of such Person or voting rights among such Person’s owners.

 

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“Credit Facility” means the credit facility being made available to Borrower by
Bank under Article II hereof.

 

“Credits” means the Line of Credit, the Term Commitment and the Term Loan.

 

“Daily Balance” means, with respect to each day during the term of this
Agreement, the amount of an Obligation owed at the end of such day.

 

“Default” means an event that, with giving of notice or passage of time or both,
would constitute an Event of Default.

 

“Default Period” means any period of time beginning on the day a Default or
Event of Default occurs and ending on the date that such Default or Event of
Default has been cured or waived, as determined by Bank in its sole and absolute
discretion.

 

“Default Rate” with respect to the Line of Credit, has the meaning assigned to
such term in the Line of Credit Note, with respect to the Term Commitment, has
the meaning assigned to such term in the Term Commitment Note, and with respect
to the Term Loan, has the meaning assigned to such term in the Term Note.

 

“Dilution” means, as of any date of determination, a percentage, based upon the
experience of the immediately preceding three months, that is the result of
dividing the Dollar amount of bad debt write-downs, returns, rebates, discounts,
advertising and other allowances, credits, or other dilutive items with respect
to the Accounts during such period, by Borrower’s gross sales during such period
(excluding extraordinary items).

 

“Dilution Reserve” means, as of any date of determination, an amount sufficient
to reduce the advance rate against Eligible Accounts used in the definition of
Borrowing Base by one percentage point for each full percentage point by which
Dilution is in excess of 5%.

 

“Director” means a director of Borrower.

 

“Dollars” or “$” means lawful currency of the United States of America.

 

“EBITDA” means, as of any date of determination for any period, the Companies’
consolidated net profit before tax plus interest expense (net of any capitalized
interest), intercompany interest expense, depreciation expense, amortization
expense, and management fees expense of the Companies accrued by and payable to
Parent.

 

“EBITDA Coverage Ratio” means, as of any date of determination for any period,
(a) EBITDA divided by (b) the sum of (i) the aggregate of the Companies’ total
interest expense (excluding any interest expense attributable to intercompany
debt subordinated pursuant to the Subordination Agreement) for such period plus
(without duplication of amounts) and (ii) the current maturity of the Companies’
long-term senior debt paid in such period.

 

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“Eligible Accounts” means those Accounts created by Borrower in the ordinary
course of its business, that arise out of Borrower’s sale of goods or rendition
of services, that comply with each of the representations and warranties
respecting Eligible Accounts made by Borrower in the Loan Documents, upon which
Borrower’s right to receive payment is absolute and not contingent upon the
fulfillment of any condition whatsoever, in which Bank has a perfected security
interest of first priority, and that are not excluded as ineligible by virtue of
one or more of the criteria set forth below; provided, however, that such
criteria may be fixed and revised from time to time by Bank in Bank’s sole and
absolute discretion to address the results of any audit performed by Bank from
time to time after the Closing Date.  In determining the amount to be included,
Eligible Accounts shall be calculated net of customer deposits and unapplied
cash remitted to Borrower.  Eligible Accounts shall not include the following:

 

(i)                                     any Account which is more than ninety
(90) days past due;

 

(ii)                                  any Account that is disputed or subject to
a claim of offset or other potential credit or a contra account;

 

(iii)                               any Account not yet earned by the final
delivery of goods or rendition of services, as applicable, by Borrower to the
customer;

 

(iv)                              any Account for services not yet rendered or
for goods not yet shipped, including, without limitation, that portion of any
Account, which represents interim or progress billings or retention rights on
the part of the Account Debtor;

 

(v)                                 Accounts constituting proceeds of
copyrightable material unless such copyrightable material shall have been
registered with the United States Copyright Office and shall be covered by a
duly executed copyright security agreement, in form and substance satisfactory
to Bank, and filed in the United States Copyright Office;

 

(vi)                              Accounts owed by an Account Debtor that is not
Solvent, the subject of an Insolvency Proceeding or has gone out of business;

 

(vii)                           Accounts owed by an Owner, Subsidiary,
Affiliate, Officer or employee of Borrower, or Accounts owed by Cal Ex or Apio
Cooling;

 

(viii)                        Accounts not subject to a duly perfected security
interest in Bank’s favor or which are subject to any Lien (including any Liens
imposed under PACA and any Producer’s Lien Law) other than a Permitted Lien;

 

(ix)                                that portion of any Account for which there
exists any right of setoff, defense or discount (except regular discounts
allowed in the ordinary course of business to promote prompt payment) or for
which any defense or counterclaim has been asserted;

 

(x)                                   that portion of Accounts that has been
restructured, extended, amended or modified;

 

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(xi)                                that portion of Accounts that constitutes
advertising, finance charges, service charges or sales or excise taxes;

 

(xii)                             Accounts owed by an Account Debtor (or an
Affiliate of such Account Debtor), regardless of whether otherwise eligible, to
the extent that the balance of such Accounts exceeds 25% of the sum of the
aggregate amount of all Accounts and, without duplication, the aggregate amount
of all Cal Ex Accounts (except in the case of each of Wal-Mart and Sam’s Club,
in which case such percentage shall be 30% in the aggregate for both Account
Debtors, and except in the case of Costco, in which case such percentage shall
be 30%); exceptions to such limit may be granted by Bank on a case by case
basis, in Bank’s sole and absolute discretion;

 

(xiii)                          any Account which represents an obligation of
any Account Debtor (or an Affiliate of such Account Debtor), regardless of
whether otherwise eligible, when twenty percent (20%) or more of Borrower’s
Accounts from such Account Debtor are not eligible pursuant to (i) above;

 

(xiv)                         Accounts arising in a transaction wherein goods
are placed on consignment or are sold pursuant to a guaranteed sale, a sale or
return, a sale on approval, a bill and hold, or any other terms by reason of
which the payment by the Account Debtor may be conditional;

 

(xv)                            Accounts that are not payable in Dollars;

 

(xvi)                         Accounts with respect to which the Account Debtor
either (A) does not maintain its chief executive office in the United States or
Canada (excluding the Canadian province of Quebec), or (B) is not organized
under the laws of the United States or Canada, or any state or province thereof
(excluding the Canadian province of Quebec), or (C) is the government for any
foreign country or sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof, unless (I) the Account is
supported by an irrevocable letter of credit satisfactory to Bank (as to form,
substance, and issuer or domestic confirming bank) that has been delivered to
Bank and is directly drawable by Bank, or (II) the Account is covered by credit
insurance in form, substance, and amount, and by an insurer, satisfactory to
Bank;

 

(xvii)                      any Account which represents an obligation of any
state or municipal government or of the United States government or any
political subdivision thereof (except Accounts which represent obligations of
the United States government and for which the assignment provisions of the
Federal Assignment of Claims Act, 31 USC § 3727, as amended or recodified from
time to time, have been complied with to Bank’s satisfaction);

 

(xviii)                   Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, or West Virginia (or any other
state that requires a creditor to file a business activity report or similar
document in order to bring suit or otherwise

 

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enforce its remedies against such Account Debtor in the courts or through any
judicial process of such state), unless Borrower has qualified to do business in
New Jersey, Minnesota, West Virginia, or such other states, or has filed a
business activities report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement;

 

(xix)                           Upon telephonic notice to Borrower (other than
voicemail), any Account deemed ineligible by Bank when Bank, in its sole
discretion, deems the creditworthiness or financial condition of the Account
Debtor, or the industry in which the Account Debtor is engaged, to be
unsatisfactory; or

 

(xx)                              Any “Eligible Export-Related Accounts
Receivable” constituting part of the “Borrowing Base” for purposes of the Cal Ex
Loan Agreement.

 

“Environmental Law” means any federal, state, local or other governmental
statute, regulation, law or ordinance dealing with the protection of human
health and the environment.

 

“Equipment” means all of Borrower’s equipment, as such term is defined in the
UCC, whether now owned or hereafter acquired, including but not limited to all
present and future machinery, vehicles, furniture, fixtures, manufacturing
equipment, shop equipment, office and recordkeeping equipment, parts, tools,
supplies, and including specifically the goods described in any equipment
schedule or list herewith or hereafter furnished to Bank by Borrower.

 

“ERISA” means the Employee Retirement Income Security Act of 1974.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated) that
is a member of a group which includes Borrower and which is treated as a single
employer under Section 414 of the IRC.

 

“Event of Default” has the meaning given in Section 7.1.

 

“Financial Covenants” means the covenants set forth in Section 6.3.

 

“Funding Date” has the meaning given in Section 2.1.

 

“GAAP” means generally accepted accounting principles in the United States of
America, consistently applied, which are in effect as of the date of this
Agreement.  If any changes in accounting principles from those in effect on the
date hereof are hereafter occasioned by promulgation of rules, regulations,
pronouncements or opinions by or are otherwise required by the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions), and any
of such changes results in a change in the method of calculation of, or affects
the results of such calculation of, any of the financial covenants, standards or
terms found herein, then the parties hereto agree to enter into and diligently
pursue negotiations in order to amend such financial covenants, standards or
terms so as to equitably reflect such changes, with the desired result that the
criteria

 

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for evaluating financial condition and results of operations of Borrower and the
Subsidiaries shall be the same after such changes as if such changes had not
been made.

 

“General Intangibles” means all of Borrower’s general intangibles, as such term
is defined in the UCC, whether now owned or hereafter acquired, including all
present and future Intellectual Property Rights, customer or supplier lists and
contracts, manuals, operating instructions, permits, franchises, the right to
use Borrower’s name, and the goodwill of Borrower’s business.

 

“Governmental Authority” means any federal, state, local, or other governmental
or administrative body, instrumentality, department, or agency or any court,
tribunal, administrative hearing body, arbitration panel, commission, or other
similar dispute-resolving panel or body.

 

“Grower Reserve” means, as of the date of determination, a reserve against the
Borrowing Base in an amount equal to 100% of all accounts payable then owing to
all growers of any of the produce sold by Borrower that are not parties to
Acceptable Grower Contracts.  The amount of all such accounts payable shall be
determined by Bank in cooperation with Borrower in a commercially reasonable
manner, and shall be prima facie evidence of such amount.

 

“Guarantor(s)” means Parent and any other Person now or hereafter guarantying
the Obligations.

 

“Guaranty” means each certain Continuing Guaranty now or hereafter executed by a
Guarantor in favor of Bank.

 

“Hazardous Substances” means pollutants, contaminants, hazardous substances,
hazardous wastes, petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or identified in any
Environmental Law.

 

“Immaterial Intellectual Property Rights” means Intellectual Property Rights
that Borrower, in its commercially reasonable judgment, determines from time to
time to be no longer material to the operation of its business.

 

“Indebtedness” means of a Person as of a given date, all items of indebtedness
or liability which in accordance with GAAP would be included in determining
total liabilities as shown on the liabilities side of a balance sheet for such
Person and shall also include the aggregate payments required to be made by such
Person at any time under any lease that is considered a capitalized lease under
GAAP.

 

“Infringe” means, when used with respect to Intellectual Property Rights, any
infringement or other violation of such Intellectual Property Rights.

 

“Insolvency Proceeding” means any proceeding commenced by or against any Person
under any provision of the Bankruptcy Code or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria,

 

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compositions, extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.

 

“Intellectual Property Rights” means all actual or prospective rights arising in
connection with any intellectual property or other proprietary rights, including
all rights arising in connection with copyrights, patents, service marks, trade
dress, trade secrets, trademarks, trade names or mask works.

 

“Inventory” means all of Borrower’s inventory, as such term is defined in the
UCC, whether now owned or hereafter acquired, whether consisting of whole goods,
spare parts or components, supplies or materials, whether acquired, held or
furnished for sale, for lease or under service contracts or for manufacture or
processing, and wherever located.

 

“Investment Property” means all of Borrower’s investment property, as such term
is defined in the UCC, whether now owned or hereafter acquired, including but
not limited to all securities, security entitlements, securities accounts,
commodity contracts, commodity accounts, stocks, bonds, mutual fund shares,
money market shares and U.S. Government securities.

 

“IRC” means the Internal Revenue Code of 1986.

 

“Issuer” means the issuer of any Letter of Credit.

 

“Landec Ag” means Landec Ag, Inc., a Delaware corporation.

 

“L/C Amount” means the sum of (i) the aggregate stated amount of any issued and
outstanding Letters of Credit and (ii) the unpaid amount of the Obligation of
Reimbursement.

 

“L/C Application” has the meaning specified in Section 2.2(a).

 

“Letter of Credit” has the meaning specified in Section 2.2(a).

 

“Licensed Intellectual Property” has the meaning given in Section 5.11(c).

 

“Licensor Agreement” means that certain Licensor Agreement, dated as of even
date herewith, executed by Parent in favor of Bank, with respect to all
licensing agreements between Parent and Borrower.

 

“Lien” means any security interest, mortgage, deed of trust, pledge, lien,
charge, encumbrance, title retention agreement or analogous instrument or
device, including the interest of each lessor under any capitalized lease and
the interest of any bondsman under any payment or performance bond, in, of or on
any assets or properties of a Person, whether now owned or hereafter acquired
and whether arising by agreement or operation of law.

 

“Life Insurance Assignment” means an Assignment of Life Insurance Policy as
Collateral to be executed by the owner and the beneficiary thereof, in form and
substance

 

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satisfactory to Bank, granting Bank a first priority Lien on a Life Insurance
Policy to secure payment of the Obligations and the Cal Ex Obligations.

 

“Life Insurance Policy” has the meaning given in Section 6.10.

 

“Line of Credit” means a credit accommodation in the maximum principal amount of
the Line of Credit Commitment Amount, as defined more fully in Section 2.1.

 

“Line of Credit Advance” has the meaning given in Section 2.1(a).

 

“Line of Credit Commitment Amount” means $10,000,000.

 

“Line of Credit Commitment Availability” means, as of any date of determination,
and only if a positive number, the Line of Credit Commitment Amount minus the
sum of:  (i) the outstanding principal balance of the Line of Credit, (ii) the
outstanding principal balance of the Cal Ex Line of Credit and (iii) the L/C
Amount.

 

“Line of Credit Maturity Date” means August 31, 2006.

 

“Line of Credit Note” means Borrower’s revolving promissory note evidencing its
obligation to repay Line of Credit Advances, payable to the order of Bank in
substantially the form of Exhibit A attached hereto, all terms of which are
incorporated herein by this reference.

 

“Loan Account” has the meaning given in Section 9.9.

 

“Loan Documents” means this Agreement, the Notes, any Guaranty, the Security
Documents, the Subordination Agreement, any L/C Application, and the Cal Ex Loan
Documents.

 

“Lockbox” means the post office box described in the Lockbox Agreement, or any
replacement thereto, through which checks are processed pursuant to the Lockbox
Agreement.

 

“Lockbox Account” means the “Account” as defined in the Lockbox Agreement.

 

“Lockbox Agreement” means the Deposit Account Control Agreement, dated as of
August 20, 2003, by and among Borrower, Wells Fargo Business Credit, Inc. and
Bank of America, National Association, or any subsequent lockbox agreement
entered into by Bank and Borrower.

 

“Material Adverse Effect” means any of the following:

 

(i)                                     a material adverse effect on the
business, operations, results of operations, assets, liabilities or financial
condition of the Companies, taken as a whole, or any Guarantor;

 

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(ii)                                  a material adverse effect on the ability
of Borrower or any Guarantor to perform its obligations under the Loan
Documents;

 

(iii)                               a material adverse effect on the ability of
Bank to enforce the Obligations or to realize the intended benefits of the
Security Documents, including a material adverse effect on the validity or
enforceability of any Loan Document or of any rights against any Guarantor, or
on the status, existence, perfection, priority (subject to Permitted Liens) or
enforceability of any Lien securing payment or performance of the Obligations;
or

 

(iv)                              any claim against Borrower or any Guarantor or
threat of litigation which is reasonably likely to be determined adversely to
Borrower or any Guarantor and, if so determined, would cause Borrower or such
Guarantor to be liable to pay an amount exceeding $500,000 over applicable
insurance coverage, or would be an event described in clauses (i), (ii) and
(iii) above.

 

“Multiemployer Plan” means a multiemployer plan (as defined in
Section 4001(a)(3) of ERISA) to which Borrower or any ERISA Affiliate
contributes or is obligated to contribute.

 

“Net Income” means fiscal year-to-date after-tax net income from continuing
operations, as determined in accordance with GAAP.

 

“Note” means the Line of Credit Note, the Term Commitment Note or the Term Note,
and “Notes” means the Line of Credit Note, the Term Commitment Note and the Term
Note.

 

“Obligation of Reimbursement” has the meaning given in Section 2.2(e)(i).

 

“Obligations” means each Note, the Obligation of Reimbursement and each and
every other debt, liability and obligation of Borrower arising under this
Agreement or any other Loan Document, whether such debt, liability or obligation
now exists or is hereafter created or incurred, whether it is direct or
indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and several, and
whether now in effect or hereafter entered into.

 

“Officer” means a duly appointed and presently sitting officer of Borrower.

 

“Overadvance” has the meaning given in Section 2.1(c).

 

“Owned Intellectual Property” has the meaning given in Section 5.11(a).

 

“Owner” means with respect to Borrower, each Person having legal or beneficial
title to an ownership interest in Borrower or a right to acquire such an
interest.

 

“PACA” means the Perishable Agricultural Commodities Act, 7 U.S.C. § 499e,
et seq., as amended.

 

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“Parent” means Landec Corporation, a California corporation.

 

“Pension Plan” means a pension plan (as defined in Section 3(2) of ERISA)
maintained for employees of Borrower or any ERISA Affiliate and covered by Title
IV of ERISA.

 

“Permitted Lien” has the meaning given in Section 6.4(a).

 

“Person” means any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.

 

“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA)
maintained for employees of Borrower or any ERISA Affiliate.

 

“Premises” means all premises where Borrower conducts its business and has any
rights of possession, including the premises described in Exhibit F attached
hereto.

 

“Producer’s Lien Law” means §55631, et seq. of the California Food and
Agriculture Code, and any similar state or federal statutes creating Liens on
agricultural products in favor of unpaid growers, producers, or processors.

 

“Related Documents” has the meaning given in Section 2.2(f)(i).

 

“Reportable Event” means a reportable event (as defined in Section 4043 of
ERISA), other than an event for which the 30-day notice requirement under ERISA
has been waived in regulations issued by the Pension Benefit Guaranty
Corporation.

 

“Security Agreement” means that certain Security Agreement, dated as of even
date herewith, executed by Borrower in favor of Bank.

 

“Security Agreement Re:  Patents and Trademarks” means that certain Security
Agreement Re:  Patents and Trademarks, dated as of even date herewith, executed
by Borrower in favor of Bank.

 

“Security Agreement and Collateral Assignment of Partnership Interest” means
that certain Security Agreement and Collateral Assignment of Partnership
Interest, dated as of even date herewith, executed by Borrower in favor of Bank,
with respect to Borrower’s interest in Apio Cooling.

 

“Security Documents” means this Agreement, the Lockbox Agreement, the Security
Agreement, the Security Agreement Re:  Patents and Trademarks, the Licensor
Agreement, the Security Agreement and Collateral Assignment of Partnership
Interest, and any other agreement, instrument or document delivered to Bank from
time to time to secure the Obligations.

 

“Security Interest” has the meaning given in Section 3.1.

 

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“Sellers” shall mean collectively, Tim Murphy, The Edward W. Silva, Jr.
Revocable Trust dated August 6, 1989, The Larry J. Silva Revocable Trust dated
July 31, 1991 and San Ysidro Farms, a partnership.

 

“Solvent” means, with respect to any Person on a particular date, that such
Person is not insolvent (as such term is defined in the Uniform Fraudulent
Transfer Act).

 

“Special Account” means a specified cash collateral account maintained with Bank
in connection with Letters of Credit, as contemplated by Section 2.2.

 

“Subordination Agreement” means the Subordination Agreement of even date
herewith, among Parent, Bank and Borrower, and any other subordination agreement
accepted by Bank from time to time.

 

“Subsidiary” means, as to any Person, any Person of which a majority of the
shares of securities or other interests having ordinary voting power for the
election of directors or other governing body (other than securities or
interests having such power only by reason of the happening of a contingency)
are at the time beneficially owned, or the management of which is otherwise
controlled, directly, or indirectly through one or more intermediaries, or both,
by such Person.  Unless otherwise specified, all references herein to a
“Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of
a Borrower.

 

“Swap Agreement” means an interest rate protection agreement entered into
between Borrower and Bank (or such third party as Bank may in its reasonable
discretion require), in form and substance acceptable to Bank, which agreement
shall have a termination date not later than date upon which the final payment
is due under the promissory note governing the principal amount to which the
agreement relates and shall provide (among other things) that Borrower shall (i)
receive from the counterparty to such agreement an amount based upon one month
LIBOR (as defined in the Term Commitment Note) multiplied by the swap notional
balance and (ii) pay to the counterparty to such agreement an amount based upon
a fixed rate of interest (determined by Bank in the exercise of its reasonable
discretion) multiplied by the swap notional balance.

 

“Tangible Net Worth” means the aggregate of the common and preferred
stockholders’ equity in the Companies plus subordinated debt less any intangible
assets, determined in accordance with GAAP.

 

“Term Commitment” means a credit accommodation in the maximum principal amount
of the Term Commitment Amount, as described more fully in Section 2.3.

 

“Term Commitment Advance” has the meaning given to such term in Section 2.3(a).

 

“Term Commitment Amount” means the lesser of (i) $4,800,000 or (ii) 80% of
Borrower’s invoice cost (net of tax, shipping, freight, installation, and other
so-called “soft costs”) of all Equipment that is to be or has been purchased by
Borrower with the proceeds of

 

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Term Commitment Advances, or for which Borrower has been reimbursed with the
proceeds of Term Commitment Advances.

 

“Term Commitment Conversion Date” means August 31, 2005.

 

“Term Commitment Note” means Borrower’s promissory note evidencing its
obligation to repay Term Commitment Advances, payable to the order of Bank in
substantially the form of Exhibit B attached hereto, all terms of which are
incorporated herein by this reference.

 

“Term Loan” has the meaning given in Section 2.4.

 

“Term Note” means Borrower’s promissory note evidencing its obligation to repay
the Term Loan, payable to the order of Bank in substantially the form of
Exhibit C attached hereto, all terms of which are incorporated herein by this
reference.

 

“Termination Date” means the earliest of (i) August 31, 2008, (ii) the date
Borrower terminates the Credit Facility, or (iii) the date Bank demands payment
of the Obligations after an Event of Default pursuant to Section 7.2 hereof.

 

“Total Liabilities” means, as of the date of determination, the aggregate of the
Companies’ consolidated Indebtedness and capitalized leases less subordinated
debt.

 

“UCC” means the Uniform Commercial Code as in effect in the state designated in
Section 8.15 as the state whose laws shall govern this Agreement, or in any
other state whose laws are held to govern this Agreement or any portion hereof.

 

Section 1.2.                                   Other Definitional Terms; Rules
of Interpretation.  The words “hereof”, “herein” and “hereunder” and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.  All accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with GAAP.  All terms defined in the UCC and not otherwise defined
herein have the meanings assigned to them in the UCC. References to Articles,
Sections, subsections, Exhibits, Schedules and the like, are to Articles,
Sections and subsections of, or Exhibits or Schedules attached to, this
Agreement unless otherwise expressly provided.  The words “include”, “includes”
and “including” shall be deemed to be followed by the phrase “without
limitation”.  Unless the context in which used herein otherwise clearly
requires, “or” has the inclusive meaning represented by the phrase “and/or”. 
Defined terms include in the singular number the plural and in the plural number
the singular.  Reference to any agreement (including the Loan Documents),
document or instrument means such agreement, document or instrument as amended
or modified and in effect from time to time in accordance with the terms thereof
(and, if applicable, in accordance with the terms hereof and the other Loan
Documents), except where otherwise explicitly provided, and reference to any
promissory note includes any promissory note which is an extension or renewal
thereof or a substitute or replacement therefor. Reference to any law, rule,
regulation, order, decree, requirement, policy, guideline, directive or
interpretation means as amended, modified, codified, replaced or reenacted, in
whole or in part, and in effect on the determination date, including rules and
regulations promulgated thereunder.

 

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ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY

 

Section 2.1.                                   Line of Credit.

 

(a)                                  Advances.  Bank agrees, on the terms and
subject to the conditions herein set forth, to make advances to Borrower from
time to time under the Line of Credit (each such advance, a “Line of Credit
Advance”), for working capital and general corporate purposes, from the date all
of the conditions set forth in Section 4.1 are satisfied (the “Funding Date”) to
the Line of Credit Maturity Date.  Bank shall have no obligation to make a Line
of Credit Advance to the extent the amount of the requested Line of Credit
Advance exceeds Availability.  Borrower’s obligation to repay the Line of Credit
Advances shall be evidenced by the Line of Credit Note and shall be secured by
the Collateral.  Within the limits set forth in this Section 2.1 and in the Line
of Credit Note, Borrower may from time to time prior to the Line of Credit
Maturity Date borrow, partially or wholly repay its outstanding borrowings, and
reborrow under the Line of Credit, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note.

 

(b)                                 Payments to Sellers.  No proceeds from a
Line of Credit Advance may be used to make any payments owing to the Sellers
except for the final payments to the Sellers due in December 2004 and
January 2005 for $1,235,000 in the aggregate (assuming sufficient Availability);
provided that (x) no Event of Default has occurred and is continuing, and
(y) Availability is at not less than $1,000,000 after giving effect to any such
payments.

 

(c)                                  Overadvances.  If, at any time or for any
reason, the amount of Line of Credit Advances outstanding plus the L/C Amount
exceeds the Borrowing Base (an “Overadvance”), Borrower shall immediately pay to
Bank, upon Bank’s election and demand, in cash, the amount of such Overadvance
to be used by Bank to repay outstanding Line of Credit Advances.

 

(d)                                 Procedures for Requesting Advances.

 

(i)                                     Time for Requests.  Borrower shall
request each Line of Credit Advance not later than 10:00 a.m., San Francisco
time (or 9:00 a.m., San Francisco time, on the last Business Day of each month,
on Christmas eve, and on New Years eve) on the Business Day which is the date
the Line of Credit Advance is to be made.  Each such request shall be effective
upon receipt by Bank, shall be in writing or by telephone, telecopy transmission
or email, to be confirmed in writing by Borrower if so requested by Bank, shall
be by (i) an Officer of Borrower; or (ii) a person designated as Borrower’s
agent by an Officer of Borrower in a writing delivered to Bank; or (iii) a
person whom Bank reasonably believes to be an Officer of Borrower or such a
designated agent.  Borrower shall repay all Line of Credit Advances even if Bank
does not receive such confirmation and even if the person requesting a Line of
Credit Advance was not in fact authorized to do so.  Any request for a Line of
Credit Advance, whether written or telephonic, shall be deemed to be a
representation by Borrower that the conditions set forth in Section 4.2 have
been satisfied as of the time of the request.

 

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(ii)                                  Disbursement.  Upon fulfillment of the
applicable conditions set forth in Article IV, Bank shall disburse the proceeds
of the requested Line of Credit Advance by crediting the same to the Loan
Account, on that same Business Day, unless Bank and Borrower shall agree in
writing to another manner of disbursement.

 

Section 2.2.                                   Letter of Credit Subfeature.

 

(a)                                  Letters of Credit.  As a subfeature under
the Line of Credit, Bank agrees from time to time during the term thereof to
issue or cause an Affiliate to issue irrevocable standby or documentary letters
of credit for the account of Borrower (each, a “Letter of Credit” and
collectively, “Letters of Credit”); provided however, that the aggregate undrawn
amount of all outstanding Letters of Credit shall not at any time exceed the
lesser of:

 

(i)                                     $500,000 less the L/C Amount, or

 

(ii)                                  Availability.

 

The form and substance of each Letter of Credit shall be subject to approval by
Bank, in its sole but reasonable discretion.  Each Letter of Credit shall be
subject to the additional terms and conditions of the Letter of Credit
agreements, applications and any related documents required by the Issuer in
connection with the issuance thereof (collectively, an “L/C Application”), the
terms and conditions of which shall supplement the terms and conditions hereof,
but if the terms of any such L/C Application and the terms of this Agreement are
inconsistent, the terms hereof shall control.

 

(b)                                 Term.  No Letter of Credit shall be issued
with an expiry date later than the Line of Credit Maturity Date.

 

(c)                                  Deemed Representation.  Any request to
issue a Letter of Credit shall be deemed to be a representation by Borrower that
the conditions set forth in Section 4.2 have been satisfied as of the date of
the request.

 

(d)                                 Special Account.  If the Credit Facility is
terminated for any reason while any Letter of Credit is outstanding, Borrower
shall thereupon pay Bank in immediately available funds for deposit in the
Special Account an amount equal to the L/C Amount.  The Special Account shall be
an interest bearing account with Bank.  Bank may apply amounts on deposit in the
Special Account at any time or from time to time to the Obligations in Bank’s
sole discretion.  Borrower may not withdraw any amounts on deposit in the
Special Account as long as Bank maintains a security interest therein.  Bank
agrees to transfer any balance in the Special Account to Borrower when Bank is
required to release its security interest in the Special Account under
applicable law.

 

(e)                                  Payment of Amounts Drawn Under Letters of
Credit; Obligation of Reimbursement.  Borrower shall pay to Bank any and all
amounts required to be paid under the applicable L/C Application, when and as
required to be paid thereby, and the amounts designated below, when and as
designated:

 

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(i)                                     Borrower shall pay to Bank on the day a
draft is honored under any Letter of Credit a sum equal to all amounts drawn
under such Letter of Credit plus any and all reasonable charges and expenses
that the Issuer or Bank may pay or incur relative to such draw and the
applicable L/C Application, plus interest on all such amounts, charges and
expenses as set forth below (Borrower’s obligation to pay all such amounts is
herein referred to as the “Obligation of Reimbursement”).

 

(ii)                                  Whenever a draft is submitted under a
Letter of Credit, Borrower authorizes Bank to make a Line of Credit Advance in
the amount of the Obligation of Reimbursement and to apply the proceeds of such
Line of Credit Advance thereto. Such Line of Credit Advance shall be repayable
in accordance with and be treated in all other respects as a Line of Credit
Advance hereunder.

 

(iii)                               If a draft is submitted under a Letter of
Credit when Borrower is unable, because a Default Period exists or for any other
reason, to obtain a Line of Credit Advance to pay the Obligation of
Reimbursement, Borrower shall pay to Bank on demand and in immediately available
funds, the amount of the Obligation of Reimbursement together with interest,
accrued from the date of the draft until payment in full at the Default Rate.
Notwithstanding Borrower’s inability to obtain a Line of Credit Advance for any
reason, Bank is irrevocably authorized, in its sole discretion, to make a Line
of Credit Advance in an amount sufficient to discharge the Obligation of
Reimbursement and all accrued but unpaid interest thereon.

 

(iv)                              Borrower’s obligation to pay any Line of
Credit Advance made under this Section 2.2, shall be evidenced by the Line of
Credit Note and shall bear interest as provided therein.

 

(f)                                    Obligations Absolute.  Borrower’s
obligations arising under this Section 2.2 shall be absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Section 2.2, under all circumstances whatsoever, including (without limitation)
the following circumstances:

 

(i)                                     any lack of validity or enforceability
of any Letter of Credit or any other agreement or instrument relating to any
Letter of Credit (collectively the “Related Documents”);

 

(ii)                                  any amendment or waiver of or any consent
to departure from all or any of the Related Documents;

 

(iii)                               the existence of any claim, setoff, defense
or other right which Borrower may have at any time, against any beneficiary or
any transferee of any Letter of Credit (or any persons or entities for whom any
such beneficiary or any such transferee may be acting), or other person or
entity, whether in connection with this Agreement, the transactions contemplated
herein or in the Related Documents or any unrelated transactions;

 

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(iv)                              any statement or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect whatsoever;

 

(v)                                 payment by or on behalf of the Issuer under
any Letter of Credit against presentation of a draft or certificate which does
not strictly comply with the terms of such Letter of Credit; or

 

(vi)                              any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing.

 

Section 2.3.                                   Term Commitment.

 

(a)                                  Bank agrees, subject to the terms and
conditions of this Agreement, to make up to four (4) advances to Borrower from
time to time under the Term Commitment (each a “Term Commitment Advance”), for
the purposes of funding certain Capital Expenditures of Borrower, from the
Funding Date up to but not including the Term Commitment Conversion Date.  Each
Term Commitment Advance shall be advanced directly to the applicable vendor or
to Borrower, as Borrower may request.  The foregoing to the contrary
notwithstanding, (i) each Term Commitment Advance shall be in an amount, as
determined by Bank, not to exceed 80% of Borrower’s invoice cost (net of tax,
shipping, freight, installation, and other so-called “soft costs”) of Equipment
that is to be purchased by Borrower with the proceeds of such Term Commitment
Advance, (ii) the Equipment that is to be acquired or that has been purchased by
Borrower must be reasonably acceptable to Bank in all respects, and, not be a
fixture, and not be intended to be affixed to real property or to become
installed in or affixed to other goods that are subject to any financing Lien
(other than Bank’s), (iii) Bank shall have no obligation to make any Term
Commitment Advances hereunder to the extent that the making thereof would cause
the then outstanding amount of all Term Commitment Advances to exceed the Term
Commitment Amount, and (iv) Bank shall have no obligation to make more than four
(4) Term Commitment Advances.  On the Term Commitment Conversion Date, Bank’s
obligations to make Term Commitment Advances to Borrower shall cease. 
Borrower’s obligation to pay the Term Commitment Advances shall be evidenced by
the Term Commitment Note and shall be secured by the Collateral.

 

(b)                                 Borrower shall comply with the following
procedures in requesting Term Commitment Advances:

 

(i)                                     Borrower shall make each request for a
Term Commitment Advance to Bank before 11:00 a.m., San Francisco time, three (3)
Business Days before the day of the requested Term Commitment Advance.  Requests
shall be made in writing, specifying the date of the requested Term Commitment
Advance, the amount thereof, and a demonstration that after giving effect to
such Term Commitment Advance, the EBITDA Coverage Ratio shall be in compliance
with Section 6.3(a).  Each request shall be accompanied by the invoice for the
applicable Equipment to be purchased and proof of delivery to and acceptance by
Borrower.  Bank reserves the right to confirm purchase price values.

 

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(ii)                                  Each request shall be by an individual
authorized pursuant to Section 2.1(d).

 

(c)                                  Any request for a Term Commitment Advance
shall be deemed to be a representation by Borrower that the conditions set forth
in Section 4.2 have been satisfied as of the time of the request.

 

(d)                                 Notwithstanding anything to the contrary in
this Section 2.3, Bank shall have no obligation to make any Term Commitment
Advance if, after giving effect to such Term Commitment Advance, the EBITDA
Coverage Ratio shall not be in compliance with Section 6.3(a).

 

(e)                                  Repayment.  The outstanding principal
balance of the Term Commitment Note shall be repaid in accordance with the
provisions thereof.

 

(f)                                    Prepayment.  Borrower may prepay
principal on the Term Commitment solely in accordance with the provisions of the
Term Commitment Note.

 

Section 2.4.                                   Term Loan.

 

(a)                                  Term Loan.  Subject to the terms and
conditions of this Agreement, Bank hereby agrees to make a loan to Borrower in
the principal amount of One Million Two Hundred Thousand Dollars ($1,200,000)
(the “Term Loan”), the proceeds of which shall be used to refinance the
outstanding balance of certain term indebtedness of Borrower secured by the
Collateral prior to the date hereof.  Borrower’s obligation to repay the Term
Loan shall be evidenced by the Term Note and shall be secured by the Collateral.

 

(b)                                 Repayment.  Principal on the Term Loan shall
be repaid in accordance with the provisions of the Term Note.

 

(c)                                  Prepayment.  Borrower may prepay principal
on the Term Loan solely in accordance with the provisions of the Term Note.

 

Section 2.5.                                   Interest; Default Interest;
Participations; Usury; Collection of Payments.

 

(a)                                  Notes.  Except as set forth in Subsections
(b) and (e), the outstanding principal balance of each of the Notes shall bear
interest at the rate of interest, and in the manner, set forth in each Note, and
shall be due as set forth therein.

 

(b)                                 Default Interest Rate.  The principal of the
Credits outstanding from time to time shall bear interest at the applicable
Default Rates, as more fully described in each of the Notes.  Bank’s election to
charge such Default Rates shall be in its sole discretion and shall not be a
waiver of any of its other rights and remedies.  Bank’s election to charge
interest at the Default Rate for less than the entire period during which the
Default Rate may be charged shall not be a waiver of its right to subsequently
charge the Default Rate for the entirety of another Default Period.

 

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(c)                                  Swap Agreements.  At any time during which
an outstanding principal balance is owing under the Term Commitment or the Term
Loan and so long as an Event of Default has not occurred and is not continuing
under this Agreement, Bank and Borrower agree that Borrower may, at its option,
request that Bank quote to Borrower a fixed rate to be provided to Borrower
pursuant to a Swap Agreement.  Any proposed Swap Agreement offered by Bank to
Borrower will be subject to terms and provisions acceptable to Bank, which terms
and provisions will be those generally available to Bank to offer to a borrower
for a transaction involving a similar principal amount, term, interest rate and
factors similar to Borrower’s credit transaction and generally available to
other customers of Bank similar in nature, risk, business, financial performance
and other risk factors (as determined by Bank in its reasonable discretion) as
Borrower.  Any proposed Swap Agreement may fix the interest rate with respect to
an aggregate notional balance equal to some or all of the principal owing under
the Term Commitment or the Term Loan (as such principal balance is to be reduced
from time to time pursuant to the repayment schedule applicable thereto) and for
as long as the remaining term of such Credit.

 

(d)                                 Participations.  If any Person shall acquire
a participation in the Credits or the Obligation of Reimbursement, Borrower
shall be obligated to Bank to pay the full amount of all interest calculated
under this Section 2.5, along with all other fees, charges and other amounts due
under this Agreement, regardless if such Person elects to accept interest with
respect to its participation at a lower rate than that calculated under this
Section 2.5, or otherwise elects to accept less than its prorata share of such
fees, charges and other amounts due under this Agreement.

 

(e)                                  Usury.  In any event, no rate change shall
be put into effect which would result in a rate greater than the highest rate
permitted by law.  Notwithstanding anything to the contrary contained in any
Loan Document, all agreements which either now are or which shall become
agreements between Borrower and Bank are hereby limited so that in no
contingency or event whatsoever shall the total liability for payments in the
nature of interest, additional interest and other charges exceed the applicable
limits imposed by any applicable usury laws.  If any payments in the nature of
interest, additional interest and other charges made under any Loan Document are
held to be in excess of the limits imposed by any applicable usury laws, it is
agreed that any such amount held to be in excess shall be considered payment of
principal hereunder, and the indebtedness evidenced by the Notes shall be
reduced by such amount so that the total liability for payments in the nature of
interest, additional interest and other charges shall not exceed the applicable
limits imposed by any applicable usury laws, in compliance with the desires of
Borrower and Bank.  This provision shall never be superseded or waived and shall
control every other provision of the Loan Documents and all agreements between
Borrower and Bank, or their successors and assigns.

 

(f)                                    Collection of Payments.  All payments to
Bank shall be made in immediately available funds and shall be applied to the
Obligations upon receipt by Bank.  Bank may hold all payments not constituting
immediately available funds for three (3) additional days before applying them
to the Obligations then due and payable.  Subject to Section 7.7 of this
Agreement, all payments with respect to the Obligations may be applied, and in
Bank’s sole discretion reversed and re-applied, to the Obligations, in such
order and manner as Bank shall determine in its sole discretion.

 

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Section 2.6.                                   Fees.

 

(a)                                  Commitment Fee.  Borrower shall pay to Bank
a non-refundable commitment fee for the Line of Credit equal to $10,000, which
fee shall be due and payable in full on the Closing Date.

 

(b)                                 Collateral Monitoring Fees.  Borrower shall
pay to Bank, within 15 days after written demand, collateral monitoring fees in
connection with any audits or inspections conducted by or on behalf of Bank of
any Collateral or Borrower’s operations or business at the rates established
from time to time by Bank as its audit fees, together with all actual
out-of-pocket costs and expenses incurred in conducting any such audit or
inspection.  Such collateral monitoring fees plus the collateral monitoring fees
due under Section 2.6(b) of the Cal Ex Loan Agreement shall not exceed $1,200
per month unless a Default Period is continuing.

 

(c)                                  Letter of Credit Fees.  Borrower shall pay
to Bank a fee with respect to each Letter of Credit, if any, accruing on a daily
basis and computed at the per annum rate of one percent (1.00%), of the
aggregate amount that may then be drawn under it assuming compliance with all
conditions for drawing (the “Aggregate Stated Amount”), from and including the
date of issuance of such Letter of Credit until such date as such Letter of
Credit shall terminate by its terms or be returned to the Issuer, due and
payable monthly in arrears on the first day of each month and on the expiration
date thereof; provided, however that during Default Periods, in Bank’s sole
discretion and without waiving any of its other rights and remedies, such fee
shall increase to three percent (3.00%) of the Aggregate Stated Amount.  The
foregoing fee shall be in addition to any and all fees, commissions and charges
of the Issuer with respect to or in connection with such Letter of Credit.

 

(d)                                 Letter of Credit Administrative Fees. 
Borrower shall pay to Bank, within fifteen (15) days after written demand, the
administrative fees charged by the Issuer in connection with the honoring of
drafts under any Letter of Credit, amendments thereto, transfers thereof and all
other activity with respect to any Letters of Credit at the then-current rates
published by the Issuer for such services rendered on behalf of customers of the
Issuer generally.

 

(e)                                  Prepayment Fees.  Borrower shall pay
prepayment fees, if any, in the amount and manner described in each of the
Notes.

 

(f)                                    Unused Line Fee.  On the first day of
each calendar quarter during the term of this Agreement, Borrower shall pay to
Bank, in arrears for the immediately preceding calendar quarter, an unused line
fee in an amount equal to 0.100% per annum times the result of (a) the Line of
Credit Commitment Amount less (b) the sum of (i) the average Daily Balance of
indebtedness under the Line of Credit outstanding during the immediately
preceding calendar quarter, (ii) the average Daily Balance of indebtedness under
the Cal Ex Line of Credit outstanding during the immediately preceding calendar
quarter and (iii) the average Daily Balance of the L/C Amount during the
immediately preceding calendar quarter.  The unused line fee due under this
paragraph (f) shall not be payable following the termination and payment in full
of the Line of Credit.

 

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(g)                                 Audit Fees.  In addition to the fees
described in paragraph (b) of this Section 2.6, Borrower shall pay Bank, on
demand, fees in connection with any audits or inspections conducted by or on
behalf of Bank of Borrower’s operations or business at the rates established
from time to time by Bank as its audit fees, together with all actual
out-of-pocket costs and expenses incurred in conducting any such audit or
inspection.  There shall be no more than one such audit of Borrower per year
unless a Default Period is continuing, in which case Bank may conduct as many
audits as it may require.

 

(h)                                 Other Fees.  Bank may from time to time,
upon five (5) days prior written notice to Borrower during a Default Period,
charge additional fees for Line of Credit Advances made and Letters of Credit
issued in excess of Availability, for late delivery of reports and in lieu of
imposing interest at the Default Rate.  Borrower’s request for a Line of Credit
Advance or the issuance of a Letter of Credit at any time after such notice is
given and such five (5) day period has elapsed shall constitute Borrower’s
agreement to pay the fees described in such notice.

 

Section 2.7.                                   Increased Costs; Capital
Adequacy; Funding Exceptions.

 

(a)                                  Increased Costs; Capital Adequacy.  If Bank
determines at any time that its Return (as defined below) has been reduced as a
result of any Rule Change (as defined below), Bank may so notify Borrower and
require Borrower, beginning thirty (30) days after such notice is received by
Borrower, to pay it the amount necessary to restore its Return to what it would
have been had there been no Rule Change.  For purposes of this Section 2.7:

 

(i)                                     “Capital Adequacy Rule” means any law,
rule, regulation, guideline, directive, requirement or request regarding capital
adequacy, or the interpretation or administration thereof by any Governmental
Authority, whether or not having the force of law, that applies to any Related
Bank (as defined below), including rules requiring financial institutions to
maintain total capital in amounts based upon percentages of outstanding loans,
binding loan commitments and letters of credit.

 

(ii)                                  “L/C Rule” means any law, rule,
regulation, guideline, directive, requirement or request regarding letters of
credit, or the interpretation or administration thereof by any Governmental
Authority, whether or not having the force of law, that applies to any Related
Bank, including those that impose taxes, duties or other similar charges, or
mandate reserves, special deposits or similar requirements against assets of,
deposits with or for the account of, or credit extended by any Related Bank, on
letters of credit.

 

(iii)                               “Related Bank” includes (but is not limited
to) Bank, any parent of Bank and any assignee of any interest of Bank hereunder.

 

(iv)                              “Return”, for any period, means the percentage
determined by dividing (i) the sum of interest and ongoing fees earned by Bank
under this Agreement during such period, by (ii) the average capital such Bank
is required to maintain during such period as a result of its being a party to
this Agreement, as determined by Bank based upon its total capital requirements
and a reasonable attribution formula that takes account

 

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of the Capital Adequacy Rules and L/C Rules, (if applicable) then in effect,
costs of issuing or maintaining any Advance or Letter of Credit and amounts
received or receivable under this Agreement or the Notes with respect to any
Advance or Letter of Credit. Return may be calculated for each calendar quarter
and for the shorter period between the end of a calendar quarter and the date of
termination in whole of this Agreement.

 

(v)                                 “Rule Change” means any change in any
Capital Adequacy Rule, or L/C Rule, (if applicable) occurring after the date of
this Agreement, but the term does not include any changes that at the Funding
Date are scheduled to take place under the existing Capital Adequacy Rules, or
L/C Rules or any increases in the capital that Bank is required to maintain to
the extent that the increases are required due to a regulatory authority’s
assessment of that Bank’s financial condition.

 

(b)                                 The initial notice sent by Bank shall be
sent as promptly as practicable after Bank learns that its Return has been
reduced, shall include a demand for payment of the amount necessary to restore
Bank’s Return for the subsequent quarter in which the notice is sent, and shall
state in reasonable detail the cause for the reduction in its Return and its
calculation of the amount of such reduction.  Thereafter, Bank may send a new
notice during each calendar quarter setting forth the calculation of the reduced
Return for that quarter and including a demand for payment of the amount
necessary to restore its Return for that quarter. Bank’s calculation in any such
notice shall be prima facie evidence of such amount.

 

(c)                                  Borrower shall not be required to
compensate Bank pursuant to the provisions of this Section 2.7 for any reduction
of its Return suffered more than 90 days prior to the date that Bank notifies
Borrower of the Rule Change giving rise to such reduction and of Bank’s
intention to claim compensation therefor.

 

Section 2.8.                                   Lockbox.  Borrower shall instruct
all Account Debtors to pay all Accounts directly to the Lockbox.  If,
notwithstanding such instructions, Borrower receives any payments on Accounts,
Borrower shall deposit such payments into the Lockbox Account.

 

Section 2.9.                                   Mandatory Prepayment.  Without
notice or demand, if the sum of the outstanding principal balance of the Line of
Credit Advances plus the L/C Amount shall at any time exceed the Borrowing Base,
Borrower shall (i) first, immediately prepay the Line of Credit Advances to the
extent necessary to eliminate such excess; and (ii) if prepayment in full of the
Line of Credit Advances is insufficient to eliminate such excess, pay to Bank in
immediately available funds for deposit in the Special Account an amount equal
to the remaining excess.  Any payment received by Bank under this Section 2.9
may be applied to the Obligations, in such order and in such amounts as Bank, in
its reasonable discretion, may from time to time determine.

 

Section 2.10.                             Line of Credit Advances to Pay
Obligations.  Notwithstanding anything in Section 2.1, Bank may, in its
discretion at any time or from time to time, without Borrower’s request and even
if the conditions set forth in Section 4.2 would not be satisfied, make a Line
of Credit Advance in an amount equal to the portion of the Obligations from time
to time due and

 

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payable.  Bank will use its commercially reasonable best efforts to provide
Borrower with prompt notice after any such Advance pursuant to this Section 2.10
has been made; provided that any failure by Bank to provide such notice shall
not be deemed to be a breach or default by Bank of its obligations hereunder.

 

Section 2.11.                             Liability Records.  Bank may maintain
from time to time, at its discretion, records as to the Obligations.  All
entries made on any such record shall be presumed correct until Borrower
establishes the contrary.  Upon Bank’s demand, Borrower will admit and certify
in writing the exact principal balance of the Obligations that Borrower then
asserts to be outstanding.  Any billing statement or accounting rendered by Bank
shall be conclusive and fully binding on Borrower unless Borrower gives Bank
specific written notice of exception within 30 days after receipt.

 

ARTICLE III
SECURITY INTEREST

 

Section 3.1.                                   Grant of Security Interest. 
Borrower hereby pledges, assigns and grants to Bank a lien and security interest
(collectively referred to as the “Security Interest”) in the Collateral, as
security for the payment and performance of the Obligations.  Upon request by
Bank, Borrower will grant Bank a security interest in all commercial tort claims
it may have against any Person.

 

All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements and other documents as Bank shall
reasonably require, all in form and substance satisfactory to Bank (including,
without limitation, the Security Documents).  Borrower shall reimburse Bank
within fifteen (15) days after written demand for all reasonable costs and
expenses incurred by Bank in connection with any of the foregoing security,
including without limitation, filing and recording fees and costs of appraisals
and audits.

 

Section 3.2.                                   Financing Statements.  Borrower
authorizes Bank to file from time to time where permitted by law, such financing
statements against collateral described as “all personal property” or describing
specific items of collateral including commercial tort claims as Bank deems
necessary or useful to perfect the Security Interest.  A carbon, photographic or
other reproduction of this Agreement or of any financing statements authorized
by Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted
hereby.  For this purpose, the following information is set forth:

 

Name and address of Debtor:

 

Apio, Inc.

4575 West Main Street

Guadalupe, CA 93434

Federal Employer Identification No. 77-0528042

Organizational Identification No. 2863977

 

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Name and address of Secured Party:

 

Wells Fargo Bank, National Association

400 Hamilton Avenue, P.O. Box 150

Palo Alto, CA  94302

 

ARTICLE IV
CONDITIONS OF LENDING

 

Section 4.1.                                   Conditions Precedent to the
Initial Advances and Letter of Credit.  The obligation of Bank to extend any
credit contemplated by this Agreement is subject to the fulfillment to Bank’s
satisfaction of all of the following conditions:

 

(a)                                  This Agreement, duly executed by Borrower.

 

(b)                                 The Notes, duly executed by Borrower.

 

(c)                                  A true and correct copy of any and all
leases pursuant to which Borrower is leasing the Premises, together with a
landlord’s disclaimer and consent with respect to each such lease.

 

(d)                                 A true and correct copy of any and all
mortgages pursuant to which Borrower has mortgaged the Premises, together with a
mortgagee’s disclaimer and consent with respect to each such mortgage.

 

(e)                                  The Life Insurance Assignment (if any),
properly executed by the beneficiary and owner thereof, and the Life Insurance
Policy (if any), together with evidence that such Life Insurance Policy is
subject to no assignments or encumbrances other than the Life Insurance
Assignment.

 

(f)                                    The Lockbox Agreement, duly executed by
Borrower, Bank and Bank of America, National Association.

 

(g)                                 Control agreements, duly executed by
Borrower and each bank at which Borrower maintains deposit accounts.

 

(h)                                 Each of the Security Agreement, the Security
Agreement Re:  Patents and Trademarks, the Licensor Agreement, and the Security
Agreement and Collateral Assignment of Partnership Interest, duly executed by
Borrower.

 

(i)                                     A Guaranty, duly executed by Parent.

 

(j)                                     The Subordination Agreement, duly
executed by Parent and acknowledged by Borrower.

 

(k)                                  INTENTIONALLY OMITTED.

 

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(l)                                     Current searches of appropriate filing
offices showing that (i) no Liens have been filed and remain in effect against
Borrower except Permitted Liens or Liens held by Persons who have agreed in
writing that upon receipt of some of the proceeds of the Advances to be made on
the Closing Date, they will satisfy, release or terminate such Liens in a manner
satisfactory to Bank, and (ii) Bank has duly filed all financing statements
necessary to perfect the Security Interest, to the extent the Security Interest
is capable of being perfected by filing.

 

(m)                               One or more certificates of Borrower’s
Secretary or Assistant Secretary certifying that attached to such certificate,
or incorporated therein, are (i) the resolutions of Borrower’s Directors and, if
required, Owners, authorizing the execution, delivery and performance of the
Loan Documents to which Borrower is a party, (ii) true, correct and complete
copies of Borrower’s Constituent Documents, and (iii) examples of the signatures
of Borrower’s Officers or agents authorized to execute and deliver the Loan
Documents to which Borrower is a party and other instruments, agreements and
certificates, including requests for Advances, on Borrower’s behalf.

 

(n)                                 A current certificate issued by the
Secretary of State of Delaware, certifying that Borrower is in good standing and
is in compliance with all applicable formation requirements of the State of
Delaware.

 

(o)                                 One or more certificates of Parent’s
Secretary or Assistant Secretary certifying that attached to such certificate,
or incorporated therein, are (i) the resolutions of Parent’s board of directors
and, if required, owners, authorizing the execution, delivery and performance of
the Loan Documents to which Parent is a party, (ii) true, correct and complete
copies of Parent’s Constituent Documents, and (iii) examples of the signatures
of Parent’s corporate officers or agents authorized to execute and deliver the
Loan Documents to which Parent is a party and other instruments, agreements and
certificates on Parent’s behalf.

 

(p)                                 A current certificate issued by the
Secretary of State of California, certifying that Parent is in good standing and
is in compliance with all applicable formation requirements of the State of
California.

 

(q)                                 Evidence that Borrower is duly licensed or
qualified to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary.

 

(r)                                    A certificate of an Officer of Borrower
confirming the representations and warranties set forth in Article V.

 

(s)                                  A favorable opinion of counsel to Borrower
and Parent, addressed to Bank.

 

(t)                                    Certificates of the insurance required
hereunder, with all hazard insurance containing a lender’s loss payable
endorsement in Bank’s favor and with all liability insurance naming Bank as an
additional insured.

 

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(u)                                 Payment of the fees and commissions due
under Section 2.6 through the date of the initial Advances or Letter of Credit
and reasonable expenses incurred by Bank through such date and required to be
paid by Borrower under Section 8.5, including all reasonable legal expenses
incurred through the date of this Agreement.

 

(v)                                 Review and approval by Bank of the appraisal
of Borrower’s unencumbered Equipment performed by Rabin Brothers dated July 15,
2003.

 

(w)                               Review and approval by Bank of the Companies’
internally prepared financial statements for the period ended May 31, 2004.

 

(x)                                   Review and approval by Bank of Parent’s
consolidating internally prepared financial statements for the period ended
May 31, 2004.

 

(y)                                 Review and approval of the Companies’
consolidated financial projections.

 

(z)                                   Satisfactory results of invoice
verifications and vendor references.

 

(aa)                            Review and approval by Bank of all material
agreements, including licensing agreements, royalty agreements, shareholder debt
agreements, the management fee agreement, earn-out agreements, seller notes,
mortgage agreements, grower contracts, material leases, and the agreements
relating to the sale of Borrower’s domestic commodity vegetable business.

 

(bb)                          No material adverse change in the financial
condition of the Companies or Parent shall have occurred since the date of the
most recent financial statement of Borrower received by Bank.

 

(cc)                            True and complete copies of all license
agreements pursuant to which Borrower licenses any Intellectual Property Rights,
together with a consent to assignment to Bank or its nominee from each licensor
thereof.

 

(dd)                          Such other documents as Bank may reasonably
require.

 

Section 4.2.                                   Conditions Precedent to All
Advances and Letters of Credit.  The obligation of Bank to make each extension
of credit requested by Borrower hereunder shall be subject to the fulfillment to
Bank’s satisfaction of each of the following conditions:

 

(a)                                  the representations and warranties
contained in Article V are correct on and as of the date of such extension of
credit as though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date;

 

(b)                                 no event has occurred and is continuing, or
would result from such extension of credit which constitutes a Default or an
Event of Default; and

 

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(c)                                  no injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly, the extending of
such credit shall have been issued and remain in force by any Governmental
Authority against Borrower, Bank, or any of their Affiliates.

 

ARTICLE V
REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants to Bank as follows:

 

Section 5.1.                                   Existence and Power; Name; Chief
Executive Office; Inventory and Equipment Locations; Federal Employer
Identification Number.  Borrower is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
duly licensed or qualified to transact business in all jurisdictions where the 
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary.  Borrower has
all requisite power and authority to conduct its business, to own its properties
and to execute and deliver, and to perform all of its obligations under, the
Loan Documents to which it is a party.  During its existence, Borrower has done
business solely under the names set forth in Schedule 5.1 and all of Borrower’s
records relating to its business or the Collateral are kept at the location set
forth on Schedule 5.1.  Borrower’s chief executive office and principal place of
business is located at the address set forth in Schedule 5.1.  All Inventory and
Equipment is located at that location or at one of the other locations listed in
Schedule 5.1.  Borrower’s federal employer identification number and
organizational identification number are each correctly set forth in
Section 3.2.

 

Section 5.2.                                   Capitalization.  Schedule 5.2
constitutes a correct and complete list of all ownership interests of Borrower
and rights to acquire ownership interests including the record holder, number of
interests and percentage interests on a fully diluted basis, and an
organizational chart showing the ownership structure of all Subsidiaries of
Borrower.

 

Section 5.3.                                   Authorization of Borrowing; No
Conflict as to Law or Agreements.  The execution, delivery and performance by
Borrower of the Loan Documents to which it is a party and the borrowings from
time to time hereunder have been duly authorized by all necessary corporate
action and do not and will not (i) require any consent or approval of Borrower’s
Owners; (ii) require any authorization, consent or approval by, or registration,
declaration or filing with, or notice to, any Governmental Authority, or any
third Person, except such authorization, consent, approval, registration,
declaration, filing or notice as has been obtained, accomplished or given prior
to the date hereof; (iii) violate any provision of any law, rule or regulation
(including Regulation X of the Board of Governors of the Federal Reserve System)
or of any order, writ, injunction or decree presently in effect having
applicability to Borrower or of Borrower’s Constituent Documents; (iv) result in
a breach of or constitute a default under any indenture or loan or credit
agreement or any other material agreement, lease or instrument to which Borrower
is a party or by which it or its properties may be bound or affected, in each
case, the failure of which to comply with would result in a Material Adverse
Effect; or (v) result in, or require, the creation or imposition of any Lien
(other than the Security Interest) upon or with respect to any of the properties
now owned or hereafter acquired by Borrower.

 

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Section 5.4.                                   Legal Agreements.  This Agreement
and the other Loan Documents to which Borrower is a party, upon their execution
and delivery in accordance with the provisions hereof, will constitute the
legal, valid and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, except as enforcement may be limited
by equitable principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws relating to or limiting creditors’ rights generally.

 

Section 5.5.                                   Subsidiaries.  Borrower has no
Subsidiaries other than as set forth in Schedule 5.5 hereto.

 

Section 5.6.                                   Financial Condition; No Adverse
Change.  Borrower has furnished to Bank the Companies’ audited financial
statements for the fiscal year ended May 31, 2004, and those statements fairly
present in all material respects the Companies’ financial condition on the dates
thereof and the results of their operations and cash flows for the periods then
ended and were prepared in accordance GAAP.  Since the date of the most recent
financial statements, there has been no change in the Companies’ business,
properties or condition (financial or otherwise) which has had a Material
Adverse Effect.

 

Section 5.7.                                   Litigation.  There are no
actions, suits or proceedings pending or, to Borrower’s knowledge, threatened
against or affecting Borrower or any of its Affiliates or the properties of
Borrower or any of its Affiliates before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, is reasonably likely to be adversely determined and, if determined
adversely to Borrower or any of its Affiliates, would have a Material Adverse
Effect.

 

Section 5.8.                                   Regulation U.  Borrower is not
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Advance will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock.

 

Section 5.9.                                   Taxes.  Borrower and its
Affiliates have paid or caused to be paid to the proper authorities when due all
federal, state and local taxes required to be paid by each of them (other than
taxes that are being contested in good faith through appropriate processes and
for which adequate reserves have been established) and Borrower has no knowledge
of any pending assessments or adjustments of its income tax payable with respect
to any year or the income tax payable by any Affiliate with respect to any
year.  Borrower and its Affiliates have filed all federal, state and local tax
returns which to the knowledge of the Officers of Borrower or the officers of
any Affiliate, as the case may be, are required to be filed, and Borrower and
its Affiliates have paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
any of them to the extent such taxes have become due.

 

Section 5.10.                             Titles and Liens.  Borrower has good
and absolute title to all Collateral free and clear of all Liens other than
Permitted Liens.  No financing statement naming Borrower as debtor is on file in
any office except to perfect only Permitted Liens.

 

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Section 5.11.                             Intellectual Property Rights.

 

(a)                                  Owned Intellectual Property.  Schedule 5.11
(as updated by written notice to Bank from time to time) contains a complete
list of all patents, applications for patents, trademarks, applications for
trademarks, service marks, applications for service marks, mask works, trade
dress and copyrights for which Borrower is the registered owner (the “Owned
Intellectual Property”).  Except for Immaterial Intellectual Property Rights or
as disclosed on Schedule 5.11, (i) Borrower owns the Owned Intellectual Property
free and clear of all restrictions (including covenants not to sue a third
party), court orders, injunctions, decrees, writs or Liens, whether by written
agreement or otherwise, (ii) no Person other than Borrower owns or has been
granted any right in the Owned Intellectual Property, (iii) all Owned
Intellectual Property is valid, subsisting and enforceable and (iv) Borrower has
taken all commercially reasonable action necessary to maintain and protect the
Owned Intellectual Property.

 

(b)                                 Agreements with Employees and Contractors. 
Borrower has entered into a legally enforceable agreement with each of its
employees and subcontractors obligating each such Person to assign to Borrower,
without any additional compensation, any Intellectual Property Rights created,
discovered or invented by such Person in the course of such Person’s employment
or engagement with Borrower (except to the extent prohibited by law), and
further requiring such Person to cooperate with Borrower, without any additional
compensation, in connection with securing and enforcing any Intellectual
Property Rights therein; provided, however, that the foregoing shall not apply
with respect to employees and subcontractors whose job descriptions are of the
type such that no such assignments are reasonably foreseeable.

 

(c)                                  Intellectual Property Rights Licensed from
Others.  Schedule 5.11 (as updated by written notice to Bank from time to time)
contains a complete list of all agreements under which Borrower has licensed
Intellectual Property Rights from another Person (“Licensed Intellectual
Property”) other than readily available, non-negotiated licenses of computer
software and other intellectual property used solely for performing accounting,
word processing and similar administrative tasks (“Off-the-shelf Software”) and
a summary of any ongoing payments Borrower is obligated to make with respect
thereto.  Except as disclosed on Schedule 5.11 and in written agreements copies
of which have been given to Bank, Borrower’s licenses to use the Licensed
Intellectual Property are free and clear of all restrictions, Liens, court
orders, injunctions, decrees, or writs, whether by written agreement or
otherwise.  Except as disclosed on Schedule 5.11 (as updated by written notice
to Bank from time to time), Borrower is not obligated or under any liability
whatsoever to make any payments of a material nature by way of royalties, fees
or otherwise to any owner of, licensor of, or other claimant to, any
Intellectual Property Rights.

 

(d)                                 Other Intellectual Property Needed for
Business.  Except for Off-the-shelf Software and as disclosed on Schedule 5.11
(as updated by written notice to Bank from time to time), the Owned Intellectual
Property and the Licensed Intellectual Property constitute all Intellectual
Property Rights used or necessary to conduct Borrower’s business as it is
presently conducted or as Borrower reasonably foresees conducting it.

 

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(e)                                  Infringement.  Except as disclosed on
Schedule 5.11 (as updated by written notice to Bank from time to time), Borrower
has no knowledge of, and has not received any written claim or notice alleging,
any Infringement of another Person’s Intellectual Property Rights (including any
written claim that Borrower must license or refrain from using the Intellectual
Property Rights of any third party) nor, to Borrower’s knowledge, is there any
threatened claim or any reasonable basis for any such claim.

 

Section 5.12.                             Plans.  Except as disclosed to Bank in
writing prior to the date hereof, neither Borrower nor any ERISA Affiliate
(i) maintains or has maintained any Pension Plan, (ii) contributes or has
contributed to any Multiemployer Plan or (iii) provides or has provided
post-retirement medical or insurance benefits with respect to employees or
former employees (other than benefits required under Section 601 of ERISA,
Section 4980B of the IRC or applicable state law).  Neither Borrower nor any
ERISA Affiliate has received any notice or has any knowledge to the effect that
it is not in full compliance with any of the requirements of ERISA, the IRC or
applicable state law with respect to any Plan.  No Reportable Event exists in
connection with any Pension Plan.  Each Plan which is intended to qualify under
the IRC is so qualified, and no fact or circumstance exists which may have an
adverse effect on the Plan’s tax-qualified status.  Neither Borrower nor any
ERISA Affiliate has (i) any accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the IRC) under any Plan, whether or not
waived, (ii) any liability under Section 4201 or 4243 of ERISA for any
withdrawal, partial withdrawal, reorganization or other event under any
Multiemployer Plan or (iii) any liability or knowledge of any facts or
circumstances which could result in any liability to the Pension Benefit
Guaranty Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than routine claims for
benefits under the Plan).

 

Section 5.13.                             Default.  Borrower is in compliance
with all provisions of all agreements, instruments, decrees and orders to which
it is a party or by which it or its property is bound or affected, the breach or
default of which could have a Material Adverse Effect.

 

Section 5.14.                             Environmental Matters.

 

(a)                                  To Borrower’s best knowledge, there are not
present in, on or under the Premises any Hazardous Substances in such form or
quantity as to create any material liability or obligation for either Borrower
or Bank under common law of any jurisdiction or under any Environmental Law, and
no Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a way as to
create any such material liability.

 

(b)                                 To Borrower’s best knowledge, Borrower has
not disposed of Hazardous Substances in such a manner as to create any material
liability under any Environmental Law.

 

(c)                                  To Borrower’s best knowledge, there are not
any requests, claims, notices, investigations, demands, administrative
proceedings, hearings or litigation, relating in any way to the Premises or
Borrower, alleging material liability under, violation of, or noncompliance with

 

31

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any Environmental Law or any license, permit or other authorization issued
pursuant thereto.  To Borrower’s best knowledge, no such matter is threatened or
impending.

 

(d)                                 To Borrower’s best knowledge, Borrower’s
businesses are and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations required
pursuant to any Environmental Law and necessary for the lawful and efficient
operation of such businesses are in Borrower’s possession and are in full force
and effect.  No permit required under any Environmental Law is scheduled to
expire within 12 months and there is no threat that any such permit will be
withdrawn, terminated, limited or materially changed.

 

(e)                                  To Borrower’s best knowledge, the Premises
are not and never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability Information
System or any similar federal, state or local list, schedule, log, inventory or
database.

 

(f)                                    Borrower has delivered to Bank all
environmental assessments, audits, reports, permits, licenses and other
documents describing or relating in any way to the Premises or Borrower’s
businesses.

 

Section 5.15.                             Submissions to Bank.  All financial
and other information provided to Bank by or on behalf of Borrower in connection
with Borrower’s request for the credit facilities contemplated hereby is
(i) true and correct in all material respects, (ii) does not omit any material
fact necessary to make such information not misleading and (iii) as to
projections, valuations or proforma financial statements, present a good faith
opinion as to such projections, valuations and proforma condition and results.

 

Section 5.16.                             Financing Statements.  Borrower has
authorized the filing of financing statements sufficient when filed to perfect
the Security Interest and the other security interests created by the Security
Documents.  When such financing statements are filed in the offices noted
therein, Bank will have a valid and perfected security interest in all
Collateral which is capable of being perfected by filing financing statements. 
None of the Collateral is or will become a fixture on real estate, unless a
sufficient fixture filing is in effect with respect thereto.

 

Section 5.17.                             Rights to Payment.  To Borrower’s best
knowledge, each right to payment and each instrument, document, chattel paper
and other agreement constituting or evidencing Collateral is (or, in the case of
all future Collateral, will be when arising or issued) the valid, genuine and
legally enforceable obligation, subject to no defense, setoff or counterclaim,
of the Account Debtor or other obligor named therein or in Borrower’s records
pertaining thereto as being obligated to pay such obligation.

 

Section 5.18.                             Eligible Accounts.  All Accounts that
are included in the Borrowing Base are Eligible Accounts, and meet the
definition thereof.

 

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Section 5.19.                             Equipment.  All of the Equipment
financed pursuant to the Term Commitment is used or held for use in Borrower’s
business and is fit for such purposes (other than worn out, surplus or obsolete
Equipment).

 

Section 5.20.                             Fraudulent Transfer.  Borrower is
Solvent.  No transfer of property is being made by Borrower and no obligation is
being incurred by Borrower in connection with the transactions contemplated by
this Agreement or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of Borrower.

 

Section 5.21.                             Permits, Franchises.  Borrower
possesses, and will hereafter possess, all permits, consents, approvals,
franchises and licenses required and rights to all trademarks, trade names,
patents, and fictitious names, if any, necessary to enable it to conduct the
business in which it is now engaged in compliance with applicable law and the
failure of which to obtain would result in a Material Adverse Effect.

 

Section 5.22.                             No Subordination.  There is no
agreement, indenture, contract or instrument to which Borrower is a party or by
which Borrower may be bound that requires the subordination in right of payment
of any of Borrower’s obligations subject to this Agreement to any other
obligation of Borrower.

 

ARTICLE VI
COVENANTS

 

So long as the Obligations shall remain unpaid, or the Credit Facility shall
remain outstanding, Borrower will comply with the following requirements, unless
Bank shall otherwise consent in writing:

 

Section 6.1.                                   Punctual Payments.  Borrower
shall punctually pay all principal, interest, fees or other liabilities due
under any of the Loan Documents at the times and place and in the manner
specified therein.

 

Section 6.2.                                   Reporting Requirements.  Borrower
will deliver, or cause to be delivered, to Bank each of the following, which
shall be in form and detail acceptable to Bank:

 

(a)                                  Annual Financial Statements.  As soon as
available, and in any event within 120 days after the end of each fiscal year of
Companies, Borrower will deliver, or cause to be delivered, to Bank, Parent’s
and Companies’ audited financial statements with the unqualified opinion of
independent certified public accountants selected by Borrower and acceptable to
Bank, which annual financial statements shall include Parent’s and Companies’
balance sheet as at the end of such fiscal year and the related statements of
Parent’s and Companies’ income, reconciliation of retained earnings and cash
flows for the fiscal year then ended, prepared on a consolidating and
consolidated basis to include any Affiliates, all in reasonable detail and
prepared in accordance with GAAP, together with (i) copies of all management
letters prepared by such accountants; and (ii) a certificate of the chief
financial officer of Borrower stating that such financial statements have been
prepared in accordance with GAAP, fairly represent Parent’s and Borrower’s
financial position and the results of its operations, and whether or not such

 

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officer has knowledge of the occurrence of any Default or Event of Default and,
if so, stating in reasonable detail the facts with respect thereto.

 

(b)                                 Monthly Financial Statements.  As soon as
available and in any event within 30 days after the end of each month, Borrower
will deliver to Bank an unaudited/internal balance sheet and statements of
income and reconciliation of retained earnings of Borrower as at the end of and
for such month and for the year to date period then ended, prepared, if Bank so
requests, on a consolidating and consolidated basis to include any Subsidiaries,
in reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with GAAP, subject to year-end audit adjustments and fairly representing in all
material respects Companies’ financial position and the results of its
operations.

 

(c)                                  Collateral Reports.  Borrower will deliver
to Bank the following documents at the following times in form satisfactory to
Bank:

 

Monthly

 

(i)

a report of cash collections, sales assignments, credit memos/adjustments and
deposits (provided that the frequency of such reports may be increased to weekly
or daily, at Bank’s option, during any Default Period),

 

 

 

 

 

 

(ii)

a report of outstanding payable balances owing to all growers,

 

 

 

 

Monthly (not later than the 20th day after each fiscal month end)

 

(iii)

a detailed calculation of the Borrowing Base (including detail regarding those
Accounts that are not Eligible Accounts),

 

 

 

 

(iv)

a detailed listing and aging, by total, of the Accounts, together with a
reconciliation to the detailed calculation of the Borrowing Base  previously
provided to Bank, 

 

 

 

 

 

 

(v)

monthly Borrowing Base certificate in the form of Exhibit D attached hereto,
executed by a financial representative of Borrower,

 

 

 

 

 

 

(vi)

a detailed aging, by vendor, of Borrower’s accounts payable and any book
overdraft, together with a reconciliation to Borrower’s general ledger and
monthly financial statements delivered pursuant to Section 6.2(b),

 

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Quarterly

 

(vii)

internally-prepared consolidating financial statements for Parent (not later
than the 45th day after each quarter-end),

 

 

 

 

 

 

(viii)

a certificate of the chief financial Officer of Borrower, substantially in the
form of Exhibit E hereto stating (i) whether or not such officer has knowledge
of the occurrence of any Default or Event of Default not theretofore reported
and remedied and, if so, stating in reasonable detail the facts with respect
thereto, and (ii) all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not Borrower is compliance with the Financial
Covenants and other covenants contained in this Agreement,

 

 

 

 

 

 

 

 

Semi-Annually

 

(ix)

a detailed list of Borrower’s customers with contact names and addresses,

 

 

 

 

Upon request by Bank

 

(x)

copies of invoices in connection with the Accounts, credit memos, remittance
advices, deposit slips, shipping and delivery documents in connection with the
Accounts and, for Inventory and Equipment acquired by Borrower, purchase orders
and invoices, and 

 

 

 

 

 

 

(xi)

such other reports or information as to the Collateral, or the financial
condition of Borrower, or otherwise, as Bank may reasonably request.

 

(d)                                 Projections.  Within 30 days after the
beginning of each fiscal year of Borrower, Borrower will deliver to Bank the
projected balance sheets and income statements for each month of such year for
the Companies, Parent and Landec Ag, each in reasonable detail, representing
Borrower’s good faith projections and certified by the chief financial officer
of Borrower and Parent as being the most accurate projections available and
identical to the projections used by Borrower and Parent for internal planning
purposes, together with a statement of underlying assumptions and such
supporting schedules and information as Bank may in its discretion require.

 

(e)                                  Litigation.  Immediately after the
commencement thereof, Borrower will deliver to Bank notice in writing of all
litigation and of all proceedings before any governmental or regulatory agency
affecting Borrower (i) of the type described in Section 5.14(c) or (ii) which
seek a monetary recovery against Borrower in excess of $500,000.

 

(f)                                    Defaults.  As promptly as practicable
(but in any event not later than five business days) after an Officer of
Borrower obtains knowledge of the occurrence of any Default or Event of Default,
Borrower will deliver to Bank notice of such occurrence, together with a
detailed statement by a responsible Officer of Borrower of the steps being taken
by Borrower to cure the effect thereof.

 

(g)                                 Plans.  As soon as possible, and in any
event within 30 days after Borrower knows or has reason to know that any
Reportable Event with respect to any Pension Plan has occurred, Borrower will
deliver to Bank a statement of the chief financial officer of Borrower

 

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setting forth details as to such Reportable Event and the action which Borrower
proposes to take with respect thereto, together with a copy of the notice of
such Reportable Event to the Pension Benefit Guaranty Corporation. As soon as
possible, and in any event within 10 days after Borrower fails to make any
quarterly contribution required with respect to any Pension Plan under
Section 412(m) of the IRC, Borrower will deliver to Bank a statement of the
chief financial officer of Borrower setting forth details as to such failure and
the action which Borrower proposes to take with respect thereto, together with a
copy of any notice of such failure required to be provided to the Pension
Benefit Guaranty Corporation.  As soon as possible, and in any event within 10
days after Borrower knows or has reason to know that it has or is reasonably
expected to have any liability under Section 4201 or 4243 of ERISA for any
withdrawal, partial withdrawal, reorganization or other event under any
Multiemployer Plan, Borrower will deliver to Bank a statement of the chief
financial officer of Borrower setting forth details as to such liability and the
action which Borrower proposes to take with respect thereto.

 

(h)                                 Disputes.  Promptly upon knowledge thereof,
Borrower will deliver to Bank notice of (i) any disputes or claims by Borrower’s
customersexceeding $100,000 individually or $500,000 in the aggregate during any
fiscal year; (ii) credit memos exceeding $100,000 for any individual Account
Debtor or $500,000 in the aggregate for all Account Debtors; or (iii) any goods
returned to or recovered by Borrower with a value exceeding $100,000 from any
individual Account Debtor or $500,000 in the aggregate from all Account Debtors.

 

(i)                                     Officers and Directors.  Promptly upon
knowledge thereof, Borrower will deliver to Bank notice any change in the
persons constituting Borrower’s Officers and Directors.

 

(j)                                     Collateral.  Promptly upon knowledge
thereof, Borrower will deliver to Bank notice of any loss of or material damage
to any material portion of the Collateral or of any substantial adverse change
in any material portion of the Collateral or the prospect of payment thereof.

 

(k)                                  Commercial Tort Claims.  Promptly upon
knowledge thereof, Borrower will deliver to Bank notice of any commercial tort
claims it may bring against any person, including the name and address of each
defendant, a summary of the facts, an estimate of Borrower’s damages, copies of
any complaint or demand letter submitted by Borrower, and such other information
as Bank may request.

 

(l)                                     Intellectual Property.

 

(i)                                     Borrower will give Bank 30 days prior
written notice of its intent to acquire material Intellectual Property Rights;
except for transfers permitted under Section 6.19, Borrower will give Bank 30
days prior written notice of its intent to dispose of material Intellectual
Property Rights; and upon request, shall provide Bank with copies of all
applicable documents and agreements.

 

(ii)                                  Promptly upon knowledge thereof, Borrower
will deliver to Bank notice of (A) any Infringement of its Intellectual Property
Rights by others, (B) claims that Borrower is Infringing another Person’s
Intellectual Property Rights and (C) any

 

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threatened cancellation, termination or material limitation of its Intellectual
Property Rights.

 

(iii)                               Promptly upon receipt, Borrower will give
Bank copies of all registrations and filings with respect to its Intellectual
Property Rights.

 

(m)                               Reports to Owners.  Promptly upon their
distribution, Borrower will deliver to Bank copies of all financial statements,
reports and proxy statements which Parent shall have sent to its owners.

 

(n)                                 SEC Filings.  Promptly after the sending or
filing thereof, Borrower will deliver to Bank copies of all regular and periodic
reports which Parent shall file with the Securities and Exchange Commission or
any national securities exchange.

 

(o)                                 Violations of Law.  Promptly upon knowledge
thereof, Borrower will deliver to Bank notice of Borrower’s violation of any
law, rule or regulation, the non-compliance with which could materially and
adversely affect Borrower’s business or its financial condition.

 

(p)                                 Other Reports.  From time to time, with
reasonable promptness, Borrower will deliver to Bank any and all receivables
schedules, collection reports, deposit records, Equipment schedules, copies of
invoices to Account Debtors, shipment documents and delivery receipts for goods
sold, and such other material, reports, records or information as Bank may
reasonably request.

 

Section 6.3.                                   Financial Covenants.

 

(a)                                  Minimum EBITDA Coverage Ratio.  Borrower,
together with the other Companies, will maintain the EBITDA Coverage Ratio,
measured on a trailing 12 month basis as of the end of each fiscal quarter, at
not less than 1.50:1.00.

 

(b)                                 Minimum Tangible Net Worth.  Borrower,
together with the other Companies, will maintain, at all times, Tangible Net
Worth, determined as at the end of each fiscal quarter, at an amount not less
than the amount set forth in the table below opposite the applicable fiscal
quarter end:

 

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Fiscal Quarter Ending

 

Minimum Tangible Net Worth

August 2004

 

$17,000,000

November 2004

 

$18,000,000

February 2005

 

$18,500,000

May 2005

 

$19,500,000

August 2005 and each fiscal quarter end thereafter

 

$19,500,000 plus 75% of cumulative Net Income realized since May 2005 up to such
fiscal quarter end

 

(c)                                  Minimum Net Income.  Borrower, together
with the other Companies, will achieve (together with the other Companies)
during each period described below, consolidated Net Income, of not less than
the amount set forth in the table below opposite such period:

 

Fiscal Year to Date Period Ending

 

Minimum Net Income

August 31 of each year

 

$

750,000

November 30 of each year

 

$

1,750,000

February 28 or 29, as applicable, of each year

 

$

2,150,000

May 31 of each year

 

$

2,900,000

 

(d)                                 Capital Expenditures.  Borrower together
with the other Companies will not incur financed or unfinanced Capital
Expenditures of more than $6,000,000 in the aggregate during the fiscal year
ending May 2005 or any fiscal year thereafter.

 

(e)                                  Maximum Leverage.  Borrower, together with
the other Companies, will maintain Total Liabilities divided by Tangible Net
Worth, as of the end of each fiscal quarter, at not greater than 1.50:1.00.

 

Section 6.4.                                   Permitted Liens; Financing
Statements.

 

(a)                                  Borrower will not create, incur or suffer
to exist any Lien upon or of any of its assets, now owned or hereafter acquired,
to secure any Indebtedness; excluding, however, from the operation of the
foregoing, the following (collectively, “Permitted Liens”):

 

(i)                                     in the case of any of Borrower’s
property which is not Collateral, covenants, restrictions, rights, easements and
minor irregularities in title which do not materially interfere with Borrower’s
business or operations as presently conducted;

 

(ii)                                  Liens in existence on the date hereof and
listed in Schedule 6.4 hereto, securing Indebtedness for borrowed money
permitted under Section 6.5;

 

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(iii)                               the Security Interest and Liens created by
the Security Documents;

 

(iv)                              liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords and other similar liens imposed by law
incurred in the ordinary course of business for sums not overdue or being
contested in good faith, provided that adequate reserves for the payment thereof
have been established in accordance with GAAP;

 

(v)                                 deposits under workers’ compensation,
unemployment insurance and social security laws or to secure the performance of
bids, tenders, contracts (other than for the repayment of borrowed money) or
leases, or to secure statutory obligations of surety or appeal bonds or to
secure indemnity, performance or other similar bonds in the ordinary course
business;

 

(vi)                              banker’s liens and similar liens (including
set-off rights) in respect of bank deposits;

 

(vii)                           purchase money Liens incurred in connection with
Capital Expenditures otherwise permitted pursuant to this Agreement; provided
that such Liens attach only to the Equipment acquired thereby;

 

(viii)                        Liens incurred in connection with extensions,
renewals or refinancings of the indebtedness secured by Liens of the type
described above; and

 

(ix)                                Liens incurred in connection with leases,
subleases, licenses and sublicenses granted, in the ordinary course of
Borrower’s business, to Persons not interfering in any material respect with the
business of Borrower and its Subsidiaries and any interest or title of a lessee
or licensee under any such lease, sublease, license or sublicense.

 

(b)                                 Borrower will not amend any financing
statements in favor of Bank except as permitted by law.  Any authorization by
Bank to any Person to amend financing statements in favor of Bank shall be in
writing.

 

Section 6.5.                                   Indebtedness.  Borrower will not
incur, create, assume or permit to exist any Indebtedness or liability on
account of deposits or advances or any Indebtedness for borrowed money or
letters of credit issued on Borrower’s behalf, or any other Indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations, except:

 

(a)                                  Indebtedness arising hereunder;

 

(b)                                 Indebtedness of Borrower in existence on the
date hereof and listed in Schedule 6.5 hereto;

 

(c)                                  Indebtedness relating to Permitted Liens;

 

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(d)                                 Indebtedness of Borrower arising from the
endorsement of instruments for collection in the ordinary course of business;

 

(e)                                  Indebtedness of Borrower under initial or
successive refinancings of any Indebtedness permitted by clause (b) or (c)
above, provided that (i) the principal amount of any such refinancing does not
exceed the principal amount of the Indebtedness being refinanced and (ii) the
material terms and provisions of any such refinancing (including maturity,
redemption, prepayment, default and subordination provisions) are no less
favorable to Bank than the Indebtedness being refinanced; and

 

(f)                                    Other unsecured indebtedness of Borrower
provided the aggregate principal amount of all such indebtedness does not exceed
$500,000.

 

Section 6.6.                                   Guaranties.  Borrower will not
assume, guarantee, endorse or otherwise become directly or contingently liable
in connection with any obligations of any other Person, except:

 

(a)                                  the endorsement of negotiable instruments
by Borrower for deposit or collection or similar transactions in the ordinary
course of business; and

 

(b)                                 guaranties, endorsements and other direct or
contingent liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 6.5 hereto.

 

Section 6.7.                                   Investments and Subsidiaries. 
Borrower will not purchase or hold beneficially any stock or other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
including any partnership or joint venture, except:

 

(a)                                  investments in direct obligations of the
United States of America or any agency or instrumentality thereof whose
obligations constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper issued by U.S.
corporations rated “A-1” or “A-2” by Standard & Poor’s Corporation or “P-1” or
“P-2” by Moody’s Investors Service or certificates of deposit or bankers’
acceptances having a maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of $100,000,000 (which
certificates of deposit or bankers’ acceptances are fully insured by the Federal
Deposit Insurance Corporation) (each of the foregoing, collectively, “Cash
Equivalents”);

 

(b)                                 travel advances or loans to Borrower’s
Officers and employees not exceeding at any one time an aggregate of $10,000;

 

(c)                                  security deposits, ground leases, and
advances in the form of progress payments;

 

(d)                                 current investments in the Subsidiaries in
existence on the date hereof and listed in Schedule 5.5 hereto;

 

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(e)                                  value added joint venture investments; and

 

(f)                                    crop advances.

 

Section 6.8.                                   Dividends and Distributions. 
Borrower will not declare or pay any dividends (other than dividends payable
solely in stock of Borrower) on any class of its stock or make any payment on
account of the purchase, redemption or other retirement of any shares of such
stock or make any distribution in respect thereof, either directly or
indirectly.

 

Section 6.9.                                   Salaries.  Borrower will not pay
excessive or unreasonable salaries, bonuses, commissions, consultant fees or
other compensation to the extent that such payment would cause an Event of
Default.

 

Section 6.10.                             Key Person Life Insurance.  If
Borrower shall at any time maintain insurance upon the life of any key Officer
(“Life Insurance Policy”), then Borrower shall promptly notify Bank of each such
Life Insurance Policy and assign to Bank the right to receive the proceeds of
such Life Insurance Policy by a Life Insurance Assignment.  The proceeds of any
such Life Insurance Policy (“Life Insurance Proceeds”), whenever and however
arising, shall be deposited in an Acceptable Wells Fargo Deposit Account and
shall constitute Collateral for purposes of this Agreement and the other Loan
Documents.  For purposes of this Agreement, the term “Acceptable Wells Fargo
Deposit Account” shall mean an interest bearing deposit account held at Bank
over which Borrower shall have no control and in which Bank has a perfected
security interest in such deposit account subject only to such other Liens as
Bank may approve and subject to such additional security agreements and other
documentation reasonably requested by Bank.  Borrower hereby agrees that any
Life Insurance Proceeds may be held by Bank as additional collateral for the
Obligations until the repayment in full of all of the Obligations and the
termination of this Agreement.

 

Section 6.11.                             Books and Records; Inspection and
Examination.  Borrower will keep accurate books of record and account for itself
pertaining to the Collateral and pertaining to Borrower’s business and financial
condition and such other matters as Bank may from time to time reasonably
request in which true and complete entries will be made in accordance with GAAP
and, upon Bank’s request, will permit any officer, employee, attorney or
accountant for Bank to audit, review, make extracts from or copy any and all
company and financial books and records of Borrower during ordinary business
hours and upon one Business Day’s advance notice (unless a Default Period exists
in which case no notice shall be required), and to discuss Borrower’s affairs
with any of its Directors, Officers, and/or accounting personnel.  Borrower
hereby irrevocably authorizes all accountants and third parties to disclose and
deliver to Bank, at Borrower’s expense, all financial information, books and
records, work papers, management reports and other information in its possession
regarding Borrower.  Borrower will permit Bank, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral or any other property
of Borrower during ordinary business hours and upon one Business Day’s advance
notice (unless a Default Period exists in which case no notice shall be
required).

 

Section 6.12.                             Account Verification.  Bank may at any
time and from time to time send or require Borrower to send requests for
verification of accounts and amounts owed to Account

 

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Debtors and other obligors.  Bank may also at any time an Event of Default has
occurred and is continuing and from time to time telephone Account Debtors and
other obligors to verify accounts and send such Account Debtors and other
obligors notification of the assignment of Accounts to Bank.

 

Section 6.13.                             Compliance with Laws.

 

(a)                                  Borrower will (i) comply with the
requirements of applicable laws and regulations, the non-compliance with which
would materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and keep the
Collateral, only for lawful purposes, without violation of any federal, state or
local law, statute or ordinance.

 

(b)                                 Without limiting the foregoing undertakings,
Borrower specifically agrees that it will comply with all applicable
Environmental Laws and obtain and comply with all permits, licenses and similar
approvals required by any Environmental Laws, and will not generate, use,
transport, treat, store or dispose of any Hazardous Substances in such a manner
as to create any material liability or obligation under the common law of any
jurisdiction or any Environmental Law.

 

Section 6.14.                             Payment of Taxes and Other Claims. 
Borrower will pay or discharge, when due, (a) all taxes, assessments and
governmental charges levied or imposed upon it or upon its income or profits,
upon any properties belonging to it (including the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest, prior
to the date on which penalties attach thereto, (b) all federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a Lien upon any
properties of Borrower; provided that Borrower shall not be required to pay any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which proper
reserves have been made.

 

Section 6.15.                             Maintenance of Properties.

 

(a)                                  Borrower will keep and maintain the
Collateral and all of its other properties necessary or useful in its business
in good condition, repair and working order (normal wear and tear excepted) and
will from time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.15 shall prevent Borrower from
discontinuing the operation and maintenance of any of its properties if such
discontinuance is, in Borrower’s commercially reasonable judgment, desirable in
the conduct of Borrower’s business and not disadvantageous in any material
respect to Bank.  Borrower will take all commercially reasonable steps necessary
to protect and maintain its Intellectual Property Rights, other than Immaterial
Intellectual Property Rights.

 

(b)                                 Borrower will defend the Collateral against
all Liens, claims or demands of all Persons (other than Bank) claiming the
Collateral or any interest therein.  Borrower will keep all Collateral free and
clear of all Liens except Permitted Liens.  Borrower will take all commercially
reasonable steps necessary to prosecute any Person Infringing its Intellectual

 

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Property Rights and to defend itself against any Person accusing it of
Infringing any Person’s Intellectual Property Rights.

 

Section 6.16.                             Insurance.  Borrower will obtain and
at all times maintain insurance with insurers believed by Borrower to be
responsible and reputable, in such amounts and against such risks as may from
time to time be required by Bank, but in all events in such amounts and against
such risks as is usually carried by companies engaged in similar business and
owning similar properties in the same general areas in which Borrower operates.
Without limiting the generality of the foregoing, Borrower will at all times
keep all tangible Collateral insured against risks of fire (including so-called
extended coverage), theft, collision (for Collateral consisting of motor
vehicles) and such other risks and in such amounts as Bank may reasonably
request, with any loss payable to Bank to the extent of its interest, and all
policies of such insurance shall contain a lender’s loss payable endorsement for
Bank’s benefit.  All policies of liability insurance required hereunder shall
name Bank as an additional insured.

 

Section 6.17.                             Preservation of Existence.  Borrower
will preserve and maintain its existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.

 

Section 6.18.                             Delivery of Instruments, etc.  Upon
request by Bank, Borrower will promptly deliver to Bank in pledge all
instruments, documents and chattel paper constituting Collateral, duly endorsed
or assigned by Borrower.

 

Section 6.19.                             Sale or Transfer of Assets; Suspension
of Business Operations.  Borrower will not sell, lease, assign, transfer or
otherwise dispose of (i) the stock of any Subsidiary, (ii) all or a substantial
part of its assets, or (iii) any Collateral or any interest therein (whether in
one transaction or in a series of transactions) to any other Person other than
(v) the sale of Inventory in the ordinary course of business, (w) dispositions
of obsolete, surplus, worn or nonfunctional Equipment, (x) dispositions of cash
or Cash Equivalents not otherwise prohibited under this Agreement, (y) transfers
of Intellectual Property Rights as permitted under this Section 6.19 and
(z) dispositions of other assets in any given fiscal year in an aggregate amount
not to exceed $500,000 or $100,000 for any individual asset.  Borrower will not
liquidate, dissolve or suspend business operations.  Borrower will not transfer
any part of its ownership interest in any Intellectual Property Rights except
for transfers of Immaterial Intellectual Property Rights and licensing or
sublicensing of Intellectual Property Rights in the ordinary course of
Borrower’s business.  Borrower will not permit any agreement under which it has
licensed Licensed Intellectual Property, other than Immaterial Intellectual
Property Rights, to lapse.  If Borrower transfers any Intellectual Property
Rights for value, other than transfers of Immaterial Intellectual Property
Rights and licensing or sublicensing of Intellectual Property Rights in the
ordinary course of Borrower’s business, Borrower will pay over the proceeds to
Bank for application to the Obligations.  Bank hereby agrees that in the event
Borrower licenses or sublicenses any Intellectual Property Rights pursuant to
the terms of this Section 6.19, following written demand of Borrower, Bank shall
execute a form of estoppel reasonably acceptable in form and substance to
Borrower and Bank pursuant to which Bank shall represent that upon its exercise
of any of its rights or remedies hereunder or under any other Loan Document with
respect to the licensed or sublicensed Intellectual Property Rights, including a
foreclosure under any Security Document,

 

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so long as there shall then exist no breach, default, or event of default on the
part of the related licensee or sublicensee, as applicable, which breach,
default or event of default has continued beyond any cure periods provided in
the license or sublicense, Bank shall not extinguish or terminate the interest
of the licensee or sublicensee, as applicable, by reason of such foreclosure.

 

Section 6.20.                             Consolidation and Merger; Asset
Acquisitions.  Borrower will not consolidate with or merge into any Person, or
permit any other Person to merge into Borrower, or acquire (in a transaction
analogous in purpose or effect to a consolidation or merger) all or
substantially all the assets of any other Person.

 

Section 6.21.                             Sale and Leaseback.  Borrower will not
enter into any arrangement, directly or indirectly, with any other Person
whereby Borrower shall sell or transfer any real or personal property, whether
now owned or hereafter acquired, and then or thereafter rent or lease as lessee
such property or any part thereof or any other property which Borrower intends
to use for substantially the same purpose or purposes as the property being sold
or transferred.

 

Section 6.22.                             Restrictions on Nature of Business. 
Borrower will not engage in any line of business materially different from that
presently engaged in by Borrower and will not purchase, lease or otherwise
acquire assets not related to its business.

 

Section 6.23.                             Accounting.  Borrower will not adopt
any material change in accounting principles other than as required by GAAP. 
Borrower will not adopt, permit or consent to any change in its fiscal year.

 

Section 6.24.                             Discounts, etc.  Borrower will not
grant any discount, credit or allowance to any customer of Borrower or accept
any return of goods sold except in accordance with its historical practice or in
the ordinary course of business.  After notice from Bank, Borrower will not at
any time modify, amend, subordinate, cancel or terminate the obligation of any
Account Debtor or other obligor of Borrower.

 

Section 6.25.                             Plans.  Unless disclosed to Bank
pursuant to Section 5.12, neither Borrower nor any ERISA Affiliate will
(i) adopt, create, assume or become a party to any Pension Plan, (ii) incur any
obligation to contribute to any Multiemployer Plan, (iii) incur any obligation
to provide post-retirement medical or insurance benefits with respect to
employees or former employees (other than benefits required by law) or
(iv) amend any Plan in a manner that would materially increase its funding
obligations.

 

Section 6.26.                             Place of Business; Name.  Borrower
will not transfer its chief executive office or principal place of business, or
move, relocate, close or sell any business location.  Borrower will not permit
any tangible Collateral or any records pertaining to the Collateral to be
located in any state or area in which, in the event of such location, a
financing statement covering such Collateral would be required to be, but has
not in fact been, filed in order to perfect the Security Interest.  Borrower
will not change its name or jurisdiction of organization.

 

Section 6.27.                             Constituent Documents.  Borrower will
not amend its Constituent Documents in any respect that will result in a
Material Adverse Effect.

 

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Section 6.28.                             Transactions With Affiliates. 
Borrower will not directly or indirectly enter into or permit to exist any
transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower’s business, upon fair and reasonable terms, that
are fully disclosed to Bank, and that are no less favorable to Borrower than
would be obtained in an arm’s length transaction with a non-Affiliate.

 

Section 6.29.                             Use of Funds.  Borrower will not use
any of the proceeds of any credit extended hereunder except for the purposes
stated in Article II hereof.

 

Section 6.30.                             Subordination of Debt.  All
obligations of Borrower to any Guarantor or any Affiliate of Borrower (other
than amounts arising pursuant to the tax sharing agreement among the Companies
and Parent) shall be subordinated in right of repayment to all obligations of
Borrower to Bank, as evidenced by and subject to the terms of subordination
agreements in form and substance satisfactory to Bank.

 

Section 6.31.                             Management Fees.  The Companies,
collectively, will not pay management fees to Parent (including any fees or
other amounts due Parent pursuant to the Corporate Services Agreement, dated
November 15, 1999, between Parent and Borrower) in an amount greater than
$2,500,000 during any one fiscal year and, with respect solely to operating
expenses paid by Parent on behalf of the Companies in the ordinary course of
business of such parties and in line with historical practices, will reimburse
Parent only for the reasonable portion of any such expenses; provided that
during any Default Period, Borrower shall not make any payments of management
fees or expense reimbursements and any such items that would otherwise be paid
notwithstanding such Default Period shall be accrued until such time, if any,
following the expiration of such Default Period.  Any management fees paid by
Borrower to Parent shall be paid no more frequently than once per month.

 

Section 6.32.                             Maintenance of Accounts with Bank. 
Borrower shall, and shall cause each of the other Companies to, at all times
during the period commencing 90 days after the Closing Date and ending on the
Termination Date, maintain its primary depository and investment accounts with
Bank, including, without limitation, the Loan Account and the Lockbox Account,
pursuant to account agreements and terms mutually acceptably to Borrower and
Bank; provided, however, that until such time that Borrower and the other
Companies shall maintain such accounts with Bank, Borrower shall, and shall
cause each of the other Companies, to enter into one or more control agreements
with Bank and each other bank or financial institution at which Borrower or any
other Company maintains such accounts.

 

Section 6.33.                             Grower Contracts.  With respect to all
contracts with growers entered into by Borrower after the Closing Date, (i)
Borrower shall use its commercially reasonable efforts to ensure that  all such
contracts shall be Acceptable Grower Contracts and (ii) upon Bank’s request,
Borrower shall permit any officer, employee, attorney or accountant for Bank to
audit, review, make extracts from or copy any and all such grower contracts.

 

Section 6.34.                             Performance by Bank.  If Borrower at
any time fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue for a
period of ten calendar days after Bank gives Borrower written notice

 

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thereof (or in the case of the agreements contained in Sections 6.14 and 6.16,
immediately upon the occurrence of such failure, without notice or lapse of
time), Bank may, but need not, perform or observe such covenant or covenants on
behalf and in the name, place and stead of Borrower (or, at Bank’s option, in
Bank’s name) and may, but need not, take any and all other actions which Bank
may reasonably deem necessary to cure or correct such failure (including the
payment of taxes, the satisfaction of Liens, the performance of obligations owed
to Account Debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and Borrower shall thereupon
pay to Bank on demand the amount of all monies expended and all costs and
expenses (including reasonable attorneys’ fees and legal expenses) incurred by
Bank in connection with or as a result of the performance or observance of such
agreements or the taking of such action by Bank, together with interest thereon
from the date expended or incurred at the Default Rate applicable to Line of
Credit Advances.  To facilitate Bank’s performance or observance of such
covenants of Borrower, Borrower hereby irrevocably appoints Bank, or Bank’s
delegate, acting alone, as Borrower’s attorney in fact (which appointment is
coupled with an interest) with the right (but not the duty) from time to time to
create, prepare, complete, execute, deliver, endorse or file in the name and on
behalf of Borrower any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or endorsed
by Borrower under this Section 6.34.

 

ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES

 

Section 7.1.                                   Events of Default.  “Event of
Default”, wherever used herein, means any one of the following events:

 

(a)                                  Default in the payment of any Obligations
when they become due and payable;

 

(b)                                 Default in the performance, or breach, of
any covenant or agreement of Borrower contained in this Agreement or in any
other Loan Document, and (i) with respect to any such default under Section 6.2,
such default shall continue unremedied for a period of five (5) days, and
(ii) and with respect to any such default under Sections 6.13, 6.14, 6.15 and
6.18, such default shall continue unremedied for twenty (20) days after the
earlier of (A) the date upon which an Officer or Director of Borrower obtained
actual knowledge of such failure or (B) the date upon which written notice
thereof is given to Borrower by Bank.

 

(c)                                  A Change of Control shall occur;

 

(d)                                 An Insolvency Proceeding is commenced by
Borrower or any Guarantor;

 

(e)                                  An Insolvency Proceeding is commenced
against Borrower, or any Guarantor, and any of the following events occur: 
(a) Borrower or such Guarantor consents to the institution of such Insolvency
Proceeding against it, (b) the petition commencing the Insolvency Proceeding is
not timely controverted, (c) the petition commencing the Insolvency Proceeding
is not dismissed within sixty (60) calendar days of the date of the filing
thereof; provided, however,

 

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that, during the pendency of such period, Bank shall be relieved of its
obligations to extend credit hereunder, (d) an interim trustee is appointed to
take possession of all or any substantial portion of the properties or assets
of, or to operate all or any substantial portion of the business of, Borrower or
any such Guarantor, or (e) an order for relief shall have been entered therein;

 

(f)                                    Any material portion of Borrower’s or any
Guarantor’s assets is attached, seized, subjected to a writ or distress warrant,
levied upon, or comes into the possession of any third Person;

 

(g)                                 Borrower or any Guarantor is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs;

 

(h)                                 A notice of Lien, levy, or assessment is
filed of record with respect to any of Borrower’s or any Guarantor’s assets by
the United States, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any of Borrower’s or any Guarantor’s assets
valued in excess of $250,000 and the same is not paid before such payment is
delinquent; provided that Bank may at any time that any such Lien exists reserve
against the Borrowing Base in the amount of such Lien;

 

(i)                                     This Agreement or any other Loan
Document that purports to create a Lien, shall, for any reason, fail or cease to
create a valid and perfected and, except to the extent permitted by the terms
hereof or thereof, first priority Lien on or security interest in the Collateral
covered hereby or thereby; provided that any such event described in this clause
(i) shall not be an Event of Default for so long as Borrower is diligently
assisting Bank, as determined by Bank in its sole and absolute discretion, in
correcting the applicable problem;

 

(j)                                     Any provision of any Loan Document shall
at any time for any reason be declared to be null and void, or the validity or
enforceability thereof shall be contested by Borrower, or a proceeding shall be
commenced by Borrower, or by any Governmental Authority having jurisdiction over
Borrower, seeking to establish the invalidity or unenforceability thereof, or
Borrower shall deny that Borrower has any liability or obligation purported to
be created under any Loan Document;

 

(k)                                  Any representation or warranty made by
Borrower in this Agreement or in any other Loan Document, by any Guarantor in
any guaranty delivered to Bank, or by Borrower (or any of its Officers) or any
Guarantor in any agreement, certificate, instrument or financial statement or
other statement contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such guaranty shall prove to have been
incorrect in any material respect when deemed to be effective;

 

(l)                                     The rendering against Borrower of an
arbitration award, final judgment, decree or order for the payment of money in
excess of $500,000 over applicable insurance coverage and the continuance of
such arbitration award, judgment, decree or order unsatisfied and in effect for
any period of 60 consecutive days without a stay of execution;

 

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(m)                               A default under any bond, debenture, note or
other evidence of material Indebtedness of Borrower owed to any Person other
than Bank, or under any indenture or other instrument under which any such
evidence of Indebtedness has been issued or by which it is governed, or under
any material lease or other contract, and the expiration of the applicable
period of grace, if any, specified in such evidence of Indebtedness, indenture,
other instrument, lease or contract, and the effect of such failure, event or
condition is to cause, or permit the holder or holders thereof to cause,
Indebtedness of Borrower (other than the Obligations) (in an aggregate amount
exceeding $500,000 in the event that such Indebtedness is unsecured) to become
redeemable, due or otherwise payable (whether at scheduled maturity, by required
prepayment, upon acceleration or otherwise);

 

(n)                                 Any Reportable Event, which Bank determines
in good faith might constitute grounds for the termination of any Pension Plan
or for the appointment by the appropriate United States District Court of a
trustee to administer any Pension Plan, shall have occurred and be continuing 30
days after written notice to such effect shall have been given to Borrower by
Bank; or a trustee shall have been appointed by an appropriate United States
District Court to administer any Pension Plan; or the Pension Benefit Guaranty
Corporation shall have instituted proceedings to terminate any Pension Plan or
to appoint a trustee to administer any Pension Plan; or Borrower or any ERISA
Affiliate shall have filed for a distress termination of any Pension Plan under
Title IV of ERISA; or Borrower or any ERISA Affiliate shall have failed to make
any quarterly contribution required with respect to any Pension Plan under
Section 412(m) of the IRC, which Bank determines in good faith may by itself, or
in combination with any such failures that Bank may determine are likely to
occur in the future, result in the imposition of a Lien on Borrower’s assets in
favor of the Pension Plan; or any withdrawal, partial withdrawal, reorganization
or other event occurs with respect to a Multiemployer Plan which results or
could reasonably be expected to result in a material liability of Borrower to
the Multiemployer Plan under Title IV of ERISA.

 

(o)                                 An event of default shall occur under any
Security Document;

 

(p)                                 Borrower shall liquidate, dissolve,
terminate or suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell or attempt to sell all or substantially
all of its assets;

 

(q)                                 Default in the payment of any amount owed by
Borrower to Bank other than any Indebtedness arising hereunder;

 

(r)                                    Any Guarantor shall repudiate, purport to
revoke or fail to perform his obligations under his guaranty in favor of Bank,
any individual Guarantor shall die or any other Guarantor shall cease to exist;

 

(s)                                  Borrower shall take or participate in any
action which would be prohibited under the provisions of any Subordination
Agreement or make any payment on any indebtedness subordinated thereby that any
Person was not entitled to receive under the provisions of the Subordination
Agreement;

 

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(t)                                    The occurrence of any “Default” or “Event
of Default” under, and as defined in, any agreement between any Affiliate of
Borrower and Bank (but giving effect to any applicable grace or cure periods
with respect thereto);

 

(u)                                 An Event of Default shall occur under the
Cal Ex Loan Agreement; or

 

(v)                                 Any other event having a Material Adverse
Effect shall occur, and if such Material Adverse Effect is capable of cure, such
Material Adverse Effect shall continue uncured for twenty (20) days after the
earlier of (A) the date upon which an Officer or Director of Borrower obtained
actual knowledge of such Material Adverse Effect or (B) the date upon which
written notice thereof is given to Borrower by Bank.

 

Section 7.2.                                   Rights and Remedies.  Upon the
occurrence and during the continuation of an Event of Default, Bank may exercise
any or all of the following rights and remedies, all of which Borrower
acknowledges and agrees are commercially reasonable:

 

(a)                                  Bank may, by notice to Borrower, declare
the Credit Facility to be terminated, whereupon the same shall forthwith
terminate;

 

(b)                                 Bank may, by notice to Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations shall
become and be forthwith due and payable, without presentment, notice of
dishonor, protest or further notice of any kind, all of which Borrower hereby
expressly waives;

 

(c)                                  Bank may, without notice to Borrower and
without further action, apply any and all money owing by Bank to Borrower to the
payment of the Obligations;

 

(d)                                 Bank may settle or adjust disputes and
claims directly with Account Debtors for amounts and upon terms which Bank
considers advisable, and in such cases, Bank will credit the Obligations with
only the net amounts received by Bank in payment of such disputed Accounts after
deducting all expenses incurred or expended by Bank in connection therewith;

 

(e)                                  Bank may cause Borrower to hold all
returned Inventory in trust for Bank, segregate all returned Inventory from all
other assets of Borrower or in Borrower’s possession and conspicuously label
said returned Inventory as the property of Bank;

 

(f)                                    without notice to or demand upon Borrower
or any Guarantor, Bank may make such payments and do such acts as Bank considers
necessary or reasonable to protect its security interests in the Collateral. 
Borrower agrees to assemble the Collateral if Bank so requires, and to make the
Collateral available to Bank at a place that Bank may designate which is
reasonably convenient to both parties.  Borrower authorizes Bank to enter the
premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
Lien that in Bank’s determination appears to conflict with Bank’s Liens and to
pay all expenses incurred in connection therewith and to charge the Obligations
therefor.  With respect to any of Borrower’s owned or leased premises, Borrower
hereby grants Bank a license to enter into possession of such premises and to
occupy the same,

 

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without charge, in order to exercise any of Bank’s rights or remedies provided
herein, at law, in equity, or otherwise;

 

(g)                                 without notice to Borrower (such notice
being expressly waived), and without constituting a retention of any collateral
in satisfaction of an obligation (within the meaning of the UCC), Bank may set
off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Bank (including any amounts received in the Lockbox), or
(ii) Indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;

 

(h)                                 Bank may hold, as cash collateral, any and
all balances and deposits of Borrower held by Bank, and any amounts received in
the Lockbox, to secure the full and final repayment of all of the Obligations;

 

(i)                                     Bank may ship, reclaim, recover, store,
finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the
manner provided for herein) the Collateral;

 

(j)                                     Bank may sell the Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrower’s premises) as Bank determines is commercially reasonable.  It is not
necessary that the Collateral be present at any such sale;

 

(k)                                  Bank shall give notice of the disposition
of the Collateral as follows:

 

(i)                                     Bank shall give Borrower a notice in
writing of the time and place of public sale, or, if the sale is a private sale
or some other disposition other than a public sale is to be made of the
Collateral, the time on or after which the private sale or other disposition is
to be made; and

 

(ii)                                  The notice shall be personally delivered
or mailed, postage prepaid, to Borrower as provided in Section 8.3, at least 10
days before the earliest time of disposition set forth in the notice; no notice
needs to be given prior to the disposition of any portion of the Collateral that
is perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market;

 

(l)                                     Bank may credit bid and purchase at any
public sale;

 

(m)                               Bank may seek the appointment of a receiver or
keeper to take possession of all or any portion of the Collateral or to operate
the same and, to the maximum extent permitted by law, may seek the appointment
of such a receiver without the requirement of prior notice or a hearing;

 

(n)                                 If Bank sells any of the Collateral on
credit, the Obligations will be reduced only to the extent of payments actually
received.  If the purchaser fails to pay for the Collateral, Bank may resell the
Collateral and shall apply any proceeds actually received to the Obligations;

 

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(o)                                 Bank shall have no obligation to attempt to
satisfy the Obligations by collecting them from any third Person which may be
liable for them or any portion thereof, and Bank may release, modify or  waive
any collateral provided by any other Person as security for the Obligations or
any portion thereof, all without affecting Bank’s rights against Borrower. 
Borrower waives any right it may have to require Bank to pursue any third Person
for any of the Obligations;

 

(p)                                 Bank may make demand upon Borrower and,
forthwith upon such demand, Borrower will pay to Bank in immediately available
funds for deposit in the Special Account an amount equal to the aggregate
maximum amount available to be drawn under all Letters of Credit then
outstanding, assuming compliance with all conditions for drawing thereunder;

 

(q)                                 Bank may exercise and enforce its rights and
remedies under the Loan Documents; and

 

(r)                                    Bank may exercise any other rights and
remedies available to it by law or agreement.

 

Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 7.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.

 

Section 7.3.                                   Disclaimer of Warranties.  Bank
may sell the Collateral without giving any warranties as to the Collateral. 
Bank may specifically disclaim any warranties of title or the like.  This
procedure will not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral.

 

Section 7.4.                                   Compliance With Laws.  Bank may
comply with any applicable state or federal law requirements in connection with
a disposition of the Collateral, and Bank’s compliance therewith will not be
considered to adversely affect the commercial reasonableness of any sale of the
Collateral.

 

Section 7.5.                                   No Marshalling.  Bank shall be
under no obligation to marshal any assets in favor of Borrower, or against or in
payment of the Obligations or any other obligation owned to Bank by Borrower or
any other Person.

 

Section 7.6.                                   Borrower to Cooperate.  Upon the
exercise by Bank of any power, right, privilege, or remedy pursuant to this
Agreement which requires any consent, approval, registration, qualification, or
authorization of any Governmental Authority, Borrower agrees to execute and
deliver, or will cause the execution and delivery of, all applications,
certificates, instruments, assignments, and other documents and papers that Bank
or any purchaser of the Collateral may be required to obtain for such
governmental consent, approval, registration, qualification, or authorization.

 

Section 7.7.                                   Application of Proceeds.  All
proceeds realized as the result of any sale of the Collateral shall be applied
by Bank:

 

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FIRST to the costs, expenses, liabilities, obligations and attorneys’ fees
incurred by Bank in the exercise of its rights under this Agreement;

 

SECOND to the interest and fees due upon any of the Obligations; and

 

THIRD to the principal of the Obligations, in such order as Bank shall determine
in its sole discretion.  Any surplus shall be paid to Borrower or other Persons
legally entitled thereto; Borrower shall remain liable to Bank for any
deficiency.

 

Section 7.8.                                   Remedies Cumulative.  The rights
and remedies of Bank under this Agreement, the other Loan Documents, and all
other agreements contemplated hereby and thereby shall be cumulative.  Bank
shall have all other rights and remedies not inconsistent herewith as provided
under the UCC, by law, or in equity.  No exercise by Bank of any one right or
remedy shall be deemed an election of remedies, and no waiver by Bank of any
default on Borrower’s part shall be deemed a continuing waiver of any further
defaults.

 

Section 7.9.                                   Bank Not Liable For The
Collateral.  So long as Bank complies with the obligations, if any, imposed by
the UCC,  Bank shall not otherwise be liable or responsible in any way or manner
for:  (a) the safekeeping of the Collateral; (b) any loss or damage thereto
occurring or arising in any manner or fashion or from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever, in each
case, other than arising as a result of the gross negligence or willful
misconduct of Bank.  Borrower bears the risk of loss or damage of the
Collateral.

 

ARTICLE VIII
MISCELLANEOUS

 

Section 8.1.                                   No Waiver.  No failure or delay
by Bank in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents.

 

Section 8.2.                                   Amendments, Etc.  No amendment,
modification, termination or waiver of any provision of any Loan Document or
consent to any departure by Borrower therefrom or any release of a Security
Interest shall be effective unless the same shall be in writing and signed by
Bank, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No notice to or demand on
Borrower in any case shall entitle Borrower to any other or further notice or
demand in similar or other circumstances.

 

Section 8.3.                                   Addresses for Notices; Requests
for Accounting.  Except as otherwise expressly provided herein, all notices,
requests, demands and other communications provided for under the Loan Documents
shall be in writing and shall be (a) personally delivered, (b) sent by first
class United States mail, (c) sent by overnight courier of national reputation,
or (d) transmitted by telecopy, in each case addressed or telecopied to the
party to whom notice is being given at its address or telecopier number as set
forth below next to its signature or, as to

 

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each party, at such other address or telecopier number as may hereafter be
designated by such party in a written notice to the other party complying as to
delivery with the terms of this Section.  All such notices, requests, demands
and other communications shall be deemed to have been given on (a) the date
received if personally delivered, (b) when deposited in the mail if delivered by
mail, (c) the date sent if sent by overnight courier, or (d) the date of
transmission if delivered by telecopy, except that notices or requests to Bank
pursuant to any of the provisions of Article II shall not be effective until
received by Bank.  All requests under Section 9210 of the UCC (i) shall be made
in a writing signed by a person authorized under Section 2.1(d), (ii) shall be
personally delivered, sent by registered or certified mail, return receipt
requested, or by overnight courier of national reputation (iii) shall be deemed
to be sent when received by Bank and (iv) shall otherwise comply with the
requirements of Section 9210.  Borrower requests that Bank respond to each such
request which on its face appears to come from an authorized individual and
releases Bank from any liability for so responding.  Borrower shall pay Bank the
maximum amount allowed by law for responding to such requests.

 

Section 8.4.                                   Further Documents.  Borrower will
from time to time execute and deliver or endorse any and all instruments,
documents, conveyances, assignments, security agreements, financing statements,
control agreements and other agreements and writings that Bank may reasonably
request in order to secure, protect, perfect or enforce the Security Interest or
Bank’s rights under the Loan Documents (but any failure to request or assure
that Borrower executes, delivers or endorses any such item shall not affect or
impair the validity, sufficiency or enforceability of the Loan Documents and the
Security Interest, regardless of whether any such item was or was not executed,
delivered or endorsed in a similar context or on a prior occasion). 
Notwithstanding the foregoing, Borrower agrees to promptly (but in no event
later than thirty (30) days after the Closing Date) cause (i) Bank of America,
National Association to enter into one or more control agreements in form and
substance acceptable to Bank and Bank of America, National Association;
(ii) Borrower’s counsel to date-down their opinion to take into account receipt
of current certified copies of the articles of incorporation or certificates of
incorporation, as applicable, of Borrower, Cal Ex and Parent; and (iii) all
necessary parties to execute and deliver to Bank the acknowledgement and consent
regarding the assignment of Borrower’s interest in Apio Cooling.

 

Section 8.5.                                   Costs and Expenses.  Borrower
shall pay within fifteen (15) days after written demand all costs and expenses,
including reasonable attorneys’ fees, incurred by Bank in connection with the
Obligations, this Agreement, the Loan Documents, any Letter of Credit and any
other document or agreement related hereto or thereto, and the transactions
contemplated hereby, including all such costs, expenses and fees incurred in
connection with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the Obligations and
all such documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest.

 

Section 8.6                                      Indemnity.  In addition to the
payment of expenses pursuant to Section 8.5, Borrower shall indemnify, defend
and hold harmless Bank, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the “Indemnitees”) from and against any of the following
(collectively, “Indemnified Liabilities”),

 

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in each, other than arising as a result of the gross negligence or willful
misconduct of any Indemnitee:

 

(i)                                     any and all transfer taxes, documentary
taxes, assessments or charges made by any Governmental Authority by reason of
the execution and delivery of the Loan Documents or the making of the Advances;

 

(ii)                                  any claims, loss or damage to which any
Indemnitee may be subjected if any representation or warranty contained in
Section 5.14 proves to be incorrect in any respect or as a result of any
violation of the covenant contained in Section 6.13(b); and

 

(iii)                               any and all other liabilities, losses,
damages, penalties, judgments, suits, claims, costs and expenses of any kind or
nature whatsoever (including the reasonable fees and disbursements of counsel)
in connection with the foregoing and any other investigative, administrative or
judicial proceedings, whether or not such Indemnitee shall be designated a party
thereto, which may be imposed on, incurred by or asserted against any such
Indemnitee, in any manner related to or arising out of or in connection with the
Credit Facility and the Loan Documents or the use or intended use of the
proceeds of the Credits.

 

If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee’s request,
Borrower, or counsel designated by Borrower and satisfactory to the Indemnitee,
will resist and defend such action, suit or proceeding to the extent and in the
manner directed by the Indemnitee, at Borrower’s sole costs and expense.  Each
Indemnitee will use its best efforts to cooperate in the defense of any such
action, suit or proceeding.  If the foregoing undertaking to indemnify, defend
and hold harmless may be held to be unenforceable because it violates any law or
public policy, Borrower shall nevertheless make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.  Borrower’s obligation under this Section 8.6
shall survive the termination of this Agreement and the discharge of Borrower’s
other obligations hereunder.

 

Section 8.7.                                   Participants.  Borrower hereby
authorizes Bank to disclose to any assignee or any participant (either, a
“Transferee”) and any prospective Transferee any and all financial information
in Bank’s possession concerning Borrower which has been delivered to Bank by
Borrower pursuant to this Agreement or which has been delivered to Bank by
Borrower in connection with Bank’s credit evaluation prior to entering into this
Agreement.  Bank and its participants, if any, are not partners or joint
venturers, and Bank shall not have any liability or responsibility for any
obligation, act or omission of any of its participants.  All rights and powers
specifically conferred upon Bank may be transferred or delegated to any of
Bank’s participants, successors or assigns.

 

Section 8.8.                                   Advertising and Promotion. 
Borrower agrees that Bank may use Borrower’s name in advertising and promotional
materials, and in conjunction therewith, Bank may disclose the amount of the
Credit Facility and the purpose thereof.

 

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Section 8.9.                                   Execution in Counterparts;
Telefacsimile Execution.  This Agreement and the other Loan Documents may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same instrument.  Delivery of an
executed counterpart of this Agreement by telefacsimile shall be equally as
effective as delivery of an original executed counterpart of this Agreement. 
Any party delivering an executed counterpart of this Agreement by telefacsimile
also shall deliver an original executed counterpart of this Agreement but the
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.

 

Section 8.10.                             Retention of Borrower’s Records.  Bank
shall have no obligation to maintain any electronic records or any documents,
schedules, invoices, agings, or other papers delivered to Bank by Borrower or in
connection with the Loan Documents for more than twelve months after receipt by
Bank; provided, however, that Borrower shall not have any obligation to provide
Bank with duplicate records and documents after the same have been destroyed by
Bank.

 

Section 8.11.                             Binding Effect; Assignment; Complete
Agreement; Exchanging Information.  The Loan Documents shall be binding upon and
inure to the benefit of Borrower and Bank and their respective successors and
assigns, except that Borrower shall not have the right to assign its rights
thereunder or any interest therein without Bank’s prior written consent.  Bank
shall not assign any of its rights and obligations arising under this Agreement
or any Note without the prior written consent of Borrower, which consent shall
not be unreasonably withheld or delayed; provided, however, notwithstanding the
foregoing, Borrower’s consent to any such assignment shall not be required
(i) if a Default Period has occurred and is continuing, (ii) if Bank assigns
this Agreement in connection with any sale or all or any portion of its loan
portfolio, or (iii) if Bank assigns this Agreement to any Affiliate of Bank.  To
the extent permitted by law, Borrower waives and will not assert against any
assignee any claims, defenses or set-offs which Borrower could assert against
Bank.  This Agreement shall also bind all Persons who become a party to this
Agreement as Borrower.  This Agreement, together with the Loan Documents,
comprises the complete and integrated agreement of the parties on the subject
matter hereof and supersedes all prior agreements, written or oral, on the
subject matter hereof.  Without limiting Bank’s right to share information
regarding Borrower and its Affiliates with Bank’s participants, accountants,
lawyers and other advisors, Bank, Wells Fargo & Company, and all direct and
indirect subsidiaries of Wells Fargo & Company, may exchange any and all
information they may have in their possession regarding Borrower and its
Affiliates, and Borrower waives any right of confidentiality it may have with
respect to such exchange of such information.

 

Section 8.12.                             Severability of Provisions.  Any
provision of this Agreement which is prohibited or unenforceable shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof.

 

Section 8.13.                             Revival and Reinstatement of
Obligations.  If the incurrence or payment of the Obligations by Borrower or any
Guarantor or the transfer to Bank of any property should for any reason
subsequently be declared to be void or voidable under any state or federal law
relating to creditors’ rights, including provisions of the Bankruptcy Code
relating to fraudulent

 

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conveyances, preferences, or other voidable or recoverable payments of money or
transfers of property (collectively, a “Voidable Transfer”), and if Bank is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Bank is required or elects to
repay or restore, and as to all reasonable costs, expenses, and attorneys fees
of Bank related thereto, the liability of Borrower or any Guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.

 

Section 8.14.                             Headings.  Article, Section and
subsection headings in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.

 

Section 8.15.                             GOVERNING LAW.  THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS (EXCEPT AS OTHERWISE SPECIFIED THEREIN), AND THE RIGHTS AND
DUTIES OF THE PARTIES HERETO, SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.

 

Section 8.16.                             SUBMISSION TO JURISDICTION.  SUBJECT
TO SECTION 8.17:  (I) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT SOLELY IN THE COURTS OF THE
STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF
CALIFORNIA, AND, BY EXECUTION AND DELIVERY HEREOF, EACH OF BORROWER, CAL EX AND
BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF
THOSE COURTS; (II) EACH OF BORROWER, CAL EX AND BANK IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO.  EACH OF BORROWER, CAL EX AND BANK
WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE
MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.

 

Section 8.17.                             WAIVER OF JURY TRIAL.  EACH OF
BORROWER, CAL EX AND BANK, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRAIL BY JURY IN ANY ACTION,
PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION IN ANY WAY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS OR EVENTS REFERENCED HEREIN OR THEREIN OR CONTEMPLATED HEREBY OR
THEREBY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. 
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR ANY OTHER OF THE LOAN DOCUMENTS.  A COPY OF
THIS SECTION 8.17 MAY BE FILED WITH ANY COURT AS WRITTEN EVIDENCE OF THE WAIVER
OF THE RIGHT TO TRIAL BY JURY AND THE CONSENT TO TRIAL BY COURT.

 

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Section 8.18.                             Arbitration.

 

(a)                                  Arbitration.  The parties hereto agree,
upon demand by any party, to submit to binding arbitration all claims, disputes
and controversies between or among them (and their respective employees,
officers, directors, attorneys, and other agents), whether in tort, contract or
otherwise arising out of or relating to in any way (i) the loan and related Loan
Documents which are the subject of this Agreement and its negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, enforcement, default or
termination; or (ii) requests for additional credit.

 

(b)                                 Governing Rules.  Any arbitration proceeding
will (i) proceed in a location in California selected by the American
Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act
(Title 9 of the United States Code), notwithstanding any conflicting choice of
law provision in any of the documents between the parties; and (iii) be
conducted by the AAA, or such other administrator as the parties shall mutually
agree upon, in accordance with the AAA’s commercial dispute resolution
procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive
of claimed interest, arbitration fees and costs in which case the arbitration
shall be conducted in accordance with the AAA’s optional procedures for large,
complex commercial disputes (the commercial dispute resolution procedures or the
optional procedures for large, complex commercial disputes to be referred to, as
applicable, as the “Rules”).  If there is any inconsistency between the terms
hereof and the Rules, the terms and procedures set forth herein shall control. 
Any party who fails or refuses to submit to arbitration following a demand by
any other party shall bear all costs and expenses incurred by such other party
in compelling arbitration of any dispute.  Nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections afforded to
it under 12 U.S.C. §91 or any similar applicable state law.

 

(c)                                  No Waiver of Provisional Remedies,
Self-Help and Foreclosure.  The arbitration requirement does not limit the right
of any party to (i) foreclose against real or personal property collateral;
(ii) exercise self-help remedies relating to collateral or proceeds of
collateral such as setoff or repossession; or (iii) obtain provisional or
ancillary remedies such as replevin, injunctive relief, attachment or the
appointment of a receiver, before during or after the pendency of any
arbitration proceeding.  This exclusion does not constitute a waiver of the
right or obligation of any party to submit any dispute to arbitration or
reference hereunder, including those arising from the exercise of the actions
detailed in sections (i), (ii) and (iii) of this paragraph.

 

(d)                                 Arbitrator Qualifications and Powers.  Any
arbitration proceeding in which the amount in controversy is $5,000,000.00 or
less will be decided by a single arbitrator selected according to the Rules, and
who shall not render an award of greater than $5,000,000.00.  Any dispute in
which the amount in controversy exceeds $5,000,000.00 shall be decided by
majority vote of a panel of three arbitrators; provided however, that all three
arbitrators must actively participate in all hearings and deliberations.  The
arbitrator will be a neutral attorney licensed in the State of California or a
neutral retired judge of the state or federal judiciary of California, in either
case with a minimum of ten years experience in the substantive law applicable to
the subject matter of the dispute to be arbitrated.  The arbitrator will
determine whether or not an issue is arbitratable and will give effect to the
statutes of limitation in determining any claim.  In any arbitration proceeding
the arbitrator will decide (by documents only or with a hearing at the

 

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arbitrator’s discretion) any pre-hearing motions which are similar to motions to
dismiss for failure to state a claim or motions for summary adjudication.  The
arbitrator shall resolve all disputes in accordance with the substantive law of
California and may grant any remedy or relief that a court of such state could
order or grant within the scope hereof and such ancillary relief as is necessary
to make effective any award.  The arbitrator shall also have the power to award
recovery of all costs and fees, to impose sanctions and to take such other
action as the arbitrator deems necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil
Procedure or other applicable law.  Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.  The institution and
maintenance of an action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to arbitration if
any other party contests such action for judicial relief.

 

(e)                                  Discovery.  In any arbitration proceeding
discovery will be permitted in accordance with the Rules.  All discovery shall
be expressly limited to matters directly relevant to the dispute being
arbitrated and must be completed no later than 20 days before the hearing date
and within 180 days of the filing of the dispute with the AAA.  Any requests for
an extension of the discovery periods, or any discovery disputes, will be
subject to final determination by the arbitrator upon a showing that the request
for discovery is essential for the party’s presentation and that no alternative
means for obtaining information is available.

 

(f)                                    Class Proceedings and Consolidations. 
The resolution of any dispute arising pursuant to the terms of this Agreement
shall be determined by a separate arbitration proceeding and such dispute shall
not be consolidated with other disputes or included in any class proceeding.

 

(g)                                 Payment Of Arbitration Costs And Fees.  The
arbitrator shall award all costs and expenses of the arbitration proceeding.

 

(h)                                 Real Property Collateral; Judicial
Reference.  Notwithstanding anything herein to the contrary, no dispute shall be
submitted to arbitration if the dispute concerns indebtedness secured directly
or indirectly, in whole or in part, by any real property unless (i) the holder
of the mortgage, lien or security interest specifically elects in writing to
proceed with the arbitration, or (ii) all parties to the arbitration waive any
rights or benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and obligations of
the parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable.  If any
such dispute is not submitted to arbitration, the dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638.  A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA’s selection procedures.  Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.

 

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(i)                                     Miscellaneous.  To the maximum extent
practicable, the AAA, the arbitrators and the parties shall take all action
required to conclude any arbitration proceeding within 180 days of the filing of
the dispute with the AAA.  No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof, except for
disclosures of information by a party required in the ordinary course of its
business or by applicable law or regulation.  If more than one agreement for
arbitration by or between the parties potentially applies to a dispute, the
arbitration provision most directly related to the Loan Documents or the subject
matter of the dispute shall control.  This arbitration provision shall survive
termination, amendment or expiration of any of the Loan Documents or any
relationship between the parties.

 

Section 8.19.                             Confidentiality.  Bank shall hold all
confidential non-public information obtained by Bank in accordance with Bank’s
customary procedures for handling confidential information of this nature;
provided, however, Bank may disclose such confidential information (i) to its
examiners, Affiliates, outside auditors, counsel and other professional advisors
on a need to know basis, (ii) to any prospective participant or transferee of
Bank’s rights or obligations hereunder, provided such participant or transferee
agrees, prior to the disclosure of such information by Bank, to be bound by the
terms of this Section 8.19 with respect to such information and (iii) as
required or requested by any Governmental Authority or representative thereof or
pursuant to legal process; provided further that this duty shall expire if such
information becomes publicly available through no breach of this Section 8.19 by
Bank; provided further that unless specifically prohibited by applicable law or
court order, Bank shall use commercially reasonable efforts, prior to disclosure
thereof, to notify Borrower of the request for disclosure of such non-public
information (A) by a Governmental Authority or representative thereof or (B)
pursuant to legal process.  Notwithstanding anything herein to the contrary,
Bank may disclose to any and all Persons, without limitation of any kind, any
information with respect to the “tax treatment” and “tax structure” (in each
case, within the meaning of Treasury Regulation Section 1.6011-4) of the
transactions contemplated hereby and all materials of any kind (including
opinions or other tax analyses) that are provided Bank relating to such tax
treatment and tax structure; provided, however, that with respect to any
document or similar item that in either case contains information concerning the
tax treatment or tax structure of the transaction as well as other information,
this sentence shall only apply to such portions of the document or similar item
that relate to the tax treatment or tax structure of the transactions
contemplated hereby.

 

ARTICLE IX
JOINT AND SEVERAL LIABILITY

 

Section 9.1.                                   Joint and Several Liability.  Cal
Ex agrees that it is jointly and severally, directly and primarily liable to
Bank for payment, performance and satisfaction in full of the Obligations and
that such liability is independent of the duties, obligations, and liabilities
of Borrower.  Bank may bring a separate action or actions on each, any, or all
of the obligations of Borrower hereunder or the obligations of Cal Ex hereunder,
whether action is brought against Borrower or whether Borrower is joined in such
action.  In the event that Borrower fails to make any payment of any obligation
hereunder on or before the due date thereof, Cal Ex immediately shall cause such
payment to be made or each of such obligations to be made or each of such
obligations to be performed, kept, observed, or fulfilled.

 

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Section 9.2.                                   Primary Obligation; Waiver of
Marshalling.  The obligations of Borrower under the Loan Documents are a primary
and original obligation of Cal Ex, are not the creation of a surety
relationship, and are an absolute, unconditional, and continuing promise of
payment and performance which shall remain in full force and effect without
respect to future changes in conditions, including any change of law or any
invalidity or irregularity with respect to the Loan Documents.  Cal Ex agrees
that its liability under the Loan Documents shall be immediate and shall not be
contingent upon the exercise or enforcement by Bank of whatever remedies they
may have against Borrower, or the enforcement of any lien or realization upon
any security Bank may at any time possess.  Cal Ex consents and agrees that Bank
shall be under no obligation to marshal any assets of Borrower against or in
payment of any or all of the Obligations.

 

Section 9.3.                                   Financial Condition of Borrower. 
Cal Ex acknowledges that it is presently informed as to the financial condition
of Borrower and of all other circumstances which a diligent inquiry would reveal
and which bear upon the risk of nonpayment of the Obligations.  Cal Ex hereby
covenants that it will continue to keep informed as to the financial condition
of Borrower, the status of Borrower and of all circumstances which bear upon the
risk of nonpayment of the Obligations.  Absent a written request from Cal Ex to
Bank for information, Cal Ex hereby waives any and all rights it may have to
require Bank to disclose to Cal Ex any information which Bank may now or
hereafter acquire concerning the condition or circumstances of Borrower and the
Obligations.

 

Section 9.4.                                   Continuing Liability.  The
liability of Cal Ex hereunder includes the obligations of Borrower hereunder
arising under successive transactions continuing, compromising, extending,
increasing, modifying, releasing, or renewing the such obligations, changing the
interest rate, payment terms, or other terms and conditions thereof, or creating
new or additional obligations after prior obligations have been satisfied in
whole or in part.  To the maximum extent permitted by law, Cal Ex hereby waives
any right to revoke its liability under this Agreement and the Loan Documents as
to future indebtedness, and in connection therewith, Cal Ex hereby waives any
rights it may have under Section 2815 of the California Civil Code.

 

Section 9.5.                                   Additional Waivers.  Cal Ex
absolutely, unconditionally, knowingly, and expressly waives:

 

(a)                                  (1)  notice of acceptance hereof;
(2) notice of any loans or other financial accommodations made or extended under
the Loan Documents or the creation or existence of any obligations under this
Agreement; (3) notice of the amount of the Obligations, subject, however, to Cal
Ex’s right to make inquiry of Bank to ascertain the amount of such obligations
at any reasonable time; (4) notice of any adverse change in the financial
condition of Borrower or of any other fact that might increase Cal Ex’s risk
hereunder; (5) notice of presentment for payment, demand, protest, and notice
thereof as to any instruments among the Loan Documents; (6) notice of any
“Default” or “Event of Default” under the Loan Documents; and (7) all other
notices (except if such notice is specifically required to be given to Cal Ex
hereunder or under the other Loan Documents) and demands to which Cal Ex might
otherwise be entitled;

 

(b)                                 its right, under Sections 2845 or 2850 of
the California Civil Code, or otherwise, to require Bank to institute suit
against, or to exhaust any rights and remedies which Bank has or

 

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may have against, Borrower or any third party, or against any collateral for the
Obligations provided by Borrower, or any third party.  Cal Ex further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Obligations shall have been fully and finally performed and
indefeasibly paid) of Borrower or by reason of the cessation from any cause
whatsoever of the liability of Borrower in respect thereof;

 

(c)                                  (1)  any rights to assert against Bank any
defense (legal and equitable), set-off, counterclaim, or claim which Cal Ex may
now or at any time hereafter have against Borrower or any other party liable to
Bank; (2) any defense, set-off, counterclaim, or claim, of any kind or nature,
arising directly or indirectly from the present or future lack of perfection,
sufficiency, validity, or enforceability of the Obligations or any security
therefor; (3) any defense Cal Ex has to performance hereunder, and any right Cal
Ex has to be exonerated provided by Sections 2819, 2822, or 2825 of the
California Civil Code, or otherwise, arising by reason of:  the impairment or
suspension of Bank’s rights or remedies against Borrower; the alteration by Bank
of the Obligations; any discharge of Borrower’s obligations to Bank by operation
of law as a result of Bank’s intervention or omission; or the acceptance by Bank
of anything in partial satisfaction of the Obligations; and (4) the benefit of
any statute of limitations affecting Cal Ex’s liability hereunder or the
enforcement thereof, and any act which shall defer or delay the operation of any
statute of limitations applicable to the Obligations shall similarly operate to
defer or delay the operation of such statute of limitations applicable to Cal
Ex’s liability hereunder;

 

(d)                                 any defense arising by reason of or deriving
from (i) any claim or defense based upon an election of remedies by Bank
including any defense based upon an election of remedies by Bank under the
provisions of Sections 580a, 580b, 580d, and 726 of the California Code of Civil
Procedure or any similar law of California or any other jurisdiction; or
(ii) any election by Bank under Section 1111(b) of the Bankruptcy Code to limit
the amount of, or any collateral securing, its claim against Cal Ex.  Pursuant
to California Civil Code Section 2856(b):

 

CAL EX WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY
BANK, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE
WITH RESPECT TO SECURITY FOR A GUARANTEED OBLIGATION, HAS DESTROYED CAL EX’S
RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST BORROWER BY THE OPERATION OF
SECTION 580(D) OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR OTHERWISE;

 

(e)                                  all rights and defenses that Cal Ex may
have because the Obligations.  This means, among other things:  (1) Bank may
collect from Cal Ex without first foreclosing on any real or personal property
collateral pledged by Borrower; and (2) if Bank forecloses on any real property
collateral pledged by Borrower:  (A) the amount of the Obligations may be
reduced only by the price for which that collateral is sold at the foreclosure
sale, even if the collateral is worth more than the sale price; and (B) Bank may
collect from Cal Ex even if Bank, by foreclosing on the real property
collateral, has destroyed any right Cal Ex may have to collect from Borrower. 
This is an unconditional and irrevocable waiver of any rights and defenses Cal
Ex may have because the Obligations.  These rights and defenses include, but are
not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or
726 of the California Code of Civil Procedure;

 

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(f)                                    (i)  any right of subrogation Cal Ex has
or may have as against Borrower with respect to the Obligations; (ii) any right
to proceed against Borrower or any other Person, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims, whether direct or indirect, liquidated or contingent, whether arising
under express or implied contract or by operation of law, which Cal Ex may now
have or hereafter have as against Borrower with respect to the Obligations; and
(iii) any right to proceed or seek recourse against or with respect to any
property or asset of Borrower; and

 

(g)                                 WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, CAL EX HEREBY ABSOLUTELY,
KNOWINGLY, UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO ASSERT ANY
AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR
MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815, 2819, 2820,
2821, 2822, 2825, 2839, 2845, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL
PROCEDURE SECTIONS 580A, 580B, 580C, 580D, AND 726, CALIFORNIA UNIFORM
COMMERCIAL CODE SECTIONS 3116, 3118, 3119, 3419, AND 3605, AND CHAPTER 2 OF
TITLE 14 OF PART 4 OF DIVISION 3 OF THE CALIFORNIA CIVIL CODE.

 

Section 9.6.                                   Settlement or Releases.  Cal Ex
consents and agrees that without notice to or by Cal Ex, and without affecting
or impairing the liability of Cal Ex hereunder, Bank may, by action or inaction:

 

(a)                                  compromise, settle, extend the duration or
the time for the payment of, or discharge the performance of, or may refuse to
or otherwise not enforce the Loan Documents, or any part thereof, with respect
to Borrower or any guarantor under this Agreement;

 

(b)                                 release Borrower or any guarantor under this
Agreement or grant other indulgences to Borrower or any guarantor under this
Agreement in respect thereof;

 

(c)                                  amend or modify in any manner and at any
time (or from time to time) any of the Loan Documents; or

 

(d)                                 release or substitute any guarantor under
this Agreement, if any, of the obligations hereunder, or enforce, exchange,
release, or waive any security for the such obligations or any other guaranty of
such obligations, or any portion thereof.

 

Section 9.7.                                   No Election.  Bank shall have the
right to seek recourse against Cal Ex to the fullest extent provided for herein,
and no election by Bank to proceed in one form of action or proceeding, or
against any party, or on any obligation, shall constitute a waiver of Bank’s
right to proceed in any other form of action or proceeding or against other
parties unless Bank has expressly waived such right in writing.  Specifically,
but without limiting the generality of the foregoing, no action or proceeding by
Bank under the Loan Documents shall serve to diminish the liability of Cal Ex
under the Loan Documents except to the extent that Bank finally and
unconditionally shall have realized indefeasible payment if full by such action
or proceeding.

 

Section 9.8.                                   Indefeasible Payment.  The
obligations under this Agreement shall not be considered indefeasibly paid
unless and until all payments to Bank are no longer subject to any

 

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right on the part of any Person, including Borrower, Borrower as a debtor in
possession, or any trustee (whether appointed pursuant to the Bankruptcy Code,
or otherwise) of any of Borrower’s assets to invalidate or set aside such
payments or to seek to recoup the amount of such payments or any portion
thereof, or to declare same to be fraudulent or preferential.  Upon such full
and final performance and indefeasible payment of the obligations under this
Agreement, Bank shall have no obligation whatsoever to transfer or assign its
interest in this Agreement and the Loan Documents to Cal Ex.  In the event that,
for any reason, any portion of such payments to Bank is set aside or restored,
whether voluntarily or involuntarily, after the making thereof, then the
obligation intended to be satisfied thereby shall be revived and continued in
full force and effect as if said payment or payments had not been made, and Cal
Ex shall be liable for the full amount Bank is required to repay plus any and
all costs and expenses (including attorneys’ fees and attorneys’ fees incurred
in proceedings brought under the Bankruptcy Code) paid by Bank in connection
therewith.

 

Section 9.9.                                   Single Loan Account.  At the
request of Borrower and Cal Ex, to facilitate and expedite the administration
and accounting processes and procedures of the Credits and the Cal Ex Line of
Credit, Bank has agreed, in lieu of maintaining separate loan accounts on Bank’s
books in the name of Borrower and Cal Ex, that Bank may maintain a single loan
account under the name of all of both Borrower and Cal Ex (the “Loan Account”). 
The Credits and the Cal Ex Line of Credit shall be made jointly and severally to
Borrower and Cal Ex and shall be charged to the Loan Account, together with all
interest and other charges as permitted under and pursuant to this Agreement and
the Cal Ex Loan Agreement.  The Loan Account shall be credited with all
repayments of Obligations and obligations under the Cal Ex Loan Agreement
received by Bank, on behalf of Borrower and Cal Ex, from Borrower and Cal Ex
pursuant to the terms of this Agreement and the Cal Ex Loan Agreement.

 

Section 9.10.                             Apportionment of Proceeds of Loans. 
Borrower and Cal Ex expressly agree and acknowledge that Bank shall have no
responsibility to inquire into the correctness of the apportionment or
allocation of or any disposition by either Borrower or Cal Ex of (a) the
Advances or the Cal Ex Line of Credit, or (b) any of the expenses and other
items charged to the Loan Account pursuant to this Agreement and the Cal Ex Loan
Agreement.  The Advances and the Cal Ex Line of Credit and all such expenses and
other items shall be made for the collective, joint, and several account of
Borrower and Cal Ex and shall be charged to the Loan Account.

 

Section 9.11                                Bank Held Harmless.  Borrower and
Cal Ex agree and acknowledge that the administration of this Agreement and the
Cal Ex Loan Agreement on a combined basis, as set forth herein, is being done as
an accommodation to Borrower and Cal Ex, and at their request, and that Bank
shall incur no liability to Borrower or Cal Ex as a result thereof.  To induce
Bank to do so, and in consideration thereof, Borrower and Cal Ex hereby agree to
indemnify and hold Bank harmless from and against any and all liability,
expense, loss, damage, claim of damage, or injury, made against Bank by
Borrower, Cal Ex or any other person or entity, arising from or incurred by
reason of such administration of this Agreement and the Cal Ex Loan Agreement.

 

Section 9.12.                             Borrower and Cal Ex’s Integrated
Operations.  Borrower and Cal Ex represent and warrant to Bank that the
collective administration of the Advances and the Cal Ex Line of Credit is being
undertaken by Bank pursuant to this Agreement because Borrower and

 

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Cal Ex are integrated in their operation and administration and require
financing on a basis permitting the availability of credit from time to time to
each of them.  Borrower will derive benefit, directly and indirectly, from such
collective administration and credit availability because the successful
operation of Borrower is enhanced by the continued successful performance of the
integrated group.

 

[Signatures on Next Page]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
above written.

 

Apio, Inc.

APIO, INC.

4575 West Main Street

 

Guadalupe, CA 93434

 

Telecopier: (805) 249-6257

By:

 

 

Attention: Kathleen Morgan

 

Gregory S. Skinner

e-mail: kmorgan@apioinc.com

 

Chief Financial Officer

 

 

 

 

Cal Ex Trading Company

CAL EX TRADING COMPANY

4575 West Main Street

 

Guadalupe, CA 93434

 

Telecopier: (805) 249-6257

By:

 

 

Attention: Kathleen Morgan

 

Gregory S. Skinner

e-mail: kmorgan@apioinc.com

 

Chief Financial Officer

 

 

 

 

Wells Fargo Bank, N.A.

WELLS FARGO BANK, NATIONAL ASSOCIATION

Peninsula RCBO

 

400 Hamilton Avenue, P.O. Box 150

 

Palo Alto, CA 94302

By:

 

 

Telecopier: (650) 328-0814

 

Jill B. Ta

Attention: Jill Ta

 

Senior Vice President

e-mail: tajillb@wellsfargo.com

 

 

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Table of Exhibits and Schedules

 

 

 

 

Exhibit A

Form of Line of Credit Note

 

 

 

 

Exhibit B

Form of Term Commitment Note

 

 

 

 

Exhibit C

Form of Term Note

 

 

 

 

Exhibit D

Form of Borrowing Base Certificate

 

 

 

 

Exhibit E

Form of Compliance Certificate

 

 

 

 

Exhibit F

Premises

 

 

 

 

Schedule 5.1

Trade Names, Chief Executive Office, Principal Place of Business, and Locations
of Collateral

 

 

 

 

Schedule 5.2

Capitalization and Organizational Chart

 

 

 

 

Schedule 5.5

Subsidiaries

 

 

 

 

Schedule 5.11

Intellectual Property Disclosures

 

 

 

 

Schedule 6.3

Permitted Liens

 

 

 

 

Schedule 6.4

Permitted Indebtedness and Guaranties

 

 

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