Document:

Exhibit
10.50

 

EXECUTION
COPY

 

 

 

CREDIT AND SECURITY
AGREEMENT

 

BY AND BETWEEN

 

APIO, INC.,

 

as Borrower

 

and

 

WELLS FARGO BUSINESS
CREDIT, INC.,

 

as Lender

 

August 20, 2003

 

 

 

 

Table of Contents

 

	
  ARTICLE I

  	
  DEFINITIONS

  
	
   

  
	
  Section 1.1

  	
  Definitions

  
	
  Section
  1.2

  	
  Other
  Definitional Terms; Rules of Interpretation

  
	
   

  	
   

  
	
  ARTICLE II

  	
  AMOUNT AND TERMS OF THE CREDIT FACILITY

  
	
   

  
	
  Section
  2.1

  	
  Revolving Advances.

  
	
  Section 2.2

  	
  Procedures for
  Requesting Advances

  
	
  Section
  2.3

  	
  Intentionally Omitted.

  
	
  Section
  2.4

  	
  Increased
  Costs; Capital Adequacy; Funding Exceptions.

  
	
  Section 2.5

  	
  Letters of Credit.

  
	
  Section 2.6

  	
  Special Account

  
	
  Section
  2.7

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

  
	
  Section
  2.8

  	
  Obligations Absolute

  
	
  Section
  2.9

  	
  Equipment Advances.

  
	
  Section
  2.10

  	
  Payment of Equipment Note

  
	
  Section 2.11

  	
  Intentionally
  Omitted.

  
	
  Section
  2.12

  	
  Interest;
  Minimum Interest Charge; Default Interest; Participations; Clearance Days; Usury.

  
	
  Section 2.13

  	
  Fees.

  
	
  Section
  2.14

  	
  Time
  for Interest Payments; Payment on Non-Banking Days; Computation of Interest
  and Fees.

  
	
  Section
  2.15

  	
  Lockbox;
  Collateral Account; Application of Payments.

  
	
  Section
  2.16

  	
  Voluntary
  Prepayment; Termination of the Credit Facility by Borrower

  
	
  Section
  2.17

  	
  Mandatory Prepayment

  
	
  Section 2.18

  	
  Revolving Advances
  to Pay Obligations

  
	
  Section 2.19

  	
  Use of Proceeds

  
	
  Section 2.20

  	
  Liability Records

  
	
   

  	
   

  
	
  ARTICLE III

  	
  SECURITY INTEREST; OCCUPANCY; SETOFF

  
	
   

  
	
  Section 3.1

  	
  Grant of Security Interest

  
	
  Section
  3.2

  	
  Notification
  of Account Debtors and Other Obligors

  
	
  Section
  3.3

  	
  Assignment of Insurance

  
	
  Section 3.4

  	
  Occupancy

  
	
  Section 3.5

  	
  License

  
	
  Section
  3.6

  	
  Financing Statement

  
	
  Section 3.7

  	
  Setoff

  
	
  Section 3.8

  	
  Power of Attorney.

  
	
   

  	
   

  
	
  ARTICLE IV  

  	
  CONDITIONS OF LENDING

  
	
   

  
	
  Section
  4.1

  	
  Conditions
  Precedent to the Initial Advances and Letter of Credit

  
			

 

i

 

	
  Section
  4.2

  	
  Conditions
  Precedent to All Advances and Letters of Credit

  
	
   

  	
   

  
	
  ARTICLE V

  	
  REPRESENTATIONS AND WARRANTIES

  
	
   

  
	
  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.

  
	
  Section 5.12

  	
  Plans

  
	
  Section 5.13

  	
  Default

  
	
  Section
  5.14

  	
  Environmental Matters.

  
	
  Section
  5.15

  	
  Submissions to Lender

  
	
  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.

  
	
   

  	
   

  
	
  ARTICLE VI

  	
  COVENANTS

  
	
   

  
	
  Section
  6.1

  	
  Reporting Requirements

  
	
  Section 6.2

  	
  Financial
  Covenants.

  
	
  Section 6.3

  	
  Permitted Liens;
  Financing Statements.

  
	
  Section 6.4

  	
  Indebtedness

  
	
  Section 6.5

  	
  Guaranties

  
	
  Section 6.6

  	
  Investments and
  Subsidiaries

  
	
  Section 6.7

  	
  Dividends and Distributions

  
	
  Section 6.8

  	
  Salaries

  
	
  Section
  6.9

  	
  Key Person Life Insurance

  
	
  Section
  6.10

  	
  Books and
  Records; Inspection and Examination

  
	
  Section
  6.11

  	
  Account Verification

  
	
  Section
  6.12

  	
  Compliance with Laws.

  
	
  Section 6.13

  	
  Payment of Taxes and
  Other Claims

  
	
  Section 6.14

  	
  Maintenance of Properties.

  
	
  Section 6.15

  	
  Insurance

  
	
  Section 6.16

  	
  Preservation of Existence

  
	
  Section
  6.17

  	
  Delivery of Instruments, etc.

  
	
  Section
  6.18

  	
  Sale
  or Transfer of Assets; Suspension of Business Operations

  
	
  Section
  6.19

  	
  Consolidation
  and Merger; Asset Acquisitions

  
	
  Section
  6.20

  	
  Sale and Leaseback

  
			

 

ii

 

	
  Section 6.21

  	
  Restrictions on
  Nature of Business

  
	
  Section 6.22

  	
  Accounting

  
	
  Section 6.23

  	
  Discounts,
  etc.

  
	
  Section 6.24

  	
  Plans

  
	
  Section 6.25

  	
  Place of Business; Name

  
	
  Section
  6.26

  	
  Constituent Documents

  
	
  Section 6.27

  	
  Transactions With
  Affiliates.

  
	
  Section
  6.28

  	
  Performance by Lender

  
	
   

  
	
  ARTICLE VII

  	
  EVENTS OF DEFAULT, RIGHTS AND REMEDIES

  
	
   

  
	
  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

  	
  Lender Not Liable For The Collateral.

  
	
   

  	
   

  
	
  ARTICLE VIII

  	
  MISCELLANEOUS

  
	
   

  
	
  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; Jurisdiction, Venue;
  Waiver of Jury Trial.

  
	
   

  
	
  ARTICLE IX

  	
  JOINT AND SEVERAL LIABILITY

  
	
   

  
	
  Section 9.1

  	
  Joint and Several Liability

  
	
  Section 9.2

  	
  Primary Obligation; Waiver of
  Marshalling

  
	
  Section 9.3

  	
  Financial Condition of Cal Ex

  
	
  Section 9.4

  	
  Continuing Liability

  
	
  Section 9.5

  	
  Additional Waivers

  
	
  Section 9.6

  	
  Settlement or Releases

  
	
  Section 9.7

  	
  No Election

  
			

 

iii

 

	
  Section 9.8

  	
  Indefeasible Payment

  
	
  Section 9.9

  	
  Single Loan Account

  
	
  Section 9.10

  	
  Apportionment of Proceeds of Loans

  
	
  Section 9.11

  	
  Lender Held Harmless

  
	
  Section 9.12

  	
  Borrower and Cal Ex’s Integrated
  Operations

  

 

iv

 

CREDIT
AND SECURITY AGREEMENT

 

Dated as of August 20,
2003

 

APIO, INC., a Delaware corporation (“Borrower”), and
WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (“Lender”), 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:

 

“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 Revolving Advance or an Equipment
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 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 and Security Agreement.

 

“Aggregate Face Amount” has the meaning given in
Sections 2.13(c).

 

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

 

1

 

“Availability” means the difference of (i) the
Borrowing Base and (ii) the sum of (A) the outstanding principal balance of the
Revolving Note, and (B) the L/C Amount; less the amount of outstanding Cal Ex
Obligations.

 

“Banking Day” means a day on which the Federal Reserve
Bank of San Francisco is open for business.

 

“Bankruptcy Code” means the United States Bankruptcy
Code, as in effect from time to time.

 

“Base Rate” means the rate of interest publicly
announced from time to time by Wells Fargo Bank at its principal office in San
Francisco as its “prime rate”, with the understanding that the “prime rate” is
one of Wells Fargo Bank’s base rates (not necessarily the lowest of such rates)
and serves as the basis upon which effective rates of interest are calculated
for loans making reference thereto.

 

“Book Net Worth” means the aggregate of the common and
preferred stockholders’ equity in the Companies, determined in accordance with
GAAP.

 

“Borrowing Base” means at any time the lesser of:

 

(a)                                  the
Maximum Line; or

 

(b)                                 85%
of Eligible Accounts less the amount of (x) the Dilution Reserve, if any, (y)
the Grower Reserve, and (z) the Extra Reserve; provided, however,
Lender may reduce the advance rates or create additional reserves against the Eligible
Accounts, in its sole and absolute discretion, without declaring an Event of
Default if it reasonably determines that there has occurred a Material Adverse
Effect.

 

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

 

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

 

“Cal Ex Loan Agreement” means that certain Credit and
Security Agreement, dated as of even date herewith, between Cal Ex and Lender.

 

“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.

 

2

 

“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) 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.

 

(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.

 

(c)                                  Either
Nick Tompkins or Gregory S. Skinner shall cease to actively manage Borrower’s
day-to-day business activities, unless a successor reasonably acceptable to
Lender has been identified within 120 days of such cessation and is in place
and actively so managing within 180 days of the date of such cessation.

 

“Collateral” means all of Borrower’s Accounts, chattel
paper, deposit accounts, documents, Equipment, General Intangibles, goods,
instruments, Inventory, Investment Property, letter-of-credit rights, letters
of credit, all sums on deposit in any Collateral Account, and any items in any
Lockbox; together with (i) all substitutions and replacements for and products
of any of the foregoing; (ii) in the case of all goods, all accessions; (iii)
all accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any goods; (iv) all warehouse
receipts, bills of lading and other documents of title now or hereafter
covering such goods; (v) all collateral subject to the Lien of any Security
Document; (vi) any money, or other assets of Borrower that now or hereafter
come into the possession, custody, or control of Lender; (vii) all sums on
deposit in the Special Account; and (viii) proceeds of any and all of the
foregoing.

 

“Collateral Account” means the “Lender Account” as
defined in the Lockbox and Collection Account Agreement.

 

“Combined Advances” means the Advances and the Cal Ex
Loans.

 

“Combined L/C Amount” means the L/C Amount and the L/C
Amount (as defined in the Cal Ex Loan Agreement).

 

“Commitment” means Lender’s commitment to make
Advances to, and to cause the Issuer to issue Letters of Credit for the account
of, Borrower pursuant to Article II.

 

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

 

3

 

“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.

 

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

 

“Current Maturities of Long Term Debt” means, as of
the date of determination, the amount of the Companies’ consolidated long-term
Indebtedness and capitalized leases, which became due during the applicable
period ending on such date.  For the
purposes of this calculation, any Indebtedness with payment terms in excess of
90 days, the payment will be adjusted to a 90 day payment equivalent.  In addition, the applicable payment related
to the IBM capital lease that is supported by a letter of credit at Bank of
America will not be included.

 

“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.

 

“Debt Service Coverage Ratio” means, as of the date of
determination, the ratio of (i) the sum of (A) Funds from Operations and (B)
Interest Expense minus (C) unfinanced Capital Expenditures to (ii) the
sum of (A) Current Maturities of Long Term Debt and (B) Interest Expense.

 

“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 Lender
in its sole and absolute discretion.

 

“Default Rate” means an annual interest rate equal to
three percent (3%) over the Floating Rate, which interest rate shall change
when and as the Floating Rate changes.

 

“Dilution” means, as of any date of determination, a
percentage, based upon the experience of the calendar year-to-date period
ending on the date of determination, that is the result of dividing the Dollar
amount of (a) bad debt write-downs, discounts, advertising allowances, credits,
or other dilutive items with respect to the Accounts during such period, by (b)
Borrower’s sales during such period (excluding extraordinary items) plus the
Dollar amount of clause (a).

 

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

 

“Director” means a director of Borrower.

 

4

 

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

 

“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, 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 Lender in Lender’s sole and absolute
discretion to address the results of any audit performed by Lender 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)                                     That
portion of Accounts unpaid 90 days or more after the invoice date;

 

(ii)                                  That
portion of Accounts that is disputed or subject to a claim of offset or other
potential credit and/or Lien (including any Liens imposed under PACA and any
Producer’s Lien Law) or a contra account;

 

(iii)                               That portion of Accounts
not yet earned by the final delivery of goods or rendition of services, as
applicable, by Borrower to the customer, including progress billings;

 

(iv)                              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 Lender, and filed in the United States Copyright
Office;

 

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

 

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

 

(vii)                           Accounts not subject to a
duly perfected security interest in Lender’s favor or which are subject to any
Lien other than a Permitted Lien;

 

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

 

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

 

(x)                                   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 15% of the aggregate amount of all Accounts (except in the case of each
of Walmart and Sam’s Club, in which case such percentage shall be 25% in the
aggregate for both Account Debtors, and except in the case of Costco, in which
case such percentage shall be 25%);

 

5

 

exceptions to such limit may be granted by Lender on a case by case
basis, in Lender’s sole and absolute discretion;

 

(xi)                                Accounts
owed by an Account Debtor (or an Affiliate of such Account Debtor), regardless
of whether otherwise eligible, if 25% or more of the total amount due under
Accounts from such Account Debtor is ineligible under clauses (i) or (ii)
above;

 

(xii)                             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;

 

(xiii)                          Accounts that are not payable
in Dollars;

 

(xiv)                         Accounts with respect to which
the Account Debtor either (i) does not maintain its chief executive office in
the United States or Canada, or (ii) is not organized under the laws of the
United States or Canada, or any state or province thereof, or (iii) is the government of 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 (y) the Account is
supported by an irrevocable letter of credit satisfactory to Lender (as to
form, substance, and issuer or domestic confirming bank) that has been
delivered to Lender and is directly drawable by Lender, or (z) the Account is
covered by credit insurance in form, substance, and amount, and by an insurer,
satisfactory to Lender;

 

(xv)                            Accounts
with respect to which the Account Debtor is either (i) the United States or any
department, agency, or instrumentality of the United States (exclusive,
however, of Accounts with respect to which Borrower has complied, to the
reasonable satisfaction of Lender, with the Assignment of Claims Act, 31 USC §
3727), or (ii) any state of the United States (exclusive, however, of (y)
Accounts owed by any state that does not have a statutory counterpart to the
Assignment of Claims Act, or (z) Accounts owed by any state that does have a
statutory counterpart to the Assignment of Claims Act as to which Borrower has
complied to Lender’s satisfaction);

 

(xvi)                         From and after October 13,
2003, 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 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; and

 

(xvii)                      Upon telephonic notice to
Borrower (other than voicemail), Accounts, or portions thereof, of poor quality
credit or otherwise deemed ineligible by Lender in its sole discretion.

 

6

 

“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
Lender by Borrower.

 

“Equipment Advance” has the meaning given to such term
in Section 2.9(a).

 

“Equipment Advance Commitment” means the lesser of (i)
$3,000,000, (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 Equipment Advances, or
for which Borrower has been reimbursed with the proceeds of Equipment Advances,
or (iii) 80% of the net orderly liquidation value of all such Equipment, as
determined by Lender’s internal appraiser.

 

“Equipment Advance Conversion Date’ means July 31,
2004.

 

“Equipment Note” means Borrower’s promissory note,
payable to the order of Lender in substantially the form of Exhibit B hereto
and any note or notes issued in substitution therefor.

 

“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.

 

“Extra Reserve” means Two Hundred Thousand Dollars
($200,000).

 

“Financial Covenants” means the covenants set forth in
Section 6.2.

 

“Floating Rate” means (i) with respect to the Revolving
Advances, an annual interest rate equal to the sum of the Base Rate plus the
Margin, and (ii) with respect to Equipment Advances, an annual interest rate
equal to the sum of the Base Rate plus the Margin, which interest rate shall,
in each case, change when and as the Base Rate changes.

 

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

 

“Funds from Operations” means, for any period, the sum
of (i) the Companies’ consolidated Net Income less taxes paid during such
period, (ii) the Companies’ consolidated depreciation and amortization expense
for such period, (iii) the Companies’ consolidated deferred income taxes for
such period, and (iv) other non-cash items, each as determined in

 

7

 

accordance with GAAP plus (v) unpaid management fees owing to
Parent during such period, and plus (vi) unpaid inter-company interest.

 

“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
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.  The amount of all such
accounts payable shall be determined by Lender in a commercially reasonable
manner, and shall be conclusive, absent manifest error.

 

“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 Lender.

 

“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.

 

“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.

 

8

 

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

 

“Interest Expense” means, for a fiscal year-to-date
period, the Companies’ total gross interest expense during such period
(excluding interest income), and shall in any event include (i) interest
expensed (whether or not paid) on all Indebtedness, excluding unpaid interest
on shareholder debt that is subject to the Subordination Agreement, (ii) the
amortization of debt discounts, (iii) the amortization of all fees payable in
connection with the incurrence of Indebtedness to the extent included in
interest expense, and (iv) the portion of any capitalized lease obligation
allocable to interest expense.

 

“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 face
amount of any issued and outstanding Letters of Credit and (ii) the unpaid
amount of the Obligation of Reimbursement.

 

“L/C Application” means an application and agreement
for letters of credit in a form acceptable to the Issuer and Lender.

 

“Letter of Credit” has the meaning specified in
Section 2.5.

 

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

 

9

 

“Licensor Agreement” means that certain Licensor
Agreement, dated as of even date herewith, executed by Parent in favor of
Lender, 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 satisfactory to Lender, granting
Lender a first priority Lien on a Life Insurance Policy to secure payment of
the Obligations.

 

“Life Insurance Policy” has the meaning given in
Section 6.9.

 

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

 

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

 

“Loan Year” has the meaning given in Section 2.12(b).

 

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

 

“Lockbox and Collection Account Agreement” means the
Lockbox and Collection Account Agreement by and among Borrower, Bank of
America, N.A., Regulus West, LLC and Lender, of even date herewith.

 

“Margin” means one hundred (100) basis points; provided,
however, if the Companies’ consolidated audited Financial Statement for
their fiscal year ending May 31, 2004 shall indicate consolidated Net Income of
not less than $2,000,000, then the Margin shall be reduced to twenty-five (25)
basis points on the first day of the month following receipt of such audited
Financial Statement; provided, further, that if a Default Period
is continuing at the time when such reduction would otherwise be made, then no
reduction of the Margin shall be made unless and until such Default Period is
no longer continuing.

 

“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 the Guarantor;

 

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

 

10

 

(iii)                               a material adverse
effect on the ability of Lender 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 the 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 the Guarantor or threat of litigation which if
determined adversely to Borrower or the Guarantor would cause Borrower or the
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.

 

“Maturity Date” means July 31, 2006.

 

“Maximum Line” means $12,000,000.

 

“Minimum Interest Charge” means $157,500; provided,
however, if the Companies’ consolidated audited Financial Statement for
their fiscal year ending May 31, 2004 shall indicate consolidated Net Income of
not less than $2,000,000, then the Minimum Interest Charge shall be reduced to
$135,000 commencing with the first day of the Loan Year which began following
the close of such fiscal year; provided, further, that if a
Default Period is continuing at the time when such reduction would otherwise be
made, then no reduction of the Minimum Interest Charge shall be made unless and
until such Default Period is no longer continuing.

 

“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 before-tax net
income from continuing operations, as determined in accordance with GAAP.

 

“Note” means the Revolving Note or the Equipment Note,
and “Notes” means the Revolving Note and the Equipment Note.

 

“Obligation of Reimbursement” has the meaning given in
Section 2.7(a).

 

“Obligations” means (a) each Note, the Obligation of
Reimbursement and each and every other debt, liability and obligation of every
type and description which Borrower may now or at any time hereafter owe to
Lender, whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving Lender alone
or in a transaction involving other creditors of Borrower, and 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 including all indebtedness of Borrower arising under any Credit
Document or guaranty between Borrower and Lender, whether now in effect or
hereafter entered into, and (b) the Cal Ex Obligations.

 

“Officer” means an officer of Borrower.

 

“Overadvance” has the meaning given in Section 2.1.

 

11

 

“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.

 

“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
6.3(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 legally
described in Exhibit D 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
2.8.

 

“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.

 

“Revolving Advance” has the meaning given in Section
2.1.

 

“Revolving Note” means Borrower’s revolving promissory
note, payable to the order of Lender in substantially the form of Exhibit A
hereto.

 

“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 Lender, with respect to Borrower’s interest in Apio
Cooling.

 

“Security Documents” means this Agreement, the Lockbox
and Collection Account Agreement, the Patent and the Trademark Security
Agreement, the Licensor Agreement, the

 

12

 

Security Agreement and Collateral Assignment of Partnership Interest,
and any other agreement, instrument or document delivered to Lender from time
to time to secure the Obligations.

 

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

 

“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 by a financial institution acceptable to Lender in
connection with Letters of Credit, as contemplated by Section 2.6.

 

“Subordinated Indebtedness” has the meaning given to
such term in the Subordination Agreement.

 

“Subordination Agreement” means the Subordination
Agreement of even date herewith, executed by Parent in Lender’s favor and
acknowledged by Borrower, and any other subordination agreement accepted by
Lender from time to time.

 

“Subsidiary” means any corporation of which more than
50% of the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of Directors of
such corporation, irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency, is at the time directly or indirectly owned by
Borrower, by Borrower and one or more other Subsidiaries, or by one or more
other Subsidiaries.

 

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

 

“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.

 

“Wells Fargo Bank” means Wells Fargo Bank, National
Association.

 

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,

 

13

 

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.

 

ARTICLE II

 

AMOUNT
AND TERMS OF THE CREDIT FACILITY

 

Section 2.1                                      Revolving Advances.

 

(a)                                  Advances.  Lender agrees, on the terms and subject to the
conditions herein set forth, to make advances to Borrower from time to time
from the date all of the conditions set forth in Section 4.1 are satisfied (the
“Funding Date”) to the Termination Date (the “Revolving Advances”).  Lender shall have no obligation to make a
Revolving Advance to the extent the amount of the requested Revolving Advance
exceeds Availability.  Borrower’s
obligation to pay the Revolving Advances shall be evidenced by the Revolving
Note and shall be secured by the Collateral. 
Within the limits set forth in this Section 2.1, Borrower may borrow,
prepay pursuant to Section 2.16 and reborrow.

 

(b)                                 Payments to Sellers.  No proceeds from the Advances may be used to
make any payments owing to the Sellers except for:

 

(i)                                     Annual
payments due to the Sellers in December, 2003 and January, 2004 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 (combined
with Availability under the Cal Ex Loan Agreement) is at not less than
$1,000,000 after giving effect to the payments;

 

(ii)                                  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 (combined with Availability under the Cal Ex Loan Agreement) is at
not less than $1,000,000 after giving effect to the payments; and

 

14

 

(iii)                               The Seller earn-out
payments of $150,000 per month until February 28, 2004 (assuming sufficient
Availability) provided that no Event of Default has occurred and is
continuing, or will result therefrom.

 

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

 

Section 2.2                                      Procedures for Requesting Advances.   Borrower
shall comply with the following procedures in requesting Revolving Advances:

 

(a)                                  Time for Requests.  Borrower shall request each Advance not
later than 10:00 a.m., Pacific time (or 9:00 a.m., Pacific time, on the last
Banking Day of each month, on Christmas eve, and on New Years eve) on the
Banking Day which is the date the Advance is to be made.  Each such request shall be effective upon
receipt by Lender, shall be in writing or by telephone, telecopy transmission or
email, to be confirmed in writing by Borrower if so requested by Lender (in the
form of Exhibit E), 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 Lender; or (iii) a person whom Lender reasonably believes to be an Officer
of Borrower or such a designated agent. 
Borrower shall repay all Advances even if Lender does not receive such
confirmation and even if the person requesting an Advance was not in fact
authorized to do so.  Any request for an
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.

 

(b)                                 Disbursement.  Upon fulfillment of the applicable
conditions set forth in Article IV, Lender shall disburse the proceeds of the
requested Advance by crediting the same to Borrower’s demand deposit account
maintained with Wells Fargo Bank, on that same Banking Day, unless Lender and
Borrower shall agree in writing to another manner of disbursement.

 

Section 2.3                                      Intentionally Omitted.

 

Section 2.4                                      Increased Costs; Capital Adequacy;
Funding Exceptions.

 

(a)                                  Increased Costs; Capital Adequacy.  If Lender determines at any time that its
Return has been reduced as a result of any Rule Change, such Lender 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 2.4:

 

(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 Lender, including rules requiring
financial institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters of
credit.

 

15

 

(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 Lender, 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 Lender, on letters of credit.

 

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

 

(iv)                              “Return”,
for any period, means the percentage determined by dividing (i) the sum of
interest and ongoing fees earned by Lender under this Agreement during such
period, by (ii) the average capital such Lender is required to maintain during
such period as a result of its being a party to this Agreement, as determined
by such Lender based upon its total capital requirements and a reasonable
attribution formula that takes account 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, or any change in the
interpretation or administration thereof by any Governmental Authority, 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 Lender is required to maintain to the extent that
the increases are required due to a regulatory authority’s assessment of that
Lender’s financial condition.

 

(b)                                 The
initial notice sent by Lender shall be sent as promptly as practicable after
Lender learns that its Return has been reduced, shall include a demand for
payment of the amount necessary to restore Lender’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, Lender 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. Lender’s calculation in any such notice shall be
conclusive and binding absent demonstrable error.

 

Section 2.5                                      Letters of Credit.

 

(a)                                  Lender
agrees, on the terms and subject to the conditions herein set forth, to cause
an Issuer to issue, from the Funding Date to the Termination Date, one or more
irrevocable standby or documentary letters of credit (each, a “Letter of
Credit”) for Borrower’s account by guaranteeing payment of Borrower’s
obligations or being a co-applicant. Lender shall

 

16

have no obligation to cause an Issuer to issue any Letter of Credit if
the face amount of the Letter of Credit to be issued would exceed the lesser
of:

 

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

 

(ii)                                  Availability.

 

Each Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application entered into between Borrower and Lender for the benefit of the
Issuer, completed in a manner satisfactory to Lender and the Issuer. The terms
and conditions set forth in each such L/C Application 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)                                 No
Letter of Credit shall be issued with an expiry date later than the Termination
Date in effect as of the date of issuance.

 

(c)                                  Any
request to cause an Issuer 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.

 

Section 2.6                                      Special Account.   If the Credit
Facility is terminated for any reason while any Letter of Credit is
outstanding, Borrower shall thereupon pay Lender 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 maintained for Lender by
any financial institution acceptable to Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account.  Lender may apply amounts on deposit in the
Special Account at any time or from time to time to the Obligations in Lender’s
sole discretion.  Borrower may not
withdraw any amounts on deposit in the Special Account as long as Lender
maintains a security interest therein. Lender agrees to transfer any balance in
the Special Account to Borrower when Lender is required to release its security
interest in the Special Account under applicable law.

 

Section 2.7                                      Payment of Amounts Drawn Under
Letters of Credit; Obligation of Reimbursement.   Borrower
acknowledges that Lender, as co-applicant, will be liable to the Issuer for
reimbursement of any and all draws under Letters of Credit and for all other
amounts required to be paid under the applicable L/C Application.  Accordingly, Borrower shall pay to Lender
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:

 

(a)                                  Borrower
shall pay to Lender 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 Lender 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”).

 

17

 

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

 

(c)                                  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 Revolving Advance
to pay the Obligation of Reimbursement, Borrower shall pay to Lender 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 Revolving Advance for any reason, Lender is irrevocably authorized, in
its sole discretion, to make a Revolving Advance in an amount sufficient to
discharge the Obligation of Reimbursement and all accrued but unpaid interest
thereon.

 

(d)                                 Borrower’s
obligation to pay any Revolving Advance made under this Section 2.7, shall be
evidenced by the Revolving Note and shall bear interest as provided in Section
2.12.

 

Section 2.8                                      Obligations Absolute.   Borrower’s
obligations arising under Section 2.7 shall be absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of Section
2.7, under all circumstances whatsoever, including (without limitation) the
following circumstances:

 

(a)                                  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”);

 

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

 

(c)                                  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;

 

(d)                                 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;

 

(e)                                  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

 

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

 

18

 

Section 2.9                                      Equipment Advances.

 

(a)                                  Lender
agrees, subject to the terms and conditions of this Agreement, to make up to
four (4) advances to Borrower (each an “Equipment Advance”) from time to time
from the Funding Date up to but not including the Equipment Advance Conversion
Date. Each Equipment Advance shall be advanced directly to the applicable
vendor or to Borrower, as Borrower may request.  The foregoing to the contrary notwithstanding, (i) each Equipment
Advance shall be in an amount, as determined by Lender, not to exceed the
lesser of (x) 80% of Borrower’s invoice cost (net of tax, shipping, freight,
installation, and other so-called “soft costs”) of new Equipment that is to be
purchased by Borrower with the proceeds of such Equipment Advance; provided
that up to $500,000 in the aggregate of Equipment Advances may be used to
reimburse Borrower for new Equipment that was purchased by Borrower between
January 1, 2003 and the Funding Date, or (y) 80% of the net orderly liquidation
value of such Equipment, as determined by Lender’s internal appraiser, (ii) the
Equipment that is to be acquired or that has been purchased by Borrower must be
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 Lender’s), (iii)
Lender shall have no obligation to make any Equipment Advances hereunder to the
extent that the making thereof would cause the then outstanding amount of all
Equipment Advances to exceed the Equipment Advance Commitment, and (iv) Lender
shall have no obligation to make more than four (4) Equipment Advances.  On the Equipment Advance Conversion Date, Lender’s
obligations to make Equipment Advances to Borrower shall cease.  Borrower’s obligation to pay the Equipment
Advances shall be evidenced by the Equipment Note and shall be secured by the
Collateral as provided in Article III.

 

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

 

(i)                                     Borrower
shall make each request for an Equipment Advance to Lender before 11:00 a.m.,
Pacific time, three (3) Banking Days before the day of the requested Equipment
Advance (other than the Equipment Advance to be made in the Funding Date).
Requests shall be made in writing, specifying the date of the requested
Equipment Advance, the amount thereof, and a demonstration that after giving
effect to such Equipment Advance, the Debt Service Coverage Ratio shall be in
compliance with Section 6.2(a).  Each
request shall be accompanied by the invoice for the applicable Equipment and
proof of delivery to and acceptance by Borrower.  Lender reserves the right to confirm purchase price values.

 

(ii)                                  Each
request shall be by an individual authorized pursuant to Section 2.2.

 

(c)                                  Any
request for a Equipment 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.

 

19

 

(d)                                 Notwithstanding
anything to the contrary in this Section 2.9, Lender shall have no obligation
to make any Equipment Advance if, after giving effect to such Equipment
Advance, the Debt Service Coverage Ratio shall be in compliance with Section
6.2(a).

 

Section 2.10                                Payment of Equipment Note  The
outstanding principal balance of the Equipment Note shall be due and payable as
follows:  Beginning on August 31, 2004,
and on the last day of each month thereafter, in substantially equal monthly
installments in an amount sufficient to fully amortize the principal balance of
the Equipment Note over a 36 month term.

 

(b)                                 In
addition, Lender may obtain annually (or more frequently if an Event of Default
has occurred and is continuing), at Borrower’s expense, an appraisal of the
Equipment. If the aggregate outstanding principal balance of the Equipment Note
exceeds 80% of the net orderly liquidation value of the Equipment, as shown on
any such appraisal, upon demand by Lender, Borrower shall immediately prepay
the Equipment Note in the amount of such excess, or, at Borrower’s option, the
Lender may create and maintain a reserve against the Borrowing Base by the
amount of such excess until such time as the outstanding principal balance of
the Equipment Note is equal to or less than 80% of the net orderly liquidation
value of the Equipment, as shown on any such current appraisal.

 

(c)                                  On
the Termination Date, the entire unpaid principal balance of the Equipment
Note, and all unpaid interest accrued thereon, shall in any event be due and
payable.

 

Section 2.11                                Intentionally
Omitted.

 

Section 2.12                                Interest; Minimum Interest Charge;
Default Interest; Participations; Clearance Days; Usury.

 

(a)                                  Notes.  Except as set forth in Subsections (d) and
(g), the outstanding principal balance of the Notes shall bear interest at the
Floating Rate.

 

(b)                                 Minimum Interest Charge.  Notwithstanding the interest payable
pursuant to Subsection (a), Borrower shall pay to Lender interest of not less
than the Minimum Interest Charge per Loan Year during the term of this
Agreement, and Borrower shall pay any deficiency between the Minimum Interest
Charge and the amount of interest otherwise calculated under Subsection (a)
hereinabove plus the amount of interest otherwise calculated under
Section 2.12(a) of the Cal Ex Loan Agreement on the first day of the month
following each anniversary of the Funding Date and on the Termination Date. In
the event that the Termination Date shall be occur prior to an anniversary of
the Funding Date, the Minimum Interest Charge that shall be due on such date
shall be pro rated for that partial year period. As used in this subsection
(c), “Loan Year” means each one-year period (or portion thereof) ending on July
31 of each year.

 

(c)                                  Default Interest Rate.  Upon notice to Borrower from Lender from
time to time, the principal of the Advances outstanding from time to time shall
bear interest at the Default Rate, effective as of the first day of the fiscal
month during which any Default Period begins through the last day of such
Default Period. Lender’s election to charge the Default Rate shall be in its
sole discretion and shall not be a waiver of any of its other rights and
remedies. Lender’s election to charge interest at the Default Rate for less than
the entire period during

 

20

 

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.

 

(d)                                 Clearance Days.  Notwithstanding Section 2.15(b)(ii),
interest at the interest rate applicable under this Section 2.12 shall accrue
on the amount of all payments (even if in the form of immediately available
federal funds) for one (1) day(s) for clearance.

 

(e)                                  Participations.  If any Person shall acquire a participation
in the Advances or the Obligation of Reimbursement, Borrower shall be obligated
to Lender to pay the full amount of all interest calculated under this Section
2.12, 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 2.12,
or otherwise elects to accept less than its prorata share of such fees, charges
and other amounts due under this Agreement.

 

(f)                                    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 Lender 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 hereby 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 Lender. This provision shall never
be superseded or waived and shall control every other provision of the Loan
Documents and all agreements between Borrower and Lender, or their successors
and assigns.

 

Section 2.13                                Fees.

 

(a)                                  Origination Fee.  Borrower shall pay Lender a fully earned and
non-refundable origination fee of $130,000, due and payable as follows: Lender
has received $70,000 toward payment of this fee, and the remainder of $60,000
shall be due and payable on January 31, 2004.

 

(b)                                 Audit Fees.  Borrower shall pay Lender, on demand, audit
fees in connection with any audits or inspections conducted by or on behalf of
Lender of any Collateral or Borrower’s operations or business at the rates
established from time to time by Lender as its audit fees (which fees are
currently $90 per hour per auditor), together with all actual out-of-pocket
costs and expenses incurred in conducting any such audit or inspection. Such
audits fees plus the audit fees due under Section 2.13(b) of the Cal Ex
Loan Agreement shall not exceed $30,000 per year unless a Default Period is
continuing.  There shall be no more than
4 such

 

21

 

audits and inspections per year (including such audits and inspections
conducted pursuant to Section 2.13(b) of the Cal Ex Loan Agreement) unless a
Default Period is continuing.

 

(c)                                  Letter of Credit Fees.  Borrower shall pay to Lender a fee with
respect to each Letter of Credit, if any, accruing on a daily basis and
computed at the annual rate of one and one-half percent (1.50%), of the
aggregate amount that may then be drawn under it assuming compliance with all
conditions for drawing (the “Aggregate Face 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 Lender, due and payable
monthly in arrears on the first day of each month and on the Termination Date; provided,
however that during Default Periods, in Lender’s sole discretion and
without waiving any of its other rights and remedies, such fee shall increase to
four and one-half percent (4.50%) of the Aggregate Face 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 Lender, on 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 the 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)                                  Termination Fees.

 

(i)                                     If
the Credit Facility is terminated by Borrower, Borrower shall pay to Lender a termination
fee in an amount equal to one percent (1.0%) of the Maximum Line if the
termination occurs before August 1, 2004. 
No termination fee shall be due if Borrower shall terminate the Credit
Facility on or after August 1, 2004.

 

(ii)                                  If
the Credit Facility is terminated by Lender upon the occurrence or during the
continuation of an Event of Default, Borrower shall pay to Lender a termination
fee in an amount equal to one-half of one percent (0.5%) if the termination
occurs before August 1, 2004. No termination fee shall be due if Lender shall
terminate the Credit Facility on or after August 1, 2004.

 

(f)                                    Prepayment Fees.  If the Equipment Note is prepaid for any
reason, Borrower shall pay to Lender a prepayment fee in an amount equal to one
percent (1.0%) if the prepayment occurs before August 1, 2004. No prepayment
fee shall be due if the Equipment Note is prepaid on or after August 1, 2004.

 

(g)                                 Waiver of Termination and Prepayment
Fees.  Borrower will not
be required to pay the termination and prepayment fees otherwise due under
subsections (e) and (f) if such termination or prepayment is made because of
refinancing by an Affiliate of Lender.

 

(h)                                 Unused Line Fee.  On the first day of each calendar quarter
during the term of this Agreement, an unused line fee in an amount equal to
0.125% per annum times the result of (a) the Maximum Line, less (b) the sum of
(i) the average Daily Balance of Combined Advances that were outstanding during
the immediately preceding calendar quarter, plus (ii) the

 

22

 

average Daily Balance of the Combined L/C Amount during the immediately
preceding calendar quarter.

 

(i)                                     Collateral Administration Fee.  Annually, in advance, on the Funding Date
and again on each anniversary of the Funding Date, a collateral administration
fee of $2,300, which fee shall be fully earned and non-refundable when paid.

 

(j)                                     Other Fees.  Lender may from time to time, upon five (5)
days prior written notice to Borrower during a Default Period, charge
additional fees for Revolving 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 Revolving 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 2.14                                Time for Interest Payments; Payment
on Non-Banking Days; Computation of Interest and Fees.

 

(a)                                  Time For Interest Payments.  Interest shall be due and payable in arrears
on the last day of each month and on the Termination Date.

 

(b)                                 Payment on Non-Banking Days.  Whenever any payment to be made hereunder
shall be stated to be due on a day which is not a Banking Day, such payment may
be made on the next succeeding Banking Day, and such extension of time shall in
such case be included in the computation of interest on the Advances or the
fees hereunder, as the case may be.

 

(c)                                  Computation of Interest and Fees.  Interest accruing on the outstanding
principal balance of the Advances and fees hereunder outstanding from time to
time shall be computed on the basis of actual number of days elapsed in a year
of 360 days.

 

Section 2.15                                Lockbox; Collateral Account;
Application of Payments.

 

(a)                                  Lockbox and Collateral Account.

 

(i)                                     Borrower
shall instruct all Account Debtors to pay all Accounts directly to the Lockbox.
If, notwithstanding such instructions, Borrower receive any payments on Accounts,
Borrower shall deposit such payments into the Collateral Account.  Borrower shall also deposit all other cash
proceeds of Collateral directly to the Collateral Account. Until so deposited,
Borrower shall hold all such payments and cash proceeds in trust for and as the
property of Lender and shall not commingle such property with any of its other
funds or property. All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the Obligations.

 

(ii)                                  All
items deposited in the Collateral Account shall be subject to final payment. If
any such item is returned uncollected, Borrower will immediately pay Lender,
or, for items deposited in the Collateral Account, the bank maintaining such
account, the amount

 

23

 

of that item, or such bank at its discretion may charge any uncollected
item to Borrower’s commercial account or other account.  Borrower shall be liable as an endorser on
all items deposited in the Collateral Account, whether or not in fact endorsed
by Borrower.

 

(b)                                 Application of Payments.

 

(i)                                     Borrower
may, from time to time, in accordance with the Lockbox and Collection Account
Agreement, cause funds in the Collateral Account to be transferred to Lender’s
general account for payment of the Obligations. Except as provided in the
preceding sentence, amounts deposited in the Collateral Account shall not be
subject to withdrawal by Borrower, except after full payment and discharge of
all Obligations.

 

(ii)                                  All
payments to Lender shall be made in immediately available funds and shall be
applied to the Obligations upon receipt by Lender. Funds received from the
Collateral Account shall be deemed to be immediately available. Lender 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 Lender’s sole discretion reversed and
re-applied, to the Obligations, in such order and manner as Lender shall
determine in its sole discretion.

 

Section 2.16                                Voluntary Prepayment; Termination
of the Credit Facility by Borrower.   Except as
otherwise provided herein, Borrower may prepay the Advances in whole at any
time or from time to time in part. 
Borrower may terminate the Credit Facility at any time if it (i) gives
Lender at least 30 days’ prior written notice and (ii) pays Lender termination
and prepayment fees in accordance with Sections 2.13(e) and (f). Subject to
termination of the Credit Facility and payment and performance of all
Obligations, Lender shall, at Borrower’s expense, release or terminate the
Security Interest and the Security Documents to which Borrower are entitled by
law.

 

Section 2.17                                Mandatory Prepayment.   Without
notice or demand, if the sum of the outstanding principal balance of the
Revolving Advances plus the L/C Amount shall at any time exceed the Borrowing
Base, Borrower shall (i) first, immediately prepay the Revolving Advances to
the extent necessary to eliminate such excess; and (ii) if prepayment in full
of the Revolving Advances is insufficient to eliminate such excess, pay to
Lender in immediately available funds for deposit in the Special Account an
amount equal to the remaining excess. Any payment received by Lender under this
Section 2.17 or under Section 2.16 may be applied to the Obligations, in such
order and in such amounts as Lender, in its reasonable discretion, may from
time to time determine.

 

Section 2.18                                Revolving Advances to Pay Obligations.   Notwithstanding
anything in Section 2.1, Lender 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 Revolving Advance in an amount equal
to the portion of the Obligations from time to time due and payable.  Lender will use its commercially reasonable
best efforts to provide Borrower with prompt notice after any such Advance
pursuant to this Section 2.18 has been made; provided that

 

24

 

any failure by Lender to provide such notice shall not be deemed to be
a breach or default by Lender of its obligations hereunder.

 

Section 2.19                                Use of Proceeds.   Borrower shall
use the proceeds of the initial Advances (i) to repay, in full, all obligations
owing to Bank of America, and (ii) to bring current past due payables and/or to
cover bank overdrafts.  Borrower shall
use the proceeds of subsequent Advances and each Letter of Credit for ordinary
working capital purposes.

 

Section 2.20                                Liability Records.   Lender 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 Lender’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 Lender shall be conclusive and fully binding on Borrower unless Borrower
gives Lender specific written notice of exception within 30 days after receipt.

 

ARTICLE III

 

SECURITY
INTEREST; OCCUPANCY; SETOFF

 

Section 3.1                                      Grant of Security Interest.   Borrower
hereby pledges, assigns and grants to Lender 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 Lender, Borrower will grant
Lender a security interest in all commercial tort claims it may have against
any Person.

 

Section 3.2                                      Notification of Account Debtors and
Other Obligors.   Lender may at any time, if an Event of
Default has occurred and is continuing, notify any Account Debtor or other
person obligated to pay the amount due that such right to payment has been
assigned or transferred to Lender for security and shall be paid directly to
Lender.  Borrower will join in giving
such notice if Lender so requests.  At
any time after Borrower or Lender gives such notice to an Account Debtor or
other obligor, Lender may, but need not, in Lender’s name or in Borrower’s
name, demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such right to payment, or
grant any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend or change the obligations (including collateral
obligations) of any such Account Debtor or other obligor.

 

Section 3.3                                      Assignment of Insurance.   As
additional security for the payment and performance of the Obligations,
Borrower hereby assigns to Lender any and all monies (including proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of Borrower with respect to, any and all policies of insurance now
or at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and Borrower hereby
directs the issuer of any such policy to pay all such monies directly to
Lender.  At any time, if an Event of
Default has occurred and is continuing, Lender may (but need not), in Lender’s
name or in Borrower’s name, execute and deliver proof of claim, receive all
such monies, endorse checks and other instruments

 

25

 

representing payment of such monies, and adjust, litigate, compromise
or release any claim against the issuer of any such policy.

 

Section 3.4                                      Occupancy.

 

(a)                                  Borrower
hereby irrevocably grants to Lender the right to take exclusive possession of
the Premises at any time upon the occurrence or during the continuation of an
Event of Default.

 

(b)                                 Lender
may use the Premises only to hold, process, manufacture, sell, use, store,
liquidate, realize upon or otherwise dispose of goods that are Collateral and
for other purposes that Lender may in good faith deem to be related or
incidental purposes.

 

(c)                                  Lender’s
right to hold the Premises shall cease and terminate upon the earlier of (i)
payment in full and discharge of all Obligations and termination of the Credit
Facility, and (ii) final sale or disposition of all goods constituting
Collateral and delivery of all such goods to purchasers.

 

(d)                                 Lender
shall not be obligated to pay or account for any rent or other compensation for
the possession, occupancy or use of any of the Premises; provided, however,
that if Lender does pay or account for any rent or other compensation for the
possession, occupancy or use of any of the Premises, Borrower shall reimburse
Lender promptly for the full amount thereof. In addition, Borrower will pay, or
reimburse Lender for, all taxes, fees, duties, imposts, charges and expenses at
any time incurred by or imposed upon Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this Agreement
or the provisions of this Section 3.4.

 

Section 3.5                                      License.   Without limiting the
generality of any other Security Document, Borrower hereby grants to Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all Intellectual Property Rights of Borrower for the purpose of: (a) completing
the manufacture of any in-process materials during any Default Period so that
such materials become saleable Inventory, all in accordance with the same
quality standards previously adopted by Borrower for its own manufacturing and
subject to Borrower’s reasonable exercise of quality control; and (b) selling,
leasing or otherwise disposing of any or all Collateral during any Default
Period.

 

Section 3.6                                      Financing Statement.   Borrower
authorizes Lender 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
Lender deems necessary or useful to perfect the Security Interest.  A carbon, photographic or other reproduction
of this Agreement or of any financing statements signed 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:

 

26

 

Name and address of
Debtor:

 

Apio, Inc.

4575 West Main Street

Guadalupe, CA 93434

Federal Employer Identification No. 77-0528042

Organizational Identification No. 2863977

 

Name and address of Secured Party:

 

Wells Fargo Business
Credit, Inc.

245 S. Los Robles Avenue,
Suite 700

Pasadena, CA  91101

Federal Employer
Identification No. 41-1237652

 

Section 3.7                                      Setoff.   Lender may at any time or from
time to time, at its sole discretion and without demand, upon notice to
Borrower, setoff any liability owed to Borrower by Lender, whether or not due,
against any Obligation, whether or not due. In addition, each other Person
holding a participating interest in any Obligations shall have the right to
appropriate or setoff any deposit or other liability then owed by such Person
to Borrower, whether or not due, and apply the same to the payment of said
participating interest, as fully as if such Person had lent directly to
Borrower the amount of such participating interest.

 

Section 3.8                                      Power of Attorney.   Borrower
hereby irrevocably makes, constitutes, and appoints Lender (and any of Lender’s
officers, employees, or agents designated by Lender) as Borrower’s true and
lawful attorney, with power to (a) if Borrower refuses to, or fails timely to
execute and deliver any of the documents required to be described in
Section 8.4, sign the name of Borrower on any of the documents described
in Section 8.4, (b) at any time that an Event of Default has occurred and
is continuing, sign Borrower’s name on any invoice or bill of lading relating
to the Collateral, drafts against Account Debtors, or notices to Account
Debtors, (c) send requests for verification of Accounts, (d) endorse Borrower’s
name on any collection item that may come into Lender’s possession, (e) at any
time that an Event of Default has occurred and is continuing, make, settle, and
adjust all claims under Borrower’s policies of insurance and make all
determinations and decisions with respect to such policies of insurance, (f) at
any time that an Event of Default has occurred and is continuing, settle and
adjust disputes and claims respecting the Accounts, chattel paper, or General
Intangibles directly with Account Debtors, for amounts and upon terms that
Lender determines to be reasonable, and Lender may cause to be executed and
delivered any documents and releases that Lender determines to be necessary,
and (g) at any time that an Event of Default has occurred and is continuing,
notify the United States Postal Service to change the address for delivery of
Borrower’s mail to any address designated by Lender, otherwise intercept
Borrower’s mail, and receive, open and dispose of Borrower’s mail, applying all
Collateral as permitted under this Agreement and holding all other mail for
Borrower’s account or forwarding such mail to Borrower’s last known
address.  The appointment of Lender as
Borrower’s attorney, and each and every one of its rights and powers, 

 

27

 

being coupled with an interest, is irrevocable until all of the
Obligations have been fully and finally repaid and performed and Lender’s
obligations to extend credit hereunder are terminated.

 

ARTICLE
IV

 

CONDITIONS OF LENDING

 

Section 4.1                                      Conditions Precedent to the Initial
Advances and Letter of Credit.   Lender’s obligation to
make the initial Advances or to cause any Letters of Credit to be issued shall
be subject to the condition precedent that Lender shall have received all of
the following, each in form and substance satisfactory to Lender:

 

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

 

(f)                                    The
Lockbox and Collection Account Agreement, duly executed by Borrower and Bank of
America, N.A.

 

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

 

(h)                                 The
Patent and the Trademark Security Agreement, the Licensor Agreements, and the
Security Agreement and Collateral Assignment of Partnership Interest, duly
executed by Borrower.

 

(i)                                     The
Guaranty, duly executed by Parent.

 

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

 

(k)                                  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 proceeds of the
initial Advances, they will satisfy, release or terminate such Liens in a
manner satisfactory to Lender, and (ii) Lender 

 

28

 

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.

 

(l)                                     A
certificate of Borrower’s Secretary or Assistant Secretary certifying that
attached to such certificate are (i) the resolutions of Borrower’s Directors
and, if required, Owners, authorizing the execution, delivery and performance
of the Loan Documents, (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 and other
instruments, agreements and certificates, including Advance requests, on
Borrower’s behalf.

 

(m)                               A
current certificate issued by the Secretary of State of Delaware, certifying
that Borrower is in compliance with all applicable organizational requirements of
the State of Delaware.

 

(n)                                 A
certificate of Parent’s Secretary or Assistant Secretary certifying that
attached to such certificate are (i) the resolutions of Parent’s Directors and,
if required, Owners, authorizing the execution, delivery and performance of the
Loan Documents, (ii) true, correct and complete copies of Parent’s Constituent
Documents, and (iii) examples of the signatures of Parent’s Officers or agents
authorized to execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on Parent’s behalf.

 

(o)                                 A
current certificate issued by the Secretary of State of California, certifying
that Parent is in compliance with all applicable organizational requirements of
the State of California.

 

(p)                                 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.

 

(q)                                 A
certificate of an Officer of Borrower confirming, in his personal capacity, the
representations and warranties set forth in Article V.

 

(r)                                    A
favorable opinion of counsel to Borrower and Parent, addressed to Lender.

 

(s)                                  Certificates
of the insurance required hereunder, with all hazard insurance containing a
lender’s loss payable endorsement in Lender’s favor and with all liability
insurance naming Lender as an additional insured.

 

(t)                                    Payment
of the fees and commissions due under Section 2.13 through the date of the
initial Advance or Letter of Credit and expenses incurred by Lender through
such date and required to be paid by Borrower under Section 8.5, including
all legal expenses incurred through the date of this Agreement.

 

(u)                                 Review
and approval by Lender of an appraisal of Borrower’s unencumbered Equipment
performed by Rabin Brothers.

 

29

 

(v)                                 Review
and approval by Lender of the Companies’ internally prepared financial
statements for the period ended June 2003.

 

(w)                               Review
and approval by Lender of Parent’s consolidating internally prepared financial
statements for the period ended June 2003.

 

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

 

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

 

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

 

(aa)                            No
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 Lender.

 

(bb)                          Evidence
that after making the initial Revolving Advance, satisfying all obligations
owed to Bank of America, satisfying all trade payables older than 90 days from
invoice date, book overdrafts and closing costs, Availability (combined with
Availability under the Cal Ex Loan Agreement) shall be not less than
$1,000,000.

 

(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 Lender or its nominee from each licensor thereof.

 

(dd)                          Such
other documents as Lender in its sole discretion may require.

 

Section 4.2                                      Conditions Precedent to All
Advances and Letters of Credit.   Lender’s obligation to
make each Advance and to cause each Letter of Credit to be issued shall be
subject to the further conditions precedent that:

 

(a)                                  the
representations and warranties contained in Article V are correct on and
as of the date of such Advance or issuance of a Letter 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 Advance or
issuance of a Letter of Credit which constitutes a Default or an Event of
Default; and

 

(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, Lender, or any
of their Affiliates.

 

30

 

ARTICLE
V

 

REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants to Lender 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.  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 is correctly set forth in Section 3.6.

 

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 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.

 

Section 5.4                                      Legal Agreements.   This
Agreement constitutes and, upon due execution by Borrower, the other Loan
Documents will constitute the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms, except
as 

 

31

 

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.   Except as set forth
in Schedule 5.5 hereto, Borrower has no Subsidiaries.

 

Section 5.6                                      Financial Condition; No Adverse
Change.   Borrower has furnished to Lender the
Companies’ audited financial statements for the fiscal year ended
October 27, 2002, and unaudited financial statements for the
fiscal-year-to-date period ended May 25, 2003, 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 withheld by each of them other than taxes that
are being contested by Borrower or such Affiliate in accordance with
Section 6.13.  Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the Officers of Borrower or 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.

 

Section 5.11                                Intellectual Property Rights.   

 

(a)                                  Owned Intellectual Property.  Schedule 5.11 is 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 as disclosed on
Schedule 5.11,

 

32

 

 (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 is 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 Lender, 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, 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, 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.

 

(e)                                  Infringement.  Except as disclosed on Schedule 5.11,
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 Lender 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-

 

33

 

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 Lender 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 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.

 

34

 

(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 Lender 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 Lender.  All financial and other information provided
to Lender 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, Lender 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.

 

Section 5.19                                Equipment. 
All of the Equipment is used or held for use in Borrower’s business and
is fit for such purposes.

 

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.

 

35

 

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 Lender shall otherwise consent in writing:

 

Section 6.1                                      Reporting Requirements.  Borrower will deliver, or cause to be
delivered, to Lender each of the following, which shall be in form and detail
acceptable to Lender:

 

(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 Lender, Parent’s and Companies’ audited
financial statements with the unqualified opinion of independent certified
public accountants selected by Borrower and acceptable to Lender, 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 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. 
As soon as available and in any event on or before September 30,
2003, Borrower shall deliver to Lender its audited financial statements for the
stub period ended May 2003 in accordance with this Section 6.1(a).

 

(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 Lender an
unaudited/internal balance sheet and statements of income and reconciliation of
retained earnings of Companies as at the end of and for such month and for the
year to date period then ended, prepared, if Lender 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 represent in all material respects
Companies’ financial position and the results of its operations; and
accompanied by a certificate of the chief financial Officer of Borrower,
substantially in the form of Exhibit C hereto stating (i) that such financial statements
have been prepared in accordance with GAAP, subject to year-end audit
adjustments, (ii) 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 (iii)
all relevant facts in reasonable detail to evidence, and the computations as
to, whether or not Borrower is compliance with the Financial Covenants.

 

36

 

(c)                                  Collateral Reports.  Borrower will deliver to Lender the
following documents at the following times in form satisfactory to Lender; provided,
however, that from the Funding Date until the date that is 60 days after
the Funding Date, Borrower’s obligation to deliver the following documents
shall be on a “best efforts” basis, and no Event of Default shall be deemed to
have occurred as a result of Borrower’s failure to deliver any of the following
during such period:

 

	
  Weekly

  	
   

  	
  (a)          a report of cash collections,
  sales assignments, credit memos/adjustments and deposits, and a calculation
  of the Borrowing Base as of such date (provided that the frequency of
  such reports may be increased to daily, at Lender’s option, in its sole
  discretion),  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)         a report of outstanding
  payable balances owing to all growers,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)          notice of all returns,
  disputes, or claims.

  
	
   

  	
   

  	
   

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

  	
   

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

  
	
   

  	
   

  
	
   

  	
  (e)          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 Lender,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (f)            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 6.1(b),

  
	
   

  	
   

  	
   

  
	
  Quarterly

  	
   

  	
  (g)         an Inventory stock
  status report, by type and by location (not later than the 20th
  day after each quarter end),

  
	
   

  	
   

  	
   

  
	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Semi-Annually

  	
   

  	
  (i)             a detailed list of
  Borrower’s customers

  
	
   

  	
   

  	
   

  
	
  Upon request by Lender

  	
   

  	
  (j)             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  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (k)          such other reports or
  information as to the Collateral, or the financial condition of Borrower, as
  Lender may reasonably request.

  

 

37

 

(d)                                 Projections.  At least 10 days before the beginning of
each fiscal year of Borrower, Borrower will deliver to Lender 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 Lender may in its discretion require.

 

(e)                                  Litigation.  Immediately after the commencement thereof,
Borrower will deliver to Lender 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 Lender 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 Lender
a statement of the chief financial officer of Borrower 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 Lender 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 Lender 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 Lender notice of (i) any disputes or claims by Borrower’s
customersexceeding $50,000 individually or $250,000 in the aggregate during
any fiscal year; (ii) credit memos; (iii) any goods returned to or recovered by
Borrower.

 

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

 

38

 

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

 

(k)                                  Commercial Tort Claims.  Promptly upon knowledge thereof, Borrower
will deliver to Lender 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 Lender may
request.

 

(l)                                     Intellectual Property.

 

(i)                                     Borrower
will give Lender 30 days prior written notice of its intent to acquire material
Intellectual Property Rights; except for transfers permitted under
Section 6.18, Borrower will give Lender 30 days prior written notice of
its intent to dispose of material Intellectual Property Rights; and upon
request, shall provide Lender with copies of all applicable documents and
agreements.

 

(ii)                                  Promptly
upon knowledge thereof, Borrower will deliver to Lender 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 threatened cancellation, termination or material limitation of its
Intellectual Property Rights.

 

(iii)                               Promptly
upon receipt, Borrower will give Lender 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 Lender 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 Lender 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 Lender 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 Lender 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 Lender may reasonably
request.

 

39

 

Section 6.2                                      Financial
Covenants.

 

(a)                                  Minimum Debt Service Coverage Ratio.  Borrower, together with the other Companies,
will maintain, during each period described below, the Debt Service Coverage
Ratio, determined as at the end of each fiscal quarter, at not less than the
ratio set forth opposite such period:

 

	
  Period

  	
   

  	
  Minimum
  Debt Service

  Coverage Ratio

  	
   

  
	
  6 months ending 11/03

  	
   

  	
  1.10 to 1.00

  	
   

  
	
  9 months ending 2/04

  	
   

  	
  1.20 to 1.00

  	
   

  
	
  12 months ending 5/04 and every fiscal quarter-end
  thereafter on a trailing 12 month basis

  	
   

  	
  1.20 to 1.00

  	
   

  

 

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

 

	
  Fiscal Month Ending

  	
   

  	
  Minimum
  Book Net Worth

  	
   

  
	
  July 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  August 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  September 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  October 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  November 2003

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  December 2003

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  January 2004

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  February 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  March 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  April 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  May 2004 and each fiscal month end thereafter

  	
   

  	
  $

  	
  21,100,000

  	
   

  

 

40

 

(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

  	
   

  
	
  November 2003

  	
   

  	
  $

  	
  650,000

  	
   

  
	
  February 2004

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  May 2004

  	
   

  	
  $

  	
  1,500,000

  	
   

  

 

(d)                                 Capital Expenditures.  Borrower together with the other Companies
will not incur financed or unfinanced Capital Expenditures of more than
$4,500,000 in the aggregate during the fiscal year ending May 2004.  Limitations on Capital Expenditures for
periods after May 2004 will be mutually determined by Lender and Borrower
in conjunction with Lender’s review of Borrower’s projections delivered
pursuant to Section 6.1(d).

 

(e)                                  Future Periods.  No later than 30 calendar days after the end
of each fiscal year of Borrower, Borrower shall enter into an amendment to this
Agreement with Lender to amend the Financial Covenants to cover future periods,
as determined by Lender in its commercially reasonable discretion based on
Lender’s review of the Companies’ projections delivered pursuant to
Section 6.1(d).

 

Section 6.3                                      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 6.3 hereto,
securing indebtedness for borrowed money permitted under Section 6.4;

 

(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 borrower money) or leases, or to secure statutory obligations of
surety or 

 

41

 

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; and

 

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

 

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

 

Section 6.4                                      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 6.4
hereto;

 

(c)                                  Indebtedness
relating to Permitted Liens.

 

(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 Lender 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 6.5                                      Guaranties 
Borrower will not assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except:

 

42

 

(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 6.4 hereto.

 

Section 6.6                                      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 & Poors 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);

 

(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 not exceeding 12 months, 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;

 

(e)                                  value
added joint venture investments in an aggregate amount not to exceed $1,000,000
outstanding at any time; and

 

(f)                                    crop
advances not to exceed $2,000,000 in the aggregate outstanding at any time.

 

Section 6.7                                      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 6.8                                      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 6.9                                      Key Person Life Insurance.  If Borrower shall at any time maintain
insurance upon the life any key Officer (“Life Insurance Policy”), then
Borrower shall promptly 

 

43

 

notify Lender of each such Life Insurance Policy and assign to Lender
the right to receive the proceeds of such Life Insurance Policy by a Life
Insurance Assignment.

 

Section 6.10                                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 Lender may from time to time request in which true and complete
entries will be made in accordance with GAAP and, upon Lender’s request, will
permit any officer, employee, attorney or accountant for Lender to audit,
review, make extracts from or copy any and all company and financial books and
records of Borrower at all times during ordinary business hours and upon one
Banking Day’s advance notice (unless a Default Period exists in which case no
notice shall be required), to send and discuss with Account Debtors and other
obligors requests for verification of amounts owed to Borrower, 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 Lender,
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 Lender,
or its employees, accountants, attorneys or agents, to examine and inspect any
Collateral or any other property of Borrower at any time during ordinary
business hours and upon one Banking Day’s advance notice (unless a Default
Period exists in which case no notice shall be required).

 

Section 6.11                                Account Verification.  Lender may at any time and from time to time
send or require Borrower to send requests for verification of accounts (and
notices of assignment if an Event of Default has occurred and is continuing) to
Account Debtors and other obligors. Lender may also at any time and from time
to time telephone Account Debtors and other obligors to verify accounts.

 

Section 6.12                                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 6.13                                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 

 

44

 

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 6.14                                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 6.14 shall prevent Borrower from discontinuing the operation and
maintenance of any of its properties if such discontinuance is, in Borrower’s
judgment, desirable in the conduct of Borrower’s business and not
disadvantageous in any material respect to Lender.  Borrower will take all commercially reasonable steps necessary to
protect and maintain its Intellectual Property Rights.

 

(b)                                 Borrower
will defend the Collateral against all Liens, claims or demands of all Persons
(other than Lender) 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 Property Rights and to defend itself against any Person accusing
it of Infringing any Person’s Intellectual Property Rights.

 

Section 6.15                                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 Lender, 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 Lender may reasonably request, with any loss payable to Lender to
the extent of its interest, and all policies of such insurance shall contain a
lender’s loss payable endorsement for Lender’s benefit. All policies of
liability insurance required hereunder shall name Lender as an additional
insured.

 

Section 6.16                                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 6.17                                Delivery of Instruments, etc.  Upon request by Lender, Borrower will
promptly deliver to Lender in pledge all instruments, documents and chattel
paper constituting Collateral, duly endorsed or assigned by Borrower.

 

Section 6.18                                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 

 

45

 

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 (x) the sale of Inventory in the ordinary
course of business, and (y) dispositions of obsolete, worn or
nonfunctional equipment and (z) dispositions of other assets in any given Loan
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 and will
not permit any agreement under which it has licensed Licensed Intellectual
Property to lapse, except that Borrower may transfer such rights or permit such
agreements to lapse if it shall have reasonably determined that the applicable
Intellectual Property Rights are no longer useful in its business. If Borrower
transfers any Intellectual Property Rights for value, Borrower will pay over
the proceeds to Lender for application to the Obligations. Borrower will not
license any other Person to use any of Borrower’s Intellectual Property Rights,
except that Borrower may grant licenses in the ordinary course of its business
in connection with sales of Inventory or provision of services to its
customers.

 

Section 6.19                                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 6.20                                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 6.21                                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 6.22                                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 6.23                                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 Lender, Borrower will not
at any time modify, amend, subordinate, cancel or terminate the obligation of
any Account Debtor or other obligor of Borrower.

 

Section 6.24                                Plans. 
Unless disclosed to Lender 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 

 

46

 

former employees (other than benefits required by law) or (iv) amend
any Plan in a manner that would materially increase its funding obligations.

 

Section 6.25                                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 6.26                                Constituent Documents.  Borrower will not amend its Constituent
Documents.

 

Section 6.27                                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 Lender, and that
are no less favorable to Borrower than would be obtained in an arm’s length
transaction with a non-Affiliate.

 

Section 6.28                                Performance by Lender.  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 Lender gives Borrower written notice thereof (or in the
case of the agreements contained in Sections 6.13 and 6.15, immediately
upon the occurrence of such failure, without notice or lapse of time), Lender
may, but need not, perform or observe such covenant on behalf and in the name,
place and stead of Borrower (or, at Lender’s option, in Lender’s name) and may,
but need not, take any and all other actions which Lender 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 Lender on demand the
amount of all monies expended and all costs and expenses (including reasonable
attorneys’ fees and legal expenses) incurred by Lender in connection with or as
a result of the performance or observance of such agreements or the taking of
such action by Lender, together with interest thereon from the date expended or
incurred at the Default Rate.  To
facilitate Lender’s performance or observance of such covenants of Borrower,
Borrower hereby irrevocably appoints Lender, or Lender’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 6.28.

 

47

 

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, and (i) with respect to any such default under
Section 6.1, such default shall continue unremedied for a period of five
(5) days, and (ii) and with respect to any such default under Sections 6.12,
6.13, 6.14 and 6.17, such default shall continue unremedied for fifteen (15)
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 Lender.

 

(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 45 calendar days
of the date of the filing thereof; provided, however, that,
during the pendency of such period, Lender 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 $50,000
and the same is not paid before such payment is delinquent; provided
that Lender 

 

48

 

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 Lender, as determined
by Lender 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, by any Guarantor
in any guaranty delivered to Lender, 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;

 

(m)                               A
default under any bond, debenture, note or other evidence of material
Indebtedness of Borrower owed to any Person other than Lender, 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 $250,000 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 Lender 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 Lender; 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 

 

49

 

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 Lender determines in good faith may by
itself, or in combination with any such failures that Lender 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 Lender 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 Lender, 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 the
Subordinated Indebtedness that any Person was not entitled to receive under the
provisions of the Subordination Agreement;

 

(t)                                    Any
event or circumstance with respect to Borrower shall occur such that Lender
shall believe in good faith that the prospect of payment of all or any material
part of the Obligations or the performance by Borrower under the Loan Documents
is impaired in any material respect, or any material adverse change in the
business or financial condition of Borrower shall occur;

 

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

 

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

 

(w)                               Any
other Material Adverse Effect shall occur, and if such Material Adverse Effect
is capable of cure, such Material Adverse Effect shall continue uncured for
fifteen (15) 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) the date upon which written notice thereof is given to Borrower by Lender.

 

50

 

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

 

(a)                                  Lender
may, by notice to Borrower, declare the Commitment to be terminated, whereupon
the same shall forthwith terminate;

 

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

 

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

 

(e)                                  Lender
may cause Borrower to hold all returned Inventory in trust for Lender,
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 Lender;

 

(f)                                    without
notice to or demand upon Borrower or any Guarantor, Lender may make such
payments and do such acts as Lender considers necessary or reasonable to
protect its security interests in the Collateral.  Borrower agrees to assemble the Collateral if Lender so requires,
and to make the Collateral available to Lender at a place that Lender may
designate which is reasonably convenient to both parties.  Borrower authorizes Lender 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 Lender’s determination appears to conflict with Lender’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 Lender a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Lender’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), Lender may set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Lender
(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 Lender;

 

51

 

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

 

(i)                                     Lender
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)                                     Lender
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 Lender determines is
commercially reasonable.  It is not
necessary that the Collateral be present at any such sale;

 

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

 

(i)                                     Lender
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)                                     Lender
may credit bid and purchase at any public sale;

 

(m)                               Lender
may seek the appointment of a receiver or keeper to take possession of all or
any portion of the Collateral or to operate 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
Lender 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, Lender may resell the Collateral and shall apply any
proceeds actually received to the Obligations;

 

(o)                                 Lender
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
Lender may release, modify or  waive any
collateral provided by any other Person as security for the Obligations or any
portion thereof, all without affecting Lender’s rights against Borrower.  Borrower waives any right it may have to
require Lender to pursue any third Person for any of the Obligations;

 

(p)                                 Lender
may make demand upon Borrower and, forthwith upon such demand, Borrower will
pay to Lender in immediately available funds for deposit in the Special Account
pursuant to Section 2.17 an amount equal to the aggregate maximum amount
available

 

52

 

 

to be drawn under all Letters of Credit then outstanding, assuming
compliance with all conditions for drawing thereunder;

 

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

 

(r)                                    Lender
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.   Lender may sell the Collateral without
giving any warranties as to the Collateral. 
Lender 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.   Lender may comply with any applicable state or
federal law requirements in connection with a disposition of the Collateral,
and Lender’s compliance therewith will not be considered to adversely affect
the commercial reasonableness of any sale of the Collateral.

 

Section 7.5                                      No
Marshalling.   Lender 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 Lender by Borrower or any other
Person.

 

Section 7.6                                      Borrower
to Cooperate.   Upon the exercise by Lender 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 Lender 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 Lender:

 

FIRST
to the costs, expenses, liabilities, obligations and attorneys’ fees incurred
by Lender 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 Lender shall determine in
its sole discretion.  Any surplus shall
be paid to Borrower or other Persons legally entitled thereto; Borrower shall
remain liable to Lender for any deficiency.

 

53

 

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

 

Section 7.9                                      Lender
Not Liable For The Collateral.   So long as Lender complies
with the obligations, if any, imposed by the UCC,  Lender 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 Lender.  Borrower bears the risk of loss or damage of the Collateral.

 

ARTICLE
VIII

 

MISCELLANEOUS

 

Section 8.1                                      No
Waiver.   No failure or delay by Lender 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 Lender, 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 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
Lender pursuant to any of the provisions of Article II shall not be
effective until received by Lender. All requests under Section 9210 of the
UCC (i) shall be made in a writing signed by a person authorized under
Section 2.2(b), (ii) shall be personally delivered, sent by registered or
certified mail, return receipt requested, or by

 

54

 

overnight courier of national reputation (iii) shall be deemed to be
sent when received by Lender and (iv) shall otherwise comply with the
requirements of Section 9210. 
Borrower requests that Lender respond to all such requests which on its
face appears to come from an authorized individual and releases Lender from any
liability for so responding.  Borrower
shall pay Lender 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 Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or Lender’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).

 

Section 8.5                                      Costs
and Expenses.    Borrower shall pay on demand all costs
and expenses, including reasonable attorneys’ fees, incurred by Lender 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 Lender, 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”), 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 6.12(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

 

55

 

any manner related to or arising out of or in connection with the
making of the Advances and the Loan Documents or the use or intended use of the
proceeds of the Advances.

 

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 8.7 shall survive the termination of this Agreement and the
discharge of Borrower’s other obligations hereunder.

 

Section 8.7                                      Participants.    Borrower
hereby authorizes Lender to disclose to any assignee or any participant
(either, a “Transferee”) and any prospective Transferee any and all financial
information in Lender’s possession concerning Borrower which has been delivered
to Lender by Borrower pursuant to this Agreement or which has been delivered to
Lender by Borrower in connection with Lender’s credit evaluation prior to
entering into this Agreement.  Lender
and its participants, if any, are not partners or joint venturers, and Lender
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 Lender may be transferred or delegated to any of Lender’s
participants, successors or assigns.

 

Section 8.8                                      Advertising
and Promotion.   Borrower agrees that Lender may use
Borrower’s name(s) in advertising and promotional materials, and in conjunction
therewith, Lender may disclose the amount of the Commitment and the purpose
thereof.

 

Section 8.9                                      Execution
in Counterparts; Telefacsimile Execution.   This Agreement
and 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.   Lender shall have no obligation to
maintain any electronic records or any documents, schedules, invoices, agings,
or other papers delivered to Lender by Borrower or in connection with the Loan
Documents for more than twelve months after receipt by Lender; provided,
however, that Borrower shall not have any obligation to provide Lender
with duplicate records and documents after the same have been destroyed by
Lender.

 

56

 

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
Lender and their respective successors and assigns, except that Borrower shall
not have the right to assign its rights thereunder or any interest therein
without Lender’s prior written consent. 
Lender shall not assign any of its rights and obligations arising under
this Agreement 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
Lender assigns this Agreement in connection with any sale or all or any portion
of its loan portfolio, or (iii) if Lender assigns this Agreement to any
Affiliate of Lender.  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 Lender. 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 Lender’s right to share information regarding Borrower
and its Affiliates with Lender’s participants, accountants, lawyers and other
advisors, Lender, 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
Lender 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 conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (collectively, a “Voidable Transfer”), and if Lender 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 Lender is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of Lender
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; Jurisdiction, Venue; Waiver of Jury Trial.   The Loan
Documents shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of California. The parties hereto
hereby (i) consent to the personal jurisdiction of the state and federal courts
located in the County of Los Angeles, State of

 

57

 

California in connection with any controversy related to this
Agreement; (ii) waive any argument that venue in any such forum is not
convenient, (iii) agree that any litigation initiated by Lender or Borrower in
connection with this Agreement or the other Loan Documents may be venued in
either the State or Federal courts located in Los Angeles County, State of
California; and (iv) agree that a final judgment in any such suit, action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.

 

THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

 

ARTICLE
IX

 

JOINT AND SEVERAL LIABILITY

 

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

 

Section 9.2                                      Primary
Obligation; Waiver of Marshalling.   The Cal Ex Loan
Documents are a primary and original obligation of Borrower, 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 Cal Ex Loan
Documents.  Borrower agrees that its
liability under the Cal Ex Loan Documents shall be immediate and shall not be
contingent upon the exercise or enforcement by Lender of whatever remedies they
may have against Cal Ex, or the enforcement of any lien or realization upon any
security Lender may at any time possess. Borrower consents and agrees that
Lender shall be under no obligation to marshal any assets of Cal Ex against or
in payment of any or all of the Cal Ex Obligations.

 

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

 

58

 

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

 

Section 9.5                                      Additional
Waivers.   Borrower 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 Cal Ex Loan Documents are a party or
the creation or existence of any Cal Ex Obligations; (3) notice of the
amount of the Cal Ex Obligations, subject, however, to Borrower’s right to make
inquiry of Lender to ascertain the amount of the Cal Ex Obligations at any
reasonable time; (4) notice of any adverse change in the financial
condition of Cal Ex 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 Cal Ex Loan Documents;
(6) notice of any Default or Event of Default under the Cal Ex Loan
Documents; and (7) all other notices (except if such notice is
specifically required to be given to Borrower hereunder or under the Cal Ex
Loan Documents) and demands to which Borrower might otherwise be entitled.

 

(b)                                 its
right, under Sections 2845 or 2850 of the California Civil Code, or
otherwise, to require Lender to institute suit against, or to exhaust any
rights and remedies which Lender has or may have against, Cal Ex or any third
party, or against any collateral for the Cal Ex Obligations provided by Cal Ex,
or any third party. Borrower further waives any defense arising by reason of
any disability or other defense (other than the defense that the Cal Ex
Obligations shall have been fully and finally performed and indefeasibly paid)
of Cal Ex or by reason of the cessation from any cause whatsoever of the
liability of Cal Ex in respect thereof.

 

(c)                                  (1) any
rights to assert against Lender any defense (legal and equitable), set-off,
counterclaim, or claim which Borrower may now or at any time hereafter have
against Cal Ex or any other party liable to Lender; (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 Cal Ex Obligations or any security therefor;
(3) any defense Borrower has to performance hereunder, and any right
Borrower 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 Lender’s
rights or remedies against Cal Ex; the alteration by Lender of the Cal Ex
Obligations; any discharge of Cal Ex’s obligations to Lender by operation of
law as a result of Lender’s intervention or omission; or the acceptance by
Lender of anything in partial satisfaction of the Cal Ex Obligations; and
(4) the benefit of any statute of limitations affecting Borrower’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 Cal Ex

 

59

 

Obligations shall similarly operate to defer or delay the operation of
such statute of limitations applicable to Borrower’s liability hereunder.

 

(d)                                 Borrower
absolutely, unconditionally, knowingly, and expressly waives any defense
arising by reason of or deriving from (i) any claim or defense based upon
an election of remedies by Lender including any defense based upon an election
of remedies by Lender 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 Lender 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):

 

(i)                                     Borrower
waives all rights and defenses arising out of an election of remedies by
Lender, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Borrower’s rights of subrogation and reimbursement against Cal Ex by the
operation of Section 580(d) of the California Code of Civil Procedure or
otherwise.

 

(e)                                  Borrower
waives all rights and defenses that Borrower may have because the Cal Ex
Obligations are secured by real property. 
This means, among other things: 
(1) Lender may collect from Borrower without first foreclosing on
any real or personal property collateral pledged by Cal Ex; and (2) if
Lender forecloses on any real property collateral pledged by Cal Ex:  (A) the amount of the Cal Ex
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) Lender may collect from Borrower even if Lender, by
foreclosing on the real property collateral, has destroyed any right Borrower
may have to collect from Cal Ex.  This
is an unconditional and irrevocable waiver of any rights and defenses Borrower
may have because the Cal Ex Obligations are secured by real property.  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.

 

(f)                                    Borrower
hereby absolutely, unconditionally, knowingly, and expressly waives:  (i) any right of subrogation Borrower
has or may have as against Cal Ex with respect to the Cal Ex Obligations;
(ii) any right to proceed against Cal Ex 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
Borrower may now have or hereafter have as against Cal Ex with respect to the
Cal Ex Obligations; and (iii) any right to proceed or seek recourse
against or with respect to any property or asset of Cal Ex.

 

(g)                                 WITHOUT
LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN
THIS AGREEMENT, BORROWER 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 

 

60

 

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.  Borrower consents and agrees that without notice to
or by Borrower, and without affecting or impairing the liability of Borrower
hereunder, Lender 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 Cal Ex Loan
Documents, or any part thereof, with respect to the Cal Ex or any Guarantor;

 

(b)                                 release
the Cal Ex or any Guarantor or grant other indulgences to Cal Ex or any
Guarantor in respect thereof;

 

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

 

(d)                                 release
or substitute any Guarantor, if any, of the Cal Ex Obligations, or enforce,
exchange, release, or waive any security for the Cal Ex Obligations or any
other guaranty of the Cal Ex Obligations, or any portion thereof.

 

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

 

Section 9.8                                      Indefeasible
Payment.   The Cal Ex Obligations shall not be considered
indefeasibly paid unless and until all payments to Lender are no longer subject
to any right on the part of any Person, including Cal Ex, Cal Ex as a debtor in
possession, or any trustee (whether appointed pursuant to the Bankruptcy Code,
or otherwise) of any of Cal Ex’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 Cal Ex Obligations, Lender shall have no obligation
whatsoever to transfer or assign its interest in this Agreement and the Cal Ex
Loan Documents to Borrower.  In the
event that, for any reason, any portion of such payments to Lender 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 Borrower shall be liable for the full amount Lender is required to
repay plus any and all costs and expenses (including

 

61

 

attorneys’ fees and attorneys’ fees incurred in proceedings brought
under the Bankruptcy Code) paid by Lender in connection therewith.

 

Section 9.9                                      Single
Loan Account.   At the request of Borrower to facilitate and
expedite the administration and accounting processes and procedures of the
Advances and the Cal Ex Loans, Lender has agreed, in lieu of maintaining
separate loan accounts on Lender’s books in the name of Borrower and Cal Ex,
that Lender may maintain a single loan account under the name of all of both
Borrower and Cal Ex (the “Loan Account”). 
All Advances and Cal Ex Loans 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 Cal Ex Obligations
received by Lender, 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 expressly agrees and acknowledges
that Lender 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 Loans, 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 Loans 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                                Lender
Held Harmless.   Borrower agrees and acknowledges 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 Lender shall incur no liability to
Borrower or Cal Ex as a result thereof. 
To induce Lender to do so, and in consideration thereof, Borrower hereby
agrees to indemnify and hold Lender harmless from and against any and all
liability, expense, loss, damage, claim of damage, or injury, made against
Lender by Borrower or by 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 represents and
warrants to Lender that the collective administration of the Advances and the
Cal Ex Loans is being undertaken by Lender pursuant to this Agreement because
Borrower and 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.

 

*   *   
*

 

[remainder of this
page intentionally left blank]

 

*    *   
*

 

62

 

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

  
	
   

  	
   

  
	
   

  	
   

  
	
  Wells Fargo Business
  Credit, Inc.

  	
  WELLS FARGO BUSINESS
  CREDIT, INC.

  
	
  245 S. Los Robles
  Avenue, Suite 700

  	
   

  
	
  Pasadena,
  California  91101

  	
   

  
	
  Telecopier:  (626) 844-9063

  	
  By:

  	
   

  
	
  Attention: Harry L. Joe

  	
   

  	
  Harry L. Joe

  
	
  e-mail:
  joeharry@wellsfargo.com

  	
   

  	
  Assistant Vice
  President

  
					

 

S-1

 

Table of Exhibits and Schedules

 

	
  Exhibit A

  	
  Form of Revolving Note

  
	
   

  	
   

  
	
  Exhibit B

  	
  Form of Equipment Note

  
	
   

  	
   

  
	
  Exhibit C

  	
  Compliance Certificate

  
	
   

  	
   

  
	
  Exhibit D

  	
  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

  

 

 

Exhibit A to Credit and Security
Agreement

 

REVOLVING NOTE

 

	
  $12,000,000

  	
  Menlo Park,
  California

  
	
   

  	
  August 20,
  2003

  

 

For value received, the
undersigned, APIO, INC., a Delaware corporation (the “Borrower”), hereby
promises to pay on the Termination Date under the Credit Agreement (defined
below), to the order of WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation
(the “Lender”), at its main office in Minneapolis, Minnesota, or at any other
place designated at any time by the holder hereof, in lawful money of the
United States of America and in immediately available funds, the principal sum
of Twelve Million Dollars ($12,000,000) or, if less, the aggregate unpaid
principal amount of all Revolving Advances made by Lender to Borrower under the
Credit Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the
Credit and Security Agreement of even date herewith (the “Credit Agreement”) by
and between Lender and Borrower.  The
principal hereof and interest accruing thereon shall be due and payable as
provided in the Credit Agreement. This Note may be prepaid only in accordance
with the Credit Agreement.

 

This Note is issued pursuant,
and is subject, to the Credit Agreement, which provides, among other things,
for acceleration hereof. This Note is the Revolving Note referred to in the
Credit Agreement. This Note is secured, among other things, pursuant to the
Credit Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deeds
of trust, assignments or other instruments or agreements.

 

Borrower shall pay all
costs of collection, including reasonable attorneys’ fees and legal expenses if
this Note is not paid when due, whether or not legal proceedings are commenced.

 

Presentment or other
demand for payment, notice of dishonor and protest are expressly waived.

 

	
   

  	
  APIO, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Its Chief Financial
  Officer

  
				

 

 

Exhibit B to Credit and Security
Agreement

 

EQUIPMENT NOTE

 

	
  $3,000,000

  	
  Menlo Park,
  California

  
	
   

  	
  August 20,
  2003

  

 

For value received, the
undersigned, APIO, INC., a Delaware corporation (the “Borrower”), hereby
promises to pay on the Termination Date under the Credit Agreement (defined
below), to the order of Wells Fargo Business Credit, Inc., a Minnesota
corporation (the “Lender”), at its main office in Minneapolis, Minnesota, or at
any other place designated at any time by the holder hereof, in lawful money of
the United States of America and in immediately available funds, the principal
sum of Three Million Dollars ($3,000,000) or, if less, the aggregate unpaid
principal amount of all Equipment Advances made by Lender to Borrower under the
Credit Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the
Credit and Security Agreement of even date herewith (as the same may hereafter
be amended, supplemented or restated from time to time, the “Credit Agreement”)
by and between Lender, Borrower, and Cal Ex Trading Company.  The principal hereof and interest accruing
thereon shall be due and payable as provided in the Credit Agreement. This Note
may be prepaid only in accordance with the Credit Agreement.

 

This Note is issued
pursuant, and is subject, to the Credit Agreement, which provides, among other
things, for acceleration hereof. This Note is the Equipment Note referred to in
the Credit Agreement.

 

This Note is secured,
among other things, pursuant to the Credit Agreement and the Security Documents
as therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other
instruments or agreements.

 

Borrower hereby agrees to
pay all costs of collection, including attorneys’ fees and legal expenses in
the event this Note is not paid when due, whether or not legal proceedings are
commenced.

 

Presentment or other
demand for payment, notice of dishonor and protest are expressly waived.

 

	
   

  	
  APIO, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Its Chief Financial
  Officer

  
				

 

 

Exhibit C to Credit and Security
Agreement

 

Compliance Certificate

 

	
  To:

  	
  Harry L. Joe

  Wells Fargo Business Credit, Inc.

  
	
   

  	
   

  
	
  Date:

  	
                                      ,
  200      

  
	
   

  	
   

  
	
  Subject:

  	
  Apio, Inc., Cal Ex
  Trading Company, and Apio Cooling

  

 

Financial Statements

 

In accordance with our
Credit and Security Agreement, dated as of August 20, 2003 (the “Credit
Agreement”), attached are the financial statements of Apio, Inc., Cal Ex
Trading Company and Apio Cooling (collectively, the “Companies”) as of and for
                                ,
20       (the “Reporting Date”) and the
year-to-date period then ended (the “Current Financials”). All terms used in
this certificate have the meanings given in the Credit Agreement.

 

I certify that the
Current Financials have been prepared in accordance with GAAP, subject to
year-end audit adjustments, and fairly present the Companies’ financial
condition as of the date thereof.

 

Events of Default.
(Check one):

 

o                                    The
undersigned does not have knowledge of the occurrence of a Default or Event of
Default under the Credit Agreement except as previously reported in writing to
Lender.

 

o                                    The
undersigned has knowledge of the occurrence of a Default or Event of Default
under the Credit Agreement not previously reported in writing to Lender and
attached hereto is a statement of the facts with respect to thereto. Borrower
acknowledge that pursuant to Section 2.12(d) of the Credit Agreement,
Lender may impose the Default Rate at any time during the resulting Default Period.

 

Financial
Covenants. I further hereby certify as follows:

 

1.                                       Minimum
Debt Service Coverage Ratio. 
Pursuant to Section 6.2(a) of the Credit Agreement, as of the
Reporting Date, the Companies’ Debt Service Coverage Ratio was
           to 1.00 which o
satisfies o does not satisfy the requirement that such
ratio be no less than
             to
1.00 on the Reporting Date as set forth in table below: 

 

1

 

	
  Period

  	
   

  	
  Minimum
  Debt Service

  Coverage Ratio

  	
   

  
	
  6 months ending 11/03

  	
   

  	
  1.10 to 1.00

  	
   

  
	
  9 months ending 2/04

  	
   

  	
  1.20 to 1.00

  	
   

  
	
  12 months ending 5/04 and every fiscal quarter-end
  thereafter on a trailing 12 month basis

  	
   

  	
  1.20 to 1.00

  	
   

  

 

2.                                       Minimum
Book Net Worth.   Pursuant to Section 6.2(b)
of the Credit Agreement, as of the Reporting Date, the Companies’ Book Net
Worth was
$                        
which o satisfies o
does not satisfy the requirement that such amount be not less than
$                          
on the Reporting Date as set forth in table below: 

 

 

	
  Fiscal Month Ending

  	
   

  	
  Minimum
  Book Net Worth

  	
   

  
	
  July 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  August 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  September 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  October 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  November 2003

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  December 2003

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  January 2004

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  February 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  March 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  April 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  May 2004 and each fiscal month end thereafter

  	
   

  	
  $

  	
  21,100,000

  	
   

  

 

3.                                       Minimum
Net Income.   Pursuant to Section 6.2(c) of
the Credit Agreement, the Companies’ consolidated Net Income for the
             period
ending on the Reporting Date, was
$               ,
which o satisfies o
does not satisfy the requirement that such amount be not less than
$                 
during such period as set forth in table below: 

 

	
  Fiscal Year to Date Period

  Ending

  	
   

  	
  Minimum
  Net Income

  	
   

  
	
  November 2003

  	
   

  	
  $

  	
  650,000

  	
   

  
	
  February 2004

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  May 2004

  	
   

  	
  $

  	
  1,500,000

  	
   

  

 

4.                                       Capital
Expenditures. Pursuant to Section 6.2(d) of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Companies

 

2

 

have expended during the
                          
year ended May 2004, for Capital Expenditures, $                                    
in the aggregate, which o
satisfies o does not satisfy the requirement that such
expenditures not exceed $4,500,000 in the aggregate during such year.

 

5.                                       Salaries.
As of the Reporting Date, the Companies o
are o are not in compliance with Section 6.8
of the Credit Agreement concerning salaries.

 

Attached hereto are all
relevant facts in reasonable detail to evidence, and the computations of the
financial covenants referred to above. These computations were made in
accordance with GAAP.

 

	
   

  	
  APIO, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Its Chief Financial
  Officer

  
				

 

3

 

Exhibit D to Credit and Security
Agreement

 

Premises

 

The Premises referred to
in the Credit and Security Agreement are legally described as follows:

 

4575 West Main
Street

Guadalupe, CA 93434

 

 

Schedule 5.1 to Credit and
Security Agreement

 

Trade Names, Chief Executive Office,
Principal Place of Business,

and Locations of Collateral

 

Trade Names

 

Apio, Inc.

 

Chief Executive Office/Principal
Place of Business

 

4575 West Main
Street

Guadalupe, CA
93434

 

Other Inventory and Equipment
Locations

 

Apio Cooling, L.P.

4595 West Main
Street

Guadalupe, CA
93434

 

Derma Med Coatings
Company, LLC*

381 General Avenue

Tallmadge, OH  44278

 

Coast Converters,
Inc.*

1601 Perrino Place

Los Angeles, CA  90023

 

Emerald Packaging,
Inc.*

33050 Western Avenue

Union City, CA  94857

 

Imperial
Warehouse*

Santa Maria, CA

 

•                                          Packing
materials owned by Borrower are located from time to time at these
locations.  In addition, packaging
materials are located at sites in Costa Rica, Ecuador and Colombia.

 

 

Schedule 5.2 to Credit and
Security Agreement

 

Capitalization and Organizational
Chart

 

	
  Holder

  	
   

  	
  Type of Rights/Stock

  	
   

  	
  No. of shares (after Exercise

  of all rights to

  acquire shares)

  	
   

  	
  Percent interest

  on a fully

  diluted basis

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Landec Corporation

  	
   

  	
  Common

  	
   

  	
  18,000,000

  	
   

  	
  99.9

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Adam Verdin

  	
   

  	
  Common

  	
   

  	
  583

  	
   

  	
  0.1

  	
  %

  

 

At
May 25, 2003, options to purchase 2,255,846 shares of Apio common stock
were vested. As of May 25, 2003, there were 3,999,417 common shares
reserved for future issuance under the Apio stock option plans.

 

Subsidiaries

 

Cal Ex Trading
Company, a Delaware Corporation (100% wholly-owned)

 

Apio Cooling,
L.P., a California limited partnership (60% general partner interest)

 

Organizational Chart

 

 

 

Schedule 5.5 to Credit and
Security Agreement

 

Subsidiaries

 

Cal Ex Trading
Company, a Delaware corporation (100% wholly-owned)

 

Apio Cooling,
L.P., a California limited partnership (60% general partner)

 

 

Schedule 5.11 to Credit and
Security Agreement

 

Intellectual Property Disclosures

 

	
  Property

  	
   

  	
  Type

  	
   

  	
  Ownership

  	
   

  	
  Registration
  #

  	
   

  	
  Registration
  Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Apio

  	
   

  	
  Trademark

  	
   

  	
  Owned

  	
   

  	
  2,586,399

  	
   

  	
  06/25/2002

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cal Ex

  	
   

  	
  Trademark

  	
   

  	
  Owned

  	
   

  	
  2,423,247

  	
   

  	
  01/23/2001

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Casino

  	
   

  	
  Trademark

  	
   

  	
  Owned

  	
   

  	
  2,549,383

  	
   

  	
  03/19/2002

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eat Smart

  	
   

  	
  Trademark

  	
   

  	
  Owned

  	
   

  	
  2,580,711

  	
   

  	
  06/18/2002

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Song Hee

  	
   

  	
  Trademark

  	
   

  	
  Owned

  	
   

  	
  2,459,364

  	
   

  	
  06/12/2001

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Value Fresh

  	
   

  	
  Trademark

  	
   

  	
  Owned

  	
   

  	
  2,412,439

  	
   

  	
  12/12/2000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pacific West

  	
   

  	
  Trademark

  	
   

  	
  Owned

  	
   

  	
  2,079,117

  	
   

  	
  07/15/1997

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Snak Pak

  	
   

  	
  Trademark

  	
   

  	
  Owned

  	
   

  	
  2,149,908

  	
   

  	
  04/07/1998

  	
   

  

 

Foreign Trademarks:

 

	
  Cal Ex

  	
   

  	
  Trademark

  (Japan)

  	
   

  	
  Owned

  	
   

  	
  4,608,482

  	
   

  	
  09/27/2002

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Casino

  	
   

  	
  Trademark

  (Taiwan)

  	
   

  	
  Owned

  	
   

  	
  986,673

  	
   

  	
  03/16/2002

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eat Smart

  	
   

  	
  Trademark

  (Japan)

  	
   

  	
  Owned

  	
   

  	
  4,565,183

  	
   

  	
  05/10/2002

  	
   

  

 

Labels

 

	
  Highway One

  	
   

  	
  Irish Spring

  
	
  Calex

  	
   

  	
  Pelican

  
	
  Rabbit

  	
   

  	
   

  
	
  Boar

  	
   

  	
   

  

 

License Agreements

 

(1)                                  Borrower
has granted to Apio Fresh LLC (“Licensee”) a nontransferable,
non-exclusive license (the “License”) to use and reproduce certain of
the registered trademarks

 

 

owned by Borrower
pursuant to that certain Trademark License Agreement, dated as of July 3,
2003, between Borrower and Licensee. 
The License was granted to Licensee in connection with the sale by
Borrower of its domestic vegetables business to Licensee.  The term of the License is four (4) years.

 

(2)                                  Pursuant
to that certain Brand License Agreement dated as of October 16, 2001
between Borrower and Frank and Betty Logolusu, Borrower is a licensee of the
Logolosu and Bari brands under which Borrower markets grapes and other
crops.  This License Agreement expires
at the end of the 2011 crop season, subject to Borrower’s option to extend the
License Agreement for an additional five years.

 

(3)                                  Pursuant
to that certain Precut Vegetable Packing and License Agreement dated as of
August 5, 2003 by and between Borrower and Dole Fresh Vegetables, Inc.,
Borrower is a licensee of the right to produce, pack, market and sell precut
vegetable products under the Dole label. 
This Agreement has an initial term of two years, after which Dole may
elect to extend this Agreement for an additional five years.

 

 

Schedule 6.3 to Credit and
Security Agreement

 

Permitted Liens

 

	
  Creditor

  	
   

  	
  Collateral

  	
   

  	
  Jurisdiction

  	
   

  	
  Filing
  Date

  	
   

  	
  Serial No.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nationsbanc
  Leasing Corporation

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  12/14/1995

  	
   

  	
  9534860644

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nationsbanc
  Leasing Corporation

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  11/06/1997

  	
   

  	
  9731160544

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  International
  Paper Corporation

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  04/19/1999

  	
   

  	
  9911760201

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gray
  Lift, Inc.

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  03/06/2000

  	
   

  	
  0006860513

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gray
  Lift, Inc.

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  03/06/2000

  	
   

  	
  0006860515

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gray
  Lift, Inc.

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  03/06/2000

  	
   

  	
  0006860522

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gray
  Lift, Inc.

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  04/24/2000

  	
   

  	
  0011960336

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Associates
  Leasing, Inc.

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  06/14/2000

  	
   

  	
  0017260509

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gray
  Lift, Inc.

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  07/28/2000

  	
   

  	
  0021660567

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Copelco
  Capital, Inc.

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  07/28/2000

  	
   

  	
  0021660688

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Citicorp
  Del Lease, Inc.

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  12/29/2000

  	
   

  	
  0100960671

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Citicorp
  Del Lease, Inc.

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  01/04/2001

  	
   

  	
  0101260207

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Safeco
  Credit Co., Inc. dba Safeline Leasing

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  05/02/2001

  	
   

  	
  0112760547

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  IBM
  Credit Corporation

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  05/07/2001

  	
   

  	
  0113060909

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  IBM
  Credit Corporation

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  11/06/2001

  	
   

  	
  0131260146

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gray
  Lift, Inc.

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  09/04/2002

  	
   

  	
  0224860984

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hewlett
  Packard Financial Services

  	
   

  	
  Equipment

  	
   

  	
  California

  	
   

  	
  03/07/2003

  	
   

  	
  0306960407

  	
   

  

 

 

Schedule 6.4 to Credit and
Security Agreement

 

Permitted Indebtedness and Guaranties

 

Indebtedness

 

	
  Creditor

  	
   

  	
  Principal
  Amount

  (as of 06/29/2003)

  	
   

  	
  Maturity
  Date

  	
   

  	
  Monthly

  Payment

  	
   

  	
  Collateral

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mid
  State Bank and Trust

  	
   

  	
  $

  	
  11,467

  	
   

  	
  November 2003

  	
   

  	
  $

  	
  2,424

  	
   

  	
  Vehicles

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mid
  State Bank and Trust

  	
   

  	
  $

  	
  10,458

  	
   

  	
  January 2004

  	
   

  	
  $

  	
  1,581

  	
   

  	
  Vehicles

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mid
  State Bank and Trust

  	
   

  	
  $

  	
  9,167

  	
   

  	
  March 2004

  	
   

  	
  $

  	
  1,203

  	
   

  	
  Vehicles

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tim
  Murphy

  	
   

  	
  $

  	
  1,086,680

  	
   

  	
  January 2005

  	
   

  	
  Annual

  Payments of

  $519,712

  (2004) and

  $566,967

  (2005)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nick
  Tompkins

  	
   

  	
  $

  	
  50,878

  	
   

  	
  January 2005

  	
   

  	
  Annual

  Payments of

  $24,245 (2004)

  and $26,634

  (2005)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kathleen
  Tompkins

  	
   

  	
  $

  	
  50,878

  	
   

  	
  January 2005

  	
   

  	
  Annual

  Payments of

  $24,244 (2004)
 and $26,634

  (2005)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  John
  Maulhardt

  	
   

  	
  $

  	
  245,287

  	
   

  	
  January 2005

  	
   

  	
  Annual

  Payments of

  $117,306

  (2004) and

  $127,981

  (2005)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Roy
  Kilgore

  	
   

  	
  $

  	
  245,287

  	
   

  	
  January 2005

  	
   

  	
  Annual

  Payments of

  $117,306

  (2004)and

  $127,981

  (2005)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  E.
  Silva Trust

  	
   

  	
  $

  	
  245,287

  	
   

  	
  January 2005

  	
   

  	
  Annual

  Payments of

  $117,306

  (2004) and

  $127,981

  (2005)

  	
   

  	
  N.A.

  	
   

  

 

 

	
  Creditor

  	
   

  	
  Principal
  Amount

  (as of 06/29/2003)

  	
   

  	
  Maturity
  Date

  	
   

  	
  Monthly

  Payment

  	
   

  	
  Collateral

  	
   

  
	
  L.
  Silva Trust

  	
   

  	
  $

  	
  245,287

  	
   

  	
  January 2005

  	
   

  	
  Annual

  Payments of

  $117,306

  (2004) and

  $127,981

  (2005)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ed
  Silva & Sons

  	
   

  	
  $

  	
  104,513

  	
   

  	
  October 
  2004

  	
   

  	
  Annual

  Payments of

  $52,257

  	
   

  	
  N.A.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Safeline
  Leasing

  	
   

  	
  $

  	
  22,327

  	
   

  	
  March 2006

  	
   

  	
  $

  	
  808

  	
   

  	
  Trash Compactors

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  IBM
  Credit Corporation

  	
   

  	
  $

  	
  746,604

  	
   

  	
  April 2004

  	
   

  	
  $

  	
  65,889

  	
   

  	
  Hardware, Letter of
  Credit

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hewlett
  Packard Financial Services

  	
   

  	
  $

  	
  55,718

  	
   

  	
  October 2004

  	
   

  	
  $

  	
  2,418

  	
   

  	
  Network Server

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Copelco
  Capital, Inc.

  	
   

  	
  $

  	
  6,824

  	
   

  	
  August 2004

  	
   

  	
  $

  	
  1,316

  	
   

  	
  Tenant Sweeper

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Citicorp
  Del Lease, Inc.

  	
   

  	
  $

  	
  126,081

  	
   

  	
  April 2004

  	
   

  	
  $

  	
  18,326

  	
   

  	
  Forklifts

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nick
  Tompkins (Earnout)

  	
   

  	
  $

  	
  1,361,289

  	
   

  	
  March 2004

  	
   

  	
  $

  	
  150,000

  	
   

  	
  N.A.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Logolusu/Bari
  License Agreement*

  	
   

  	
  $

  	
  1,750,000

  	
   

  	
  July 2011

  	
   

  	
  Annual

  Payments

  $150,000 for

  2003; $200,000

  for 2004-2011

  	
   

  	
  N.A.

  	
   

  

 

GUARANTIES

 

	
  Primary Obligor

  	
   

  	
  Amount and Description of

  Obligation Guaranteed

  	
   

  	
  Beneficiary of Guaranty

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

NONE

 

 

•                  While the Logolusu/Bari is not listed
as a liability on Borrower’s balance sheet; it represents a contractual
obligation of Borrower to make annual payments to the licensor of the Logolosu
and Bari brands.Exhibit
10.51

 

EXECUTION
COPY

 

 

 

CREDIT AND SECURITY
AGREEMENT

BY AND BETWEEN

CAL EX TRADING COMPANY,

as Borrower

and

WELLS FARGO BUSINESS CREDIT, INC.,

as Lender

August 20, 2003

 

 

 

Table of Contents

 

	
  ARTICLE I DEFINITIONS

  
	
   

  
	
  Section 1.1

  	
  Definitions

  
	
  Section 1.2

  	
  Other Definitional Terms; Rules of
  Interpretation

  
	
   

  	
   

  
	
  ARTICLE II AMOUNT AND
  TERMS OF THE CREDIT FACILITY

  
	
   

  
	
  Section 2.1

  	
  Revolving Advances.

  
	
  Section 2.2

  	
  Procedures for Requesting Advances

  
	
  Section 2.3

  	
  Intentionally Omitted.

  
	
  Section 2.4

  	
  Increased Costs; Capital Adequacy; Funding
  Exceptions.

  
	
  Section 2.5

  	
  Letters of Credit

  
	
  Section 2.6

  	
  Special Account

  
	
  Section 2.7

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

  
	
  Section 2.8

  	
  Obligations Absolute

  
	
  Section 2.9

  	
  Intentionally Omitted.

  
	
  Section 2.10

  	
  Intentionally Omitted.

  
	
  Section 2.11

  	
  Intentionally Omitted.

  
	
  Section 2.12

  	
  Interest; Minimum Interest Charge; Default
  Interest; Participations; Clearance Days;  Usury.

  
	
  Section 2.13

  	
  Fees.

  
	
  Section 2.14

  	
  Time for Interest Payments; Payment on
  Non-Banking Days; Computation of Interest and Fees.

  
	
  Section 2.15

  	
  Lockbox; Collateral Account; Application
  of Payments.

  
	
  Section 2.16

  	
  Voluntary Prepayment; Termination of the
  Credit Facility by Borrower

  
	
  Section 2.17

  	
  Mandatory Prepayment

  
	
  Section 2.18

  	
  Revolving Advances to Pay Obligations

  
	
  Section 2.19

  	
  Use of Proceeds

  
	
  Section 2.20

  	
  Liability Records

  
	
  Section 2.21

  	
  Ex-Im Bank

  
	
   

  	
   

  
	
  ARTICLE III SECURITY
  INTEREST; OCCUPANCY; SETOFF

  
	
   

  
	
  Section 3.1

  	
  Grant of Security Interest

  
	
  Section 3.2

  	
  Notification of Account Debtors and Other
  Obligors

  
	
  Section 3.3

  	
  Assignment of Insurance

  
	
  Section 3.4

  	
  Occupancy.

  
	
  Section 3.5

  	
  License

  
	
  Section 3.6

  	
  Financing Statement

  
	
  Section 3.7

  	
  Setoff

  
	
  Section 3.8

  	
  Power of Attorney.

  

 

i

 

	
  ARTICLE IV CONDITIONS OF
  LENDING

  
	
   

  
	
  Section 4.1

  	
  Conditions Precedent to the Initial
  Advances and Letter of Credit

  
	
  Section 4.2

  	
  Conditions Precedent to All Advances and
  Letters of Credit

  
	
   

  	
   

  
	
  ARTICLE V REPRESENTATIONS
  AND WARRANTIES

  
	
   

  
	
  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.

  
	
  Section 5.12

  	
  Plans

  
	
  Section 5.13

  	
  Default

  
	
  Section 5.14

  	
  Environmental Matters.

  
	
  Section 5.15

  	
  Submissions to Lender

  
	
  Section 5.16

  	
  Financing Statements

  
	
  Section 5.17

  	
  Rights to Payment

  
	
  Section 5.18

  	
  Eligible Export-Related Accounts
  Receivable.

  
	
  Section 5.19

  	
  Equipment.

  
	
  Section 5.20

  	
  Fraudulent Transfer.

  
	
  Section 5.21

  	
  Suspension and Debarment, etc.

  
	
   

  	
   

  
	
  ARTICLE VI COVENANTS

  
	
   

  
	
  Section 6.1

  	
  Reporting Requirements

  
	
  Section 6.2

  	
  Financial Covenants.

  
	
  Section
  6.3

  	
  Permitted
  Liens; Financing Statements.

  
	
  Section
  6.4

  	
  Indebtedness

  
	
  Section
  6.5

  	
  Guaranties

  
	
  Section 6.6

  	
  Investments
  and Subsidiaries

  
	
  Section 6.7

  	
  Dividends and
  Distributions

  
	
  Section
  6.8

  	
  Salaries

  
	
  Section 6.9

  	
  Key Person Life
  Insurance

  
	
  Section
  6.10

  	
  Books
  and Records; Inspection and Examination

  
	
  Section 6.11

  	
  Account Verification

  
	
  Section 6.12

  	
  Compliance with Laws.

  
	
  Section
  6.13

  	
  Payment
  of Taxes and Other Claims

  
	
  Section 6.14

  	
  Maintenance of
  Properties.

  
	
  Section
  6.15

  	
  Insurance

  

 

ii

 

	
  Section 6.16

  	
  Preservation of
  Existence

  
	
  Section 6.17

  	
  Delivery of
  Instruments, etc.

  
	
  Section
  6.18

  	
  Sale
  or Transfer of Assets; Suspension of Business Operations

  
	
  Section
  6.19

  	
  Consolidation
  and Merger; Asset Acquisitions

  
	
  Section 6.20

  	
  Sale and Leaseback

  
	
  Section
  6.21

  	
  Restrictions
  on Nature of Business

  
	
  Section
  6.22

  	
  Accounting

  
	
  Section
  6.23

  	
  Discounts, etc.

  
	
  Section
  6.24

  	
  Plans

  
	
  Section 6.25

  	
  Place of Business;
  Name

  
	
  Section 6.26

  	
  Constituent
  Documents

  
	
  Section 6.27

  	
  Transactions
  With Affiliates.

  
	
  Section 6.28

  	
  Performance by
  Lender

  
	
  Section
  6.29

  	
  Account
  Debtors to Pay to Collateral Account

  
	
   

  	
   

  
	
  ARTICLE VII EVENTS OF
  DEFAULT, RIGHTS AND REMEDIES

  
	
   

  
	
  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

  	
  Lender
  Not Liable For The Collateral.

  
	
   

  	
   

  
	
  ARTICLE VIII MISCELLANEOUS

  
	
   

  
	
  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; Jurisdiction, Venue; Waiver of Jury Trial.

  

 

iii

 

	
  ARTICLE IX JOINT AND
  SEVERAL LIABILITY

  
	
   

  
	
  Section 9.1

  	
  Joint and
  Several Liability

  
	
  Section
  9.2

  	
  Primary
  Obligation; Waiver of Marshalling

  
	
  Section 9.3

  	
  Financial
  Condition of Apio

  
	
  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

  	
  Lender Held Harmless

  
	
  Section
  9.12

  	
  Borrower
  and Apio’s Integrated Operations

  

 

iv

 

CREDIT AND SECURITY AGREEMENT

 

Dated as of August 20,
2003

 

CAL EX TRADING COMPANY, a Delaware corporation (“Borrower”),
and WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (“Lender”),
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:

 

“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 Revolving 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 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 and Security Agreement.

 

“Aggregate Face Amount” has the meaning given in
Sections 2.13(c).

 

“Apio” means Apio, Inc., a Delaware corporation.

 

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

 

1

 

“Apio Loan” has the meaning of “Advance” under the
Apio Loan Agreement.

 

“Apio Loan Agreement” means that certain Credit and
Security Agreement, dated as of even date herewith, between Apio and Lender.

 

“Apio Loan Documents” has the meaning of “Loan
Documents” under the Apio Loan Agreement.

 

“Apio Obligations” has the meaning of “Obligations”
under the Apio Loan Agreement.

 

“Availability” means the difference of (i) the
Borrowing Base and (ii) the sum of (A) the outstanding principal balance of the
Revolving Note, and (B) the L/C Amount.

 

“Banking Day” means a day on which the Federal Reserve
Bank of San Francisco is open for business.

 

“Bankruptcy Code” means the United States Bankruptcy
Code, as in effect from time to time.

 

“Base Rate” means the rate of interest publicly
announced from time to time by Wells Fargo Bank at its principal office in San
Francisco as its “prime rate”, with the understanding that the “prime rate” is
one of Wells Fargo Bank’s base rates (not necessarily the lowest of such rates)
and serves as the basis upon which effective rates of interest are calculated
for loans making reference thereto.

 

“Book Net Worth” means the aggregate of the common and
preferred stockholders’ equity in the Companies, determined in accordance with
GAAP.

 

“Borrower Agreement” means that certain Borrower
Agreement, dated as of even date herewith, between Borrower and Ex-Im Bank, and
acknowledged by Lender.

 

“Borrowing Base” means at any time the lesser of:

 

(a)                                  the
Maximum Line; or

 

(b)                                 85%
of Eligible Export-Related Accounts Receivable less the amount of (x) the
Dilution Reserve, if any, and (y) the Grower Reserve; provided, however,
Lender may reduce the advance rate on, or create additional reserves against,
the Eligible Export Related Accounts Receivable, in its sole and absolute
discretion, without declaring an Event of Default if it reasonably determines
that there has occurred a Material Adverse Effect; provided, further,
however, if the circumstances described in Section 7.1(w) have occurred
and are continuing, then the advance rate on the Eligible Export-Related
Accounts Receivable shall be reduced from 85% to 75% until such circumstances
are no longer continuing.

 

“Buyer” means a Person that has entered into one or
more Export Orders with Borrower.

 

2

 

“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.

 

“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) 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.

 

(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.

 

(c)                                  Either
Nick Tompkins or Gregory S. Skinner shall cease to actively manage Borrower’s
day-to-day business activities, unless a successor reasonably acceptable to
Lender has been identified within 120 days of such cessation and is in place
and actively so managing within 180 days of the date of such cessation.

 

“Collateral” means all of Borrower’s Accounts, chattel
paper, deposit accounts, documents, Equipment, General Intangibles, goods,
instruments, Inventory, Investment Property, letter-of-credit rights, letters
of credit, all sums on deposit in any Collateral Account, and any items in any
Lockbox; together with (i) all substitutions and replacements for and products
of any of the foregoing; (ii) in the case of all goods, all accessions; (iii)
all accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any goods; (iv) all warehouse
receipts, bills of lading and other documents of title now or hereafter
covering such goods; (v) all collateral subject to the Lien of any Security
Document; (vi) any money, or other assets of Borrower that now or hereafter
come into the possession, custody, or control of Lender; (vii) all sums on
deposit in the Special Account; and (viii) proceeds of any and all of the
foregoing.

 

“Collateral Account” means the “Lender Account” as
defined in the Lockbox and Collection Account Agreement.

 

“Commitment” means Lender’s commitment to make
Advances to, and to cause the Issuer to issue Letters of Credit for the account
of, Borrower pursuant to Article II.

 

“Companies” means Borrower, Apio and Apio Cooling.

 

3

 

“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.

 

“Costs” means all expenditures or obligations incurred
and the value of all assets expended in the manufacture or provision of Items.

 

“Country Limitation Schedule” means the schedule
published from time to time by Ex-Im Bank and provided to Borrower by Lender
which sets forth on a country by country basis whether and under what
conditions Ex-Im Bank will provide coverage for the financing of export
transactions to the countries listed.

 

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

 

“Current Maturities of Long Term Debt” means, as of
the date of determination, the amount of the Companies’ consolidated long-term
Indebtedness and capitalized leases, which became due during the applicable
period ending on such date.  For the
purposes of this calculation, any Indebtedness with payment terms in excess of
90 days, the payment will be adjusted to a 90 day payment equivalent. In
addition, the applicable payment related to the IBM capital lease that is
supported by a letter of credit at Bank of America will not be included.

 

“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.

 

“Debarment Regulations” means, collectively, (a) the
Governmental Debarment and Suspension (Nonprocurement) regulations (Common
Rule), 53 Fed. Reg. 19204 (May 26, 1988), (b) Subpart 9.4 (Debarment,
Suspension, and Ineligibility) of the Federal Acquisition Regulations, 48
C.F.R. 9.400-9.409, and (iii) the revised Governmentwide Debarment and
Suspension (Nonprocurement) regulations (Common Rule), 60 Fed. Reg. 33037 (June
26, 1995).

 

“Debt Service Coverage Ratio” means, as of the date of
determination, the ratio of (i) the sum of (A) Funds from Operations
and (B) Interest Expense minus (C) unfinanced Capital
Expenditures to (ii) the sum of (A) Current Maturities of Long Term
Debt and (B) Interest Expense.

 

“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 Lender
in its sole and absolute discretion.

 

4

 

“Default Rate” means an annual interest rate equal to
three percent (3%) over the Floating Rate, which interest rate shall change
when and as the Floating Rate changes.

 

“Dilution” means, as of any date of determination, a
percentage, based upon the experience of the calendar year-to-date period
ending on the date of determination, that is the result of dividing the Dollar
amount of (a) bad debt write-downs, discounts, advertising allowances,
credits, or other dilutive items with respect to the Accounts during such period,
by (b) Borrower’s sales during such period (excluding extraordinary items)
plus the Dollar amount of clause (a).

 

“Dilution Reserve” means, as of any date of
determination, an amount sufficient to reduce the advance rate against Eligible
Accounts by one percentage point for each 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.

 

“Eligible Export-Related Accounts Receivable” means an
Export-Related Account Receivable excluding, however, any Export-Related
Account Receivable:

 

(a)                                  that
portion of Accounts which are more than sixty (60) days past the stated due
date or unpaid one hundred twenty (120) days or more after the invoice date;

 

(b)                                 that
does not arise from the sale of Items in the ordinary course of Borrower’s
business;

 

(c)                                  that
is not subject to a valid, perfected first priority Lien in favor of Lender;

 

(d)                                 as
to which any covenant, representation or warranty contained in the Loan
Documents with respect to such Account has been breached;

 

(e)                                  that
is not owned by Borrower or is subject to any right, claim or interest of
another Person other than the Liens in favor of Lender;

 

(f)                                    with
respect to which an invoice has not been sent;

 

(g)                                 that
arises from the sale of defense articles or defense services;

 

(h)                                 that
is due and payable from a Buyer located in a country with which Ex-Im-Bank is
prohibited from doing business as designated in the Country Limitation
Schedule;

 

(i)                                     that
does not comply with the requirements of the Country Limitation Schedule;

 

(j)                                     that
arises from a sale of goods to or performance of services for an employee of
Borrower, a stockholder of Borrower, a subsidiary of Borrower, a Person with a

 

5

 

controlling interest in Borrower or a Person which
shares common controlling ownership with Borrower;

 

(k)                                  that
is backed by a letter of credit unless the Items covered by the subject letter
of credit have been shipped;

 

(l)                                     that
Lender or Ex-Im Bank, in its reasonable judgment, deems uncollectible for any
reason;

 

(m)                               that
is due and payable in a currency other than Dollars, except as may be approved
in writing by Ex-Im Bank;

 

(n)                                 that
is due and payable from a military Buyer, except as may be approved in writing
by Em-Im Bank;

 

(o)                                 that
does not comply with the terms of sale set forth in Section 7 of the Loan
Authorization Notice;

 

(p)                                 that
is due and payable from a Buyer who (i) applies for, suffers, or consents
to the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property
or calls a meeting of its creditors, (ii) admits in writing its inability,
or is generally unable, to pay its debts as they become due or ceases
operations of its present business, (iii) makes a general assignment for
the benefit or creditors, (iv) commences a voluntary case under any state
or federal bankruptcy laws (as now or hereafter in effect), (v) is adjudicated
as bankrupt or insolvent, (vi) files a petition seeking to take advantage
of any other law providing for the relief of debtors, (vii) acquiesces to,
or fails to have dismissed, any petition which is filed against it in any
involuntary case under such bankruptcy laws, or (viii) takes any action
for the purpose of effecting any of the foregoing;

 

(q)                                 that
arises from a bill-and-hold, guaranteed sale, sale-and-return, sale on
approval, consignment or any other repurchase or return basis or is evidenced
by chattel paper,

 

(r)                                    for
which the Items giving rise to such Account have not been shipped or the
services giving rise to such Account have not been performed by Borrower or the
Account otherwise does not represent a final sale;

 

(s)                                  that
is subject to any offset, deduction, defense, dispute, or counterclaim or the
Buyer is also a creditor or supplier of Borrower or the Account is contingent
in any respect or for any reason;

 

(t)                                    to
which Borrower has made any arrangement with the Buyer for any deduction
therefrom, except for discounts or allowances made in the ordinary course of

 

6

 

business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each
respective invoice related thereto;

 

(u)                                 for
which any of the Items giving rise to such Account have been returned, rejected
or repossessed;

 

(v)                                 to
the extent it includes any finance charges, service charges, taxes, discounts,
credits, allowances and retainages;

 

(w)                               that
arise from the sales of Items containing less than fifty (50%) percent US
Content;

 

(x)                                   that
arise from the sale of Items, containing any Foreign Content not incorporated
into such Items in the US;

 

(y)                                 that
arise from the sale of any Items to be used in the construction, alteration,
operation or maintenance of nuclear, power, enrichment, reprocessing, research
or heavy water production facilities;

 

(z)                                   owed
by an Account Debtor, regardless or whether otherwise eligible, if twenty-five (25%)
percent or more of the total amount due under Accounts from such Account Debtor
is ineligible under clauses (j) or (u) above;

 

(aa)                            owed
by any one Account Debtor (other than a Key Customer) to the extent Accounts
owed by such Account Debtor exceed fifteen (15%) percent of the aggregate of
all of Borrower’s Accounts; provided, however, notwithstanding
the foregoing:

 

(i)                                     During
the period from November 1 through June 30 of each year, the amount of the
Accounts owed by any Key Customer that shall be deemed ineligible under this
clause (aa) shall be that portion of such Accounts that exceeds an amount equal
to the lesser of: (x) twenty-five percent (25%) of the aggregate of all of
Borrower’s Accounts (except in the case of Pomina Enterprise Company Ltd., in
which case such percentage shall be thirty-five percent (35%)); or (y) the
amount of Availability from such Accounts that exceeds $2,000,000; and

 

(ii)                                  During
the period from July 1 through October 31 of each year, the amount of the
Accounts owed by any Key Customer that shall be deemed ineligible under this
clause (aa) shall be that portion of such Accounts that exceeds an amount equal
to the lesser of: (x) forty-five percent (45%) of the aggregate of all of
Borrower’s Accounts (except in the case of Pomina Enterprise Company Ltd., in
which case such percentage shall be fifty percent (50%)); or (y) the amount of
Availability from such Accounts that exceeds $4,000,000; or

 

7

 

(bb)                          that are
otherwise deemed ineligible for any reason by Lender or Ex-Im Bank in its
discretion.

 

“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
Lender 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.

 

“Ex-Im Bank” means the Export-Import Bank of the
United States.

 

“Export Order” means a written export order or
contract for the purchase by a Buyer from Borrower of any of the Items.

 

“Export-Related Accounts Receivable” means that
portion of Accounts consisting of the unpaid obligations of Buyers arising from
the sale of Items which is due and payable to Borrower in the United States.

 

“Financial Covenants” means the covenants set forth in
Section 6.2.

 

“Floating Rate” means an annual interest rate equal to
the sum of the Base Rate plus the Margin, which interest rate shall change when
and as the Base Rate changes.

 

“Foreign Content” means that portion of the cost of an
Item arising from materials which are not of United States origin or from labor
and services not performed in the United States.

 

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

 

“Funds from Operations” means, for any period, the sum
of (i) the Companies’ consolidated Net Income less taxes paid during such
period, (ii) the Companies’ consolidated depreciation and amortization
expense for such period, (iii) the Companies’ consolidated deferred income
taxes for such period, and (iv) other non-cash items, each as determined
in accordance with GAAP plus (v) unpaid management fees owing to Parent
during such period, and plus (vi) unpaid inter-company interest.

 

8

 

“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 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.  The amount of all such
accounts payable shall be determined by Lender in a commercially reasonable
manner, and shall be conclusive, absent manifest error.

 

“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 Lender.

 

“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.

 

“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.

 

9

 

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

 

“Interest Expense” means, for a fiscal year-to-date
period, the Companies’ total gross interest expense during such period
(excluding interest income), and shall in any event include (i) interest
expensed (whether or not paid) on all Indebtedness, excluding unpaid interest
on shareholder debt that is subject to the Subordination Agreement,
(ii) the amortization of debt discounts, (iii) the amortization of
all fees payable in connection with the incurrence of Indebtedness to the
extent included in interest expense, and (iv) the portion of any
capitalized lease obligation allocable to interest expense.

 

“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.

 

“Items” means the finished goods or services which are
intended for export from the United States, as specified in Section 4(A) of the
Loan Authorization Notice.

 

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

 

“Key Customer” means each of Coverings Industrial
Corp. (Taipei, Taiwan); Day Spring Company (Taichung, Taiwan); Ek-Chai
Distribution System/Lotus (Bangkok, Thailand); Cititex Trading Ltd. (Bangkok,
Thailand); Castle Cooke Worldwide Ltd. (Hong Kong); Kobe Yoko Ltd. (Kobe,
Japan); Bae Yih Trading (Taichung, Taiwan), and Pomina Enterprise Company Ltd.

 

10

 

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

 

“L/C Application” means an application and agreement
for letters of credit in a form acceptable to the Issuer and Lender.

 

“Letter of Credit” has the meaning specified in
Section 2.5.

 

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

 

“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 satisfactory to Lender, granting
Lender a first priority Lien on the Life Insurance Policy to secure payment of
the Obligations.

 

“Life Insurance Policy” has the meaning given in
Section 6.9.

 

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

 

“Loan Authorization Notice” means that certain Loan
Authorization Notice from Lender to the Ex-Im Bank with respect to the Loan
Documents.

 

“Loan Documents” means this Agreement, the Notes the
Guaranty, the Security Documents, Borrower Agreement, the Loan Authorization
Notice, the Subordination Agreement, any L/C Application and the Apio Loan
Documents.

 

“Loan Year” has the meaning given in
Section 2.12(b).

 

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

 

“Lockbox and Collection Account Agreement” means the
Lockbox and Collection Account Agreement by and among Borrower, Bank of
America, N.A., Regulus West, LLC and Lender, of even date herewith.

 

“Margin” means one hundred (100) basis points; provided,
however, if the Companies’ consolidated audited Financial Statement for
their fiscal year ending May 31, 2004 shall indicate consolidated Net Income of
not less than $2,000,000, then the Margin shall be reduced to twenty-five (25)
basis points on the first day of the month following receipt of such audited
Financial Statement; provided, further, that if a Default Period
is continuing at the time when

 

11

 

such reduction would otherwise be made, then no reduction of the Margin
shall be made unless and until such Default Period is no longer continuing.

 

“Master Guarantee” means that certain Master Guarantee
Agreement No. MN-MGA-99-001, dated as of July 20, 1999, between Lender and the
Ex-Im Bank.

 

“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 the Guarantor;

 

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

 

(iii)                               a material adverse
effect on the ability of Lender 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
the 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 the Guarantor or threat of litigation which if
determined adversely to Borrower or the Guarantor would cause Borrower or the
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.

 

“Maturity Date” means July 31, 2006.

 

“Maximum Line” means $8,000,000.

 

“Minimum Interest Charge” means $157,500; provided,
however, if the Companies’ consolidated audited Financial Statement for
their fiscal year ending May 31, 2004 shall indicate consolidated Net Income of
not less than $2,000,000, then the Minimum Interest Charge shall be reduced to
$135,000 commencing with the first day of the Loan Year which began following
the close of such fiscal year; provided, further, that if a
Default Period is continuing at the time when such reduction would otherwise be
made, then no reduction of the Minimum Interest Charge shall be made unless and
until such Default Period is no longer continuing.

 

“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 before-tax net
income from continuing operations, as determined in accordance with GAAP.

 

“Note” means the Revolving Note.

 

“Obligation of Reimbursement” has the meaning given in
Section 2.7(a).

 

12

 

“Obligations” means (a) the Note, the Obligation of
Reimbursement and each and every other debt, liability and obligation of every
type and description which Borrower may now or at any time hereafter owe to
Lender, whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving Lender alone
or in a transaction involving other creditors of Borrower, and 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 including all indebtedness of Borrower arising under any Credit
Document or guaranty between Borrower and Lender, whether now in effect or
hereafter entered into, and (b) the Apio Obligations.

 

“Officer” means an officer of Borrower.

 

“Overadvance” has the meaning given in Section 2.1.

 

“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.

 

“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 6.3(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 legally
described in Exhibit D 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
2.8.

 

13

 

“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.

 

“Revolving Advance” has the meaning given in
Section 2.1.

 

“Revolving Note” means Borrower’s revolving promissory
note, payable to the order of Lender in substantially the form of Exhibit A
hereto.

 

“Security Documents” means this Agreement, the Lockbox
and Collection Account Agreement, and any other agreement, instrument or
document delivered to Lender from time to time to secure the Obligations.

 

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

 

“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 by a financial institution acceptable to Lender in
connection with Letters of Credit, as contemplated by Section 2.6.

 

“Subsidiary” means any corporation of which more than
50% of the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of Directors of
such corporation, irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency, is at the time directly or indirectly owned by
Borrower, by Borrower and one or more other Subsidiaries, or by one or more
other Subsidiaries.

 

“Termination Date” means the earliest of (i) the
Maturity Date, (ii) the date Borrower terminates the Credit Facility, (iii) the
date Lender demands payment of the Obligations after an Event of Default
pursuant to Section 7.2, or (iv) the effective date of termination of the
Apio Loan Agreement.

 

“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.

 

“US Content” means that portion of the cost of an Item
arising from materials which are of United States origin or from labor and
services performed in the United States.

 

“Wells Fargo Bank” means Wells Fargo Bank, National
Association.

 

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

 

14

 

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.

 

ARTICLE
II

AMOUNT
AND TERMS OF THE CREDIT FACILITY

 

Section 2.1                                      Revolving
Advances.

 

(a)                                  Advances.  Lender agrees, on the terms and subject to the
conditions herein set forth, to make advances to Borrower from time to time
from the date all of the conditions set forth in Section 4.1 are satisfied
(the “Funding Date”) to the Termination Date (the “Revolving Advances”) to
provide Borrower with working capital to fulfill Export Orders.  Lender shall have no obligation to make a
Revolving Advance to the extent the amount of the requested Revolving Advance
exceeds Availability.  Borrower’s
obligation to pay the Revolving Advances shall be evidenced by the Revolving
Note and shall be secured by the Collateral. 
Within the limits set forth in this Section 2.1, Borrower may
borrow, prepay pursuant to Section 2.16 and reborrow.

 

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

 

Section 2.2                                      Procedures
for Requesting Advances.  Borrower
shall comply with the following procedures in requesting Revolving Advances:

 

(a)                                  Time for Requests.  Borrower shall request each Advance not
later than 10:00 a.m., Pacific time (or 9:00 a.m., Pacific time, on the
last Banking Day of each month, on Christmas eve and on New Years eve) on the
Banking Day which is the date the Advance is to

 

15

 

be made.  Each such request
shall be effective upon receipt by Lender, shall be in writing or by telephone,
telecopy transmission or email, to be confirmed in writing by Borrower if so
requested by Lender (in the form of Exhibit E), 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 Lender; or (iii) a person whom Lender
reasonably believes to be an Officer of Borrower or such a designated
agent.  Borrower shall repay all
Advances even if Lender does not receive such confirmation and even if the
person requesting an Advance was not in fact authorized to do so.  Any request for an 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.

 

(b)                                 Disbursement.  Upon fulfillment of the applicable
conditions set forth in Article IV, Lender shall disburse the proceeds of
the requested Advance by crediting the same to Borrower’s demand deposit
account maintained with Wells Fargo Bank, on that same Banking Day, unless
Lender and Borrower shall agree in writing to another manner of disbursement.

 

Section 2.3                                      Intentionally
Omitted.

 

Section 2.4                                      Increased
Costs; Capital Adequacy; Funding Exceptions.

 

(a)                                  Increased Costs; Capital Adequacy.  If Lender determines at any time that its
Return has been reduced as a result of any Rule Change, such Lender 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 2.4:

 

(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 Lender, 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 Lender, 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 Lender, on letters of credit.

 

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

 

(iv)                              “Return”,
for any period, means the percentage determined by dividing (i) the sum of
interest and ongoing fees earned by Lender under this Agreement during such
period, by (ii) the average capital such Lender is required to maintain during
such period as

 

16

 

a result of its being a party to this Agreement, as determined by such
Lender based upon its total capital requirements and a reasonable attribution
formula that takes account 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, or any change in the
interpretation or administration thereof by any Governmental Authority, 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 Lender is required to maintain to the extent that
the increases are required due to a regulatory authority’s assessment of that
Lender’s financial condition.

 

(b)                                 The
initial notice sent by Lender shall be sent as promptly as practicable after
Lender learns that its Return has been reduced, shall include a demand for
payment of the amount necessary to restore Lender’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, Lender 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. Lender’s calculation in any such notice shall be
conclusive and binding absent demonstrable error.

 

Section 2.5                                      Letters
of Credit(1)

 

(a)                                  Lender
agrees, on the terms and subject to the conditions herein set forth, to cause
an Issuer to issue, from the Funding Date to the Termination Date, one or more
irrevocable standby or documentary letters of credit (each, a “Letter of
Credit”) for Borrower’s account by guaranteeing payment of Borrower’s
obligations or being a co-applicant. Lender shall have no obligation to cause
an Issuer to issue any Letter of Credit if the face amount of the Letter of
Credit to be issued would exceed the lesser of:

 

(i)                                     $0
less the L/C Amount, or

 

(ii)                                  Availability.

 

(1)                                  As
of the Closing Date, Lender has not agreed to issue any Letters of Credit to
Borrower.  The terms of Sections 2.5,
2.6, 2.7, 2.8, 2.13(c) and 2.13(d), and the related definitions, shall not be
effective until such time as Lender notifies Borrower that such Sections shall
be effective.

 

17

 

Each Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application entered into between Borrower and Lender for the benefit of the
Issuer, completed in a manner satisfactory to Lender and the Issuer. The terms
and conditions set forth in each such L/C Application 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)                                 No
Letter of Credit shall be issued with an expiry date later than the Termination
Date in effect as of the date of issuance.

 

(c)                                  Any
request to cause an Issuer 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.

 

Section 2.6                                      Special
Account.  If the Credit Facility is
terminated for any reason while any Letter of Credit is outstanding, Borrower
shall thereupon pay Lender 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 maintained for Lender by any financial institution
acceptable to Lender. Any interest earned on amounts deposited in the Special
Account shall be credited to the Special Account.  Lender may apply amounts on deposit in the Special Account at any
time or from time to time to the Obligations in Lender’s sole discretion.  Borrower may not withdraw any amounts on
deposit in the Special Account as long as Lender maintains a security interest
therein. Lender agrees to transfer any balance in the Special Account to
Borrower when Lender is required to release its security interest in the
Special Account under applicable law.

 

Section 2.7                                      Payment
of Amounts Drawn Under Letters of Credit; Obligation of Reimbursement.  Borrower acknowledges that Lender, as
co-applicant, will be liable to the Issuer for reimbursement of any and all
draws under Letters of Credit and for all other amounts required to be paid
under the applicable L/C Application. 
Accordingly, Borrower shall pay to Lender 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:

 

(a)                                  Borrower
shall pay to Lender 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 Lender 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”).

 

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

 

18

 

(c)                                  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 Revolving Advance
to pay the Obligation of Reimbursement, Borrower shall pay to Lender 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 Revolving Advance for any reason, Lender is irrevocably authorized, in
its sole discretion, to make a Revolving Advance in an amount sufficient to
discharge the Obligation of Reimbursement and all accrued but unpaid interest
thereon.

 

(d)                                 Borrower’s
obligation to pay any Revolving Advance made under this Section 2.7, shall
be evidenced by the Revolving Note and shall bear interest as provided in
Section 2.12.

 

Section 2.8                                      Obligations
Absolute.  Borrower’s obligations
arising under Section 2.7 shall be absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of
Section 2.7, under all circumstances whatsoever, including (without
limitation) the following circumstances:

 

(a)                                  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”);

 

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

 

(c)                                  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;

 

(d)                                 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;

 

(e)                                  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

 

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

 

19

 

Section 2.9                                      Intentionally
Omitted.

 

Section 2.10                                Intentionally
Omitted.

 

Section 2.11                                Intentionally
Omitted.

 

Section 2.12                                Interest;
Minimum Interest Charge; Default Interest; Participations; Clearance Days;  Usury.

 

(a)                                  Notes.  Except as set forth in Subsections (d) and
(g), the outstanding principal balance of the Notes shall bear interest at the
Floating Rate.

 

(b)                                 Minimum Interest Charge.  Notwithstanding the interest payable
pursuant to Subsection (a), Borrower shall pay to Lender interest of not less
than the Minimum Interest Charge per Loan Year during the term of this
Agreement, and Borrower shall pay any deficiency between the Minimum Interest
Charge and the amount of interest otherwise calculated under Subsection (a)
hereinabove plus the amount of interest otherwise calculated under
Section 2.12(a) of the Apio Loan Agreement on the first day of the month
following each anniversary of the Funding Date and on the Termination Date. In
the event that the Termination Date shall be occur prior to an anniversary of
the Funding Date, the Minimum Interest Charge that shall be due on such date
shall be pro rated for that partial year period. As used in this subsection
(c), “Loan Year” means each one-year period (or portion thereof) ending on July
31 of each year.

 

(c)                                  Default Interest Rate.  Upon notice to Borrower from Lender from
time to time, the principal of the Advances outstanding from time to time shall
bear interest at the Default Rate, effective as of the first day of the fiscal
month during which any Default Period begins through the last day of such
Default Period. Lender’s election to charge the Default Rate shall be in its
sole discretion and shall not be a waiver of any of its other rights and
remedies. Lender’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.

 

(d)                                 Clearance Days.  Notwithstanding Section 2.15(b)(ii),
interest at the interest rate applicable under this Section 2.12 shall accrue
on the amount of all payments (even if in the form of immediately available
federal funds) for one (1) day(s) for clearance.

 

(e)                                  Participations.  If any Person shall acquire a participation
in the Advances or the Obligation of Reimbursement, Borrower shall be obligated
to Lender to pay the full amount of all interest calculated under this Section
2.12, 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 2.12,
or otherwise elects to accept less than its prorata share of such fees, charges
and other amounts due under this Agreement.

 

(f)                                    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 Lender are
hereby limited so that in no contingency

 

20

 

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 hereby 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 Lender. This provision shall never be superseded or waived and
shall control every other provision of the Loan Documents and all agreements
between Borrower and Lender, or their successors and assigns.

 

Section 2.13                                Fees.

 

(a)                                  Application Fee.  Borrower shall reimburse Lender for the $100
application fee payable to Ex-Im Bank in connection with the Joint Application
For Working Capital.

 

(b)                                 Audit Fees.  Borrower shall pay Lender, on demand, audit
fees in connection with any audits or inspections conducted by or on behalf of
Lender of any Collateral or Borrower’s operations or business at the rates
established from time to time by Lender as its audit fees (which fees are
currently $90 per hour per auditor), together with all actual out-of-pocket
costs and expenses incurred in conducting any such audit or inspection. Such
audits fees plus the audit fees due under Section 2.13(b) of the Apio Loan
Agreement shall not exceed $30,000 per year unless a Default Period is
continuing.  There shall be no more than
4 such audits and inspections per year (including such audits and inspections
conducted pursuant to Section 2.13(b) of the Apio Loan Agreement) unless a
Default Period is continuing.

 

(c)                                  Letter of Credit Fees.  Borrower shall pay to Lender a fee with
respect to each Letter of Credit, if any, accruing on a daily basis and
computed at the annual rate of one and one-half percent (1.50%), of the
aggregate amount that may then be drawn under it assuming compliance with all
conditions for drawing (the “Aggregate Face 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 Lender, due and payable
monthly in arrears on the first day of each month and on the Termination Date; provided,
however that during Default Periods, in Lender’s sole discretion and
without waiving any of its other rights and remedies, such fee shall increase
to four and one-half percent (4.50%) of the Aggregate Face 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 Lender, on 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 the Letters of Credit at the
then-current rates published by the Issuer for such services rendered on behalf
of customers of the Issuer generally.

 

21

 

(e)                                  Ex-Im Annual Fee.  Annually, in advance, on the Funding Date
and again on each anniversary of the Funding Date, an Ex-Im annual fee of
$65,000, which fee shall be fully-earned and non-refundable when paid.

 

(f)                                    Other Fees.  Lender may from time to time, upon five (5)
days prior written notice to Borrower during a Default Period, charge
additional fees for Revolving 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 Revolving 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 2.14                                Time
for Interest Payments; Payment on Non-Banking Days; Computation of Interest and
Fees.

 

(a)                                  Time For Interest Payments.  Interest shall be due and payable in arrears
on the last day of each month and on the Termination Date.

 

(b)                                 Payment on Non-Banking Days.
 Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.

 

(c)                                  Computation of Interest and Fees.  Interest accruing on the outstanding
principal balance of the Advances and fees hereunder outstanding from time to
time shall be computed on the basis of actual number of days elapsed in a year
of 360 days.

 

Section 2.15                                Lockbox;
Collateral Account; Application of Payments.

 

(a)                                  Lockbox and Collateral Account.

 

(i)                                     Borrower
shall instruct all Account Debtors to pay all Accounts directly to the Lockbox.
If, notwithstanding such instructions, Borrower receive any payments on
Accounts, Borrower shall deposit such payments into the Collateral
Account.  Borrower shall also deposit
all other cash proceeds of Collateral directly to the Collateral Account. Until
so deposited, Borrower shall hold all such payments and cash proceeds in trust
for and as the property of Lender and shall not commingle such property with
any of its other funds or property. All deposits in the Collateral Account
shall constitute proceeds of Collateral and shall not constitute payment of the
Obligations.

 

(ii)                                  All
items deposited in the Collateral Account shall be subject to final payment. If
any such item is returned uncollected, Borrower will immediately pay Lender,
or, for items deposited in the Collateral Account, the bank maintaining such
account, the amount of that item, or such bank at its discretion may charge any
uncollected item to Borrower’s

 

22

 

commercial account or other account. 
Borrower shall be liable as an endorser on all items deposited in the
Collateral Account, whether or not in fact endorsed by Borrower.

 

(b)                                 Application of Payments.

 

(i)                                     Borrower
may, from time to time, in accordance with the Lockbox and Collection Account
Agreement, cause funds in the Collateral Account to be transferred to Lender’s
general account for payment of the Obligations. Except as provided in the
preceding sentence, amounts deposited in the Collateral Account shall not be
subject to withdrawal by Borrower, except after full payment and discharge of
all Obligations.

 

(ii)                                  All
payments to Lender shall be made in immediately available funds and shall be
applied to the Obligations upon receipt by Lender. Funds received from the
Collateral Account shall be deemed to be immediately available. Lender 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 Lender’s sole discretion reversed and
re-applied, to the Obligations, in such order and manner as Lender shall
determine in its sole discretion.

 

Section 2.16                                Voluntary
Prepayment; Termination of the Credit Facility by Borrower.  Except as otherwise provided herein,
Borrower may prepay the Advances in whole at any time or from time to time in
part.  Borrower may terminate the Credit
Facility at any time if it gives Lender at least 30 days’ prior written notice.
Subject to termination of the Credit Facility and payment and performance of
all Obligations, Lender shall, at Borrower’s expense, release or terminate the
Security Interest and the Security Documents to which Borrower are entitled by
law.

 

Section 2.17                                Mandatory
Prepayment.  Without notice or
demand, if the sum of the outstanding principal balance of the Revolving
Advances plus the L/C Amount shall at any time exceed the Borrowing Base,
Borrower shall (i) first, immediately prepay the Revolving Advances to the
extent necessary to eliminate such excess; and (ii) if prepayment in full of
the Revolving Advances is insufficient to eliminate such excess, pay to Lender
in immediately available funds for deposit in the Special Account an amount
equal to the remaining excess. Any payment received by Lender under this
Section 2.17 or under Section 2.16 may be applied to the Obligations,
in such order and in such amounts as Lender, in its reasonable discretion, may
from time to time determine.

 

Section 2.18                                Revolving
Advances to Pay Obligations. 
Notwithstanding anything in Section 2.1, Lender 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 Revolving Advance in an amount equal to the portion of the Obligations
from time to time due and payable. Lender will use its commercially reasonable
best efforts to provide Borrower with prompt notice after any such Advance
pursuant to this Section 2.18 has been made; provided that

 

23

 

any failure by Lender to provide such notice shall not be deemed to be
a breach or default by Lender of its obligations hereunder.

 

Section 2.19                                Use
of Proceeds. Borrower shall use the proceeds of Advances and each Letter of
Credit only for the purpose of enabling Borrower to finance the cost of
manufacturing, producing, purchasing or selling the Items intended for export.

 

Section 2.20                                Liability
Records.  Lender 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 Lender’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 Lender shall be
conclusive and fully binding on Borrower unless Borrower gives Lender specific
written notice of exception within 30 days after receipt.

 

Section 2.21                                Ex-Im
Bank.  Borrower acknowledge that
Lender is willing to make the Credit Facility available to Borrower because the
Ex-Im Bank is willing to guaranty payment of a significant portion of the
Obligations pursuant to the Master Guarantee. 
In the event of any conflict between the terms of the Borrower Agreement
or the documents executed in connection therewith, on the one hand, and the
Loan Documents, on the other hand, the provision that is more stringent on
Borrower shall govern and control.

 

ARTICLE
III

SECURITY
INTEREST; OCCUPANCY; SETOFF

 

Section 3.1                                      Grant
of Security Interest.  Borrower
hereby pledges, assigns and grants to Lender 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 Lender, Borrower will grant
Lender a security interest in all commercial tort claims it may have against
any Person.

 

Section 3.2                                      Notification
of Account Debtors and Other Obligors. 
Lender may at any time, if an Event of Default has occurred and is
continuing, notify any Account Debtor or other person obligated to pay the
amount due that such right to payment has been assigned or transferred to
Lender for security and shall be paid directly to Lender.  Borrower will join in giving such notice if
Lender so requests.  At any time after
Borrower or Lender gives such notice to an Account Debtor or other obligor,
Lender may, but need not, in Lender’s name or in Borrower’s name, demand, sue
for, collect or receive any money or property at any time payable or receivable
on account of, or securing, any such right to payment, or grant any extension
to, make any compromise or settlement with or otherwise agree to waive, modify,
amend or change the obligations (including collateral obligations) of any such
Account Debtor or other obligor.

 

Section 3.3                                      Assignment
of Insurance.  As additional
security for the payment and performance of the Obligations, Borrower hereby
assigns to Lender any and all monies (including proceeds of insurance and
refunds of unearned premiums) due or to become due

 

24

 

under, and all other rights of Borrower with respect to, any and all
policies of insurance now or at any time hereafter covering the Collateral or
any evidence thereof or any business records or valuable papers pertaining
thereto, and Borrower hereby directs the issuer of any such policy to pay all
such monies directly to Lender.  At any
time, if an Event of Default has occurred and is continuing, Lender may (but
need not), in Lender’s name or in Borrower’s name, execute and deliver proof of
claim, receive all such monies, endorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or
release any claim against the issuer of any such policy.

 

Section 3.4                                      Occupancy.

 

(a)                                  Borrower
hereby irrevocably grants to Lender the right to take exclusive possession of
the Premises at any time upon the occurrence or during the continuation of an
Event of Default.

 

(b)                                 Lender
may use the Premises only to hold, process, manufacture, sell, use, store,
liquidate, realize upon or otherwise dispose of goods that are Collateral and
for other purposes that Lender may in good faith deem to be related or
incidental purposes.

 

(c)                                  Lender’s
right to hold the Premises shall cease and terminate upon the earlier of (i)
payment in full and discharge of all Obligations and termination of the Credit
Facility, and (ii) final sale or disposition of all goods constituting
Collateral and delivery of all such goods to purchasers.

 

(d)                                 Lender
shall not be obligated to pay or account for any rent or other compensation for
the possession, occupancy or use of any of the Premises; provided, however,
that if Lender does pay or account for any rent or other compensation for the
possession, occupancy or use of any of the Premises, Borrower shall reimburse
Lender promptly for the full amount thereof. In addition, Borrower will pay, or
reimburse Lender for, all taxes, fees, duties, imposts, charges and expenses at
any time incurred by or imposed upon Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this Agreement
or the provisions of this Section 3.4.

 

Section 3.5                                      License.  Without limiting the generality of any other
Security Document, Borrower hereby grants to Lender a non-exclusive, worldwide
and royalty-free license to use or otherwise exploit all Intellectual Property
Rights of Borrower for the purpose of: (a) completing the manufacture of any
in-process materials during any Default Period so that such materials become
saleable Inventory, all in accordance with the same quality standards
previously adopted by Borrower for its own manufacturing and subject to
Borrower’s reasonable exercise of quality control; and (b) selling, leasing or
otherwise disposing of any or all Collateral during any Default Period.

 

Section 3.6                                      Financing
Statement.  Borrower authorizes
Lender 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
Lender deems necessary or useful to perfect the Security Interest.  A carbon, photographic or

 

25

 

other reproduction of this Agreement or of any financing statements
signed 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:

 

Cal Ex Trading Company

4575 West Main Street

Guadalupe, CA 93434

Federal Employer Identification No. 77-0528042

Organizational Identification No. 3513748

 

 

Name and address of Secured Party:

 

Wells Fargo Business Credit, Inc.

245 S. Los Robles Avenue, Suite 700

Pasadena, CA 
91101

Federal Employer Identification No. 41-1237652

 

Section 3.7                                      Setoff.  Lender may at any time or from time to time,
at its sole discretion and without demand, upon notice to Borrower, setoff any
liability owed to Borrower by Lender, whether or not due, against any
Obligation, whether or not due. In addition, each other Person holding a
participating interest in any Obligations shall have the right to appropriate
or setoff any deposit or other liability then owed by such Person to Borrower,
whether or not due, and apply the same to the payment of said participating
interest, as fully as if such Person had lent directly to Borrower the amount
of such participating interest.

 

Section 3.8                                      Power
of Attorney.  Borrower hereby
irrevocably makes, constitutes, and appoints Lender (and any of Lender’s
officers, employees, or agents designated by Lender) as Borrower’s true and
lawful attorney, with power to (a) if Borrower refuses to, or fails timely to
execute and deliver any of the documents required to be described in
Section 8.4, sign the name of Borrower on any of the documents described
in Section 8.4, (b) at any time that an Event of Default has occurred and is
continuing, sign Borrower’s name on any invoice or bill of lading relating to
the Collateral, drafts against Account Debtors, or notices to Account Debtors,
(c) send requests for verification of Accounts, (d) endorse Borrower’s name on
any collection item that may come into Lender’s possession, (e) at any time
that an Event of Default has occurred and is continuing, make, settle, and
adjust all claims under Borrower’s policies of insurance and make all
determinations and decisions with respect to such policies of insurance, (f) at
any time that an Event of Default has occurred and is continuing, settle and
adjust disputes and claims respecting the Accounts, chattel paper, or General
Intangibles directly with Account Debtors, for amounts and upon terms that
Lender determines to be reasonable, and Lender may cause to be executed and
delivered any documents and releases that Lender determines to be necessary,
and (g) at any time that an Event of Default has occurred and is continuing,
notify the United States Postal

 

26

 

Service to change the address for delivery of Borrower’s mail to any
address designated by Lender, otherwise intercept Borrower’s mail, and receive,
open and dispose of Borrower’s mail, applying all Collateral as permitted under
this Agreement and holding all other mail for Borrower’s account or forwarding
such mail to Borrower’s last known address. 
The appointment of Lender as Borrower’s attorney, and each and every one
of its rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully and finally repaid and performed and
Lender’s obligations to extend credit hereunder are terminated.

 

ARTICLE
IV

CONDITIONS
OF LENDING

 

Section 4.1                                      Conditions
Precedent to the Initial Advances and Letter of Credit.  Lender’s obligation to make the initial
Advances or to cause any Letters of Credit to be issued shall be subject to the
condition precedent that Lender shall have received all of the following, each
in form and substance satisfactory to Lender:

 

(a)                                  This
Agreement, duly executed by Borrower.

 

(b)                                 The
Note, duly executed by Borrower.

 

(c)                                  The
SBA/Ex-Im Bank Joint Application, duly completed and executed by Borrower.

 

(d)                                 The
Borrower Agreement, duly executed by Borrower and Ex-Im Bank.

 

(e)                                  An
Exceptions Approval Letter, duly executed by Ex-Im Bank.

 

(f)                                    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.

 

(g)                                 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.

 

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

 

(i)                                     The
Lockbox and Collection Account Agreement, duly executed by Borrower and Bank of
America, N.A.

 

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

 

27

 

(k)                                  The
Guaranty, duly executed by Parent.

 

(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 proceeds of the
initial Advances, they will satisfy, release or terminate such Liens in a
manner satisfactory to Lender, and (ii) Lender 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)                               A
certificate of Borrower’s Secretary or Assistant Secretary certifying that
attached to such certificate are (i) the resolutions of Borrower’s Directors
and, if required, Owners, authorizing the execution, delivery and performance
of the Loan Documents, (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 and
other instruments, agreements and certificates, including Advance requests, on
Borrower’s behalf.

 

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

 

(o)                                 A
certificate of Parent’s Secretary or Assistant Secretary certifying that
attached to such certificate are (i) the resolutions of Parent’s Directors and,
if required, Owners, authorizing the execution, delivery and performance of the
Loan Documents, (ii) true, correct and complete copies of Parent’s Constituent
Documents, and (iii) examples of the signatures of Parent’s Officers or agents
authorized to execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on Parent’s behalf.

 

(p)                                 A
current certificate issued by the Secretary of State of California, certifying
that Parent is in compliance with all applicable organizational 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, in his personal capacity, the
representations and warranties set forth in Article V.

 

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

 

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

 

28

 

(u)                                 Payment
of the fees and commissions due under Section 2.13 through the date of the
initial Advance or Letter of Credit and expenses incurred by Lender through
such date and required to be paid by Borrower under Section 8.5, including all
legal expenses incurred through the date of this Agreement.

 

(v)                                 Review
and approval by Lender of the Companies’ internally prepared financial
statements for the period ended June 2003.

 

(w)                               Review
and approval by Lender of Parent’s consolidating internally prepared financial
statements for the period ended June 2003.

 

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

 

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

 

(z)                                   Review
and approval by Lender of all material agreements, including licensing
agreements, royalty agreements, shareholder debt agreements, management fee
agreement, earn-out agreements, seller notes, mortgage agreement, grower
contracts, and material leases.

 

(aa)                            No
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 Lender.

 

(bb)                          Evidence
that after making the initial Revolving Advance, Availability (combined with
Availability under the Apio Loan Agreement) shall be not less than $1,000,000.

 

(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 Lender or its nominee from each licensor thereof.

 

(dd)                          Such
other documents as Lender in its sole discretion may require.

 

Section 4.2                                      Conditions
Precedent to All Advances and Letters of Credit.  Lender’s obligation to make each Advance and to cause each Letter
of Credit to be issued shall be subject to the further conditions precedent
that:

 

(a)                                  the
representations and warranties contained in Article V are correct on and as of
the date of such Advance or issuance of a Letter 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 Advance or
issuance of a Letter of Credit which constitutes a Default or an Event of
Default; and

 

29

 

(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, Lender, or any
of their Affiliates.

 

ARTICLE
V

REPRESENTATIONS
AND WARRANTIES

 

Borrower represents and warrants to Lender 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. 
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 is correctly set forth
in Section 3.6.

 

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 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.

 

30

 

Section 5.4                                      Legal
Agreements.  This Agreement
constitutes and, upon due execution by Borrower, the other Loan Documents 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.  Except as set forth in Schedule 5.5
hereto, Borrower has no Subsidiaries.

 

Section 5.6                                      Financial
Condition; No Adverse Change. 
Borrower has furnished to Lender the Companies’ audited financial
statements for the fiscal year ended October 27, 2002 and unaudited financial
statements for the fiscal-year-to-date period ended May 25, 2003, 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 withheld by each of them other than taxes that are
being contested by Borrower or such Affiliate in accordance with Section
6.13.  Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
Officers of Borrower or 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.

 

31

 

Section 5.11                                Intellectual
Property Rights.

 

(a)                                  Owned Intellectual Property.  Schedule 5.11 is 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 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 is 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 Lender, 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, 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, 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.

 

(e)                                  Infringement.  Except as disclosed on Schedule 5.11,
Borrower has no knowledge of, and has not received any written claim or notice
alleging, any Infringement of

 

32

 

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 Lender 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 Lender 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 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

 

33

 

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 Lender 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 Lender.  All financial and other
information provided to Lender 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, Lender 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
Export-Related Accounts Receivable. 
All Eligible Export-Related Accounts Receivable that are included in the
Borrowing Base are Eligible Export-Related Accounts Receivable, and meet the
definition thereof.

 

Section 5.19                                Equipment.  All of the Equipment is used or held for use
in Borrower’s business and is fit for such purposes.

 

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

 

34

 

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                                Suspension
and Debarment, etc.  On the date of
this Agreement neither Borrower nor its principals are (a) debarred,
suspended, proposed for debarment with a final determination still pending,
declared ineligible or voluntarily excluded (as such terms are defined under
any of the Debarment Regulations referred to below) from participating in
procurement or nonprocurement transactions with any United States federal
government department or agency pursuant to any of the Debarment Regulations,
or (b) indicted, convicted or had a civil judgment rendered against
Borrower or any of its principals for any of the offenses listed in any of the
Debarment Regulations.  Unless authorized
by Ex-Im Bank, Borrower will not knowingly enter into any transactions in
connection with the Items with any Person who is debarred, suspended, declared
ineligible or voluntarily excluded from participation in procurement or
nonprocurement transactions with any United States federal government department
or agency pursuant to any of the Debarment Regulations.  Borrower will provide immediate written
notice to Lender if at any time they learn that the certification set forth in
this section was erroneous when made or has become erroneous by reason of changed
circumstances.

 

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 Lender shall otherwise consent in writing:

 

Section 6.1                                      Reporting
Requirements.  Borrower will
deliver, or cause to be delivered, to Lender each of the following, which shall
be in form and detail acceptable to Lender:

 

(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 Lender, Parent’s and Companies’ audited
financial statements with the unqualified opinion of independent certified
public accountants selected by Borrower and acceptable to Lender, 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 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. 
As soon as available and in any event on or before September 30, 2003,
Borrower shall deliver to Lender its

 

35

 

audited financial statements for the stub period ended May 2003 in
accordance with this Section 6.1(a).

 

(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 Lender an
unaudited/internal balance sheet and statements of income and reconciliation of
retained earnings of Companies as at the end of and for such month and for the
year to date period then ended, prepared, if Lender 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 represent in all material respects
Companies’ financial position and the results of its operations; and
accompanied by a certificate of the chief financial Officer of Borrower,
substantially in the form of Exhibit C hereto stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end
audit adjustments, (ii) 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 (iii) all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not Borrower is in compliance with the Financial
Covenants.

 

(c)                                  Collateral Reports.  Borrower will deliver to Lender the
following documents at the following times in form satisfactory to Lender; provided,
however, that from the Funding Date until the date that is 60 days after
the Funding Date, Borrower’s obligation to deliver the following documents
shall be on a “best efforts” basis, and no Event of Default shall be deemed to
have occurred as a result of Borrower’s failure to deliver any of the following
during such period:

 

	
  Weekly

  	
   

  	
  (a)          a report of cash
  collections, sales assignments, credit memos/adjustments and deposits, and a
  calculation of the Borrowing Base as of such date which segregates and
  identifies all Eligible Export-Related Accounts Receivable from domestic
  Accounts (provided that the frequency of such reports may be increased
  to daily, at Lender’s option, in its sole discretion),

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)         a report of outstanding
  payable balances owing to all growers,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)          notice of all returns,
  disputes, or claims.

  
	
   

  	
   

  	
   

  
	
  Monthly (not later than the 20th day of each month)

  	
   

  	
  (d)         a detailed calculation
  of the Borrowing Base (including detail regarding those Accounts that are not
  Eligible Export-Related Accounts Receivable),  

  
	
   

  	
   

  	
  (e)          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 Lender,

  

 

36

 

	
   

  	
   

  	
  (f)            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 6.1(b),

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (g)         a monthly Ex-Im
  Borrowing Base Certificate in the form of Exhibit B attached hereto,

  
	
   

  	
   

  	
   

  
	
  Quarterly

  	
   

  	
  (h)         an Inventory stock
  status report, by type and by location (not later than the 20th
  day after each quarter end),  

  
	
   

  	
   

  	
   

  
	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Semi-Annually

  	
   

  	
  (j)             a detailed list of
  Borrower’s customers

  
	
   

  	
   

  	
   

  
	
  Upon request by Lender

  	
   

  	
  (k)          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

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (l)             such other reports
  or information as to the Collateral, or the financial condition of Borrower,
  as Lender may reasonably request.

  

 

(d)                                 Projections.  At least 10 days before the beginning of
each fiscal year of Borrower, Borrower will deliver to Lender 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 Lender may in its discretion require.

 

(e)                                  Litigation.  Immediately after the commencement thereof,
Borrower will deliver to Lender 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 Lender 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.

 

37

 

 

(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 Lender
a statement of the chief financial officer of Borrower 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 Lender 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 Lender 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 Lender notice of (i) any disputes or claims by Borrower’s
customersexceeding $50,000 individually or $250,000 in the aggregate during
any fiscal year; (ii) credit memos; (iii) any goods returned to or recovered by
Borrower.

 

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

 

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

 

(k)                                  Commercial Tort Claims.  Promptly upon knowledge thereof, Borrower
will deliver to Lender 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 Lender may
request.

 

(l)                                     Intellectual Property.

 

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

 

(ii)                                  Promptly
upon knowledge thereof, Borrower will deliver to Lender notice of (A) any
Infringement of its Intellectual Property Rights by others, (B) claims that

 

38

 

Borrower is Infringing another Person’s Intellectual Property Rights
and (C) any threatened cancellation, termination or material limitation of its
Intellectual Property Rights.

 

(iii)                               Promptly upon receipt,
Borrower will give Lender 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 Lender 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 Lender 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 Lender 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 Lender 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 Lender may reasonably
request.

 

Section 6.2                                      Financial
Covenants.

 

(a)                                  Minimum Debt Service Coverage Ratio.  Borrower, together with the other Companies,
will maintain, during each period described below, the Debt Service Coverage
Ratio, determined as at the end of each fiscal quarter, at not less than the
ratio set forth opposite such period:

 

	
  Period

  	
   

  	
  Minimum
  Debt Service

  Coverage Ratio

  	
   

  
	
  6 months ending 11/03

  	
   

  	
  1.10 to 1.00

  	
   

  
	
  9 months ending 2/04

  	
   

  	
  1.20 to 1.00

  	
   

  
	
  12 months ending 5/04
  and every fiscal quarter-end thereafter on a trailing 12 month basis

  	
   

  	
  1.20 to 1.00

  	
   

  

 

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

 

39

 

	
  Fiscal Month Ending

  	
   

  	
  Minimum
  Book Net Worth

  	
   

  
	
  July 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  August 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  September 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  October 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  November 2003

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  December 2003

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  January 2004

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  February 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  March 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  April 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  May 2004 and each
  fiscal month end thereafter

  	
   

  	
  $

  	
  21,100,000

  	
   

  

 

(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

  	
   

  
	
  November 2003

  	
   

  	
  $

  	
  650,000

  	
   

  
	
  February 2004

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  May 2004

  	
   

  	
  $

  	
  1,500,000

  	
   

  

 

(d)                                 Capital Expenditures.  Borrower together with the other Companies
will not incur financed or unfinanced Capital Expenditures of more than
$4,500,000 in the aggregate during the fiscal year ending May 2004.  Limitations on Capital Expenditures for
periods after May 2004 will be mutually determined by Lender and Borrower in
conjunction with Lender’s review of Borrower’s projections delivered pursuant
to Section 6.1(d).

 

(e)                                  Future Periods.  No later than 30 calendar days after the end
of each fiscal year of Borrower, Borrower shall enter into an amendment to this
Agreement with Lender to amend the Financial Covenants to cover future periods,
as determined by Lender in its commercially reasonable discretion based on
Lender’s review of the Companies’ projections delivered pursuant to Section
6.1(d).

 

Section 6.3                                      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”):

 

40

 

(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 6.3 hereto,
securing indebtedness for borrowed money permitted under Section 6.4;

 

(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 borrower 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; and

 

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

 

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

 

Section 6.4                                      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 6.4
hereto;

 

(c)                                  Indebtedness
relating to Permitted Liens.

 

41

 

(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 Lender 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 6.5                                      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 6.4 hereto.

 

Section 6.6                                      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 & Poors 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);

 

(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 not exceeding 12 months, and advances in the form of
progress payments; and

 

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

 

42

 

Section 6.7                                      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 6.8                                      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 6.9                                      Key
Person Life Insurance.  If
Borrower shall at any time maintain insurance upon the life any key Officer
(“Life Insurance Policy”), then Borrower shall promptly notify Lender of each
such Life Insurance Policy and assign to Lender the right to receive the
proceeds of such Life Insurance Policy by a Life Insurance Assignment.

 

Section 6.10                                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 Lender may from time to time
request in which true and complete entries will be made in accordance with GAAP
and, upon Lender’s request, will permit any officer, employee, attorney or
accountant for Lender to audit, review, make extracts from or copy any and all
company and financial books and records of Borrower at all times during
ordinary business hours and upon one Banking Day’s advance notice (unless a
Default Period exists in which case no notice shall be required), to send and
discuss with Account Debtors and other obligors requests for verification of
amounts owed to Borrower, 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 Lender, 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 Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral or any other
property of Borrower at any time during ordinary business hours and upon one
Banking Day’s advance notice (unless a Default Period exists in which case no
notice shall be required).

 

Section 6.11                                Account
Verification.  Lender may at
any time and from time to time send or require Borrower to send requests for
verification of accounts (and notices of assignment if an Event of Default has
occurred and is continuing) to Account Debtors and other obligors. Lender may
also at any time and from time to time telephone Account Debtors and other
obligors to verify accounts.

 

Section 6.12                                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.

 

43

 

(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 6.13                                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 6.14                                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 6.14 shall prevent Borrower from discontinuing the operation and
maintenance of any of its properties if such discontinuance is, in Borrower’s
judgment, desirable in the conduct of Borrower’s business and not
disadvantageous in any material respect to Lender.  Borrower will take all commercially reasonable steps necessary to
protect and maintain its Intellectual Property Rights.

 

(b)                                 Borrower
will defend the Collateral against all Liens, claims or demands of all Persons
(other than Lender) 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
Property Rights and to defend itself against any Person accusing it of
Infringing any Person’s Intellectual Property Rights.

 

Section 6.15                                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 Lender, 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 Lender may reasonably request, with any
loss payable to Lender to the extent of its interest, and all policies of such
insurance

 

44

 

shall contain a lender’s loss payable endorsement for Lender’s benefit.
All policies of liability insurance required hereunder shall name Lender as an
additional insured.

 

Section 6.16                                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 6.17                                Delivery
of Instruments, etc. 
Upon request by Lender, Borrower will promptly deliver to Lender in
pledge all instruments, documents and chattel paper constituting Collateral,
duly endorsed or assigned by Borrower.

 

Section 6.18                                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 (x) the sale of Inventory in the ordinary course of business,
and (y) dispositions of obsolete, worn or nonfunctional equipment and
(z) dispositions of other assets in any given Loan 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 and will not permit any agreement
under which it has licensed Licensed Intellectual Property to lapse, except
that Borrower may transfer such rights or permit such agreements to lapse if it
shall have reasonably determined that the applicable Intellectual Property
Rights are no longer useful in its business. If Borrower transfers any
Intellectual Property Rights for value, Borrower will pay over the proceeds to
Lender for application to the Obligations. Borrower will not license any other
Person to use any of Borrower’s Intellectual Property Rights, except that
Borrower may grant licenses in the ordinary course of its business in
connection with sales of Inventory or provision of services to its customers.

 

Section 6.19                                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 6.20                                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 6.21                                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.

 

45

 

Section 6.22                                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 6.23                                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 Lender, Borrower will not at any time modify, amend, subordinate,
cancel or terminate the obligation of any Account Debtor or other obligor of
Borrower.

 

Section 6.24                                Plans.  Unless disclosed to Lender 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 6.25                                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 6.26                                Constituent
Documents.  Borrower will not
amend its Constituent Documents.

 

Section 6.27                                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 Lender, and that are no less favorable to Borrower
than would be obtained in an arm’s length transaction with a non-Affiliate.

 

Section 6.28                                Performance
by Lender.  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 Lender gives Borrower written notice
thereof (or in the case of the agreements contained in Sections 6.13 and
6.15, immediately upon the occurrence of such failure, without notice or lapse
of time), Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of Borrower (or, at Lender’s option, in
Lender’s name) and may, but need not, take any and all other actions which
Lender 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 Lender on demand the amount of all monies expended and all costs and

 

46

 

expenses (including reasonable attorneys’ fees and legal expenses)
incurred by Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by Lender, together
with interest thereon from the date expended or incurred at the Default
Rate.  To facilitate Lender’s
performance or observance of such covenants of Borrower, Borrower hereby
irrevocably appoints Lender, or Lender’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 6.28.

 

Section 6.29                                Account
Debtors to Pay to Collateral Account.  Borrower shall instruct all of its Account Debtors located
outside of the United States to make all payments for Items directly into the
Collateral Account.

 

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, and (i) with respect to any such default
under Section 6.1, such default shall continue unremedied for a period of five
(5) days, and (ii) and with respect to any such default under Sections
6.12, 6.13, 6.14 and 6.17, such default shall continue unremedied for fifteen
(15) days after the earlier of (A) the date upon which an Officer or
Director of Borrower obtained actual knowledge of such failure of (B) the
date upon which written notice thereof is given to Borrower by Lender.

 

(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 45 calendar days
of the date of the filing thereof; provided, however, that,
during the pendency of such period, Lender 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

 

47

 

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 $50,000
and the same is not paid before such payment is delinquent; provided
that Lender 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 Lender, as determined
by Lender 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, by any Guarantor
in any guaranty delivered to Lender, 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;

 

48

 

(m)                               A
default under any bond, debenture, note or other evidence of material
Indebtedness of Borrower owed to any Person other than Lender, 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 $250,000 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 Lender 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 Lender; 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 Lender determines in good faith may by itself, or in
combination with any such failures that Lender 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 Lender 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 Lender, any individual Guarantor shall die or
any other Guarantor shall cease to exist;

 

(s)                                  Any
event or circumstance with respect to Borrower shall occur such that Lender
shall believe in good faith that the prospect of payment of all or any material
part of the Obligations or the performance by Borrower under the Loan Documents
is impaired in any

 

49

 

material respect, or any material adverse change in the business or
financial condition of Borrower shall occur;

 

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

 

(u)                                 An
Event of Default shall occur under the Apio Loan Agreement;

 

(v)                                 The
Ex-Im Bank shall repudiate, purport to revoke or fail to perform any of its
obligations under the Master Guarantee; provided that any such event
described in this clause (w) shall not be an Event of Default so long as (i)
such circumstances are not the result of any act or omission by the Borrower,
and (ii) if reasonably requested by Lender, Borrower is diligently assisting
Lender, as determined by Lender in its sole and absolute discretion, in
correcting the applicable problem; or

 

(w)                               Any
other Material Adverse Effect shall occur, and if such Material Adverse Effect
is capable of cure, such Material Adverse Effect shall continue uncured for
fifteen (15) 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) the date upon which written notice thereof is given to Borrower by Lender.

 

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

 

(a)                                  Lender
may, by notice to Borrower, declare the Commitment to be terminated, whereupon
the same shall forthwith terminate;

 

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

 

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

 

(e)                                  Lender
may cause Borrower to hold all returned Inventory in trust for Lender,
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 Lender;

 

50

 

(f)                                    without
notice to or demand upon Borrower or any Guarantor, Lender may make such
payments and do such acts as Lender considers necessary or reasonable to
protect its security interests in the Collateral.  Borrower agrees to assemble the Collateral if Lender so requires,
and to make the Collateral available to Lender at a place that Lender may
designate which is reasonably convenient to both parties.  Borrower authorizes Lender 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 Lender’s determination appears to conflict with Lender’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 Lender a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Lender’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), Lender may set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Lender
(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 Lender;

 

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

 

(i)                                     Lender
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)                                     Lender
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 Lender determines is
commercially reasonable.  It is not
necessary that the Collateral be present at any such sale;

 

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

 

(i)                                     Lender
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)                                     Lender
may credit bid and purchase at any public sale;

 

51

 

(m)                               Lender
may seek the appointment of a receiver or keeper to take possession of all or
any portion of the Collateral or to operate 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
Lender 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, Lender may resell the Collateral and shall apply any
proceeds actually received to the Obligations;

 

(o)                                 Lender
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 Lender may release, modify or  waive
any collateral provided by any other Person as security for the Obligations or
any portion thereof, all without affecting Lender’s rights against
Borrower.  Borrower waives any right it
may have to require Lender to pursue any third Person for any of the
Obligations;

 

(p)                                 Lender
may make demand upon Borrower and, forthwith upon such demand, Borrower will
pay to Lender in immediately available funds for deposit in the Special Account
pursuant to Section 2.17 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)                                 Lender
may exercise and enforce its rights and remedies under the Loan Documents; and

 

(r)                                    Lender
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.  Lender
may sell the Collateral without giving any warranties as to the
Collateral.  Lender 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.  Lender may
comply with any applicable state or federal law requirements in connection with
a disposition of the Collateral, and Lender’s compliance therewith will not be
considered to adversely affect the commercial reasonableness of any sale of the
Collateral.

 

Section 7.5                                      No
Marshalling.  Lender
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
Lender by Borrower or any other Person.

 

52

 

Section 7.6                                      Borrower
to Cooperate.  Upon
the exercise by Lender 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 Lender 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 Lender:

 

FIRST to the costs,
expenses, liabilities, obligations and attorneys’ fees incurred by Lender 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 Lender shall determine in its sole
discretion.  Any surplus shall be paid
to Borrower or other Persons legally entitled thereto; Borrower shall remain
liable to Lender for any deficiency.

 

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

 

Section 7.9                                      Lender
Not Liable For The Collateral.  So long as Lender complies with the obligations, if any, imposed
by the UCC,  Lender 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 Lender.  Borrower bears
the risk of loss or damage of the Collateral.

 

ARTICLE
VIII

MISCELLANEOUS

 

Section 8.1                                      No
Waiver.  No failure or
delay by Lender 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

 

53

 

any release of a Security Interest shall be effective unless the same
shall be in writing and signed by Lender, 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
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
Lender pursuant to any of the provisions of Article II shall not be effective
until received by Lender. All requests under Section 9210 of the UCC (i)
shall be made in a writing signed by a person authorized under
Section 2.2(b), (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 Lender and (iv)
shall otherwise comply with the requirements of Section 9210.  Borrower requests that Lender respond to all
such requests which on its face appears to come from an authorized individual
and releases Lender from any liability for so responding.  Borrower shall pay Lender 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 Lender may reasonably
request in order to secure, protect, perfect or enforce the Security Interest
or Lender’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).

 

Section 8.5                                      Costs
and Expenses. 
Borrower shall pay on demand all costs and expenses, including
reasonable attorneys’ fees, incurred by Lender 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.

 

54

 

Section 8.6                                      Indemnity.  In addition to the payment of expenses
pursuant to Section 8.5, Borrower shall indemnify, defend and hold
harmless Lender, 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”), 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 6.12(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 making of the Advances and the Loan Documents
or the use or intended use of the proceeds of the Advances.

 

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 8.7 shall survive the termination of this Agreement and the
discharge of Borrower’s other obligations hereunder.  If Ex-Im Bank makes payment of a claim to Lender under the Master
Guaranty in connection with the Credit Facility, Ex-Im Bank may assume all
rights and remedies of Lender under the Loan Documents and may enforce any such
rights and remedies against Borrower, the Collateral and any Guarantors.  Borrower shall hold Ex-Im Bank and Lender
harmless from and indemnify them against any and all liabilities, damages,
claims, costs and losses incurred or suffered by either of them resulting from
(a) any materially incorrect certification or statement knowingly made by
Borrower or its agents to Ex-Im Bank or Lender in connection with the Credit
Facility, this Agreement, the Loan Authorization Notice or any other Loan
Documents, or (b) any material breach by Borrower of the terms and conditions
of this Agreement, the Loan Authorization Notice or any of the other Loan
Documents.  Borrower also

 

55

 

acknowledges that any statement, certification or representation made
by Borrower in connection with the Credit Facility is subject to the penalties
provided in Article 19 U.S.C. Section 1001.

 

Section 8.7                                      Participants.  Borrower hereby authorizes Lender to
disclose to any assignee or any participant (either, a “Transferee”) and any
prospective Transferee any and all financial information in Lender’s possession
concerning Borrower which has been delivered to Lender by Borrower pursuant to
this Agreement or which has been delivered to Lender by Borrower in connection
with Lender’s credit evaluation prior to entering into this Agreement.  Lender and its participants, if any, are not
partners or joint venturers, and Lender 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 Lender may be transferred or
delegated to any of Lender’s participants, successors or assigns.

 

Section 8.8                                      Advertising
and Promotion. 
Borrower agrees that Lender may use Borrower’s name(s) in advertising
and promotional materials, and in conjunction therewith, Lender may disclose
the amount of the Commitment and the purpose thereof.

 

Section 8.9                                      Execution
in Counterparts; Telefacsimile Execution.  This Agreement and 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. 
Lender shall have no obligation to maintain any electronic records or
any documents, schedules, invoices, agings, or other papers delivered to Lender
by Borrower or in connection with the Loan Documents for more than twelve
months after receipt by Lender; provided, however, that Borrower
shall not have any obligation to provide Lender with duplicate records and
documents after the same have been destroyed by Lender.

 

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 Lender and their respective successors and
assigns, except that Borrower shall not have the right to assign its rights
thereunder or any interest therein without Lender’s prior written consent.  Lender shall not assign any of its rights
and obligations arising under this Agreement 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 Lender assigns this Agreement in connection with
any sale or all or any portion of its loan portfolio, or (iii) if Lender
assigns this Agreement to any Affiliate of Lender.  To the extent permitted by law, Borrower waives and will not
assert against any assignee any claims, defenses or set-offs which

 

56

 

Borrower could assert against Lender. 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
Lender’s right to share information regarding Borrower and its Affiliates with
Lender’s participants, accountants, lawyers and other advisors, Lender, 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 Lender 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 conveyances, preferences, or other voidable or recoverable
payments of money or transfers of property (collectively, a “Voidable
Transfer”), and if Lender 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
Lender is required or elects to repay or restore, and as to all reasonable
costs, expenses, and attorneys fees of Lender 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; Jurisdiction, Venue; Waiver of Jury Trial.  The Loan Documents shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of California. The parties hereto hereby (i) consent to the personal
jurisdiction of the state and federal courts located in the County of Los
Angeles, State of California in connection with any controversy related to this
Agreement; (ii) waive any argument that venue in any such forum is not
convenient, (iii) agree that any litigation initiated by Lender or Borrower in
connection with this Agreement or the other Loan Documents may be venued in
either the State or Federal courts located in Los Angeles County, State of
California; and (iv) agree that a final judgment in any such suit, action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.

 

THE
PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON
OR PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

 

57

 

ARTICLE
IX

JOINT AND SEVERAL LIABILITY

 

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

 

Section 9.2                                      Primary
Obligation; Waiver of Marshalling. The Apio Loan Documents are a
primary and original obligation of Borrower, 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 Apio Loan Documents.  Borrower agrees that its liability under the
Apio Loan Documents shall be immediate and shall not be contingent upon the
exercise or enforcement by Lender of whatever remedies they may have against
Apio, or the enforcement of any lien or realization upon any security Lender
may at any time possess. Borrower consents and agrees that Lender shall be
under no obligation to marshal any assets of Apio against or in payment of any
or all of the Apio Obligations.

 

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

 

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

 

58

 

Section 9.5                                      Additional
Waivers. Borrower 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 Apio Loan Documents are a party or
the creation or existence of any Apio Obligations; (3) notice of the amount
of the Apio Obligations, subject, however, to Borrower’s right to make inquiry
of Lender to ascertain the amount of the Apio Obligations at any reasonable
time; (4) notice of any adverse change in the financial condition of Apio
or of any other fact that might increase Borrower’s risk hereunder;
(5) notice of presentment for payment, demand, protest, and notice thereof
as to any instruments among the Apio Loan Documents; (6) notice of any
Default or Event of Default under the Apio Loan Documents; and (7) all
other notices (except if such notice is specifically required to be given to
Borrower hereunder or under the Apio Loan Documents) and demands to which
Borrower might otherwise be entitled.

 

(b)                                 its
right, under Sections 2845 or 2850 of the California Civil Code, or
otherwise, to require Lender to institute suit against, or to exhaust any
rights and remedies which Lender has or may have against, Apio or any third
party, or against any collateral for the Apio Obligations provided by Apio, or
any third party. Borrower further waives any defense arising by reason of any
disability or other defense (other than the defense that the Apio Obligations
shall have been fully and finally performed and indefeasibly paid) of Apio or
by reason of the cessation from any cause whatsoever of the liability of Apio
in respect thereof.

 

(c)                                  (1) any
rights to assert against Lender any defense (legal and equitable), set-off,
counterclaim, or claim which Borrower may now or at any time hereafter have
against Apio or any other party liable to Lender; (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 Apio Obligations or any security therefor;
(3) any defense Borrower has to performance hereunder, and any right
Borrower 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 Lender’s
rights or remedies against Apio; the alteration by Lender of the Apio
Obligations; any discharge of Apio’s obligations to Lender by operation of law
as a result of Lender’s intervention or omission; or the acceptance by Lender
of anything in partial satisfaction of the Apio Obligations; and (4) the
benefit of any statute of limitations affecting Borrower’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 Apio Obligations
shall similarly operate to defer or delay the operation of such statute of
limitations applicable to Borrower’s liability hereunder.

 

(d)                                 Borrower
absolutely, unconditionally, knowingly, and expressly waives any defense
arising by reason of or deriving from (i) any claim or defense based upon
an election of remedies by Lender including any defense based upon an election
of remedies by Lender 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

 

59

 

Lender under Section 1111(b) of the Bankruptcy Code to limit the
amount of, or any collateral securing, its claim against Apio.  Pursuant to California Civil Code
Section 2856(b):

 

(i)                                     Borrower
waives all rights and defenses arising out of an election of remedies by
Lender, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Borrower’s rights of subrogation and reimbursement against Apio by the
operation of Section 580(d) of the California Code of Civil Procedure or
otherwise.

 

(e)                                  Borrower
waives all rights and defenses that Borrower may have because the Apio
Obligations are secured by real property. 
This means, among other things: 
(1) Lender may collect from Borrower without first foreclosing on
any real or personal property collateral pledged by Apio; and (2) if
Lender forecloses on any real property collateral pledged by Apio:  (A) the amount of the Apio 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) Lender may collect from Borrower even if Lender, by foreclosing on the
real property collateral, has destroyed any right Borrower may have to collect
from Apio.  This is an unconditional and
irrevocable waiver of any rights and defenses Borrower may have because the
Apio Obligations are secured by real property. 
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.

 

(f)                                    Borrower
hereby absolutely, unconditionally, knowingly, and expressly waives:  (i) any right of subrogation Borrower
has or may have as against Apio with respect to the Apio Obligations;
(ii) any right to proceed against Apio 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
Borrower may now have or hereafter have as against Apio with respect to the
Apio Obligations; and (iii) any right to proceed or seek recourse against
or with respect to any property or asset of Apio.

 

(g)                                 WITHOUT
LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN
THIS AGREEMENT, BORROWER 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.

 

60

 

Section 9.6                                      Settlement
or Releases. Borrower consents and agrees that without notice to or
by Borrower, and without affecting or impairing the liability of Borrower
hereunder, Lender 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 Apio Loan
Documents, or any part thereof, with respect to the Apio or any Guarantor;

 

(b)                                 release
the Apio or any Guarantor or grant other indulgences to Apio or any Guarantor
in respect thereof;

 

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

 

(d)                                 release
or substitute any Guarantor, if any, of the Apio Obligations, or enforce,
exchange, release, or waive any security for the Apio Obligations or any other
guaranty of the Apio Obligations, or any portion thereof.

 

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

 

Section 9.8                                      Indefeasible
Payment.  The Apio
Obligations shall not be considered indefeasibly paid unless and until all
payments to Lender are no longer subject to any right on the part of any
Person, including Apio, Apio as a debtor in possession, or any trustee (whether
appointed pursuant to the Bankruptcy Code, or otherwise) of any of Apio’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 Apio Obligations, Lender shall have
no obligation whatsoever to transfer or assign its interest in this Agreement
and the Apio Loan Documents to Borrower. 
In the event that, for any reason, any portion of such payments to
Lender 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 Borrower shall be liable for the full amount
Lender 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 Lender in connection therewith.

 

Section 9.9                                      Single
Loan Account.  At the request
of Borrower to facilitate and expedite the administration and accounting
processes and procedures of the Advances and the

 

61

 

Apio Loans, Lender has agreed, in lieu of maintaining separate loan
accounts on Lender’s books in the name of Borrower and Apio, that Lender may
maintain a single loan account under the name of all of both Borrower and Apio
(the “Loan Account”).  All Advances and
Apio Loans shall be made jointly and severally to Borrower and Apio 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 Apio Loan Agreement.  The Loan Account shall be credited with all
repayments of Obligations and Apio Obligations received by Lender, on behalf of
Borrower and Apio, from Borrower and Apio pursuant to the terms of this
Agreement and the Apio Loan Agreement.

 

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

 

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

 

Section 9.12                                Borrower
and Apio’s Integrated Operations. Borrower represents and warrants
to Lender that the collective administration of the Advances and the Apio Loans
is being undertaken by Lender pursuant to this Agreement because Borrower and
Apio 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.

 

 

*   *   
*

 

[remainder of this page
intentionally left blank]

 

*    *   
*

 

62

 

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.

 

	
  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 Business Credit, Inc.

  	
  WELLS FARGO BUSINESS CREDIT, INC.

  
	
  245 S. Los Robles Avenue, Suite 700

  	
   

  
	
  Pasadena, California  91101

  	
   

  
	
  Telecopier: 
  (626) 844-9063

  	
  By:

  	
   

  
	
  Attention: Harry L. Joe

  	
   

  	
  Harry L. Joe

  
	
  e-mail: joeharry@wellsfargo.com

  	
   

  	
  Assistant Vice President

  
				

 

Credit and Security
Agreement

 

S-1

 

Table of Exhibits and Schedules

 

	
  Exhibit A

  	
   

  	
  Form of Revolving Note

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Form of Ex-Im Borrowing Base Certificate

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Compliance Certificate

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  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

  

 

 

Exhibit A to Credit and Security Agreement

 

REVOLVING NOTE

 

	
  $8,000,000

  	
   

  	
  Menlo Park, California

  August 20, 2003

  

 

For value received, the undersigned, CAL EX TRADING
COMPANY, a Delaware corporation (the “Borrower”), hereby promises to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the “Lender”), at
its main office in Minneapolis, Minnesota, or at any other place designated at
any time by the holder hereof, in lawful money of the United States of America
and in immediately available funds, the principal sum of Eight Million Dollars
($8,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by Lender to Borrower under the Credit Agreement
(defined below) together with interest on the principal amount hereunder
remaining unpaid from time to time, computed on the basis of the actual number
of days elapsed and a 360-day year, from the date hereof until this Note is
fully paid at the rate from time to time in effect under the Credit and
Security Agreement of even date herewith (the “Credit Agreement”) by and
between Lender and Borrower.  The
principal hereof and interest accruing thereon shall be due and payable as
provided in the Credit Agreement. This Note may be prepaid only in accordance
with the Credit Agreement.

 

This Note is issued pursuant, and is subject, to the
Credit Agreement, which provides, among other things, for acceleration hereof.
This Note is the Revolving Note referred to in the Credit Agreement. This Note
is secured, among other things, pursuant to the Credit Agreement and the
Security Documents as therein defined, and may now or hereafter be secured by
one or more other security agreements, mortgages, deeds of trust, assignments
or other instruments or agreements.

 

Borrower shall pay all costs of collection, including
reasonable attorneys’ fees and legal expenses if this Note is not paid when
due, whether or not legal proceedings are commenced.

 

Presentment or other demand for payment, notice of
dishonor and protest are expressly waived.

 

	
   

  	
  CAL EX TRADING COMPANY

  
	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Its Chief Financial Officer

  
				

 

 

Exhibit B to Credit and Security Agreement

 

Ex-Im Borrowing Base Certificate

 

1                                         BORROWING
BASE CERTIFICATE FOR EX-IM BANK GUARANTEED LINE

CAL EX TRADING COMPANY

 

To:           Harry Joe, Wells Fargo Business Credit

Tel:  626.685.9944   Fax: 
626.844.9063

To:           Brad Young, Wells Fargo HSBC Trade Bank, San
Francisco

Tel:  415.396.6166   Fax: 415.541.0299  youngbk@wellsfargo.com

 

As
of Date (“Reporting Date”):

 

Borrower: Cal Ex Trading Company

 

In accordance with our Credit and Security
Agreement dated as of August 20, 2003 (the “Credit Agreement”), set forth below
is the calculation of the Borrowing Base and Availability as of the date shown
above (the “Reporting Date”).  All terms
used in this certificate have the meanings given to them in the Credit
Agreement.  Unless otherwise indicated,
all amounts are as of the Reporting Date.

 

	
  A. Eligible Export Related Accounts
  Receivable

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  A. Beginning Gross Export A/R
  from prior month.

  	
   

  	
   

  	
   

  
	
   

  	
  a.      
  Add Export Sales

  	
   

  	
   

  	
   

  
	
   

  	
  b.     
  Less Export Payments received

  	
   

  	
   

  	
   

  
	
   

  	
  c.     
  Less Credit memos or other adjustments

  	
   

  	
   

  	
   

  
	
  Total (Control Balance – a. +
  b. + c.)

  	
   

  	
  $

  	
  0

  	
   

  
	
  G/L Balance

  	
   

  	
   

  	
   

  
	
  A/R Aging Balance

  	
   

  	
   

  	
   

  
	
  1.  Export A/R Beginning Balance (Use lower of Control, G/L or A/R
  Aging balance).  Export A/R are net of
  any and all rights of offset or counterclaim, including cash-in-advance
  deposits.

  	
   

  	
   

  	
   

  
	
  2. Ineligible Export-Related
  Accounts Receivable

  	
   

  	
   

  	
   

  
	
   

  	
  (i) that does not arise from
  the sale of Items in the ordinary course of the Borrower’s business;

  	
   

  	
   

  	
   

  
	
   

  	
  (ii) that is not subject to a
  valid, perfected first priority Lien in favor of the Lender or which are
  subject to any lien, security interest or claim in favor of any Person other
  than the Lender;

  	
   

  	
   

  	
   

  
	
   

  	
  (iii) as to which any
  covenant, representation or warranty contained in the Loan Documents with
  respect to such Account Receivable has been breached;

  	
   

  	
   

  	
   

  
	
   

  	
  (iv) that is not owned by the
  Borrower or is subject to any right, claim or interest of another Person
  other than the Liens in favor of the Lender;

  	
   

  	
   

  	
   

  
	
   

  	
  (v) with respect to which an
  invoice has not been sent;

  	
   

  	
   

  	
   

  
	
   

  	
  (vi) that arises from the sale
  of defense articles or defense services;

  	
   

  	
   

  	
   

  
	
   

  	
  (vii) that is due and payable
  from a Buyer located in a country with which Ex-Im Bank is prohibited from
  doing business as designated in the Country Limitation Schedule (“CLS”) which
  can be found on Ex-Im’s website at www.exim.gov under “Apply”.  Those countries with an “X” for financing
  under one year are ineligible

  	
   

  	
   

  	
   

  
	
   

  	
  (viii) that does not comply
  with the requirements of the Country Limitation Schedule (“CLS”). Some
  countries which are open for short-term Ex-Im support have restrictions
  outlined in the footnotes which may make these receivables and corresponding
  inventory ineligible.

  	
   

  	
   

  	
   

  
	
   

  	
  (ix) that is due and payable
  more than one hundred twenty (120) days from the earlier of the date of the
  invoice or the shipment date;

  	
   

  	
   

  	
   

  
	
   

  	
  (x) that is not paid within
  sixty (60) calendar days from its original due date, unless it is insured
  through Ex-Im Bank export credit insurance for comprehensive commercial and
  political risk, or through Ex-Im Bank approved private insurers for comparable
  coverage, in which case it is not paid within ninety (90) calendar days from
  its due date;

  	
   

  	
   

  	
   

  
	
   

  	
  (xi)                                that account where the amount owed past the
  original due date exceeds 25% of the total amount owed, then the entire
  account is ineligible;

  	
   

  	
   

  	
   

  
	
   

  	
  (xii)                             that portion of an account that exceeds 15% of
  total export-related accounts receivable;

  	
   

  	
   

  	
   

  
	
   

  	
  (xiii) that arises from a sale
  of goods to or performance of services for an employee of the Borrower, a
  stockholder of the Borrower, a subsidiary of the Borrower, a Person with a
  controlling interest in the Borrower or a Person which shares common
  controlling ownership with the Borrower;

  	
   

  	
   

  	
   

  
	
   

  	
  (xiv) that is backed by a
  letter of credit unless the Items covered by the subject letter of credit
  have been shipped

  	
   

  	
   

  	
   

  
	
   

  	
  (xv) that the Lender or Ex-Im
  Bank, in its reasonable judgment, deems uncollectible for any reason;

  	
   

  	
   

  	
   

  
	
   

  	
  (xvi) that is due and payable
  in a currency other than Dollars, except as may be approved in writing by
  Ex-Im Bank;

  	
   

  	
   

  	
   

  
	
   

  	
  (xvii) that is due and payable
  from a military Buyer, except as may be approved in writing by Ex-Im Bank;

  	
   

  	
   

  	
   

  
						

 

1

 

	
   

  	
  (xviii) that does not comply
  with the terms of sale set forth in Section 7 of the Loan Authorization
  Agreement;

  	
   

  	
   

  	
   

  
	
   

  	
  (xix) that is due and payable
  from a Buyer who (A) applies for, suffers, or consents to the
  appointment of, or the taking of possession by, a receiver, custodian,
  trustee or liquidator of itself or of all or a substantial part of its
  property or calls a meeting of its creditors, (B) admits in writing its
  inability, or is generally unable, to pay its debts as they become due or
  ceases operations of its present business, (C) makes a general
  assignment for the benefit of creditors, (D) commences a voluntary case
  under any state or federal bankruptcy laws (as now or hereafter in effect),
  (E) is adjudicated as bankrupt or insolvent, (F) files a petition
  seeking to take advantage of any other law providing for the relief of
  debtors, (G) acquiesces to, or fails to have dismissed, any petition
  which is filed against it in any involuntary case under such bankruptcy laws,
  or (H) takes any action for the purpose of effecting any of the
  foregoing;

  	
   

  	
   

  	
   

  
	
   

  	
  (xx) that arises from a bill
  and hold, guaranteed sale, sale and return, sale on approval, consignment or
  any other repurchase or return basis or is evidenced by chattel paper;

  	
   

  	
   

  	
   

  
	
   

  	
  (xxi) for which the Items
  giving rise to such Account Receivable have not been shipped or the services
  giving rise to such Account Receivable have not been performed by the
  Borrower or the Account Receivable otherwise does not represent a final sale;

  	
   

  	
   

  	
   

  
	
   

  	
  (xxii) that is subject to any
  offset, deduction, defense, dispute, or counterclaim or the Buyer is also a
  creditor or supplier of the Borrower or the Account Receivable is contingent
  in any respect or for any reason;

  	
   

  	
   

  	
   

  
	
   

  	
  (xxiii) for which the Borrower
  has made any agreement with the Buyer for any deduction therefrom, except for
  discounts or allowances made in the ordinary course of business for prompt
  payment, all of which discounts or allowances are reflected in the
  calculation of the face value of each respective invoice related thereto;

  	
   

  	
   

  	
   

  
	
   

  	
  (xxiv) for which any of the
  Items giving rise to such Account Receivable have been returned, rejected or
  repossessed;

  	
   

  	
   

  	
   

  
	
   

  	
  (xxv) to the extent it
  includes any finance charges, service charges, taxes, discounts, credits,
  allowances and Retainages;

  	
   

  	
   

  	
   

  
	
   

  	
  (xxvi) that arise from the
  sale of Items containing less than fifty percent (50%) US Content;

  	
   

  	
   

  	
   

  
	
   

  	
  (xxvii) that arise from the
  sale of Items containing any Foreign Content not incorporated into such Items
  in the US;

  	
   

  	
   

  	
   

  
	
   

  	
  (xxviii) that arise from the
  sale of any Items to be used in the construction, alteration, operation or
  maintenance of nuclear power, enrichment, reprocessing, research or heavy
  water production facilities; or

  	
   

  	
   

  	
   

  
	
   

  	
  (xxix) that are otherwise
  deemed ineligible for any reason by the Lender or Ex-Im Bank in its
  discretion.

  	
   

  	
   

  	
   

  
	
  2. (xxx.)  Total A/R
  ineligibles

  	
   

  	
   

  	
   

  
	
  3. Total Eligible
  Export-Related Accounts Receivable (line 1 less line 2.xxx)

  	
   

  	
   

  	
   

  
	
  B. Borrowing Base

  	
   

  	
   

  	
   

  
	
  4. Borrowing Base:

  	
   

  	
   

  	
   

  
	
   

  	
  (a) 85% of Eligible
  Export-Related Accounts Receivable (from line 3)

  	
   

  	
   

  	
   

  
	
  C.  Availability

  	
   

  	
   

  	
   

  
	
  5.  Outstanding Principal Balance of the Advances

  	
   

  	
   

  	
   

  
	
  6.  Availability Under Borrowing Base (Line 4.a - Line 5)

  	
   

  	
   

  	
   

  
	
  7.  Maximum Line Amount

  	
   

  	
   

  	
   

  
	
  8.  Maximum Line Amount less Advances (Line 7 - Line 5)

  	
   

  	
   

  	
   

  
	
  9.  The lesser of Line 6 or Line 8: Remaining Availability

  	
   

  	
   

  	
   

  
	
  10. Less Dilution Reserve if
  applicable

  	
   

  	
   

  	
   

  
	
  11. Less Grower Reserve if
  applicable

  	
   

  	
   

  	
   

  
	
  12. Total Reserves (sum of
  lines 10+11)

  	
   

  	
   

  	
   

  
	
  13. Final Remaining
  Availability (Line 9 less Line 12)

  	
   

  	
   

  	
   

  

 

The Borrower represents and warrants that this
Borrowing Base Certificate is a true and correct statement regarding the status
of the matters set forth herein. The Borrower further represents and warrants
that no Default or Event of Default has occurred and is continuing, and that
the Eligible Export-Related Accounts Receivable have been generated from the
sale of Items which have been exported. The Borrower acknowledges that any
Advances made to the Borrower under the Credit Agreement will be based upon the
Lender’s reliance on the information contained herein.

 

	
  Borrower: Cal Ex Trading Company

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signed by:

  	
   

  	
  Date Signed &

  Submitted:

  
	
  Title of Signer:

  	
   

  	
   

  

 

Note: 
Ex-Im Bank prohibits or restricts its support of short-term transactions
for various countries shown in its Country Limitation Schedule (“CLS”).  The most current CLS can be viewed on Ex-Im
Bank’s website at www.exim.gov under “Apply”. 
Please note that U.S. Territories such as Puerto Rico cannot be included
as part of Export-Related Accounts Receivables.

 

2

 

Exhibit C to Credit and Security Agreement

 

Compliance Certificate

 

	
  To:

  	
  Harry L. Joe

  
	
   

  	
  Wells Fargo Business Credit, Inc.

  
	
   

  	
   

  
	
  Date:

  	
                             ,
  200      

  
	
   

  	
   

  
	
  Subject:

  	
  Apio, Inc., Cal Ex Trading Company and Apio Cooling

  

 

Financial Statements

 

In accordance with our Credit and Security Agreement,
dated as of August 20, 2003 (the “Credit Agreement”), attached are the
financial statements of Apio, Inc., Cal Ex Trading Company and Apio Cooling
(collectively, the “Companies”) as of and for
                           ,
20     (the “Reporting Date”) and the year-to-date period
then ended (the “Current Financials”). All terms used in this certificate have
the meanings given in the Credit Agreement.

 

I certify that the Current Financials have been
prepared in accordance with GAAP, subject to year-end audit adjustments, and
fairly present the Companies’ financial condition as of the date thereof.

 

Events of Default.
(Check one):

 

o                                    The
undersigned does not have knowledge of the occurrence of a Default or Event of
Default under the Credit Agreement except as previously reported in writing to
Lender.

 

o                                    The
undersigned has knowledge of the occurrence of a Default or Event of Default
under the Credit Agreement not previously reported in writing to Lender and
attached hereto is a statement of the facts with respect to thereto. Borrower
acknowledge that pursuant to Section 2.12(d) of the Credit Agreement, Lender
may impose the Default Rate at any time during the resulting Default Period.

 

Financial Covenants.
I further hereby certify as follows:

 

1.                                       Minimum
Debt Service Coverage Ratio. 
Pursuant to Section 6.2(a) of the Credit Agreement, as of the
Reporting Date, the Companies’ Debt Service Coverage Ratio was
      to 1.00 which o
satisfies o does not satisfy the requirement that such
ratio be no less than       to 1.00 on the Reporting
Date as set forth in table below: 

 

3

 

	
  Period

  	
   

  	
  Minimum
  Debt Service

  Coverage Ratio

  	
   

  
	
  6 months ending 11/03

  	
   

  	
  1.10 to 1.00

  	
   

  
	
  9 months ending 2/04

  	
   

  	
  1.20 to 1.00

  	
   

  
	
  12 months ending 5/04
  and every fiscal quarter-end thereafter on a trailing 12 month basis

  	
   

  	
  1.20 to 1.00

  	
   

  

 

2.                                       Minimum
Book Net Worth.  Pursuant
to Section 6.2(b) of the Credit Agreement, as of the Reporting Date, the
Companies’ Book Net Worth was
$              
which o satisfies o
does not satisfy the requirement that such amount be not less than
$                  
on the Reporting Date as set forth in table below: 

 

	
  Fiscal Month Ending

  	
   

  	
  Minimum
  Book Net Worth

  	
   

  
	
  July 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  August 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  September 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  October 2003

  	
   

  	
  $

  	
  19,577,000

  	
   

  
	
  November 2003

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  December 2003

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  January 2004

  	
   

  	
  $

  	
  20,250,000

  	
   

  
	
  February 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  March 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  April 2004

  	
   

  	
  $

  	
  20,600,000

  	
   

  
	
  May 2004 and each
  fiscal month end thereafter

  	
   

  	
  $

  	
  21,100,000

  	
   

  

 

3.                                       Minimum
Net Income.  Pursuant to
Section 6.2(c) of the Credit Agreement, the Companies’ consolidated Net Income
for the            period
ending on the Reporting Date, was
$                ,
which o satisfies o
does not satisfy the requirement that such amount be not less than
$                     
during such period as set forth in table below: 

 

	
  Fiscal Year to Date Period

  Ending

  	
   

  	
  Minimum
  Net Income

  	
   

  
	
  November 2003

  	
   

  	
  $

  	
  650,000

  	
   

  
	
  February 2004

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  May 2004

  	
   

  	
  $

  	
  1,500,000

  	
   

  

 

4

 

4.                                       Capital
Expenditures. Pursuant to Section 6.2(d) of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Companies have expended during the
            year ended
May 2004, for Capital Expenditures,
$                           
in the aggregate, which o satisfies o
does not satisfy the requirement that such expenditures not exceed $4,500,000
in the aggregate during such year.

 

5.                                       Salaries.
As of the Reporting Date, the Companies o
are o are not in compliance with Section 6.8 of the
Credit Agreement concerning salaries.

 

Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.

 

	
   

  	
  CAL EX TRADING COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Its Chief Financial Officer

  
				

 

5

 

Exhibit D to Credit and Security Agreement

 

Premises

 

The Premises referred to
in the Credit and Security Agreement are legally described as follows:

 

4575 West Main Street

Guadalupe, CA 93434

 

 

Schedule 5.1 to Credit and Security Agreement

 

Trade Names, Chief Executive Office, Principal Place of
Business,

and Locations of Collateral

 

Trade Names

 

Cal Ex Trading Company

 

Chief Executive Office/Principal Place of Business

 

4575 West Main Street

Guadalupe, CA 93434

 

Other Locations of Books and Records:

 

290 Station Way,
Ste. B

Arroyo Grande, CA  93420

 

Other Inventory and Equipment Locations

 

Apio Cooling, L.P.

4595 West Main Street

Guadalupe, CA 93434

 

 

Schedule 5.2 to Credit and Security Agreement

 

Capitalization and Organizational Chart

 

	
  Holder

  	
   

  	
  Type of

  Rights/Stock

  	
   

  	
  No. of shares (after Exercise

  of all rights to

  acquire shares)

  	
   

  	
  Percent interest

  on a fully

  diluted basis

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Apio, Inc.

  	
   

  	
  Common

  	
   

  	
  1000

  	
   

  	
  100.0

  	
  %

  

 

Subsidiaries

 

NONE

 

Organizational Chart

 

 

 

Schedule 5.5 to Credit and Security Agreement

 

Subsidiaries

 

NONE

 

 

Schedule 5.11 to Credit and Security Agreement

 

Intellectual Property Disclosures

 

	
  Property

  	
   

  	
  Type

  	
   

  	
  Ownership

  	
   

  	
  Registration
  #

  	
   

  	
  Registration
  Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  NONE

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

Schedule 6.3 to Credit and Security Agreement

 

Permitted Liens

 

	
  Creditor

  	
   

  	
  Collateral

  	
   

  	
  Jurisdiction

  	
   

  	
  Filing
  Date

  	
   

  	
  Serial No.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  NONE

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

Schedule 6.4 to Credit and Security Agreement

 

Permitted Indebtedness and Guaranties

 

Indebtedness

 

	
  Creditor

  	
   

  	
  Principal
  Amount

  	
   

  	
  Maturity
  Date

  	
   

  	
  Monthly
  Payment

  	
   

  	
  Collateral

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  NONE

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

Guaranties

 

	
   

  	
   

  	
  Amount and
  Description of

  	
   

  
	
  Primary Obligor

  	
   

  	
  Obligation
  Guaranteed

  	
   

  	
  Beneficiary
  of Guaranty

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  NONE

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00055-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00055-of-00352.parquet"}]]