UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period year ended December 31, 2019
or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission File Number: 001-34719
S&W SEED COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Nevada |
|
27-1275784 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
|
|
2101 Ken Pratt Blvd, Suite 201, Longmont, CO |
|
80501 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
(720) 506-9191
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
Common Stock, par value $0.001 per share |
SANW |
The Nasdaq Capital Market |
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
|
Smaller reporting company |
☒ |
Emerging growth company |
☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The number of shares outstanding of common stock of the registrant as of February 12, 2020 was 33,398,019.
TABLE OF CONTENTS
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Page No. |
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Item 1. |
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3 |
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Consolidated Balance Sheets at December 31, 2019 and June 30, 2019 |
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3 |
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4 |
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5 |
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6 |
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Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2019 and 2018 |
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7 |
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8 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
31 |
Item 3. |
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46 |
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Item 4. |
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46 |
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47 |
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Item 1. |
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47 |
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Item 1A. |
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47 |
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Item 2. |
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47 |
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Item 3. |
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47 |
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Item 4. |
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47 |
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Item 5. |
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47 |
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Item 6. |
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48 |
1
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. These forward-looking statements include but are not limited to, any statements concerning projections of revenue, margins, expenses, tax provisions, earnings, cash flows and other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding our ability to raise capital in the future; any statements concerning expected development, performance or market acceptance relating to our products or services or our ability to expand our grower or customer bases or to diversify our product offerings; any statements regarding future economic conditions or performance; any statements of expectation or belief; any statements regarding our ability to retain key employees; and any statements of assumptions underlying any of the foregoing. These forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “designed,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We have based these forward-looking statements on our current expectations about future events. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Risks, uncertainties and assumptions include the following:
• |
whether we are successful in securing sufficient acreage to support the growth of our seed business, |
• |
our plans for expansion of our business (including through acquisitions) and our ability to successfully integrate acquisitions into our operations; |
• |
the continued ability of our distributors and suppliers to have access to sufficient liquidity to fund their operations; |
• |
trends and other factors affecting our financial condition or results of operations from period to period; |
• |
the impact of crop disease, severe weather conditions, such as flooding, or natural disasters, such as earthquakes, on crop quality and yields and on our ability to grow, procure or export our products; |
• |
the impact of pricing of other crops that may be influence what crops our growers elect to plant; |
• |
whether we are successful in aligning expense levels to revenue changes; |
• |
whether we are successful in monetizing our stevia business; |
• |
the cost and other implications of pending or future legislation or court decisions and pending or future accounting pronouncements; and |
• |
other risks that are described herein including but not limited to the items discussed in “Risk Factors” below, and that are otherwise described or updated from time to time in our filings with the Securities Exchange Commission. |
You are urged to carefully review the disclosures made concerning risks and uncertainties that may affect our business or operating results, which include, among others, those listed in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K, for the fiscal year ended June 30, 2019, as updated in Part II, Item 1A. “Risks Factors” of this Quarterly Report on Form 10-Q.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Many factors discussed in this Quarterly Report on Form 10-Q, some of which are beyond our control, will be important in determining our future performance. Consequently, these statements are inherently uncertain and actual results may differ materially from those that might be anticipated from the forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this Quarterly Report on Form 10-Q as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Furthermore, such forward-looking statements represent our views as of, and speak only as of, the date of this Quarterly Report on Form 10-Q, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. We undertake no obligation to publicly update any forward-looking statements, or to update the reasons why actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
When used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “the Company,” “S&W” and “S&W Seed” refer to S&W Seed Company and its subsidiaries or, as the context may require, S&W Seed Company only. Our fiscal year ends on June 30, and accordingly, the terms “fiscal 2020,” “fiscal 2019” and “fiscal 2018” in this Quarterly Report on Form 10-Q refer to the respective fiscal year ended June 30, 2020, 2019 and 2018, respectively, with corresponding meanings to any fiscal year reference beyond such dates. Trademarks, service marks and trade names of other companies appearing in this report are the property of their respective holders.
2
S&W SEED COMPANY
(UNAUDITED)
|
December 31, 2019 |
|
|
June 30, 2019 |
|
|||
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,353,072 |
|
|
$ |
3,431,802 |
|
Accounts receivable, net |
|
|
10,243,690 |
|
|
|
13,380,464 |
|
Unbilled accounts receivable, net |
|
|
524,511 |
|
|
|
— |
|
Inventories, net |
|
|
75,610,319 |
|
|
|
71,295,520 |
|
Prepaid expenses and other current assets |
|
|
1,598,496 |
|
|
|
1,687,490 |
|
Assets held for sale |
|
|
— |
|
|
|
1,850,000 |
|
TOTAL CURRENT ASSETS |
|
|
90,330,088 |
|
|
|
91,645,276 |
|
Property, plant and equipment, net |
|
|
20,344,674 |
|
|
|
20,634,949 |
|
Intangibles, net |
|
|
34,217,214 |
|
|
|
32,714,484 |
|
Other assets |
|
|
4,627,839 |
|
|
|
1,369,560 |
|
TOTAL ASSETS |
|
$ |
149,519,815 |
|
|
$ |
146,364,269 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
13,507,963 |
|
|
$ |
6,930,829 |
|
Deferred revenue |
|
|
10,121,405 |
|
|
|
9,054,549 |
|
Accrued expenses and other current liabilities |
|
|
5,127,747 |
|
|
|
6,073,110 |
|
Lines of credit, net |
|
|
16,995,697 |
|
|
|
10,755,548 |
|
Current portion of long-term debt, net |
|
|
1,394,154 |
|
|
|
1,113,502 |
|
TOTAL CURRENT LIABILITIES |
|
|
47,146,966 |
|
|
|
33,927,538 |
|
Long-term debt, net, less current portion |
|
|
11,392,796 |
|
|
|
12,158,095 |
|
Other non-current liabilities |
|
|
2,224,284 |
|
|
|
280,424 |
|
TOTAL LIABILITIES |
|
|
60,764,046 |
|
|
|
46,366,057 |
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding |
|
|
— |
|
|
|
— |
|
Common stock, $0.001 par value; 50,000,000 shares authorized; 33,329,566 issued and 33,304,566 outstanding at December 31, 2019; 33,303,218 issued and 33,278,218 outstanding at June 30, 2019; |
|
|
33,329 |
|
|
|
33,303 |
|
Treasury stock, at cost, 25,000 shares |
|
|
(134,196 |
) |
|
|
(134,196 |
) |
Additional paid-in capital |
|
|
137,204,276 |
|
|
|
136,751,875 |
|
Accumulated deficit |
|
|
(42,056,965 |
) |
|
|
(30,466,618 |
) |
Accumulated other comprehensive loss |
|
|
(6,192,962 |
) |
|
|
(6,138,467 |
) |
Noncontrolling interests |
|
|
(97,713 |
) |
|
|
(47,685 |
) |
TOTAL STOCKHOLDERS' EQUITY |
|
|
88,755,769 |
|
|
|
99,998,212 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
|
$ |
149,519,815 |
|
|
$ |
146,364,269 |
|
See notes to consolidated financial statements.
3
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
Three Months Ended December 31, |
|
|
Six Months Ended December 31, |
|
|||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and other |
|
$ |
12,353,100 |
|
|
$ |
18,580,996 |
|
|
$ |
24,625,557 |
|
|
$ |
44,701,133 |
|
Total revenue |
|
|
12,353,100 |
|
|
|
18,580,996 |
|
|
|
24,625,557 |
|
|
|
44,701,133 |
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and other |
|
|
10,160,727 |
|
|
|
13,897,455 |
|
|
|
19,360,313 |
|
|
|
34,554,463 |
|
Total cost of revenue |
|
|
10,160,727 |
|
|
|
13,897,455 |
|
|
|
19,360,313 |
|
|
|
34,554,463 |
|
Gross profit |
|
|
2,192,373 |
|
|
|
4,683,541 |
|
|
|
5,265,244 |
|
|
|
10,146,670 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
5,119,598 |
|
|
|
4,342,696 |
|
|
|
9,767,924 |
|
|
|
7,230,074 |
|
Research and development expenses |
|
|
1,671,873 |
|
|
|
1,373,554 |
|
|
|
3,260,064 |
|
|
|
2,365,667 |
|
Depreciation and amortization |
|
|
1,346,004 |
|
|
|
1,035,606 |
|
|
|
2,410,802 |
|
|
|
1,890,714 |
|
(Gain) loss on disposal of property, plant and equipment |
|
|
(1,500 |
) |
|
|
3,463 |
|
|
|
(13,075 |
) |
|
|
3,463 |
|
Total operating expenses |
|
|
8,135,975 |
|
|
|
6,755,319 |
|
|
|
15,425,715 |
|
|
|
11,489,918 |
|
Loss from operations |
|
|
(5,943,602 |
) |
|
|
(2,071,778 |
) |
|
|
(10,160,471 |
) |
|
|
(1,343,248 |
) |
Other expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain |
|
|
(112,363 |
) |
|
|
(32,987 |
) |
|
|
(14,176 |
) |
|
|
(58,430 |
) |
Change in estimated value of assets held for sale |
|
|
7,238 |
|
|
|
— |
|
|
|
92,931 |
|
|
|
— |
|
Loss on extinguishment of debt |
|
|
140,638 |
|
|
|
— |
|
|
|
140,638 |
|
|
|
— |
|
Interest expense - amortization of debt discount |
|
|
111,810 |
|
|
|
68,914 |
|
|
|
297,712 |
|
|
|
135,392 |
|
Interest expense |
|
|
501,781 |
|
|
|
641,479 |
|
|
|
938,279 |
|
|
|
1,298,709 |
|
Loss before income taxes |
|
|
(6,592,706 |
) |
|
|
(2,749,184 |
) |
|
|
(11,615,855 |
) |
|
|
(2,718,919 |
) |
Provision for income taxes |
|
|
23,290 |
|
|
|
(4,801 |
) |
|
|
24,520 |
|
|
|
4,533 |
|
Net loss |
|
$ |
(6,615,996 |
) |
|
$ |
(2,744,383 |
) |
|
$ |
(11,640,375 |
) |
|
$ |
(2,723,452 |
) |
Net income (loss) attributed to noncontrolling interests |
|
|
48,861 |
|
|
|
21,673 |
|
|
|
(50,028 |
) |
|
|
21,673 |
|
Net loss attributable to S&W Seed Company |
|
$ |
(6,664,857 |
) |
|
$ |
(2,766,056 |
) |
|
$ |
(11,590,347 |
) |
|
$ |
(2,745,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to S&W Seed Company per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.20 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.35 |
) |
|
$ |
(0.10 |
) |
Diluted |
|
$ |
(0.20 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.35 |
) |
|
$ |
(0.10 |
) |
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
33,301,578 |
|
|
|
29,153,852 |
|
|
|
33,294,344 |
|
|
|
26,996,483 |
|
Diluted |
|
|
33,301,578 |
|
|
|
29,153,852 |
|
|
|
33,294,344 |
|
|
|
26,996,483 |
|
See notes to consolidated financial statements.
4
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
Three Months Ended December 31, |
|
|
Six Months Ended December 31, |
|
|||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Net loss |
|
$ |
(6,615,996 |
) |
|
$ |
(2,744,383 |
) |
|
$ |
(11,640,375 |
) |
|
$ |
(2,723,452 |
) |
Foreign currency translation adjustment, net of income taxes |
|
|
189,570 |
|
|
|
(143,198 |
) |
|
|
(54,495 |
) |
|
|
(325,621 |
) |
Comprehensive loss |
|
$ |
(6,426,426 |
) |
|
$ |
(2,887,581 |
) |
|
$ |
(11,694,870 |
) |
|
$ |
(3,049,073 |
) |
Comprehensive income (loss) attributable to noncontrolling interests |
|
|
48,861 |
|
|
|
21,673 |
|
|
|
(50,028 |
) |
|
|
21,673 |
|
Comprehensive loss attributable to S&W Seed Company |
|
$ |
(6,475,287 |
) |
|
$ |
(2,909,254 |
) |
|
$ |
(11,644,842 |
) |
|
$ |
(3,070,746 |
) |
See notes to consolidated financial statements.
5
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional Paid-In |
|
|
Accumulated |
|
|
Noncontrolling |
|
|
Accumulated Other Comprehensive |
|
|
Total Stockholders' |
|
||||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interests |
|
|
Loss |
|
|
Equity |
|
|||||||||||
Balance, September 30, 2018 |
|
|
— |
|
|
|
— |
|
|
|
25,981,252 |
|
|
$ |
25,981 |
|
|
|
(25,000 |
) |
|
$ |
(134,196 |
) |
|
$ |
113,878,725 |
|
|
$ |
(21,140,445 |
) |
|
|
— |
|
|
$ |
(5,973,085 |
) |
|
$ |
86,656,980 |
|
Stock-based compensation - options, restricted stock, and RSUs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
222,153 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
222,153 |
|
Net issuance to settle RSUs |
|
|
— |
|
|
|
— |
|
|
|
29,889 |
|
|
|
30 |
|
|
|
— |
|
|
|
— |
|
|
|
(18,889 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18,859 |
) |
Proceeds from sale of preferred stock, net of fees and expenses |
|
|
7,235 |
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,420,455 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,420,462 |
|
Conversion of preferred stock to common stock |
|
|
(7,235 |
) |
|
|
(7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,228 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,235 |
) |
Proceeds from sale of common stock, net of fees and expenses |
|
|
— |
|
|
|
— |
|
|
|
7,235,000 |
|
|
|
7,235 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,235 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(143,198 |
) |
|
|
(143,198 |
) |
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,766,056 |
) |
|
|
21,673 |
|
|
|
— |
|
|
|
(2,744,383 |
) |
Balance, December 31, 2018 |
|
|
— |
|
|
$ |
— |
|
|
|
33,246,141 |
|
|
$ |
33,246 |
|
|
|
(25,000 |
) |
|
$ |
(134,196 |
) |
|
$ |
136,495,216 |
|
|
$ |
(23,906,501 |
) |
|
$ |
21,673 |
|
|
$ |
(6,116,283 |
) |
|
$ |
106,393,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
33,309,453 |
|
|
$ |
33,309 |
|
|
|
(25,000 |
) |
|
$ |
(134,196 |
) |
|
$ |
136,903,468 |
|
|
$ |
(35,392,108 |
) |
|
$ |
(146,574 |
) |
|
$ |
(6,382,532 |
) |
|
$ |
94,881,367 |
|
Stock-based compensation - options, restricted stock, and RSUs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
309,767 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
309,767 |
|
Net issuance to settle RSUs |
|
|
— |
|
|
|
— |
|
|
|
20,113 |
|
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
|
(8,959 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,939 |
) |
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
189,570 |
|
|
|
189,570 |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,664,857 |
) |
|
|
48,861 |
|
|
|
— |
|
|
|
(6,615,996 |
) |
Balance, December 31, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
33,329,566 |
|
|
$ |
33,329 |
|
|
|
(25,000 |
) |
|
$ |
(134,196 |
) |
|
$ |
137,204,276 |
|
|
$ |
(42,056,965 |
) |
|
$ |
(97,713 |
) |
|
$ |
(6,192,962 |
) |
|
$ |
88,755,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional Paid-In |
|
|
Accumulated |
|
|
Noncontrolling |
|
|
Accumulated Other Comprehensive |
|
|
Total Stockholders' |
|
||||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interests |
|
|
Loss |
|
|
Equity |
|
|||||||||||
Balance, June 30, 2018 |
|
|
— |
|
|
|
— |
|
|
|
24,367,906 |
|
|
$ |
24,367 |
|
|
|
(25,000 |
) |
|
$ |
(134,196 |
) |
|
$ |
108,803,991 |
|
|
$ |
(21,161,376 |
) |
|
|
— |
|
|
$ |
(5,790,662 |
) |
|
$ |
81,742,124 |
|
Stock-based compensation - options, restricted stock, and RSUs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
377,458 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
377,458 |
|
Net issuance to settle RSUs |
|
|
— |
|
|
|
— |
|
|
|
35,518 |
|
|
|
36 |
|
|
|
— |
|
|
|
— |
|
|
|
(25,534 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25,498 |
) |
Proceeds from sale of preferred stock, net of fees and expenses |
|
|
7,235 |
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,420,455 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,420,462 |
|
Conversion of preferred stock to common stock |
|
|
(7,235 |
) |
|
|
(7 |
) |
|
|
7,235,000 |
|
|
|
7,235 |
|
|
|
— |
|
|
|
— |
|
|
|
(7,228 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Proceeds from sale of common stock, net of fees and expenses |
|
|
— |
|
|
|
— |
|
|
|
1,607,717 |
|
|
|
1,608 |
|
|
|
— |
|
|
|
— |
|
|
|
4,926,074 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,927,682 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(325,621 |
) |
|
|
(325,621 |
) |
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,745,125 |
) |
|
|
21,673 |
|
|
|
— |
|
|
|
(2,723,452 |
) |
Balance, December 31, 2018 |
|
|
— |
|
|
$ |
— |
|
|
|
33,246,141 |
|
|
$ |
33,246 |
|
|
|
(25,000 |
) |
|
$ |
(134,196 |
) |
|
$ |
136,495,216 |
|
|
$ |
(23,906,501 |
) |
|
$ |
21,673 |
|
|
$ |
(6,116,283 |
) |
|
$ |
106,393,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
33,303,218 |
|
|
$ |
33,303 |
|
|
|
(25,000 |
) |
|
$ |
(134,196 |
) |
|
$ |
136,751,875 |
|
|
$ |
(30,466,618 |
) |
|
$ |
(47,685 |
) |
|
$ |
(6,138,467 |
) |
|
$ |
99,998,212 |
|
Stock-based compensation - options, restricted stock, and RSUs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
468,604 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
468,604 |
|
Net issuance to settle RSUs |
|
|
— |
|
|
|
— |
|
|
|
26,348 |
|
|
|
26 |
|
|
|
— |
|
|
|
— |
|
|
|
(16,203 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,177 |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(54,495 |
) |
|
|
(54,495 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,590,347 |
) |
|
|
(50,028 |
) |
|
|
— |
|
|
|
(11,640,375 |
) |
Balance, December 31, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
33,329,566 |
|
|
$ |
33,329 |
|
|
|
(25,000 |
) |
|
$ |
(134,196 |
) |
|
$ |
137,204,276 |
|
|
$ |
(42,056,965 |
) |
|
$ |
(97,713 |
) |
|
$ |
(6,192,962 |
) |
|
$ |
88,755,769 |
|
See notes to consolidated financial statements.
6
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six Months Ended December 31, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(11,640,375 |
) |
|
$ |
(2,723,452 |
) |
Adjustments to reconcile net loss from operating activities to net |
|
|
|
|
|
|
|
|
cash used in operating activities |
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
468,604 |
|
|
|
377,458 |
|
Change in allowance for doubtful accounts |
|
|
(36,018 |
) |
|
|
(154,364 |
) |
Inventory write-down |
|
|
818,099 |
|
|
|
— |
|
Depreciation and amortization |
|
|
2,410,802 |
|
|
|
1,890,715 |
|
(Gain) loss on disposal of property, plant and equipment |
|
|
(13,075 |
) |
|
|
3,463 |
|
Change in foreign exchange contracts |
|
|
(73,677 |
) |
|
|
2,626 |
|
Change in estimated value of assets held for sale |
|
|
92,931 |
|
|
|
— |
|
Loss on debt extinguishment |
|
|
140,638 |
|
|
|
— |
|
Amortization of debt discount |
|
|
297,712 |
|
|
|
135,392 |
|
Changes in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
3,169,182 |
|
|
|
(8,336,183 |
) |
Unbilled accounts receivable |
|
|
(524,511 |
) |
|
|
(11,206,984 |
) |
Inventories |
|
|
(5,193,721 |
) |
|
|
(21,513,547 |
) |
Prepaid expenses and other current assets |
|
|
16,829 |
|
|
|
123,752 |
|
Other non-current asset |
|
|
31,935 |
|
|
|
— |
|
Accounts payable |
|
|
6,643,907 |
|
|
|
23,698,244 |
|
Deferred revenue |
|
|
1,066,964 |
|
|
|
1,458,655 |
|
Accrued expenses and other current liabilities |
|
|
(943,890 |
) |
|
|
384,628 |
|
Other non-current liabilities |
|
|
(218,475 |
) |
|
|
(40,855 |
) |
Net cash used in operating activities |
|
|
(3,486,139 |
) |
|
|
(15,900,452 |
) |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(1,447,549 |
) |
|
|
(336,623 |
) |
Proceeds from disposal of property, plant and equipment |
|
|
20,075 |
|
|
|
24,106 |
|
Proceeds from sale of assets held for sale |
|
|
1,757,069 |
|
|
|
— |
|
Additions to internal use software |
|
|
— |
|
|
|
(43,000 |
) |
Acquisition of business, net of cash acquired |
|
|
— |
|
|
|
(26,354,951 |
) |
Acquisition of wheat assets |
|
|
(2,633,000 |
) |
|
|
— |
|
Net cash used in investing activities |
|
|
(2,303,405 |
) |
|
|
(26,710,468 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Net proceeds from sale of common stock |
|
|
— |
|
|
|
4,927,682 |
|
Net proceeds from sale of preferred stock |
|
|
— |
|
|
|
22,420,462 |
|
Taxes paid related to net share settlements of stock-based compensation awards |
|
|
(16,177 |
) |
|
|
(25,497 |
) |
Borrowings and repayments on lines of credit, net |
|
|
6,648,102 |
|
|
|
14,299,326 |
|
Borrowings of long-term debt |
|
|
258,721 |
|
|
|
2,369,071 |
|
Debt issuance costs |
|
|
(879,655 |
) |
|
|
(354,589 |
) |
Repayments of long-term debt |
|
|
(1,147,447 |
) |
|
|
(2,682,056 |
) |
Net cash provided by financing activities |
|
|
4,863,544 |
|
|
|
40,954,399 |
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
|
(152,730 |
) |
|
|
(192,992 |
) |
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS |
|
|
(1,078,730 |
) |
|
|
(1,849,513 |
) |
CASH AND CASH EQUIVALENTS, beginning of the period |
|
$ |
3,431,802 |
|
|
|
4,320,894 |
|
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
2,353,072 |
|
|
$ |
2,471,381 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
825,121 |
|
|
$ |
1,106,256 |
|
Income taxes |
|
|
76,878 |
|
|
|
13,304 |
|
See notes to consolidated financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BACKGROUND AND ORGANIZATION
Organization
S&W Seed Company, a Nevada corporation (the “Company”), began as S&W Seed Company, a general partnership, in 1980 and was originally in the business of breeding, growing, processing and selling alfalfa seed. We then incorporated a corporation with the same name in Delaware in October 2009, which is the successor entity to Seed Holding, LLC, having purchased a majority interest in the general partnership between June 2008 and December 2009. Following the Company’s initial public offering in May 2010, the Company purchased the remaining general partnership interests and became the sole owner of the general partnership’s original business. Seed Holding, LLC remains a consolidated subsidiary of the Company.
In December 2011, the Company reincorporated in Nevada as a result of a statutory short-form merger of the Delaware corporation into its wholly-owned subsidiary, S&W Seed Company, a Nevada corporation.
On April 1, 2013, the Company, together with its wholly-owned subsidiary, S&W Holdings Australia Pty Ltd, an Australia corporation (f/k/a S&W Seed Australia Pty Ltd “S&W Holdings”), consummated an acquisition of all of the issued and outstanding shares of Seed Genetics International Pty Ltd, an Australia corporation (“SGI”), from SGI’s shareholders. In April 2018, SGI changed its name to S&W Seed Company Australia Pty Ltd (“S&W Australia”).
On September 19, 2018, the Company and AGT Foods Africa Proprietary Limited (“AGT”) formed a venture based in South Africa named SeedVision Proprietary Limited (“SeedVision”). SeedVision will leverage AGT's African-based production and processing facilities to produce S&W's hybrid sunflower, grain sorghum, and forage sorghum to be sold by SeedVision in the African continent, Middle East countries, and Europe.
Business Overview
Since its establishment, the Company, including its predecessor entities, has been principally engaged in breeding, growing, processing and selling agricultural seeds, primarily alfalfa seed. The Company owns seed cleaning and processing facilities, which are located in Five Points, California, Nampa, Idaho, Dumas, Texas, New Deal, Texas and Keith, South Australia. The Company’s seed products are primarily grown under contract by farmers. The Company began its stevia initiative in fiscal year 2010 and is currently focused on breeding improved varieties of stevia and developing marketing and distribution programs for its stevia products.
The Company has also been actively engaged in expansion initiatives through a combination of organic growth and strategic acquisitions, including in December 31, 2014, when the Company purchased certain alfalfa research and production facilities and conventional (non-GMO) alfalfa germplasm assets and assumed certain related liabilities (the “Pioneer Acquisition”) of Pioneer Hi-Bred International, Inc. (“Pioneer”).
The Company had a long-term distribution agreement with Pioneer regarding conventional (non-GMO) varieties, and a production agreement with Pioneer (relating to GMO-traited varieties). These agreements were terminated on May 20, 2019. See Note 4 for further discussion.
In May 2016, the Company acquired the assets and business of SV Genetics, a private Australian company specializing in the breeding and licensing of proprietary hybrid sorghum and sunflower seed germplasm, which represented the Company’s initial effort to diversify its product portfolio beyond alfalfa seed and stevia.
In October 2018, the Company acquired substantially all of the assets of Chromatin, Inc., a U.S.-based sorghum genetics and seed company, as part of the Company's efforts to expand its penetration into the hybrid sorghum market.
In August 2019, S&W Australia, a wholly owned subsidiary of S&W Seed Company, licensed certain wheat germplasm varieties and acquired certain equipment from affiliates of Corteva. In the transaction, S&W Australia paid a one-time license fee of $2.3 million and an equipment purchase price of $0.3 million. The license has an initial term of 15 years.
The Company’s operations span the world’s alfalfa seed production regions with operations in the San Joaquin and Imperial Valleys of California, Texas, five other U.S. states, Australia, and three provinces in Canada, and the Company sells its seed products in more than 30 countries around the globe.
8
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of S&W Seed Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements were prepared in accordance with U.S. GAAP and include the assets, liabilities, revenue and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company's exercises control. Outside stockholders' interests in subsidiaries are shown on the condensed consolidated financial statements as Noncontrolling interests.
The Company owns 50.1% of SeedVision, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and SeedVision is being funded through advances, as needed, from its investors. The Company has concluded that it is the primary beneficiary of SeedVision because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of SeedVision, which are considered to be the activities that have the greatest impact on the future economic performance of SeedVision.
The Company owns 51.0% of Sorghum Solutions South Africa, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and Sorghum Solutions South Africa is being funded through advances, as needed, from its investors. The Company has concluded that it is the primary beneficiary of Sorghum Solutions South Africa because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of Sorghum Solutions South Africa, which are considered to be the activities that have the greatest impact on the future economic performance of Sorghum Solutions South Africa.
Because the Company is its primary beneficiary, SeedVision's and Sorghum Solutions South Africa’s financial results are included in these financial statements. We have recorded a combined $0.8 million of current assets (restricted) and $0.5 million of current liabilities (nonrecourse) for these entities in our consolidated balance sheet as of December 31, 2019. We have recorded a combined $0.6 million of current assets (restricted) and $0.2 million of current liabilities (nonrecourse) for these entities in our consolidated balance sheet as of June 30, 2019.
Unaudited Interim Financial Information
The Company has prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in the Company’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the Company’s consolidated balance sheets, statements of operations, comprehensive income (loss), cash flows and stockholders’ equity for the periods presented. Operating results for the periods presented are not necessarily indicative of the results to be expected for the full year ending June 30, 2020. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019, as filed with the SEC.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are adjusted to reflect actual experience when necessary. Significant estimates and assumptions affect many items in the financial statements. These include allowance for doubtful trade receivables, revenue recognition, inventory valuation, asset impairments, provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the Company), contingencies and litigation. Significant estimates and assumptions are also used to establish the fair value and useful lives of depreciable tangible and certain intangible assets, goodwill as well as valuing stock-based compensation. Actual results may differ from those estimates and assumptions, and such results may affect income, financial position or cash flows.
Certain Risks and Concentrations
The Company’s revenue is principally derived from the sale of seed, the market for which is highly competitive. The Company depends on a core group of significant customers. One customer accounted for 27% and 52% of its revenue for the three months ended December 31, 2019 and 2018, respectively. One customer accounted for 41% and 65% of its revenue for the six months ended December 31, 2019 and 2018, respectively.
9
Two customers accounted for 26% of the Company’s accounts receivable at December 31, 2019. One customer accounted for 19% of the Company’s accounts receivable at June 30, 2019.
The Company sells a substantial portion of its products to international customers. Sales to international markets represented 51% and 33% of revenue during the three months ended December 31, 2019 and 2018, respectively. Sales to international markets represented 48% and 23% of revenue during the six months ended December 31, 2019 and 2018, respectively. The net book value of fixed assets located outside the United States was 13% and 11% of total fixed assets at December 31, 2019 and June 30, 2019, respectively. Cash balances located outside of the United States may not be insured and totaled $518,429 and $236,822 at December 31, 2019 and June 30, 2019, respectively.
The following table shows revenue from external sources by destination country:
|
|
Three Months Ended December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||||||||||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||||||||||||||||||
United States |
|
$ |
6,098,755 |
|
|
|
49 |
% |
|
$ |
12,464,626 |
|
|
|
67 |
% |
|
$ |
12,803,301 |
|
|
|
52 |
% |
|
$ |
34,204,005 |
|
|
|
77 |
% |
Saudi Arabia |
|
|
2,095,140 |
|
|
|
17 |
% |
|
|
863,982 |
|
|
|
5 |
% |
|
|
2,285,140 |
|
|
|
9 |
% |
|
|
1,570,275 |
|
|
|
4 |
% |
Mexico |
|
|
787,624 |
|
|
|
6 |
% |
|
|
986,303 |
|
|
|
5 |
% |
|
|
1,818,416 |
|
|
|
7 |
% |
|
|
1,379,253 |
|
|
|
3 |
% |
Australia |
|
|
527,063 |
|
|
|
4 |
% |
|
|
1,040,480 |
|
|
|
6 |
% |
|
|
1,293,514 |
|
|
|
5 |
% |
|
|
1,370,150 |
|
|
|
3 |
% |
Pakistan |
|
|
464,537 |
|
|
|
4 |
% |
|
|
464,936 |
|
|
|
3 |
% |
|
|
1,243,467 |
|
|
|
5 |
% |
|
|
730,583 |
|
|
|
2 |
% |
Libya |
|
|
414,880 |
|
|
|
3 |
% |
|
|
800,375 |
|
|
|
4 |
% |
|
|
1,044,860 |
|
|
|
4 |
% |
|
|
1,798,750 |
|
|
|
4 |
% |
Italy |
|
|
364,907 |
|
|
|
3 |
% |
|
|
82,880 |
|
|
|
0 |
% |
|
|
678,614 |
|
|
|
3 |
% |
|
|
82,880 |
|
|
|
0 |
% |
South Africa |
|
|
343,997 |
|
|
|
3 |
% |
|
|
121,567 |
|
|
|
1 |
% |
|
|
458,444 |
|
|
|
2 |
% |
|
|
248,696 |
|
|
|
1 |
% |
China |
|
|
213,168 |
|
|
|
2 |
% |
|
|
— |
|
|
|
0 |
% |
|
|
379,270 |
|
|
|
2 |
% |
|
|
169,027 |
|
|
|
0 |
% |
Bolivia |
|
|
169,900 |
|
|
|
1 |
% |
|
|
119,464 |
|
|
|
1 |
% |
|
|
169,900 |
|
|
|
1 |
% |
|
|
230,464 |
|
|
|
1 |
% |
Other |
|
|
873,129 |
|
|
|
8 |
% |
|
|
1,636,383 |
|
|
|
8 |
% |
|
|
2,450,631 |
|
|
|
10 |
% |
|
|
2,917,050 |
|
|
|
5 |
% |
Total |
|
$ |
12,353,100 |
|
|
|
100 |
% |
|
$ |
18,580,996 |
|
|
|
100 |
% |
|
$ |
24,625,557 |
|
|
|
100 |
% |
|
$ |
44,701,133 |
|
|
|
100 |
% |
International Operations
The Company translates its foreign operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at the current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of accumulated other comprehensive income (loss). Gains or losses from foreign currency transactions are included in the consolidated statement of operations.
Cost of Revenue
The Company records purchasing and receiving costs, inspection costs and warehousing costs in cost of revenue. When the Company is required to pay for outward freight and/or the costs incurred to deliver products to its customers, the costs are included in cost of revenue.
Cash and Cash Equivalents
For financial statement presentation purposes, the Company considers time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. At times, cash and cash equivalents balances exceed amounts insured by the Federal Deposit Insurance Corporation.
Accounts Receivable
The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. The allowance for doubtful trade receivables was $1,798,093 and $1,742,887 at December 31, 2019 and June 30, 2019, respectively.
10
Inventories
Inventories consist of seed and packaging materials.
Inventories are stated at the lower of cost or net realizable value, and an inventory reserve permanently reduces the cost basis of inventory. Inventories are valued as follows: Actual cost is used to value raw materials such as packaging materials, as well as goods in process. Costs for substantially all finished goods, which include the cost of carryover crops from the previous year, are valued at actual cost. Actual cost for finished goods includes plant conditioning and packaging costs, direct labor and raw materials and manufacturing overhead costs based on normal capacity. The Company records abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) as current period charges and allocates fixed production overhead to the costs of finished goods based on the normal capacity of the production facilities.
The Company’s subsidiary, S&W Australia, does not fix the final price for seed payable to its growers until the completion of a given year’s sales cycle pursuant to its standard contract production agreement. S&W Australia records an estimated unit price; accordingly, inventory, cost of revenue and gross profits are based upon management’s best estimate of the final purchase price to growers.
Inventory is periodically reviewed to determine if it is marketable, obsolete or impaired. Inventory that is determined to be obsolete or impaired is written off to expense at the time the impairment is identified. Inventory quality is a function of germination percentage. Our experience has shown that our alfalfa seed quality tends to be stable under proper storage conditions; therefore, we do not view inventory obsolescence for alfalfa seed as a material concern. Hybrid crops (sorghum and sunflower) seed quality may be affected by warehouse storage pests such as insects and rodents. The Company maintains a strict pest control program to mitigate risk and maximize hybrid seed quality.
Components of inventory are:
|
December 31, 2019 |
|
|
June 30, 2019 |
|
|||
Raw materials and supplies |
|
$ |
1,275,442 |
|
|
$ |
664,541 |
|
Work in progress |
|
|
9,266,827 |
|
|
|
5,664,934 |
|
Finished goods |
|
|
65,068,050 |
|
|
|
64,966,045 |
|
|
|
$ |
75,610,319 |
|
|
$ |
71,295,520 |
|
Property, Plant and Equipment
Property, plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset - periods of 5-35 years for buildings, 2-20 years for machinery and equipment, and 2-5 years for vehicles.
Intangible Assets
Intangible assets acquired in business acquisitions are reported at their initial fair value less accumulated amortization. Intangible assets are amortized using the straight-line method over the estimated useful life of the asset. Periods of 10-30 years for technology/IP/germplasm, 5-20 years for customer relationships and trade names and 3-20 for other intangible assets. The weighted average estimated useful lives are 25 years for technology/IP/germplasm, 17 years for customer relationships, 18 years for trade names, 15 years for license agreements and 16 years for other intangible assets.
11
Goodwill
Goodwill originated from acquisitions of Imperial Valley Seeds, Inc. (“IVS”) and S&W Australia in fiscal year 2013, the acquisition of the alfalfa business from Pioneer in fiscal year 2015, the acquisition of assets of SV Genetics in fiscal year 2016 and acquisition of substantially all of the assets of Chromatin, Inc. in fiscal year 2019.
Goodwill is assessed at least annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses market capitalization and an estimate of a control premium to estimate the fair value of its one reporting unit as well as discounted cash flow analysis. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
The Company performed a quantitative assessment of goodwill at June 30, 2019 and determined that goodwill was fully impaired. See Note 7 for further information.
Investment in Bioceres S.A.
The Company owns less than 1% of Bioceres, S.A., a provider of crop productivity solutions headquartered in Argentina. The carrying value of the investment is $1.3 million at December 31, 2019 and June 30, 2019, and the investment is included in Other Assets on the Consolidated Balance Sheet.
The Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities beginning July 1, 2018. As such, this investment is accounted for in accordance with ASC 321, Investments – Equity Securities. As the stock is not publicly traded, the Company has elected to account for its investment at cost, with adjustments to fair value when there are observable transactions that provide an indicator of fair value. In addition, if qualitative factors indicate a potential impairment, fair value must be estimated and the investment written down to that fair value if it is lower than the carrying value.
No adjustments for impairment or observable transactions were made for the three months or six months ended December 31, 2019 or December 31, 2018.
Research and Development Costs
The Company is engaged in ongoing research and development (“R&D”) of proprietary seed and stevia varieties. All R&D costs must be charged to expense as incurred. Accordingly, internal R&D costs are expensed as incurred. Third-party R&D costs are expensed when the contracted work has been performed or as milestone results have been achieved. The costs associated with equipment or facilities acquired or constructed for R&D activities that have alternative future uses are capitalized and depreciated on a straight-line basis over the estimated useful life of the asset.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between the financial statement and tax basis of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s effective tax rate for the three and six months ended December 31, 2019 and December 31, 2018 has been affected by the valuation allowance on the Company’s deferred tax assets.
Net Income (Loss) Per Common Share Data
Basic net income (loss) per common share ("EPS"), is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period.
Diluted EPS is calculated by adjusting both the numerator (net income (loss)) and the denominator (weighted-average number of shares outstanding) for the dilutive effects of potentially dilutive securities, including options, restricted stock awards and common stock warrants.
12
The treasury stock method is used for common stock warrants, stock options, and restricted stock awards. Under this method, consideration that would be received upon exercise (as well as remaining compensation cost to be recognized for awards not yet vested) is assumed to be used to repurchase shares of stock in the market, with net number of shares assumed to be issued added to the denominator.
The calculation of Basic and Diluted EPS is shown in the table below.
|
|
Three Months Ended December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to S&W Seed Company |
|
$ |
(6,664,857 |
) |
|
$ |
(2,766,056 |
) |
|
$ |
(11,590,347 |
) |
|
$ |
(2,745,125 |
) |
Numerator for basis EPS |
|
|
(6,664,857 |
) |
|
|
(2,766,056 |
) |
|
|
(11,590,347 |
) |
|
|
(2,745,125 |
) |
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Numerator for diluted EPS |
|
$ |
(6,664,857 |
) |
|
$ |
(2,766,056 |
) |
|
$ |
(11,590,347 |
) |
|
$ |
(2,745,125 |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS-weighted- average shares |
|
|
33,301,578 |
|
|
|
29,153,852 |
|
|
|
33,294,344 |
|
|
|
26,996,483 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Employee restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Dilutive potential common shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Denominator for diluted EPS - adjusted weighted average shares and assumed conversions |
|
|
33,301,578 |
|
|
|
29,153,852 |
|
|
|
33,294,344 |
|
|
|
26,996,483 |
|
Basic EPS |
|
$ |
(0.20 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.35 |
) |
|
$ |
(0.10 |
) |
Diluted EPS |
|
$ |
(0.20 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.35 |
) |
|
$ |
(0.10 |
) |
The effects of employee stock options and stock units, and warrants are excluded because they would be anti-dilutive due to the Company’s net loss for the three and six months ended December 31, 2019 and 2018.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. Refer to Note 4 and Note 7 for impairment discussion.
Derivative Financial Instruments
Foreign Exchange Contracts
The Company’s subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company at times manages through the use of foreign currency forward contracts.
The Company has entered into certain derivative financial instruments (specifically foreign currency forward contracts), and accounts for these instruments in accordance with ASC Topic 815, “Derivatives and Hedging”, which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. The Company’s foreign currency contracts are not designated as hedging instruments under ASC 815; accordingly, changes in the fair value are recorded in current period earnings.
13
Fair Value of Financial Instruments
The Company discloses assets and liabilities that are recognized and measured at fair value, presented in a three-tier fair value hierarchy, as follows:
• |
Level 1. Observable inputs such as quoted prices in active markets; |
• |
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
• |
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The assets acquired and liabilities assumed in the Chromatin acquisition were valued at fair value on a non-recurring basis as of October 25, 2018.
The assets acquired and liabilities assumed in the Dow Wheat acquisition (see Note 7 below) were valued at fair value on a non-recurring basis as of August 15, 2019.
The carrying value of cash and cash equivalents, accounts payable, short-term and all long-term borrowings, as reflected in the consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments or interest rates commensurate with market rates. There have been no changes in operations and/or credit characteristics since the date of issuance that could impact the relationship between interest rate and market rates.
Assets and liabilities that are recognized and measured at fair value on a recurring basis are categorized as follows:
|
Fair Value Measurements as of December 31, 2019 Using: |
|
||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Foreign exchange contract asset |
|
$ |
— |
|
|
$ |
32,827 |
|
|
$ |
— |
|
Total |
|
$ |
— |
|
|
$ |
32,827 |
|
|
$ |
— |
|
|
Fair Value Measurements as of June 30, 2019 Using: |
|
||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Foreign exchange contract liability |
|
$ |
— |
|
|
$ |
42,255 |
|
|
$ |
— |
|
Total |
|
$ |
— |
|
|
$ |
42,255 |
|
|
$ |
— |
|
Recently Adopted Accounting Pronouncements
The Company adopted Accounting Standards Update No. 2016-02: Leases (“ASU 2016-02”) effective July 1, 2019. ASC 842 superseded previously existing guidance on accounting for leases and generally requires all leases to be recognized in the statement of financial position.
The adoption of ASC 842 resulted in the recognition of $2.6 million of right-of-use assets ("ROU assets") and $4.3 million related lease liabilities as of July 1, 2019, with no cumulative effect adjustment. The adoption of ASC 842 had no impact on the Company’s consolidated statement of operations and consolidated statement of cash flows.
The Company adopted ASC 842 on a modified retrospective approach at the effective date and, therefore, did not revise comparative period information or disclosure. In addition, the Company elected the package of practical expedients permitted under ASC 842.
See "Note 3—Leases" for additional information on the adoption of ASC 842.
14
Recently Issued, but Not Yet Adopted, Accounting Pronouncements
In August 2018, the FASB issued authoritative guidance intended to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires presentation of the capitalized implementation costs in the statement of financial position and in the statement of cash flows in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented, and the expense related to the capitalized implementation costs to be presented in the same line item in the statement of operations as the fees associated with the hosting element (service) of the arrangement. This guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of the adoption of Subtopic 350-40 on its consolidated financial statements and related disclosures.
NOTE 3 - LEASES
S&W leases office and laboratory space, research plots and equipment used in connection with its operations under various operating and finance leases.
ROU assets represent the Company’s right to use the underlying assets for the lease term and lease liabilities represent the net present value of the Company’s obligation to make payments arising from these leases. The lease liabilities are based on the present value of fixed lease payments over the lease term using the implicit lease interest rate or, when unknown, the Company's incremental borrowing rate on the lease commencement date or July 1, 2019 for leases that commenced prior to that date. If the lease includes one or more options to extend the term of the lease, the renewal option is considered in the lease term if it is reasonably certain the Company will exercise the option(s). Operating lease expense is recognized on a straight-line basis over the term of the lease. As permitted by ASC 842, leases with an initial term of twelve months or less ("short-term leases") are not recorded on the accompanying consolidated balance sheet.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component under the practical expedient provisions of the standard. The Company has lease agreements with terms less than one year. For the qualifying short-term leases, the Company elected the short-term lease recognition exemption in which the Company will not recognize ROU assets or lease liabilities, including the ROU assets or lease liabilities for existing short-term leases of those assets in upon adoption.
Variable lease payments consist primarily of common area maintenance, utilities and taxes, which are not included in the recognition of ROU assets and related lease liabilities. Variable lease payments and short-term lease expenses were immaterial to the Company’s financial statements for the three and six months ended December 31, 2019. The Company’s lease agreements do not contain material restrictive covenants.
The components of lease assets and liabilities are as follows:
|
Balance Sheet Classification |
|
December 31, 2019 |
|
||
Assets: |
|
|
|
|
|
|
Right of use assets - operating leases |
|
Other assets |
|
$ |
2,318,388 |
|
|
|
|
|
|
|
|
Right of use assets - finance leases |
|
Other assets |
|
|
1,053,231 |
|
Accumulated amortization - finance leases |
|
Other assets |
|
|
(141,308 |
) |
Right of use assets - finance leases, net |
|
Other assets |
|
|
911,923 |
|
Total lease assets |
|
|
|
$ |
3,230,311 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Current portion of long-term debt, net |
|
Current portion of long-term debt, net |
|
|
683,119 |
|
Current lease liabilities |
|
Accrued expenses and other current liabilities |
|
|
784,925 |
|
Long-term debt, net |
|
Long-term debt, net |
|
|
1,684,646 |
|
Long-term lease liabilities |
|
Other long-term liabilities |
|
|
2,134,092 |
|
Total lease liabilities |
|
|
|
$ |
5,286,782 |
|
15
The components of lease cost are as follows:
|
Income Statement Classification |
|
Three Months Ended December 31, 2019 |
|
|
Six Months Ended December 31, 2019 |
|
|||
Operating lease cost |
|
Cost of revenue |
|
$ |
71,591 |
|
|
$ |
142,885 |
|
Operating lease cost |
|
Selling, general and administrative expenses |
|
|
109,287 |
|
|
|
307,334 |
|
Operating lease cost |
|
Research and development expenses |
|
|
52,304 |
|
|
|
104,532 |
|
Finance lease cost |
|
Depreciation and amortization |
|
|
135,855 |
|
|
|
229,162 |
|
Total lease costs |
|
|
|
$ |
369,037 |
|
|
$ |
783,913 |
|
Maturities of lease liabilities as of December 31, 2019 are as follows:
|
|
|
|
Operating Leases |
|
Finance Leases |
|
||
|
|
|
$ |
534,093 |
|
$ |
399,664 |
|
|
2021 |
|
|
|
|
840,640 |
|
|
805,446 |
|
2022 |
|
|
|
|
630,613 |
|
|
736,979 |
|
2023 |
|
|
|
|
444,342 |
|
|
628,491 |
|
2024 |
|
|
|
|
397,761 |
|
|
59,861 |
|
After 2024 |
|
|
|
|
417,663 |
|
|
— |
|
Total lease payments |
|
|
|
|
3,265,112 |
|
|
2,630,441 |
|
Less: Interest |
|
|
|
|
346,095 |
|
|
262,676 |
|
Present value of lease liabilities |
|
|
|
$ |
2,919,017 |
|
$ |
2,367,765 |
|
Future minimum lease payments for operating leases accounted for under ASC 840, “Leases” in excess of one year at December 31, 2019 are as follows:
|
|
|
|
December 31, 2019 |
|
|
Remainder of 2020 |
|
|
|
$ |
531,500 |
|
2021 |
|
|
|
|
723,454 |
|
2022 |
|
|
|
|
547,651 |
|
2023 |
|
|
|
|
396,999 |
|
2024 |
|
|
|
|
369,941 |
|
After 2024 |
|
|
|
|
388,890 |
|
Total |
|
|
|
$ |
2,958,435 |
|
The following are the weighted average assumptions used for lease term and discount rate and supplemental cash flow information related to leases as of December 31, 2019:
|
4.8 years |
|
||
Operating lease discount rate |
|
|
5.43 |
% |
Finance lease remaining lease term |
|
3.5 years |
|
|
Finance lease discount rate |
|
|
6.27 |
% |
Cash paid for operating leases |
|
$ |
243,672 |
|
Cash paid for finance leases |
|
$ |
362,042 |
|
NOTE 4 – PIONEER RELATIONSHIP
Distribution and Production Agreements with Pioneer
In 2014, the Company purchased from Pioneer certain assets related to alfalfa and entered into a long-term contract to sell alfalfa seed to Pioneer under a production agreement (“GMO varieties”) and a distribution agreement (conventional varieties). Under the production and distribution agreements with Pioneer, the Company grew, processed, and delivered alfalfa seed for and to Pioneer. See Note 5 for a discussion of the recognition of revenue under these agreements.
16
On May 22, 2019, the Company and Pioneer terminated the production and distribution agreements. As part of the termination, Pioneer’s parent company, Corteva, agreed to purchase from the Company certain quantities of seed held by the Company as of that date that Pioneer was not previously obligated to purchase. Those quantities of seed will be delivered to Corteva periodically through February 2021.
The Company does not expect to sell any other products to Pioneer or Corteva beyond those quantities of seed.
In conjunction with the termination of the Pioneer production and distribution agreements, the Company recorded a $6.0 million impairment charge on its intangible assets related to the Pioneer distribution agreements for the year ended June 30, 2019. In addition, the termination of this relationship was a significant factor leading to the $11.9 million impairment of goodwill during the year ended June 30, 2019.
License Agreement with Corteva
Contemporaneously with the termination, the Company entered into a license with Corteva, under which Corteva received a fully pre-paid, exclusive license to produce and distribute certain of the Company's alfalfa seed varieties world-wide (except South America). The licensed seed varieties include certain of the Company's existing commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties. The Company also assigned to Corteva grower production contract rights, and Corteva assumed grower production contract obligations, related to the licensed and certain other alfalfa varieties. Corteva received no license to the Company's other commercial alfalfa varieties or pre-commercial alfalfa pipeline products and no rights to any future products developed by the Company.
Payments Due from Corteva and Pioneer
The Company received payments of $45.0 million in May 2019 and $5.55 million in September 2019 from Pioneer/Corteva, and will receive additional quarterly payments through February 2021, which total approximately $19.45 million. Approximately $34.2 million of these amounts referenced above has been allocated to the license to the Company’s alfalfa varieties. The $34.2 million was reported as licensing revenue in the consolidated statement of operations for the year ended June 30, 2019.
The remaining amounts will be recognized as revenue as the seed is delivered to Corteva through February 2021. The amount allocated to the seed represents the estimated standalone selling price of those quantities of seed, determined based on the Company’s normal profit margin on the quantities and varieties of seed that Corteva agreed to purchase. The Company allocated approximately $1.8 million to an unbilled receivable related to revenue recognition at contract termination and the remainder of the payments was allocated to the license using a residual method approach.
NOTE 5 - REVENUE RECOGNITION
The Company derives its revenue from 1) the sale of seed, 2) milling and packaging services 3) research and development services and 4) product licensing agreements.
The following table disaggregates the Company’s revenue by type of contract:
|
|
Three Months Ended December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Pioneer product sales |
|
$ |
3,144,106 |
|
|
$ |
9,677,988 |
|
|
$ |
6,407,122 |
|
|
$ |
29,185,614 |
|
Other product sales |
|
|
8,908,371 |
|
|
|
8,761,172 |
|
|
|
17,536,548 |
|
|
|
15,336,201 |
|
Services |
|
|
300,623 |
|
|
|
141,836 |
|
|
|
681,887 |
|
|
|
179,318 |
|
|
|
$ |
12,353,100 |
|
|
$ |
18,580,996 |
|
|
$ |
24,625,557 |
|
|
$ |
44,701,133 |
|
Pioneer Product Sales
In the three and six months ended December 31, 2019, Pioneer product sales consisted of product shipments to Pioneer under the termination agreement discussed in Note 4.
In the three and six months ended December 31, 2018, Pioneer product sales consisted of revenue under the Distribution and Production Agreements.
Under the production and distribution agreements with Pioneer, the Company grew, processed, and delivered alfalfa seed for and to Pioneer. The Company concluded that none of the individual activities performed under these contracts were distinct, as the customer was contracting for processed and packaged product.
17
Until those contracts were terminated in May 2019 (see Note 4), Pioneer submitted a demand plan to the Company in advance of the growing season specifying the amount of seed that it intends to order for the upcoming sales year. The Company was required to use commercially reasonable efforts to arrange for the requisite amount of seed to be grown, processed and packaged. Once the demand plan was submitted, Pioneer was committed to at least that amount of seed. In addition, the Company was not permitted to sell products produced for Pioneer under the agreements to other customers. Therefore, as provided in Topic 606, the Company recognized revenue from these agreements over time in 2019, as it incurred costs to fulfill its obligations.
To the extent the Company produced more product than Pioneer specified in its demand plan, the Company was required to first offer such product to Pioneer. If Pioneer did not purchase such excess product, the Company was permitted to sell the excess product to other customers subject to certain limitations.
The agreements specified prices per finished unit which were adjusted each year, up or down, based on current market conditions, by a maximum of 4% per year. The prices for a given crop year were determined one year in advance of the beginning of the sales season.
The Company concluded that cost was the best measure of progress under these contracts because no other measure adequately reflected the value added to the product by each of the Company's major tasks - having the crop grown, processing, and packaging. As the Company typically contracted out the growing of seed to third parties, the vast majority of the Company's costs under these agreements were incurred, and therefore the vast majority of the revenue from such agreements was recognized, when the raw seed was purchased from the third-party contract growers. The rest of the costs were incurred, and therefore the rest of the revenue was recognized, as the Company processed and packaged the product. As of the date of the termination of the production and distribution agreements with Pioneer (see Note 4), all seed covered by the active demand plan had been grown, processed and packaged.
Licensing
Contemporaneously with the termination in Note 4, the Company entered into a license with Corteva, under which Corteva received a fully pre-paid, exclusive license to produce and distribute certain of the Company's alfalfa seed varieties world-wide (except South America). The licensed seed varieties include certain of the Company's existing commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties.
Other Product Sales
Revenue from other product sales is recognized at the point in time at which control of the product is transferred to the customer. Generally, this occurs upon shipment of the product. Pricing for such transactions is negotiated and determined at the time the contracts are signed. We have elected the practical expedient that allows us to account for shipping and handling activities as a fulfillment cost, and we accrue those costs when the related revenue is recognized.
The Company has certain contracts with customers that offer a limited right of return on certain branded products. The products must be in an unopened and undamaged state and must be resalable in the sole opinion of the Company to qualify for refund. Returns are only accepted on product received by August 31st of the current sales year. The Company uses the three-year historical returns percentage to estimate the refund liability and records a reduction of revenue in the period in which revenue is recognized.
Services
Revenue from milling and packaging services, which are performed on the customer's product, is recognized as services are completed and the milled product is delivered to the customer.
Revenue from research and development services is recognized over time as the services are performed. R&D services are generally paid for in advance. During the three and six months ended December 31, 2019, R&D revenue relates to a single contract in which the customer may decide annually whether to continue the arrangement. Revenue is recognized straight-line over time, as services are expected to be provided roughly evenly throughout the year.
Payment Terms and Related Balance Sheet Accounts
Accounts receivable represent amounts that are payable to the Company by its customers subject only to the passage of time. Payment terms on invoices are generally 30 to 120 days for export customers and end of sales season (September 30th) for branded products sold within the United States. As the period between the transfer of goods and/or services to the customer and receipt of payment is less than one year, the Company does not separately account for a financing component in its contracts with customers.
18
Unbilled receivables represent contract assets that arise when the Company has partially performed under a contract, but is not yet able to invoice the customer until the Company has made additional progress. Unbilled receivables arose from the distribution and production agreements for which the Company recognized revenue over time, as the Company bills for these arrangements upon product delivery, while revenue was recognized, as described above, as costs were incurred. Unbilled receivables may arise as much as three months before billing is expected to occur.
Losses on accounts receivable and unbilled receivables are recognized if and when it becomes probable that amounts will not be paid. These losses are reversed in subsequent periods if these amounts are paid. During the three months ended December 31, 2019, the Company recognized a net gain from collections on amounts previously written off to bad debt expense of $48,657. During the six months ended December 31, 2019, the Company recognized a net gain from collections on amounts previously written off to bad debt expense of $36,018.
Deferred revenue represents payments received from customers in advance of completion of the Company's performance obligation.
NOTE 6 - BUSINESS COMBINATIONS
On October 25, 2018, the Company completed the acquisition of substantially all of the assets of Chromatin, Inc. (together with certain of its subsidiaries and affiliates in receivership, "Chromatin"), as well as the assumption of certain contracts and limited specified liabilities of Chromatin, for an aggregate cash purchase price of approximately $26.5 million (the "Acquisition"), pursuant to the terms of its Asset Purchase Agreement, dated September 14, 2018, with Novo Advisors, solely in its capacity as the receiver for, and on behalf of, Chromatin ("Novo").
The acquisition expanded the Company's sorghum production capabilities, diversified its product offerings and provided access to new distribution channels.
The Acquisition has been accounted for as a business combination, and the Company valued and recorded all assets acquired and liabilities assumed at their estimated fair values on the date of the Acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date of October 25, 2018:
|
|
|
October 25, 2018 |
|
||
Cash and cash equivalents |
|
|
|
$ |
95,049 |
|
Accounts receivable |
|
|
|
|
947,015 |
|
Inventories |
|
|
|
|
6,959,936 |
|
Prepaid expenses and other current assets |
|
|
|
|
16,501 |
|
Property, plant and equipment |
|
|
|
|
10,193,620 |
|
Assets held for sale |
|
|
|
|
1,930,400 |
|
In-process research and development |
|
|
|
|
380,000 |
|
Technology/IP - germplasm |
|
|
|
|
7,200,000 |
|
Trade names |
|
|
|
|
150,000 |
|
Goodwill |
|
|
|
|
1,573,546 |
|
Current liabilities |
|
|
|
|
(2,881,198 |
) |
Noncurrent liabilities |
|
|
|
|
(114,869 |
) |
Total acquisition cost allocated |
|
|
|
$ |
(26,450,000 |
) |
Management determined that one of the facilities acquired as part of the Chromatin acquisition would not be operated and is being held for sale. The components of that facility are:
|
|
|
|
320,000 |
|
|
Buildings and improvements |
|
|
|
|
1,380,000 |
|
Machinery and equipment |
|
|
|
|
332,000 |
|
Less: Costs to sell |
|
|
|
|
(101,600 |
) |
Less: Fair value adjustment subsequently recorded |
|
|
|
|
(1,230,400 |
) |
Assets recorded as held for sale that have been subsequently sold |
|
|
|
$ |
700,000 |
|
19
Management expected the sale to be completed within 12 months and planned to pay down a portion of the Company's short-term debt with the proceeds, accordingly, these held for sale assets were presented as current assets.
The estimated fair value of accounts receivable acquired was $947,015, with the gross contractual amount totaling $2,164,476, less $1,217,461 expected to be uncollectible. The current liabilities assumed relate to inventory acquired in the acquisition as well as customer deposits. The excess of the purchase price over the fair value of the net assets acquired, amounting to $1,573,546, was recorded as goodwill on the consolidated balance sheet. The primary item that generated goodwill was the premium paid by the Company for the ability to control the acquired business, technology, and the distribution channels. Goodwill is not amortized for financial reporting purposes, but is amortized for tax purposes.
Management assigned fair values to the identifiable intangible assets through a combination of the relief from royalty method, the multi-period excess earnings method, and the replacement cost method. In-process research and development costs are being accounted for as an indefinite lived intangible asset subject to impairment testing until completion or abandonment of research and development efforts associated with the in-process projects. Upon successful completion of each project, the Company will make a determination about the then remaining useful life of the intangible asset and begin amortization.
The values and useful lives of the acquired intangibles are as follows:
|
Estimated Useful Life (Years) |
|
Estimated Fair Value |
|
||
In-process research and development |
|
n/a |
|
$ |
380,000 |
|
Technology/IP - germplasm |
|
30 |
|
|
7,200,000 |
|
Trade names |
|
5 |
|
|
150,000 |
|
Total identifiable intangible assets |
|
|
|
$ |
7,730,000 |
|
The Company incurred acquisitions costs of $586,800 and $995,316 during the three and six months ended December 31, 2018 that have been recorded in selling, general and administrative expenses on the consolidated statement of operations. The results of the Chromatin acquisition are included in our consolidated financial statements from the date of acquisition through December 31, 2019.
The following unaudited pro forma financial information presents results as if the Acquisition occurred on July 1, 2018.
For purposes of the pro forma disclosures above, there are no adjustments for the three and six months ended December 31, 2019.
For purposes of the pro forma disclosures above, the primary adjustments for the three and six months ended December 31, 2018 include the elimination of acquisition expenses of $586,800 and $995,316, respectively.
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
During the fourth quarter of the year ended June 30, 2019, the Company terminated its production and distribution agreements with Pioneer, thereby triggering a potential indicator of goodwill impairment. As a result, the Company initiated a goodwill impairment test for the year ended June 30, 2019.
The Company compared the carrying value of its invested capital to its estimated fair values at June 30, 2019. The Company estimated the fair value based on the income approach. The discounted cash flows served as the primary basis for the income approach and were based on discrete financial forecasts developed by management. Cash flows beyond the discrete forecast period of ten years were estimated using the perpetuity growth method calculation. The income approach valuation included estimated weighted average cost of capital, which was 10.6%.
Upon completing the impairment test, the Company determined that the fair value of invested capital was less than the carrying value by approximately 10%, thus indicating an impairment. The Company recognized a goodwill impairment charge of $11.9 million for the year ended June 30, 2019, which represented the entire goodwill balance prior to the impairment charge.
20
The following table summarizes the activity of goodwill for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively.
|
Balance at July 1, 2018 |
|
|
Additions |
|
|
Impairment |
|
|
Balance at June 30, 2019 |
|
|||||
Goodwill |
|
$ |
10,292,265 |
|
|
$ |
1,573,546 |
|
|
$ |
(11,865,811 |
) |
|
$ |
— |
|
For the year ended June 30, 2019, the Company recorded an impairment charge on its intangible assets of $6.0 million. Refer to Note 4 for further information.
Intangible assets consist of the following:
|
|
Balance at July 1, 2019 |
|
|
Additions |
|
|
Impairment |
|
|
Amortization |
|
|
Currency Translation Adjustment |
|
|
Balance at December 31, 2019 |
|
||||||
Trade name |
|
$ |
1,205,346 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(57,240 |
) |
|
$ |
— |
|
|
$ |
1,148,106 |
|
Customer relationships |
|
|
1,055,747 |
|
|
|
— |
|
|
|
— |
|
|
|
(55,785 |
) |
|
|
— |
|
|
|
999,962 |
|
Non-compete |
|
|
30,267 |
|
|
|
— |
|
|
|
— |
|
|
|
(8,402 |
) |
|
|
— |
|
|
|
21,865 |
|
GI customer list |
|
|
64,475 |
|
|
|
— |
|
|
|
— |
|
|
|
(3,582 |
) |
|
|
— |
|
|
|
60,893 |
|
Supply agreement |
|
|
1,002,154 |
|
|
|
— |
|
|
|
— |
|
|
|
(37,820 |
) |
|
|
— |
|
|
|
964,334 |
|
Grower relationships |
|
|
1,647,800 |
|
|
|
— |
|
|
|
— |
|
|
|
(52,703 |
) |
|
|
— |
|
|
|
1,595,097 |
|
Intellectual property |
|
|
26,786,468 |
|
|
|
— |
|
|
|
— |
|
|
|
(685,408 |
) |
|
|
— |
|
|
|
26,101,060 |
|
In process research and development |
|
|
380,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
380,000 |
|
License agreement |
|
|
— |
|
|
|
2,400,863 |
|
|
|
— |
|
|
|
(77,499 |
) |
|
|
114,195 |
|
|
|
2,437,559 |
|
Internal use software |
|
|
542,227 |
|
|
|
— |
|
|
|
— |
|
|
|
(33,889 |
) |
|
|
— |
|
|
|
508,338 |
|
|
|
$ |
32,714,484 |
|
|
$ |
2,400,863 |
|
|
$ |
— |
|
|
$ |
(1,012,328 |
) |
|
$ |
114,195 |
|
|
$ |
34,217,214 |
|
|
Balance at July 1, 2018 |
|
|
Additions |
|
|
Impairment |
|
|
Amortization |
|
|
Currency Translation Adjustment |
|
|
Balance at June 30, 2019 |
|
|||||||
Trade name |
|
$ |
1,159,826 |
|
|
$ |
150,000 |
|
|
$ |
— |
|
|
$ |
(104,480 |
) |
|
$ |
— |
|
|
$ |
1,205,346 |
|
Customer relationships |
|
|
1,156,955 |
|
|
|
— |
|
|
|
— |
|
|
|
(101,208 |
) |
|
|
— |
|
|
|
1,055,747 |
|
Non-compete |
|
|
62,720 |
|
|
|
— |
|
|
|
— |
|
|
|
(32,453 |
) |
|
|
— |
|
|
|
30,267 |
|
GI customer list |
|
|
71,639 |
|
|
|
— |
|
|
|
— |
|
|
|
(7,164 |
) |
|
|
— |
|
|
|
64,475 |
|
Supply agreement |
|
|
1,077,783 |
|
|
|
— |
|
|
|
— |
|
|
|
(75,629 |
) |
|
|
— |
|
|
|
1,002,154 |
|
Distribution agreement |
|
|
6,344,253 |
|
|
|
— |
|
|
|
(5,991,792 |
) |
|
|
(352,461 |
) |
|
|
— |
|
|
|
— |
|
Grower relationships |
|
|
1,753,208 |
|
|
|
— |
|
|
|
— |
|
|
|
(105,408 |
) |
|
|
— |
|
|
|
1,647,800 |
|
Intellectual property |
|
|
20,873,393 |
|
|
|
7,200,000 |
|
|
|
— |
|
|
|
(1,286,925 |
) |
|
|
— |
|
|
|
26,786,468 |
|
In process research and development |
|
|
— |
|
|
|
380,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
380,000 |
|
Internal use software |
|
|
610,003 |
|
|
|
43,000 |
|
|
|
(43,000 |
) |
|
|
(67,776 |
) |
|
|
— |
|
|
|
542,227 |
|
|
|
$ |
33,109,780 |
|
|
$ |
7,773,000 |
|
|
$ |
(6,034,792 |
) |
|
$ |
(2,133,504 |
) |
|
$ |
— |
|
|
$ |
32,714,484 |
|
Amortization expense totaled $531,373 and $552,967 for the three months ended December 31, 2019 and 2018, respectively. Amortization expense totaled $1,012,328 and $1,059,585 for the six months ended December 31, 2019 and 2018, respectively.
Estimated aggregate remaining amortization is as follows:
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
Thereafter |
|
||||||
Amortization expense |
|
$ |
1,010,287 |
|
|
$ |
2,014,124 |
|
|
$ |
2,059,372 |
|
|
$ |
1,981,632 |
|
|
$ |
1,959,097 |
|
|
$ |
25,192,702 |
|
Acquisition of Wheat Assets
On August 15, 2019, the Company entered into several agreements to effectuate the purchase of a wheat breeding program in Australia (“Wheat Acquisition”) from Dow AgroScience (“Dow”). In the transaction, the Company acquired:
21
|
• |
A 15 year prepaid license of germplasm. The license includes commercial, pre-commercial and experimental proprietary wheat populations. |
|
• |
The right, during the term of the license, to develop future varieties. The license does not transfer ownership of the existing varieties licensed, but the Company will own any future varieties developed. |
|
• |
An option to renew the license for five additional years. |
|
• |
Tangible fixed assets used in the wheat breeding program. |
|
• |
A contract with a service provider to promote existing commercialized wheat varieties covered by the license. |
The wheat market in Australia operates under an End Point Royalty (“EPR”) System in which the wheat variety owner earns a fixed royalty on every metric ton of grain produced. With the Wheat Acquisition, the Company has the right to collect EPR on commercialized wheat varieties included in its license.
The purchase price was approximately $2.6 million, which was paid in cash. The purchase price was allocated to the assets acquired based on the relative fair values of the license and fixed assets. $2.4 million was allocated to the license, which will be amortized over 15 years in accordance with the term of the agreement. The fair value of the license was determined using a discounted cash flow analysis. $0.2 million was allocated to the fixed assets, which have useful lives of 3 - 5 years.
The acquired assets did not meet the definition of a business in the Accounting Standards Codification.
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment were as follows:
|
December 31, 2019 |
|
|
June 30, 2019 |
|
|||
Land and improvements |
|
$ |
2,166,279 |
|
|
$ |
2,150,085 |
|
Buildings and improvements |
|
|
10,450,880 |
|
|
|
10,018,108 |
|
Machinery and equipment |
|
|
12,894,482 |
|
|
|
12,579,698 |
|
Vehicles |
|
|
1,458,395 |
|
|
|
2,099,814 |
|
Construction in progress |
|
|
83,345 |
|
|
|
66,921 |
|
Total property, plant and equipment |
|
|
27,053,381 |
|
|
|
26,914,626 |
|
Less: accumulated depreciation |
|
|
(6,708,707 |
) |
|
|
(6,279,677 |
) |
Property, plant and equipment, net |
|
$ |
20,344,674 |
|
|
$ |
20,634,949 |
|
Depreciation expense totaled $733,073 and $482,639 for the three months ended December 31, 2019 and 2018, respectively. Depreciation expense totaled $1,257,166 and $831,130 for the six months ended December 31, 2019 and 2018, respectively.
22
NOTE 9 - DEBT
Total debt outstanding is presented on the consolidated balance sheet as follows:
|
December 31, 2019 |
|
|
June 30, 2019 |
|
|||
Working capital lines of credit |
|
|
|
|
|
|
|
|
KeyBank |
|
$ |
— |
|
|
$ |
2,350,000 |
|
CIBC |
|
|
7,719,066 |
|
|
|
— |
|
National Australia Bank Limited |
|
|
9,114,300 |
|
|
|
8,426,400 |
|
National Australia Bank Limited Overdraft Facility |
|
|
962,637 |
|
|
|
351,544 |
|
Debt issuance costs |
|
|
(800,306 |
) |
|
|
(372,396 |
) |
Total working capital lines of credit, net |
|
$ |
16,995,697 |
|
|
$ |
10,755,548 |
|
Current portion of long-term debt |
|
|
|
|
|
|
|
|
Capital lease |
|
$ |
683,119 |
|
|
$ |
563,087 |
|
Debt issuance costs |
|
|
(9,632 |
) |
|
$ |
(11,070 |
) |
Keith facility (building loan) - National Australia Bank Limited |
|
|
73,616 |
|
|
|
73,731 |
|
Keith facility (machinery & equipment loans) - National Australia Bank Limited |
|
|
351,126 |
|
|
|
215,519 |
|
Unsecured subordinate promissory note |
|
|
100,000 |
|
|
|
100,000 |
|
Secured real estate note - Conterra |
|
|
235,481 |
|
|
|
247,942 |
|
Debt issuance costs |
|
|
(39,556 |
) |
|
|
(75,707 |
) |
Total current portion, net |
|
|
1,394,154 |
|
|
|
1,113,502 |
|
Long-term debt, less current portion |
|
|
|
|
|
|
|
|
Capital lease |
|
|
1,684,646 |
|
|
|
1,709,481 |
|
Debt issuance costs |
|
|
(10,625 |
) |
|
|
(15,078 |
) |
Keith facility (building loan) - National Australia Bank Limited |
|
|
252,396 |
|
|
|
256,303 |
|
Keith facility (machinery & equipment loans) - National Australia Bank Limited |
|
|
482,201 |
|
|
|
309,988 |
|
Secured real estate note - Conterra |
|
|
9,059,994 |
|
|
|
9,922,269 |
|
Debt issuance costs |
|
|
(75,816 |
) |
|
|
(24,869 |
) |
Total long-term portion, net |
|
|
11,392,796 |
|
|
|
12,158,095 |
|
Total debt, net |
|
$ |
12,786,950 |
|
|
$ |
13,271,596 |
|
In September 2015, the Company entered into a credit and security agreement (the “KeyBank Credit Facility”) with KeyBank. Key provisions of the KeyBank Credit Facility, as amended, included:
• |
An aggregate principal amount that the Company was able to borrow, repay and reborrow, of up to $45.0 million in the aggregate, subject to a requirement that the Company maintain a reduced loan balance of (i) not more than $20.0 million for at least 30 consecutive days over the prior twelve months (measured each quarter on a trailing 12 month basis) and (ii) not more than $25.0 million for at least 60 consecutive days over the prior twelve months (measured each quarter on a trailing 12 month basis). |
• |
All amounts due and owing, including, but not limited to, accrued and unpaid principal and interest, were payable in full on December 31, 2020. |
• |
A borrowing base of up to the total of the following: (a) 85% of eligible domestic accounts receivable, plus (b) and 90% of eligible foreign accounts receivable, plus (c) the lesser of (i) 75% of the cost eligible inventory or (ii) 90% of the net orderly liquidation value of the inventory, plus (d) the amount of any unencumbered cash the Company holds at KeyBank, minus (e) $16.0 million subject to lender reserves. |
23
• |
Loans were based on a Base Rate or Eurodollar Rate (which was increased by an applicable margin of 2.9% per annum for Eurodollar Loans and 1.0% for Base Rate Loans) (both as defined in the KeyBank Credit Facility), generally at the Company’s option. In the event of a default, at the option of KeyBank, the interest rate on all obligations owing would have increased by 3% per annum over the rate otherwise applicable. |
• |
Subject to certain exceptions, the KeyBank Credit Facility was secured by a first priority perfected security interest in all of the Company’s assets and its domestic subsidiaries, which guaranteed the Company’s obligations under the KeyBank Credit Facility. The KeyBank Credit Facility was further secured by a lien on, and a pledge of, 65% of the stock of its wholly-owned subsidiary, S&W Holdings Australia Pty Ltd. |
In connection with the consummation of the Loan Agreement with CIBC described below, the Company terminated the KeyBank Credit Facility on December 26, 2019. In connection with such termination, the Company paid KeyBank approximately $5.9 million in aggregate principal, interest and fees that were outstanding and payable under the KeyBank Credit Facility at the time of its termination, and all liens on the assets of the Company and its subsidiaries guaranteeing such facility, together with such subsidiary guarantees, were released and terminated.
On December 26, 2019, the Company entered into a $35.0 million aggregate principal amount (the “CIBC Credit Facility”) Loan and Security Agreement (the “Loan Agreement”) by and among the Company and CIBC Bank USA (“CIBC”). The following is a summary of the terms of the CIBC Credit Facility:
|
• |
Advances under the CIBC Credit Facility are to be used: (i) to refinance indebtedness to KeyBank; (ii) to finance the Company’s ongoing working capital requirements; and (iii) for general corporate purposes. The Company may also use a portion of the CIBC Credit Facility to finance permitted acquisitions and related costs. |
|
• |
All amounts due and owing, including, but not limited to, accrued and unpaid principal and interest due under the CIBC Credit Facility, will be payable in full on December 23, 2022. |
|
• |
The Credit Facility generally establishes a borrowing base of up to 85% of eligible domestic accounts receivable (90% of eligible foreign accounts receivable) plus up to the lesser of (i) 65% of eligible inventory, (ii) 85% of the appraised net orderly liquidation value of eligible inventory, and (iii) an eligible inventory sublimit as more fully set forth in the Loan Agreement, in each case, subject to lender reserves. |
|
• |
Loans may be based on (i) a Base Rate plus 0.5% per annum or (ii) LIBOR Rate plus 2.5% per annum (both as defined in the Loan Agreement), generally at the Company’s option. In the event of a default, at the option of CIBC, the interest rate on all obligations owing will increase by 2% per annum over the rate otherwise applicable. |
|
• |
The CIBC Credit Facility is secured by a first priority perfected security interest in substantially all of the Borrowers’ assets (subject to certain exceptions), including intellectual property. |
|
• |
The Loan Agreement contains customary representations and warranties, affirmative and negative covenants and customary events of default that permit CIBC to accelerate the Company’s outstanding obligations under the Credit Facility, all as set forth in the Loan Agreement and related documents. The CIBC Credit Facility also contains customary and usual financial covenants imposed by CIBC. |
|
• |
As of December 31, 2019, there was approximately $21 million of unused availability on the CIBC Credit Facility. |
24
In November 2017, the Company entered into a secured note financing transaction (the "Loan Transaction") with Conterra Agricultural Capital, LLC ("Conterra") for $12.5 million in gross proceeds. Pursuant to the Loan Transaction, the Company issued two secured promissory notes (the "Notes") to Conterra as follows:
• |
Secured Real Estate Note. The Company issued one Note in the principal amount of $10.4 million (the "Secured Real Estate Note") that is secured by a first priority security interest in the property, plant and fixtures (the "Real Estate Collateral") located at the Company's Five Points, California and Nampa, Idaho production facilities and its Nampa, Idaho research facilities (the "Facilities"). On December 24, 2019, the Company signed an amendment to the Note that extended the maturity date to November 30, 2022, as well as revised the Note’s payments starting July 1, 2020. The Secured Real Estate Note bears interest of 7.75% per annum. The Company agreed to make semi-annual payments of interest and amortized principal on a 20-year amortization schedule, for a combined payment of $515,711, starting July 1, 2018, in addition to a one-time interest only payment on January 1, 2018. In November 2019, the Company paid down $753,120 of principal. Pursuant to the December 2019 amendment, the Company agreed to make (i) a principal and interest payment of approximately $515,711 on January 1, 2020; (ii) five consecutive semi-annual principal and interest payments of approximately $454,185, beginning on July 1, 2020; and (iii) a one-time final payment of approximately $8,957,095 on November 30, 2022. The Company may prepay the Secured Real Estate Note, in whole or in part, at any time. |
• |
Secured Equipment Note. The Company issued a second Note in the principal amount of $2.1 million (the "Secured Equipment Note") that was secured by a first priority security interest in certain equipment not attached to real estate located at the Facilities. The Secured Equipment Note was also secured by the Real Estate Collateral. The Secured Equipment Note was scheduled to mature on November 30, 2019. The Secured Equipment Note bore an interest at a rate of 9.5% per annum. The Company agreed to make semi-annual payments of interest and amortized principal on a 20-year amortization schedule, for a combined payment of $118,223, starting July 1, 2018, in addition to a one-time interest only payment on January 1, 2018. The Secured Equipment Note was repaid in full in August 2018. |
On August 15, 2018, the Company completed a sale and leaseback transaction with American AgCredit involving certain equipment located at the Company's Five Points, California and Nampa, Idaho production facilities. Due to its terms, the sale and leaseback transaction was required to be accounted for as a financing arrangement. Accordingly, the proceeds received from American AgCredit were accounted for as proceeds from a debt financing. Under the terms of the transaction:
• |
The Company sold the equipment to American AgCredit for $2,106,395 million in proceeds. The proceeds were used to pay off in full a note (in the principal amount of $2,081,527, plus accrued interest of $24,868) held by Conterra Agricultural Capital, LLC, which had an interest rate of 9.5% per annum and was secured by, among other things, the equipment. |
• |
The Company entered into a lease agreement with American AgCredit relating to the equipment. The lease agreement has a five-year term and provides for monthly lease payments of $40,023 (representing an annual interest rate of 5.6%). At the end of the lease term, the Company will repurchase the equipment for $1. |
S&W Australia finances the purchase of most of its seed inventory from growers pursuant to a seasonal credit facilities with National Australia Bank Ltd (“NAB”). The current facilities (the “NAB Facilities”) were amended as of July 9, 2019 and expire on March 31, 2021. As of December 31, 2019, AUD $14,373,038 (USD $10,076,937) was outstanding under the NAB Facilities.
The NAB Facilities, as recently amended, comprise two distinct facility lines: (i) an overdraft facility (the “Overdraft Facility”), having a credit limit of AUD $2,000,000 (USD $1,402,200) and a borrowing base facility (the “Borrowing Base Facility”), having a credit limit of AUD $13,000,000 (USD $9,114,300).
The Borrowing Base Facility permits S&W Australia to borrow funds for periods of up to 180 days, at S&W Australia’s discretion, provided that the term is consistent with its trading terms. Interest for each drawdown is set at the time of the drawdown as follows: (i) for Australian dollar drawings, based on the Australian Trade Refinance Rate plus 1.5% per annum and (ii) for foreign currency drawings, based on the British Bankers’ Association Interest Settlement Rate for the relevant foreign currency for the relevant period, or if such rate is not available, the rate reasonably determined by NAB to be the appropriate equivalent rate, plus 1.5% per annum. As of December 31, 2019, the Borrowing Base Facility accrued interest on Australian dollar drawings at approximately 4.3% calculated daily. The Borrowing Base Facility is secured by a lien on all the present and future rights, property and undertakings of S&W Australia, the mortgage on S&W Australia’s Keith, South Australia property and the Company’s corporate guarantee (up to a maximum of AUD $15,000,000).
The Overdraft Facility permits S&W Australia to borrow funds on a revolving line of credit up to the credit limit. Interest accrues daily and is calculated by applying the daily interest rate to the balance owing at the end of the day and is payable monthly in arrears. As of December 31, 2019, the Overdraft Facility accrued interest at approximately 5.97% calculated daily.
For both the Overdraft Facility and the Borrowing Base Facility, interest is payable each month in arrears. In the event of a default, as defined in the NAB Facility Agreement, the principal balance due under the facilities will thereafter bear interest at an increased rate per annum above the interest rate that would otherwise have been in effect from time to time under the terms of each facility (i.e., the interest rate increases by 4.3% per annum under the Borrowing Base Facility and the Overdraft Facility rate increases to 13.94% per annum upon the occurrence of an event of default).
25
Both facilities constituting the NAB Facilities are secured by a fixed and floating lien over all the present and future rights, property and undertakings of S&W Australia and are guaranteed by the Company as noted above. The NAB Facilities contain customary representations and warranties, affirmative and negative covenants and customary events of default that permit NAB to accelerate S&W Australia’s outstanding obligations, all as set forth in the NAB facility agreements. S&W Australia was in compliance with all NAB debt covenants at December 31, 2019.
In January 2015, NAB and S&W Australia entered into a new business markets – flexible rate loan (the “Keith Building Loan”) and a separate machinery and equipment facility (the “Keith Machinery and Equipment Facility”). In February 2016, NAB and S&W Australia also entered into a master asset finance facility (the “Master Assets Facility”). The Master Asset Facility has various maturity dates through 2023 and have interest rates ranging from 3.64% to 5.31%. The credit limit under the facility is AUD $1,200,000 (USD $841,320) at December 31, 2019.
The Keith Building Loan and Keith Machinery and Equipment Facility are used for the construction of a building on S&W Australia’s Keith, South Australia property, purchase of adjoining land and for the machinery and equipment for use in the operations of the building. The Keith Building Loan matures on November 30, 2024. The interest rate on the Keith Building Loan varies from pricing period to pricing period (each such period approximately 30 days), based on the weighted average of a specified basket of interest rates (5.49% as of December 31, 2019). Interest is payable each month in arrears. The Keith Machinery and Equipment Facility bears interest, payable in arrears, based on the Australian Trade Refinance Rate quoted by NAB at the time of the drawdown, plus 2.9%. The Keith Credit Facilities contain customary representations and warranties, affirmative and negative covenants and customary events of default that permit NAB to accelerate S&W Australia’s outstanding obligations, all as set forth in the facility agreement. They are secured by a lien on all the present and future rights, property and undertakings of S&W Australia, the Company’s corporate guarantee and a mortgage on S&W Australia’s Keith, South Australia property. As of December 31, 2019, USD $326,012 and USD $833,327 was outstanding under the Keith Building Loan and the Keith Machinery and Equipment Facility, respectively.
The annual maturities of short-term and long-term debt are as follows:
Fiscal Year |
|
Amount |
|
|
|
$ |
1,148,701 |
|
|
2021 |
|
|
1,247,718 |
|
2022 |
|
|
9,645,966 |
|
2023 |
|
|
716,007 |
|
2024 |
|
|
136,506 |
|
Thereafter |
|
|
27,681 |
|
Total |
|
$ |
12,922,579 |
|
NOTE 10 - WARRANTS
The following table summarizes the total warrants outstanding at December 31, 2019:
|
Issue Date |
|
Exercise Price Per Share |
|
|
Expiration Date |
|
Outstanding as of June 30, 2019 |
|
|
New Issuances |
|
|
Expired |
|
|
Outstanding as of December 31, 2019 |
|
||||||
Warrants |
|
Dec 2014 |
|
$ |
4.32 |
|
|
June 2020 |
|
|
2,699,999 |
|
|
|
— |
|
|
|
— |
|
|
|
2,699,999 |
|
|
|
|
|
|
|
|
|
|
|
|
2,699,999 |
|
|
|
— |
|
|
|
— |
|
|
|
2,699,999 |
|
The following table summarizes the total warrants outstanding at June 30, 2019:
|
Issue Date |
|
Exercise Price Per Share |
|
|
Expiration Date |
|
Outstanding as of June 30, 2018 |
|
|
New Issuances |
|
|
Expired |
|
|
Outstanding as of June 30, 2019 |
|
||||||
Warrants |
|
Dec 2014 |
|
$ |
4.32 |
|
|
June 2020 |
|
|
2,699,999 |
|
|
|
— |
|
|
|
— |
|
|
|
2,699,999 |
|
|
|
|
|
|
|
|
|
|
|
|
2,699,999 |
|
|
|
— |
|
|
|
— |
|
|
|
2,699,999 |
|
On September 5, 2018, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with MFP Partners, L.P. ("MFP"), pursuant to which the Company sold to MFP 1,607,717 shares of common stock of the Company (the "Common Shares") at a purchase price of $3.11 per share at an initial closing, and agreed to sell, subject to the satisfaction of certain conditions, 7,235 shares of newly designated Series A Convertible Preferred Stock of the Company ("Preferred Shares") to MFP at a purchase price of $3,110 per share at a second closing (the "Second Closing").
26
The Second Closing was completed on October 23, 2018, for aggregate gross proceeds of approximately $22.5 million, which was used primarily to fund the Chromatin Acquisition. The Preferred Shares carried no voting rights and were automatically convertible into shares of common stock at the rate of 1,000 shares of common stock per Preferred Share upon the approval of the Company's stockholders for the issuance of the requisite shares of common stock. Pursuant to the Securities Purchase Agreement, the Company agreed to use its reasonable best efforts to solicit the approval of its shareholders for the issuance of stock upon the conversion of the Preferred Shares at a special meeting of shareholders, and at each annual meeting of shareholders thereafter, if necessary. Approval was obtained at a Special Meeting of Stockholders held on November 20, 2018, and the Preferred Shares automatically converted into 7,235,000 shares of common stock on that same day.
NOTE 12 - FOREIGN CURRENCY CONTRACTS
The Company’s subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company manages through the use of foreign currency forward contracts. These foreign currency contracts are not designated as hedging instruments; accordingly, changes in the fair value are recorded in current period earnings. These foreign currency contracts had a notional value of $5,234,038 at December 31, 2019, with maturities ranging from January to October 2020.
The Company records an asset or liability on the consolidated balance sheet for the fair value of the foreign currency forward contracts. The foreign currency contract assets totaled $32,827 at December 31, 2019 and foreign currency contract liabilities totaled $42,255 at June 30, 2019. The Company recorded a gain on foreign exchange contracts of $117,540 and $35,836, which is reflected in cost of revenue for the three months ended December 31, 2019 and 2018, respectively. The Company recorded a gain on foreign exchange contracts of $73,677 and a loss of $2,626, which is reflected in cost of revenue for the six months ended December 31, 2019 and 2018, respectively.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Contingencies
Based on information currently available, management is not aware of any other matters that would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Legal Matters
The Company may be subject to various legal proceedings from time to time. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. Any current litigation is considered immaterial and counter claims have been assessed as remote.
NOTE 14 - RELATED PARTY TRANSACTIONS
On September 5, 2018, the Company entered into the Securities Purchase Agreement with MFP, pursuant to which the Company sold the Common Shares at the Initial Closing and the Preferred Shares at the Second Closing. The Initial Closing was completed on September 5, 2018 and the Second Closing was completed on October 23, 2018. See Note 11 for further discussion on the Second Closing.
On December 18, 2018, the Company entered into a Loan and Security Agreement (the "MFP Loan Agreement") with MFP, pursuant to which the Company was able to borrow up to $5,000,000, in minimum increments of $1,000,000, from MFP during the period beginning on December 18, 2018 and ending on the earlier to occur of (i) March 18, 2019 and (ii) certain specified events of default. Pursuant to the MFP Loan Agreement, interest accrued on outstanding principal at a fixed per annum rate of 6.0%. In addition, the Company was obligated to pay to MFP a fee equal to 2.0% of each advance under the MFP Loan Agreement. Concurrently with the execution of the MFP Loan Agreement, the Company drew down $1,000,000 under the MFP Loan Agreement, which was disbursed to the Company on December 21, 2018. On December 31, 2018, the Company repaid in full the $1,000,000 disbursed to the Company. As of December 31, 2019, no amounts remained outstanding under the MFP Loan Agreement.
27
NOTE 15 - EQUITY-BASED COMPENSATION
Equity Incentive Plans
In October 2009 and January 2010, the Company's Board of Directors and stockholders, respectively, approved the 2009 Equity Incentive Plan (as amended and/or restated from time to time, the "2009 Plan"). The plan authorized the grant and issuance of options, restricted shares and other equity compensation to the Company's directors, employees, officers and consultants, and those of the Company's subsidiaries and parent, if any. In October 2012 and December 2012, the Company's Board of Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan, including an increase in the number of shares available for issuance as grants and awards under the Plan to 1,250,000 shares. In September 2013 and December 2013, the Company's Board of Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan, including an increase in the number of shares available for issuance as grants and awards under the Plan to 1,700,000 shares. In September 2015 and December 2015, the Company's Board of Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan, including an increase in the number of shares available for issuance as grants and awards under the Plan to 2,450,000 shares.
In January 2019, the Company's Board of Directors and stockholders approved the 2019 Equity Incentive Plan (the "2019 Plan") as a successor to and continuation of the 2009 Plan. Subject to adjustment for certain changes in the Company's capitalization, the aggregate number of shares of the Company's common stock that may be issued under the 2019 Plan will not exceed 4,243,790 shares, which is the sum of (i) 2,750,000 new shares, plus (ii) 350,343 shares that remained available for grant under the 2009 Plan as of January 16, 2019, plus (iii) 1,143,447 shares subject to outstanding stock awards granted under the 2009 Plan.
The term of incentive stock options granted under the Company’s equity incentive plans may not exceed ten years, or five years for incentive stock options granted to an optionee owning more than 10% of the Company's voting stock. The exercise price of options granted under the Company’s equity incentive plans must be equal to or greater than the fair market value of the shares of the common stock on the date the option is granted. An incentive stock option granted to an optionee owning more than 10% of voting stock must have an exercise price equal to or greater than 110% of the fair market value of the common stock on the date the option is granted.
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Stock options issued to non-employees are accounted for at their estimated fair value. The fair value of options granted to non-employees is re-measured as they vest. The Company amortizes stock-based compensation expense on a straight-line basis over the requisite service period.
The Company utilizes a Black-Scholes-Merton option pricing model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of the Company's common stock to estimate the fair value of employee options grants.
Weighted average assumptions used in the Black-Scholes-Merton model are set forth below:
|
|
December 31, |
|
|||||
|
2019 |
|
|
2018 |
|
|||
Risk free rate |
|
1.5 - 1.6% |
|
|
2.7% - 3.0% |
|
||
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
Volatility |
|
39.4% - 44.2% |
|
|
40.4% - 45.5% |
|
||
Average forfeiture assumptions |
|
2.7% |
|
|
|
1.4 |
% |
28
During the six months ended December 31, 2019, the Company granted options to purchase 1,869,934 shares of its common stock to certain of its Directors, members of the executive management team and other employees at exercise prices ranging from $2.26 - $2.37. These options vest in either quarterly or annual periods over one to three years, and expire ten years from the date of grant.
A summary of stock option activity for the six months ended December 31, 2019 and the year ended June 30, 2019 is presented below:
|
Number Outstanding |
|
|
Weighted - Average Exercise Price Per Share |
|
|
Weighted- Average Remaining Contractual Life (Years) |
|
|
Aggregate Intrinsic Value |
|
|||||
Outstanding at June 30, 2018 |
|
|
792,074 |
|
|
$ |
4.55 |
|
|
|
6.3 |
|
|
$ |
10,413 |
|
Granted |
|
|
497,178 |
|
|
|
2.85 |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Canceled/forfeited/expired |
|
|
(166,500 |
) |
|
|
6.17 |
|
|
|
— |
|
|
|
— |
|
Outstanding at June 30, 2019 |
|
|
1,122,752 |
|
|
|
3.55 |
|
|
|
8.0 |
|
|
|
34,135 |
|
Granted |
|
|
1,869,934 |
|
|
|
2.37 |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Canceled/forfeited/expired |
|
|
(110,284 |
) |
|
|
3.95 |
|
|
|
— |
|
|
|
— |
|
Outstanding at December 31, 2019 |
|
|
2,882,402 |
|
|
|
2.74 |
|
|
|
9.1 |
|
|
|
— |
|
Options vested and exercisable at December 31, 2019 |
|
|
622,689 |
|
|
|
3.80 |
|
|
|
7.1 |
|
|
|
— |
|
Options vested and expected to vest as of December 31, 2019 |
|
|
2,877,095 |
|
|
$ |
2.74 |
|
|
|
9.1 |
|
|
$ |
— |
|
The weighted average grant date fair value of options granted and outstanding at December 31, 2019 was $0.98. At December 31, 2019, the Company had $1,636,115 of unrecognized stock compensation expense, net of estimated forfeitures, related to the options under the 2009 and 2019 Plans, which will be recognized over the weighted average remaining service period of 2.8 years. The Company settles employee stock option exercises with newly issued shares of common stock.
During the six months ended December 31, 2019 and 2018, the Company issued 217,943 and 99,902 restricted stock units to its directors, certain members of the executive management team, and other employees. The restricted stock units have varying vesting periods ranging from immediate vesting to quarterly or annual installments over one to three-years. The fair value of the awards granted during the six months ended December 31, 2019 and 2018 totaled $513,380 and $306,047, respectively, and was based on the closing stock price on the date of grants.
The Company recorded $193,329 and $222,431 of stock-based compensation expense associated with grants of restricted stock units during the six months ended December 31, 2019 and 2018, respectively. A summary of activity related to non-vested restricted stock units is presented below:
|
Number of Nonvested Restricted Stock Units |
|
|
Weighted-Average Grant Date Fair Value |
|
|
Weighted-Average Remaining Contractual Life (Years) |
|
||||
Nonvested restricted units outstanding at June 30, 2018 |
|
|
89,193 |
|
|
$ |
3.98 |
|
|
|
1.1 |
|
Granted |
|
|
175,758 |
|
|
|
2.69 |
|
|
|
2.8 |
|
Vested |
|
|
(107,747 |
) |
|
|
3.75 |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Nonvested restricted units outstanding at June 30, 2019 |
|
|
157,204 |
|
|
|
2.69 |
|
|
|
1.4 |
|
Granted |
|
|
217,943 |
|
|
|
2.36 |
|
|
|
2.8 |
|
Vested |
|
|
(28,860 |
) |
|
|
3.26 |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Nonvested restricted units outstanding at December 31, 2019 |
|
|
346,287 |
|
|
$ |
2.43 |
|
|
|
2.4 |
|
At December 31, 2019, the Company had $615,060 of unrecognized stock compensation expense related to the restricted stock units, which will be recognized over the weighted average remaining service period of 2.4 years.
At December 31, 2019, there were 986,266 shares available under the 2019 Plan for future grants and awards.
29
Stock-based compensation expense recorded for stock options, restricted stock grants and restricted stock units for the three months ended December 31, 2019 and 2018, totaled $309,767 and $222,153, respectively. Stock-based compensation expense recorded for stock options, restricted stock grants and restricted stock units for the six months ended December 31, 2019 and 2018, totaled $468,604 and $377,458, respectively.
NOTE 16 - NON-CASH ACTIVITIES FOR STATEMENTS OF CASH FLOWS
The below table represents supplemental information to the Company's consolidated statements of cash flows for non-cash activities during the six months ended December 31, 2019 and 2018, respectively.
|
|
Six Months Ended December 31, |
|
|||||
|
2019 |
|
|
2018 |
|
|||
Purchases of equipment classified as finance lease |
|
$ |
(396,680 |
) |
|
$ |
— |
|
NOTE 17 - SUBSEQUENT EVENTS
None.
30
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements as referred to on page 2 of this Quarterly Report on Form 10-Q. Factors that could cause or contribute to these differences include those discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, particularly in Part I, Item 1A, “Risk Factors”, as updated in Part II, Item 1A. “Risks Factors” of this Quarterly Report on Form 10-Q.
Executive Overview
We are a global multi-crop, middle-market agricultural company. We are market leaders in the breeding, production and sale of alfalfa seed and sorghum seed. We also have a growing commercial market presence in sunflower and maintain an active stevia development program.
Our seed platform develops and supplies high quality germplasm designed to produce higher yields for farmers worldwide. We produce approximately 250 seed products in the Western United States, Canada, Australia, Europe and South Africa for sale in more than 30 countries. We maintain an active product pipeline and expect to introduce more than 20 new products during the 2020-2022 fiscal years.
Founded in 1980, we began our operations as a limited producer of non-dormant alfalfa seed varieties bred for warm climates and high-yields, including varieties that can thrive in poor, saline soils. Over the years we have built a diversified, global agricultural platform through a combination of organic growth and strategic acquisitions, including:
• |
Our 2012 acquisition of Imperial Valley Seeds, Inc., which enabled us to expand production of non-GMO alfalfa seed into California's Imperial Valley, thereby ensuring a non-GMO uncontaminated source of alfalfa seed due to the prohibition on growing GMO crops in the Imperial Valley, as well as enabling us to diversify our production areas and distribution channels; |
• |
Our 2012 acquisition of a portfolio of dormant alfalfa germplasm, which launched our entry into the dormant alfalfa market; |
• |
Our 2013 acquisition of Seed Genetics International Pty Ltd (now S&W Seed Company Australia Pty Ltd), the leading producer of non-dormant alfalfa seed in South Australia, which made us the largest non-dormant alfalfa seed company in the world, with production capabilities in both hemispheres; |
• |
Our 2014 acquisition of alfalfa production and research facility assets and conventional (non-GMO) alfalfa germplasm from Pioneer, which substantially broadened and improved our dormant alfalfa germplasm portfolio and deepened our production, research and product development capabilities; |
• |
Our 2016 acquisition of the business and assets of SV Genetics Pty Ltd, a developer of proprietary hybrid sorghum and sunflower seed germplasm, which expanded our crop focus into two areas which we believe have high global growth potential; |
• |
Our 2018 acquisition of the assets of Chromatin, Inc. and related companies, which positioned us to become a global leader in the hybrid sorghum seed market and enhanced our distribution channels both internationally and within a U.S.-based farmer-dealer network; and |
• |
Our 2018 joint venture with AGT Foods Africa Proprietary Limited (“AGT”) based in South Africa named SeedVision Proprietary Limited (“SeedVision”). SeedVision will leverage AGT's African-based production and processing facilities to produce our hybrid sunflower, grain sorghum, and forage sorghum to be sold by SeedVision in the African continent, Middle East countries, and Europe. |
On May 22, 2019, we restructured our relationship with Pioneer, a subsidiary of Corteva Agriscience (“Corteva”), by entering into two agreements under which, among other things:
• |
We received $45.0 million in May 2019, $5.55 million in September 2019, $5.55 million in January 2020, and are entitled to receive an aggregate of $13.9 million in additional payments on the dates and in the amounts as set forth below. |
31
Date |
|
Payment Amount |
|
|
February 15, 2020 |
|
$ |
5,551,372 |
|
September 15, 2020 |
|
$ |
3,750,927 |
|
January 15, 2021 |
|
$ |
2,500,618 |
|
February 15, 2021 |
|
$ |
2,100,519 |
|
Total: |
|
$ |
13,903,436 |
|
• |
Corteva received a fully pre-paid, exclusive license to produce and distribute certain of our alfalfa varieties world-wide (except South America). The licensed varieties include certain of our existing commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties. Corteva received no license to our other commercial alfalfa varieties or pre-commercial alfalfa pipeline products and no rights to any future products developed by us. |
• |
We assigned to Corteva grower production contract rights, and Corteva assumed grower production contract obligations, related to the licensed and certain other alfalfa varieties. |
• |
Our prior Distribution Agreement, related to conventional (non-GMO) alfalfa varieties, and Contract Alfalfa Production Services Agreement, related to GMO-traited alfalfa varieties, with Corteva both terminated. Under the Distribution Agreement, Corteva was obligated to make minimum annual purchases from us. |
As a result of the May 2019 transactions with Corteva, we recognized licensing revenue of $34.2 million and wrote-off $6.0 million of intangible assets during the year ended June 30, 2019. We also attributed our $11.9 million goodwill impairment charge recorded during the fourth quarter of the year ended June 30, 2019 largely to the termination of the production and distribution agreements with Corteva.
As a result of the 2018 Chromatin acquisition and the 2019 restructuring of our relationship with Corteva, we expect that our results of operations for fiscal 2020 and future periods will differ significantly from prior periods as the mix of our product portfolio rebalances away from a reliance on alfalfa sales (sales of alfalfa seed to Corteva totaled $37.6 million during the year ended June 30, 2019) to a more diverse product mix. We expect to generate alfalfa seed revenue of approximately $34 million to Corteva over the fiscal 2020 and fiscal 2021 combined periods as the seed is delivered to Corteva through February 2021. We do not expect any other significant revenue from sales to Corteva in the future.
Components of Our Statements of Operations Data
Revenue and Cost of Revenue
Product and Other Revenue
We derive most of our revenue from the sale of our proprietary seed varieties and hybrids. We expect that over the next several years, a substantial majority of our revenue will be generated from the sale of alfalfa, sorghum, and sunflower seed, although we are continually assessing other possible product offerings or means to increase revenue, including expanding into other, higher margin crops.
The mix of our product offerings will continue to change over time with the introduction of new seed varieties and hybrids resulting from our robust research and development efforts, including our potential expansion into gene-edited products in future periods.
32
Our revenue will fluctuate depending on the timing of orders from our customers and distributors. Because some of our large customers and distributors order in bulk only one or two times per year, our product revenue may fluctuate significantly from period to period. However, some of this fluctuation is offset by having operations in both the northern and southern hemispheres.
Our stevia breeding program has yet to generate any meaningful revenue. However, management continues to evaluate this portion of our business and assess various means to monetize the results of our effort to breed new, better tasting stevia varieties. Such potential opportunities include possible licensing agreements and royalty-based agreements.
Licensing Revenue
During the year ended June 30, 2019, we entered into a license with Corteva, under which Corteva received a fully pre-paid, exclusive license to produce and distribute certain of our alfalfa seed varieties world-wide (except South America). The licensed seed varieties include certain of the our existing commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties.
Cost of Revenue
Cost of revenue relates to sale of our seed products and consists of the cost of procuring seed, plant conditioning and packaging costs, direct labor and raw materials and overhead costs.
Operating Expenses
Research and Development Expenses
Seed and stevia research and development expenses consist of costs incurred in the discovery, development, breeding and testing of new products incorporating the traits we have specifically selected. These expenses consist primarily of employee salaries and benefits, consultant services, land leased for field trials, chemicals and supplies and other external expenses.
Overall, we have been focused on controlling research and development expenses, while balancing that objective against the recognition that continued advancement in product development is an important part of our strategic planning. We intend to focus our resources on high value activities. For alfalfa seed, we plan to invest in further development of differentiating forage quality traits. For sorghum, we plan to invest in higher value grain products as well as development of proprietary herbicide tolerance traits. We expect our research and development expenses will increase in 2020 and fluctuate from period to period as a result of the timing of various research and development projects.
Our internal research and development costs are expensed as incurred, while third party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. The costs associated with equipment or facilities acquired or construed for research and development activities that have alternative future uses are capitalized and depreciated on a straight-line basis over the estimated useful life of the asset.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses consist primarily of employee costs, including salaries, employee benefits and share-based compensation, as well as professional service fees, insurance, marketing, travel and entertainment expense, public company expense and other overhead costs. We proactively take steps on an ongoing basis to control selling, general and administrative expense as much as is reasonably possible.
Depreciation and Amortization
We amortize intangible assets, including those acquired from Chromatin in 2018 and from SV Genetics in May 2016, using the straight-line method over the estimated useful life of the asset, consisting of periods of 10-30 years for technology/IP/germplasm, 5-20 years for customer relationships and trade names and 3-20 years for other intangible assets. Property, plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset, consisting of periods of 5-35 years for buildings, 2-20 years for machinery and equipment and 2-5 years for vehicles.
33
Other Expense
Other expense consists primarily of foreign currency gains and losses, changes in the estimated fair value of assets held for sale and interest expense in connection with amortization of debt discount. Interest expense primarily consists of interest costs related to outstanding borrowings on our working capital credit facilities and our financing with Conterra Agricultural Capital, LLC ("Conterra").
Provision (Benefit) for Income Taxes
Our effective tax rate is based on income, statutory tax rates, differences in the deductibility of certain expenses and inclusion of certain income items between financial statement and tax return purposes, and tax planning opportunities available to us in the various jurisdictions in which we operate. Under U.S. GAAP, if we determine that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. Tax regulations require certain items to be included in the tax return at different times than when those items are required to be recorded in the consolidated financial statements. As a result, our effective tax rate reflected in our consolidated financial statements is different from that reported in our tax returns. Some of these differences are permanent, such as meals and entertainment expenses that are not fully deductible on our tax return, and some are temporary differences, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which we have already recorded the tax benefit in our consolidated statements of operations. In the fourth quarter of fiscal year 2017, we recorded a valuation allowance against all of our deferred tax assets. The full valuation allowance was recorded during the fiscal year 2017 as a result of changes to our operating results and future projections, resulting from a decline in export sales to Saudi Arabia. As a result, we don’t believe that it is more likely than not that our deferred tax assets will be realized.
Results of Operations
Three Months Ended December 31, 2019 Compared to the Three Months Ended December 31, 2018
34
Revenue and Cost of Revenue
Revenue for the three months ended December 31, 2019 was $12.4 million compared to $18.6 million for the three months ended December 31, 2018. The $6.2 million decrease in revenue for the three months ended December 31, 2019 was primarily due to a decrease in revenue received from Pioneer. In May 2019, we terminated the production and distribution agreements with Pioneer, and entered into a new license agreement with Corteva.
As part of the termination, Corteva agreed to purchase certain quantities of seed held by us as of the date of the termination, which Pioneer was not previously obligated to purchase. Those quantities of seed will be delivered to Corteva periodically through February 2021. Contemporaneously with the termination, we entered into a license with Corteva, under which Corteva received a fully pre-paid, exclusive license to produce and distribute certain of our alfalfa seed varieties world-wide (except South America). The licensed seed varieties include certain of the our existing commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties. We received a payment of $45.0 million in May 2019, $5.6 million in September 2019, $5.6 million in January 2020 and are entitled to receive an aggregate of $13.9 million in additional payments through February 2021. During the three months ended December 31, 2019 we recorded sales of $3.1 million to Pioneer, which was a decrease of $6.6 million from the three months ended December 31, 2018 amount of $9.7 million.
The $6.6 million decrease in revenue to Pioneer was partially offset by increases of $0.3 million in Core Revenue. Core Revenue (excluding product revenue attributable to Pioneer) for the three months ended December 31, 2019 was $9.2 million compared to Core Revenue for the three months ended December 31, 2018 of $8.9 million, representing an increase of 3%. Due to the revised agreements with Pioneer in May 2019, we plan to provide Core Revenue as a metric to track performance of our business.
The increase in Core Revenue for the three months ended December 31, 2019 can be attributed to an increase in alfalfa revenues in the Middle East and Northern Africa (“MENA”) region partially offset by decreases in Australia.
Sales into international markets represented 51% and 33% of our total revenue during the three months ended December 31, 2019 and 2018, respectively. Domestic revenue accounted for 49% and 67% of our total revenue for the three months ended December 31, 2019 and 2018, respectively. The decrease in domestic revenue as a percentage of total revenue was primarily attributable to the termination of the Pioneer/Corteva agreement mentioned above. As a result, we anticipate that international sales will increase as a percentage of our total sales in fiscal 2020.
The following table shows revenue from external sources by destination country:
|
|
Three Months Ended December 31, |
|
|||||||||||||
|
|
2019 |
|
|
2018 |
|
||||||||||
United States |
|
$ |
6,098,755 |
|
|
|
49 |
% |
|
$ |
12,464,626 |
|
|
|
67 |
% |
Saudi Arabia |
|
|
2,095,140 |
|
|
|
17 |
% |
|
|
863,982 |
|
|
|
5 |
% |
Mexico |
|
|
787,624 |
|
|
|
6 |
% |
|
|
986,303 |
|
|
|
5 |
% |
Australia |
|
|
527,063 |
|
|
|
4 |
% |
|
|
1,040,480 |
|
|
|
6 |
% |
Pakistan |
|
|
464,537 |
|
|
|
4 |
% |
|
|
464,936 |
|
|
|
3 |
% |
Libya |
|
|
414,880 |
|
|
|
3 |
% |
|
|
800,375 |
|
|
|
4 |
% |
Italy |
|
|
364,907 |
|
|
|
3 |
% |
|
|
82,880 |
|
|
|
0 |
% |
South Africa |
|
|
343,997 |
|
|
|
3 |
% |
|
|
121,567 |
|
|
|
1 |
% |
China |
|
|
213,168 |
|
|
|
2 |
% |
|
|
— |
|
|
|
0 |
% |
Bolivia |
|
|
169,900 |
|
|
|
1 |
% |
|
|
119,464 |
|
|
|
1 |
% |
Other |
|
|
873,129 |
|
|
|
8 |
% |
|
|
1,636,383 |
|
|
|
8 |
% |
Total |
|
$ |
12,353,100 |
|
|
|
100 |
% |
|
$ |
18,580,996 |
|
|
|
100 |
% |
35
Cost of revenue of $10.2 million for the three months ended December 31, 2019 was equal to 82.3% of total revenue for the three months ended December 31, 2019, while the cost of revenue of $13.9 million for the three months ended December 31, 2018 was equal to 74.8% of total revenue for the three months ended December 31, 2018.
Total gross profit margin for the three months ended December 31, 2019 was 17.7% compared to 25.2% in the three months ended December 31, 2018. The decrease in gross profit margins was primarily due to a change in sales mix as our prior year sales consisted of our higher concentration of sales to Pioneer.
Selling, General and Administrative Expenses
Selling, General and Administrative (“SG&A”) expense for the three months ended December 31, 2019 totaled $5.1 million compared to $4.3 million for the three months ended December 31, 2018. The $0.8 million increase in SG&A expense versus the comparable period of the prior year was primarily due to $0.4 million in additional compensation and benefits costs associated with sales and marketing personnel, $0.4 million for executive leadership personnel, as well as other expense increases. As a percentage of revenue, SG&A expenses were 41.1% for the three months ended December 31, 2019, compared to 23.4% for the three months ended December 31, 2018.
Research and Development Expenses
Research and development expenses for the three months ended December 31, 2019 totaled $1.7 million compared to $1.4 million for the three months ended December 31, 2018. The $0.3 million increase in research and development expense versus the comparable period of the prior year was driven by additional research and development activities incurred in connection with the Chromatin business following our acquisition of Chromatin in October 2018, as well as additional investment in our hybrid sunflower programs. We expect our research and development spend for fiscal 2020 to increase as we expand our hybrid sorghum and sunflower programs.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended December 31, 2019 was $1.3 million compared to $1.0 million for the three months ended December 31, 2018. Included in these amounts was amortization expense for intangible assets, which totaled $0.5 million for the three months ended December 31, 2019 and $0.6 million for the three months ended December 31, 2018. The $0.3 million increase in depreciation and amortization expense over the comparable period of the prior year was primarily driven by $0.1 million of additional Chromatin expenses following the October 2018 acquisition, $0.1 million of expense associated with amortization of right of use assets and $0.1 million of additional expenses following our August 2019 acquisition of a wheat breeding program in Australia from Dow AgroScience (“the Dow Wheat Acquisition”), as discussed in more detail in Note 7 to the financial statements above.
Foreign Currency Gain
We recorded a foreign currency gain of $0.1 million for the three months ended December 31, 2019 compared to a gain of $32,987 for the three months ended December 31, 2018. The foreign currency gains and losses are primarily associated with S&W Australia and S&W Hungary, our wholly-owned subsidiaries.
Interest Expense - Amortization of Debt Discount
Non-cash amortization of debt discount expense for the three months ended December 31, 2019 was $0.1 million compared to $0.1 million for the three months ended December 31, 2018. The expense in both periods represents the amortization of the debt issuance costs associated with our working capital facilities, our secured property note, and our equipment capital leases.
Interest Expense
Interest expense for the three months ended December 31, 2019 totaled $0.5 million compared to $0.6 million for the three months ended December 31, 2018. Interest expense for the three months ended December 31, 2019 primarily consisted of interest incurred on the working capital credit facilities with KeyBank and NAB, the secured property loan entered into in November 2017, and equipment
36
capital leases. Interest expense for the three months ended December 31, 2018 primarily consisted of interest incurred on the working capital credit facilities with KeyBank and NAB, the secured property loan entered into in November 2017, and equipment capital leases. The $0.1 million decrease in interest expense for the three months ended December 31, 2019 was primarily driven by lower interest on the working capital credit facilities due to decreased levels of borrowings.
Provision for Income Taxes
Income tax expense totaled $23,290 for the three months ended December 31, 2019 compared to income tax benefit of $4,801 for the three months ended December 31, 2018. Our effective tax rate was 0.4% for the three months ended December 31, 2019 compared to 0.2% for the three months ended December 31, 2018. Our effective tax rate for the three months ended December 31, 2019 was 0.4% due to the full valuation allowance established against our deferred tax assets which was recorded during the fourth quarter of fiscal year 2017. Due to the valuation allowance, we do not record the income tax expense or benefit related to substantially all of our current year operating results, as such results are generally incorporated in our net operating loss deferred tax asset position, which has a full valuation allowance against it. However, in prior years, we did record tax expense related to certain other factors occurring throughout the year. Our effective tax rate is driven by minimal state taxes.
Six Months Ended December 31, 2019 Compared to the Six Months Ended December 31, 2018
Revenue and Cost of Revenue
Revenue for the six months ended December 31, 2019 was $24.6 million compared to $44.7 million for the six months ended December 31, 2018. The $20.1 million decrease in revenue for the six months ended December 31, 2019 was primarily due to a decrease in revenue received from Pioneer. In May 2019, we terminated the production and distribution agreements with Pioneer, and entered into a new license agreement with Corteva.
As part of the termination, Corteva agreed to purchase certain quantities of seed held by us as of the date of the termination, which Pioneer was not previously obligated to purchase. Those quantities of seed will be delivered to Corteva periodically through February 2021. Contemporaneously with the termination, we entered into a license with Corteva, under which Corteva received a fully pre-paid, exclusive license to produce and distribute certain of our alfalfa seed varieties world-wide (except South America). The licensed seed varieties include certain of our existing commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties. We received a payment of $45.0 million in May 2019, $5.6 million in September 2019, $5.6 million in January 2020 and are entitled to receive an aggregate of $13.9 million in additional payments through February 2021. During the six months ended December 31, 2019 we recorded sales of $6.4 million to Pioneer, which was a decrease of $22.8 million from the six months ended December 31, 2018 amount of $29.2 million.
The $22.8 million decrease in revenue to Pioneer was partially offset by increases of $2.7 million in Core Revenue. Core Revenue (excluding product revenue attributable to Pioneer) for the six months ended December 31, 2019 was $18.2 million compared to Core Revenue for the six months ended December 31, 2018 of $15.5 million, representing an increase of 17%. Due to the revised agreements entered into with Pioneer in May 2019, we plan to provide Core Revenue as a metric to track performance of our business.
The increase in Core Revenue for the six months ended December 31, 2019 can be attributed to an increase in alfalfa revenues to the MENA region and Mexico.
37
Sales into international markets represented 48% and 23% of our total revenue during the six months ended December 31, 2019 and 2018, respectively. Domestic revenue accounted for 52% and 77% of our total revenue for the six months ended December 31, 2019 and 2018, respectively. The decrease in domestic revenue as a percentage of total revenue was primarily attributable to the termination of the Pioneer/Corteva agreement mentioned above. As a result, we anticipate that international sales will increase as a percentage of our total sales in fiscal 2020.
The following table shows revenue from external sources by destination country:
|
|
Six Months Ended December 31, |
|
|||||||||||||
|
|
2019 |
|
|
2018 |
|
||||||||||
United States |
|
$ |
12,803,301 |
|
|
|
52 |
% |
|
$ |
34,204,005 |
|
|
|
77 |
% |
Saudi Arabia |
|
|
2,285,140 |
|
|
|
9 |
% |
|
|
1,570,275 |
|
|
|
4 |
% |
Mexico |
|
|
1,818,416 |
|
|
|
7 |
% |
|
|
1,379,253 |
|
|
|
3 |
% |
Australia |
|
|
1,293,514 |
|
|
|
5 |
% |
|
|
1,370,150 |
|
|
|
3 |
% |
Pakistan |
|
|
1,243,467 |
|
|
|
5 |
% |
|
|
730,583 |
|
|
|
2 |
% |
Libya |
|
|
1,044,860 |
|
|
|
4 |
% |
|
|
1,798,750 |
|
|
|
4 |
% |
Italy |
|
|
678,614 |
|
|
|
3 |
% |
|
|
82,880 |
|
|
|
0 |
% |
South Africa |
|
|
458,444 |
|
|
|
2 |
% |
|
|
248,696 |
|
|
|
1 |
% |
China |
|
|
379,270 |
|
|
|
2 |
% |
|
|
169,027 |
|
|
|
0 |
% |
Bolivia |
|
|
169,900 |
|
|
|
1 |
% |
|
|
230,464 |
|
|
|
1 |
% |
Other |
|
|
2,450,631 |
|
|
|
10 |
% |
|
|
2,917,050 |
|
|
|
5 |
% |
Total |
|
$ |
24,625,557 |
|
|
|
100 |
% |
|
$ |
44,701,133 |
|
|
|
100 |
% |
Cost of revenue of $19.4 million for the six months ended December 31, 2019 was equal to 78.6% of total revenue for the six months ended December 31, 2019, while the cost of revenue of $34.6 million for the six months ended December 31, 2018 was equal to 77.3% of total revenue for the six months ended December 31, 2018.
Total gross profit margin for the six months ended December 31, 2019 was 21.4% compared to 22.7% in the six months ended December 31, 2018. The decrease in gross profit margins was primarily due to a change in sales mix as our prior year sales consisted of our higher concentration of sales to Pioneer.
Selling, General and Administrative Expenses
SG&A expense for the six months ended December 31, 2019 totaled $9.8 million compared to $7.2 million for the six months ended December 31, 2018. The $2.5 million increase in SG&A expense versus the comparable period of the prior year was primarily due to $1.4 million in additional compensation and benefits costs associated with sales and marketing personnel, $0.7 million for executive leadership personnel, as well as other expense increases. As a percentage of revenue, SG&A expenses were 39.7% for the six months ended December 31, 2019, compared to 16.2% for the six months ended December 31, 2018.
Research and Development Expenses
Research and development expenses for the six months ended December 31, 2019 totaled $3.3 million compared to $2.4 million for the six months ended December 31, 2018. The $0.9 million increase in research and development expense versus the comparable period of the prior year was driven by additional research and development activities incurred in connection with the Chromatin business following our acquisition of Chromatin in October 2018, as well as additional investment in our hybrid sunflower programs. We expect our research and development spend for fiscal 2020 to increase as we expand our hybrid sorghum and sunflower programs.
Depreciation and Amortization
Depreciation and amortization expense for the six months ended December 31, 2019 was $2.4 million compared to $1.9 million for the six months ended December 31, 2018. Included in these amounts was amortization expense for intangible assets, which totaled $1.0 million for the six months ended December 31, 2019 and $1.1 million for the six months ended December 31, 2018. The $0.5 million increase in depreciation and amortization expense over the comparable period of the prior year was primarily driven by $0.4 million of additional Chromatin expenses following the October 2018 acquisition, $0.1 million of expense associated with amortization of right of use assets and $0.1 million of additional expenses following the Dow Wheat Acquisition in August 2019, partially offset by fully depreciated assets.
38
Foreign Currency Gain
We recorded a foreign currency gain of $14,176 for the six months ended December 31, 2019 compared to a gain of $58,430 for the six months ended December 31, 2018. The foreign currency gains and losses are primarily associated with S&W Australia and S&W Hungary, our wholly-owned subsidiaries.
Interest Expense - Amortization of Debt Discount
Non-cash amortization of debt discount expense for the six months ended December 31, 2019 was $0.3 million compared to $0.1 million for the six months ended December 31, 2018. The expense in both periods represents the amortization of the debt issuance costs associated with our working capital facilities, our secured property note, and our equipment capital leases.
Interest Expense
Interest expense for the six months ended December 31, 2019 totaled $0.9 million compared to $1.3 million for the six months ended December 31, 2018. Interest expense for the six months ended December 31, 2019 primarily consisted of interest incurred on the working capital credit facilities with KeyBank and NAB, the secured property loan entered into in November 2017, and equipment capital leases. Interest expense for the six months ended December 31, 2018 primarily consisted of interest incurred on the working capital credit facilities with KeyBank and NAB, the secured property loan entered into in November 2017, and equipment capital leases. The $0.4 million decrease in interest expense for the six months ended December 31, 2019 was primarily driven by lower interest on the working capital credit facilities due to decreased levels of borrowings.
Provision for Income Taxes
Income tax expense totaled $24,520 for the six months ended December 31, 2019 compared to income tax expense of $4,533 for the six months ended December 31, 2018. Our effective tax rate was 0.2% for the six months ended December 31, 2019 compared to 0.2% for the six months ended December 31, 2018. Our effective tax rate for the six months ended December 31, 2019 was 0.2% due to the full valuation allowance established against our deferred tax assets which was recorded during the fourth quarter of fiscal year 2017. Due to the valuation allowance, we do not record the income tax expense or benefit related to substantially all of our current year operating results, as such results are generally incorporated in our net operating loss deferred tax asset position, which has a full valuation allowance against it. However, in prior years, we did record tax expense related to certain other factors occurring throughout the year. Our effective tax rate is driven by minimal state taxes.
Liquidity and Capital Resources
Our working capital and working capital requirements fluctuate from quarter to quarter depending on the phase of the growing and sales cycle that falls during a particular quarter. Our need for cash has historically been highest in the second and third fiscal quarters (October through March) because we historically have paid our North American contracted growers progressively, starting in the second fiscal quarter. In fiscal year 2019, we paid our North American growers approximately 50% of amounts due in October 2018 and the balance was paid in February 2019. This payment cycle to our growers was similar in fiscal year 2018, and we expect it to be similar for fiscal year 2020. S&W Australia, our Australian-based subsidiary, has a production cycle that is counter-cyclical to North America; however, this also puts a greater demand on our working capital and working capital requirements during the second, third and fourth fiscal quarters based on timing of payments to growers in the second through fourth quarters.
Historically, due to the concentration of sales to certain distributors, our month-to-month and quarter-to-quarter sales and associated cash receipts are highly dependent upon the timing of deliveries to and payments from these distributors, which varies significantly from year to year.
We continuously monitor and evaluate our credit policies with all of our customers based on historical collection experience, current economic and market conditions and a review of the current status of the respective trade accounts receivable balance. Our principal working capital components include cash and cash equivalents, accounts receivable, inventory, prepaid expense and other current assets, accounts payable and our working capital lines of credit.
39
In addition to funding our business with cash from operations, we have historically relied upon occasional sales of our debt and equity securities and credit facilities from financial institutions, both in the United States and South Australia.
In recent periods, we have consummated the following equity and debt financings:
Debt Financings
Loan and Security Agreement with CIBC
On December 26, 2019, we entered into a $35.0 million aggregate principal amount (the “CIBC Credit Facility”) Loan and Security Agreement (the “Loan Agreement”) by and among us and CIBC Bank USA (“CIBC”). The following is a summary of the terms of the CIBC Credit Facility:
|
• |
Advances under the CIBC Credit Facility are to be used: (i) to refinance indebtedness to KeyBank; (ii) to finance our ongoing working capital requirements; and (iii) for general corporate purposes. We may also use a portion of the CIBC Credit Facility to finance permitted acquisitions and related costs. |
|
• |
All amounts due and owing, including, but not limited to, accrued and unpaid principal and interest due under the CIBC Credit Facility, will be payable in full on December 23, 2022. |
|
• |
The Credit Facility generally establishes a borrowing base of up to 85% of eligible domestic accounts receivable (90% of eligible foreign accounts receivable) plus up to the lesser of (i) 65% of eligible inventory, (ii) 85% of the appraised net orderly liquidation value of eligible inventory, and (iii) an eligible inventory sublimit as more fully set forth in the Loan Agreement, in each case, subject to lender reserves. |
|
• |
Loans may be based on (i) a Base Rate plus 0.5% per annum or (ii) LIBOR Rate plus 2.5% per annum (both as defined in the Loan Agreement), generally at our option. In the event of a default, at the option of CIBC, the interest rate on all obligations owing will increase by 2% per annum over the rate otherwise applicable. |
|
• |
The CIBC Credit Facility is secured by a first priority perfected security interest in substantially all of the Borrowers’ assets (subject to certain exceptions), including intellectual property. |
|
• |
The Loan Agreement contains customary representations and warranties, affirmative and negative covenants and customary events of default that permit CIBC to accelerate our outstanding obligations under the Credit Facility, all as set forth in the Loan Agreement and related documents. The CIBC Credit Facility also contains customary and usual financial covenants imposed by CIBC. |
Termination of KeyBank Credit Facility
In connection with the consummation of the Loan Agreement with CIBC described above, we terminated the Credit and Security Agreement, dated September 22, 2015 (as amended, the “KeyBank Agreement”), with KeyBank National Association (“KeyBank”). In connection with such termination, we paid KeyBank approximately $5.9 million in aggregate principal, interest and fees that were outstanding and payable under the KeyBank Agreement at the time of its termination, and all liens on our assets and the assets of our subsidiaries guaranteeing such facility, together with such subsidiary guarantees, were released and terminated. The KeyBank Agreement had provided for borrowings of up to a $45.0 million revolving line of credit.
Conterra Transaction
In November 2017, we entered into a secured note financing transaction with Conterra for $12.5 million in gross proceeds. In the transaction, we issued two secured promissory notes to Conterra. One promissory note in the principal amount of $10.4 million (the "Secured Real Estate Note") is secured by a first priority security interest in the property, plant and fixtures located at our Five Points, California and Nampa, Idaho production facilities and our Nampa, Idaho research facilities. The note was scheduled to mature on November 30, 2020. On December 24, 2019, we entered into an amendment to extend the maturity date to November 30, 2022. The note bears interest of 7.75% per annum. We have agreed to make (i) a principal and interest payment of approximately $515,711 on January 1, 2020; (ii) five consecutive semi-annual principal and interest payments of approximately $454,185, beginning on July 1, 2020; and (iii) a one-time final payment of approximately $8,957,095 on November 30, 2022.
40
We may prepay the note, in whole or in part, at any time.
A second promissory note, in the principal amount of $2.1 million and secured by certain of our equipment, was repaid in full in August 2018.
Equipment Sale-Leaseback
In August 2018, we closed on a sale-leaseback transaction with American AgCredit involving certain equipment located at our Five Points, California and Nampa, Idaho production facilities. Under the terms of the sale-leaseback transaction:
|
• |
We sold the equipment to American AgCredit for $2.1 million in proceeds. The proceeds were used to pay off in full the Conterra promissory note mentioned above. |
|
• |
We entered into a lease agreement with American AgCredit relating to the equipment. The lease agreement has a five-year term and provides for monthly lease payments of $40,023 (representing an annual interest rate of 5.6%). At the end of the lease term, we will repurchase the equipment for $1. |
S&W Australia Facilities
S&W Australia has a series of debt facilities with National Australia Bank Ltd (“NAB”), all of which are guaranteed by us. The NAB facilities and their key terms are as follows:
|
• |
S&W Australia finances the purchase of most of its seed inventory from growers pursuant to a seasonal credit facility comprised of two facility lines: (i) an overdraft line having a credit limit of AUD 2,000,000 (USD $1,402,000 at December 31, 2019) and a borrowing base line having a credit limit of AUD 13,000,000 (USD $9,114,300 at December 31, 2019). The seasonal credit facility expires on March 31, 2021. As of December 31, 2019, AUD 14,373,038 (USD $10,076,937) was outstanding under S&W Australia’s seasonal credit facility with NAB. The seasonal credit facility is secured by a fixed and floating lien over all the present and future rights, property and undertakings of S&W Australia. S&W Australia was in compliance with all debt covenants under the seasonal credit facility at December 31, 2019. |
|
• |
S&W Australia financed the construction of a building on S&W Australia’s Keith, South Australia property, purchase of adjoining land and for the machinery and equipment for use in the operations of the building through two additional debt facilities with NAB: a business markets – flexible rate loan (the “Keith Building Loan”) and a separate machinery and equipment facility (the “Keith Machinery and Equipment Facility”). The Keith Building Loan matures on November 30, 2024. The interest rate on the Keith Building Loan varies from pricing period to pricing period (each such period approximately 30 days), based on the weighted average of a specified basket of interest rates (5.49% as of December 31, 2019). Interest is payable each month in arrears. The Keith Machinery and Equipment Facility bears interest, payable in arrears, based on the Australian Trade Refinance Rate quoted by NAB at the time of the drawdown, plus 2.9%. The Keith Building Loan and Keith Machinery and Equipment Facility are secured by a lien on all the present and future rights, property and undertakings of S&W Australia and a mortgage on S&W Australia’s Keith, South Australia property. As of December 31, 2019, USD $326,012 and USD $833,327 was outstanding under the Keith Building Loan and the Keith Machinery and Equipment Facility, respectively. |
|
• |
S&W Australia finances certain equipment purchases under a master asset finance facility with NAB. The master asset finance facility has various maturity dates through 2023 and have interest rates ranging from 3.64% to 5.31%. The credit limit under the facility is AUD 1,200,000 (USD $841,320) at December 31, 2019. |
S&W Australia was in compliance with all debt covenants under its debt facilities with NAB at December 31, 2019.
41
Equity Issuances
In July 2017, we sold and issued to certain investors an aggregate of 2,685,000 shares of our Common Stock at a purchase price of $4.00 per share, for aggregate gross proceeds of approximately $10.7 million.
In October 2017, we sold and issued to Mark W. Wong, our President and Chief Executive Officer, an aggregate of 75,000 shares of our Common Stock at a purchase price of $3.50 per share, for aggregate gross proceeds of approximately $0.3 million.
In December 2017, we completed a rights offering of 3,500,000 shares of our Common Stock. At the closing, we sold and issued an aggregate of 2,594,923 shares of our Common Stock at a subscription price of $3.50 per share. Pursuant to a backstop commitment with MFP Partners, L.P. (“MFP”), concurrently with the closing of rights offering, we sold and issued the remaining 905,077 shares of our Common Stock not purchased in the rights offering to MFP at the subscription price of $3.50 per share. Combined, we sold and issued an aggregate of 3,500,000 shares of our common stock for aggregate gross proceeds of approximately $12.3 million.
In September 2018, we sold 1,607,717 shares of our common stock to MFP at a purchase price of $3.11 per share, for gross proceeds of approximately $5.0 million.
In October 2018, we issued to MFP 7,235 shares of a newly designated Series A Convertible Preferred Stock at a purchase price of $3,110 per share, for aggregate gross proceeds of approximately $22.5 million. The preferred shares carried no voting rights and were automatically convertible into shares of our common stock at the rate of 1,000 shares of common stock per preferred share upon the approval of our stockholders for the issuance of the requisite shares of common stock. Pursuant to the purchase agreement for the preferred shares, we agreed to use reasonable best efforts to solicit the approval of our shareholders for the issuance of stock upon the conversion of the preferred shares. Approval was obtained in November 2018 and the shares of Series A Convertible Preferred Stock converted into 7,235,000 shares of our common stock.
Summary of Cash Flows
The following table shows a summary of our cash flows for the six months ended December 31, 2019 and 2018:
|
|
Six Months Ended December 31, |
|
|||||
|
2019 |
|
|
2018 |
|
|||
Cash flows from operating activities |
|
$ |
(3,486,139 |
) |
|
$ |
(15,900,452 |
) |
Cash flows from investing activities |
|
|
(2,303,405 |
) |
|
|
(26,710,468 |
) |
Cash flows from financing activities |
|
|
4,863,544 |
|
|
|
40,954,399 |
|
Effect of exchange rate changes on cash |
|
|
(152,730 |
) |
|
|
(192,992 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
(1,078,730 |
) |
|
|
(1,849,513 |
) |
Cash and cash equivalents, beginning of period |
|
|
3,431,802 |
|
|
|
4,320,894 |
|
Cash and cash equivalents, end of period |
|
$ |
2,353,072 |
|
|
$ |
2,471,381 |
|
Operating Activities
For the six months ended December 31, 2019, operating activities used $3.5 million in cash. Net loss plus and minus the adjustments for non-cash items as detailed on the statement of cash flows used $7.5 million in cash, and changes in operating assets and liabilities as detailed on the statement of cash flows provided $4.0 million in cash. The increase in cash from changes in operating assets and liabilities was primarily driven by an increase in accounts payable of $6.6 million, a decrease in accounts receivable of $3.2 million, partially offset by an increase in inventory of $5.2 million.
For the six months ended December 31, 2018, operating activities used $15.9 million in cash. Net loss plus and minus the adjustments for non-cash items as detailed on the statement of cash flows used $0.5 million in cash, and changes in operating assets and liabilities as detailed on the statement of cash flows used $15.4 million in cash. The decrease in cash from changes in operating assets and liabilities was primarily driven by an increase in inventory of $21.5 million, an increase in unbilled accounts receivable of $11.2 million, and an increase in accounts receivable of $8.3 million, partially offset by an increase in accounts payable of $23.7 million.
42
Investing Activities
Investing activities during the six months ended December 31, 2019 used $2.3 million in cash. The Dow Wheat Acquisition accounted for $2.6 million of the cash used in investing activities. We also had additions to property, plant and equipment of $1.4 million consisting primarily of equipment purchases for our facility in Keith, Australia and leasehold improvements to our new corporate headquarters in Longmont, Colorado; partially offset by $1.7 million of net proceeds from the sale of properties in Arlington Wisconsin and Plainview Texas.
Investing activities during the six months ended December 31, 2018 used $26.7 million in cash. The Chromatin Acquisition accounted for $26.4 million of the cash used in investing activities. We also had additions to property, plant and equipment of $0.3 million consisting primarily equipment purchases for our facility in Keith, Australia.
Financing Activities
Financing activities during the three months ended December 31, 2019 provided $4.9 million in cash. During the six months ended December 31, 2019, we had net borrowings on the working capital lines of credit of $6.6 million, net repayments of long-term debt of $1.1 million and debt issuance costs of $0.8 million.
Financing activities during the six months ended December 31, 2018 provided $41.0 million in cash. During the six months ended December 31, 2018, we completed a private placement of common stock which raised net proceeds of $4.9 million in cash and a private placement of preferred stock which raised net proceeds of $22.4 million. During the six months ended December 31, 2018, we also had net borrowings on the working capital lines of credit of $14.3 million. On August 15, 2018, we closed on a sale and leaseback transaction involving certain equipment located at our Five Points, California and Nampa, Idaho production facilities. Under the terms of the transaction, we sold the equipment for $2.1 million in proceeds. The proceeds were used to pay off in full the Secured Equipment Note mentioned above.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations, including our revenue and income from continuing operations. However, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
Off Balance Sheet Arrangements
We did not have any off-balance sheet arrangements during the three months ended December 31, 2019.
Capital Resources and Requirements
Our future liquidity and capital requirements will be influenced by numerous factors, including:
|
• |
the extent and duration of future operating income; |
|
• |
the level and timing of future sales and expenditures; |
|
• |
working capital required to support our growth; |
|
• |
investment capital for plant and equipment; |
|
• |
our sales and marketing programs; |
|
• |
investment capital for potential acquisitions; |
|
• |
our ability to renew and/or refinance our debt on acceptable terms; |
|
• |
competition; and |
|
• |
market developments. |
Critical Accounting Policies
The accounting policies and the use of accounting estimates are set forth in the footnotes to our consolidated financial statements.
43
In preparing our financial statements, we must select and apply various accounting policies. Our most significant policies are described in Note 2 – Summary of Significant Accounting Policies of the footnotes to the consolidated financial statements. In order to apply our accounting policies, we often need to make estimates based on judgments about future events. In making such estimates, we rely on historical experience, market and other conditions, and on assumptions that we believe to be reasonable. However, the estimation process is by its nature uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our results of operations, financial condition and changes in financial condition may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or to take other corrective actions, either of which may also have a material effect on our results of operations, financial condition or changes in financial condition. Members of our senior management have discussed the development and selection of our critical accounting estimates, and our disclosure regarding them, with the audit committee of our board of directors, and do so on a regular basis.
We believe that the following estimates have a higher degree of inherent uncertainty and require our most significant judgments. In addition, had we used estimates different from any of these, our results of operations, financial condition or changes in financial condition for the current period could have been materially different from those presented.
Goodwill
Goodwill is assessed annually for impairment or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit. We adopted Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04") effective July 1, 2018. This standard eliminates Step 2 from the goodwill impairment test. Instead, we perform our annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
During the fourth quarter of the year ended June 30, 2019, we terminated our production and distribution agreements with Pioneer, thereby triggering a potential indicator of goodwill impairment. As a result, we initiated a goodwill impairment test for the year ended June 30, 2019.
We compared the carrying value of our invested capital to estimated fair values at June 30, 2019. We estimated the fair value based on the income approach. The discounted cash flows served as the primary basis for the income approach and were based on discrete financial forecasts developed by management. Cash flows beyond the discrete forecast period of ten years were estimated using the perpetuity growth method calculation. The income approach valuation included estimated weighted average cost of capital, which was 10.6%.
Upon completing the impairment test, we determined that the fair value of invested capital was less than the carrying value by approximately 10%, thus indicating an impairment. We recognized a goodwill impairment charge of $11.9 million for the year ended June 30, 2019, which represented the entire goodwill balance prior to the impairment charge.
Intangible Assets
All amortizable intangible assets are assessed for impairment whenever events indicate a possible loss. Such an assessment involves estimating undiscounted cash flows over the remaining useful life of the intangible. If the review indicates that undiscounted cash flows are less than the recorded value of the intangible asset, the carrying amount of the intangible is compared to its fair value, with an impairment loss recognized if the fair value is below carrying value. Fair values are typically estimated using discounted cash flow techniques. Significant changes in key assumptions about the business, market conditions and prospects for which the intangible asset is currently utilized or expected to be utilized could result in an impairment charge.
In conjunction with the termination of the Pioneer production and distribution agreements, we recorded a $6.0 million impairment charge of intangible assets related to the Pioneer distribution agreements for the year ended June 30, 2019.
Stock-Based Compensation
We account for stock-based compensation in accordance with FASB Accounting Standards Codification Topic 718 Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under such provisions, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line method, over the employee’s requisite service period (generally the vesting period of the equity grant).
44
We account for equity instruments, including stock options issued to non-employees, in accordance with authoritative guidance for equity-based payments to non-employees (FASB ASC 505-50). Stock options issued to non-employees are accounted for at their estimated fair value. The fair value of options granted to non-employees is re-measured as they vest.
We utilize the Black-Scholes-Merton option pricing model to estimate the fair value of options granted under share-based compensation plans. The Black-Scholes-Merton model requires us to estimate a variety of factors including, but not limited to, the expected term of the award, stock price volatility, dividend rate, risk-free interest rate. The input factors to use in the valuation model are based on subjective future expectations combined with management judgment. The expected term used represents the weighted-average period that the stock options are expected to be outstanding. We have used the historical volatility for our stock for the expected volatility assumption required in the model, as it is more representative of future stock price trends. We use a risk-free interest rate that is based on the implied yield available on U.S. Treasury issued with an equivalent remaining term at the time of grant. We have not paid dividends in the past and currently do not plan to pay any dividends in the foreseeable future, and as such, dividend yield is assumed to be zero for the purposes of valuing the stock options granted. We evaluate the assumptions used to value stock awards on a quarterly basis. If factors change, and we employ different assumptions, share-based compensation expense may differ significantly from what we have recorded in the past. When there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense. To the extent that we grant additional equity securities to employees, our share-based compensation expense will be increased by the additional unearned compensation resulting from those additional grants.
Income Taxes
We regularly assess the likelihood that deferred tax assets will be recovered from future taxable income. To the extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established. When a valuation allowance is established or increased, an income tax charge is included in the consolidated financial statements and net deferred tax assets are adjusted accordingly. Changes in tax laws, statutory tax rates and estimates of our future taxable income levels could result in actual realization of the deferred tax assets being materially different from the amounts provided for in the consolidated financial statements. If the actual recovery amount of the deferred tax asset is less than anticipated, we would be required to write-off the remaining deferred tax asset and increase the tax provision, resulting in a reduction of earnings and stockholders’ equity.
Inventories
All inventories are accounted for on a lower of cost or net realizable value. Inventories consist of raw materials and finished goods. Depending on market conditions, the actual amount received on sale could differ from our estimated value of inventory. In order to determine the value of inventory at the balance sheet date, we evaluate a number of factors to determine the adequacy of provisions for inventory. The factors include the age of inventory, the amount of inventory held by type, future demand for products and the expected future selling price we expect to realize by selling the inventory. Our estimates are judgmental in nature and are made at a point in time, using available information, expected business plans and expected market conditions. We perform a review of our inventory by product line on a quarterly basis.
Our subsidiary, S&W Australia, does not fix the final price for seed payable to its growers until the completion of a given year’s sales cycle pursuant to its standard contract production agreement. We record an estimated unit price accordingly, inventory, cost of revenue and gross profits are based upon management’s best estimate of the final purchase price to our S&W Australia growers. To the extent the estimated purchase price varies from the final purchase price for seed, the adjustment to actual could materially impact the results in the period when the difference between estimates and actuals are identified. If the actual purchase price is in excess of our estimated purchase price, this would negatively impact our financial results including a reduction in gross profits and earnings.
During the fourth quarter of the year ended June 30, 2019, we recognized a write-down of inventory in the amount of $8.8 million, which is included in Cost of Revenue in the Consolidated Statement of Operations. $4.8 million of this write-down related to dormant alfalfa seed products. The termination of the distribution and production agreements with Pioneer altered our planned consumption of these varieties and as a result we determined this particular dormant seed inventory will need to be sold to alternative sales channels at lower selling prices. The remaining inventory write-down primarily relates to changes in our assessment of the future market prices for non-dormant alfalfa seed varieties. The changes in our assessment occurred as we updated our business plans taking into account activity during the fourth quarter, which is the height of the sales season for non-dormant varieties.
During the three months ended December 31, 2019, we recognized a write-down of inventory in the amount of $0.5 million which is included in Cost of Revenue in the Consolidated Statement of Operations. The write-down of inventory during the three months ended December 31, 2019 was primarily related to certain inventory lots that deteriorated in quality / germination rates during the quarter.
|
45
Allowance for Doubtful Accounts
We regularly assess the collectability of receivables and provide an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. Our estimates are judgmental in nature and are made at a point in time. Management believes the allowance for doubtful accounts is appropriate to cover anticipated losses in our accounts receivable under current conditions; however, unexpected, significant deterioration in any of the factors mentioned above or in general economic conditions could materially change these expectations.
We are a smaller reporting company and, therefore, we are not required to provide information required by this item of Form 10-Q.
Disclosure Controls and Procedures
Our management, with the participation of our Principal Executive Officer and our Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019 (the “Evaluation Date”). The term “disclosure controls and procedures,” as defined in Rules 13a‑15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2019, our Principal Executive Officer and Principal Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that occurred during the period of our evaluation that have significantly affected, or are reasonably likely to significantly affect, our internal control over financial reporting.
46
None.
We are a smaller reporting company, and, as such, we are not required to provide the information under this Item of Form 10-Q.
None.
None.
Not applicable.
None.
47
Exhibit No. |
|
Description |
|
|
|
3.1(1) |
|
|
|
|
|
3.2(2) |
|
|
|
|
|
3.3(3) |
|
Registrant’s Amended and Restated Bylaws, together with Amendments One, Two and Three thereto. |
|
|
|
4.1 |
|
|
|
|
|
4.2(4) |
|
|
|
|
|
4.3(5) |
|
|
|
|
|
10.1* |
|
|
|
|
|
10.2 |
|
Amendment to Note between the Registrant and Rooster Capital LLC, dated December 24, 2019. |
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1** |
|
|
|
|
|
32.2** |
|
|
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
(1) |
Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on December 19, 2011 (File No. 001-34719). |
(2) |
Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on October 25, 2018 (File No. 001-34719). |
(3) |
Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K, filed on September 28, 2015 (File No. 001-34719). |
(4) |
Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3, filed on August 4, 2017 (File No. 333-219726). |
(5) |
Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on December 31, 2014 (File No. 001-34719). |
* |
Certain portions of this exhibit (indicated by “[***]”) have been omitted as the Registrant as determined (i) the omitted information is not material and (ii) the omitted information would likely cause harm to the Registrant if publicly disclosed. |
** |
This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing. |
48
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
S&W SEED COMPANY |
||
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Date: February 12, 2020 |
By: |
|
/s/ Matthew K. Szot |
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|
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Matthew K. Szot |
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|
Executive Vice President of Finance and Administration and Chief Financial Officer (On behalf of the registrant in his capacity as Principal Financial and Accounting Officer) |
49
Exhibit 10.1
[***] = Certain confidential information contained in this document,
marked by brackets, has been omitted because it is both
(i) not material and (ii) would likely be competitively harmful if publicly disclosed.
_______________________________________________________________________________
Loan And Security Agreement
Dated as of December 26, 2019
among
S&W SEED COMPANY,
SEED HOLDING, LLC, and STEVIA CALIFORNIA, LLC,
The Borrowers
THE OTHER LOAN PARTIES HERETO
THE VARIOUS FINANCIAL INSTITUTIONS PARTY HERETO,
as Lenders
and
CIBC BANK USA,
as ADMINISTRATIVE AGENT AND SOLE LEAD ARRANGER
_______________________________________________________________________________
|
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Page |
SECTION 1 |
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DEFINITIONS. |
1 |
1.1. |
|
Definitions. |
1 |
SECTION 2 |
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LOANS. |
26 |
2.1. |
|
Loan Facilities. |
26 |
2.2. |
|
Loan Procedures. |
28 |
2.3. |
|
Repayments. |
29 |
2.4. |
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Notes. |
30 |
2.5. |
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Recordkeeping |
31 |
2.6. |
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Defaulting Lenders. |
31 |
2.7. |
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Cash Collateral |
33 |
2.8. |
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Settlements. |
34 |
2.9. |
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Commitments Several. |
34 |
SECTION 3 |
|
LETTERS OF CREDIT. |
35 |
3.1. |
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General Terms. |
35 |
3.2. |
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Letter of Credit Procedures. |
35 |
3.3. |
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Expiration Dates of Letters of Credit. |
36 |
3.4. |
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Participations in Letters of Credit. |
36 |
SECTION 4 |
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INTEREST, FEES AND CHARGES. |
36 |
4.1. |
|
Interest Rate. |
36 |
4.2. |
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Increased Costs; Special Provisions For LIBOR Loans. |
37 |
4.3. |
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Fees and Charges. |
41 |
4.4. |
|
Taxes. |
41 |
4.5. |
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Maximum Interest. |
43 |
SECTION 5 |
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COLLATERAL. |
43 |
5.1. |
|
Grant of Security Interest to Administrative Agent. |
43 |
5.2. |
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Other Security. |
44 |
5.3. |
|
Possessory Collateral. |
44 |
5.4. |
|
Electronic Chattel Paper. |
44 |
SECTION 6 |
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PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN. |
45 |
SECTION 7 |
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POSSESSION OF COLLATERAL AND RELATED MATTERS. |
45 |
SECTION 8 |
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COLLECTIONS. |
45 |
8.1. |
|
Lockbox and Lockbox Account. |
45 |
8.2. |
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Administrative Agent's Rights. |
46 |
8.3. |
|
Application of Proceeds. |
47 |
8.4. |
|
Account Statements. |
47 |
SECTION 9 |
|
COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES. |
47 |
9.1. |
|
Weekly Reports. |
47 |
9.2. |
|
Monthly Reports. |
47 |
-i-
|
Financial Statements. |
48 |
|
9.4. |
|
Annual Projections. |
48 |
9.5. |
|
Explanation of Budgets and Projections. |
48 |
9.6. |
|
Public Reporting. |
48 |
9.7. |
|
Other Information. |
49 |
SECTION 10 |
|
TERMINATION. |
49 |
SECTION 11 |
|
REPRESENTATIONS AND WARRANTIES. |
49 |
11.1. |
|
Financial Statements and Other Information. |
49 |
11.2. |
|
Locations. |
50 |
11.3. |
|
Loans by Loan Parties. |
50 |
11.4. |
|
Accounts and Inventory. |
50 |
11.5. |
|
Liens. |
50 |
11.6. |
|
Organization, Authority and No Conflict. |
50 |
11.7. |
|
Litigation. |
51 |
11.8. |
|
Compliance with Laws and Maintenance of Permits; Taxes. |
51 |
11.9. |
|
Affiliate Transactions. |
51 |
11.10. |
|
Names and Trade Names. |
51 |
11.11. |
|
Equipment. |
51 |
11.12. |
|
Enforceability. |
52 |
11.13. |
|
Solvency. |
52 |
11.14. |
|
Debt. |
52 |
11.15. |
|
Margin Security and Use of Proceeds. |
52 |
11.16. |
|
Parent, Subsidiaries and Affiliates. |
52 |
11.17. |
|
No Defaults. |
52 |
11.18. |
|
Employee Matters. |
52 |
11.19. |
|
Intellectual Property. |
53 |
11.20. |
|
Environmental Matters. |
53 |
11.21. |
|
ERISA Matters. |
53 |
11.22. |
|
Investment Company Act. |
54 |
11.23. |
|
Anti-Terrorism Laws. |
54 |
11.24. |
|
[Reserved]. |
55 |
11.25. |
|
USA Patriot Act; Sanctions; Anti-Corruption; Beneficial Ownership. |
55 |
SECTION 12 |
|
AFFIRMATIVE COVENANTS. |
55 |
12.1. |
|
Maintenance of Records. |
55 |
12.2. |
|
Notices. |
55 |
12.3. |
|
Compliance with Laws and Maintenance of Permits. |
57 |
12.4. |
|
Inspection, Audits and Appraisals. |
57 |
12.5. |
|
Insurance. |
58 |
12.6. |
|
Collateral. |
59 |
12.7. |
|
Use of Proceeds. |
59 |
12.8. |
|
Taxes. |
59 |
12.9. |
|
Intellectual Property. |
60 |
12.10. |
|
Checking Accounts and Cash Management Services. |
60 |
12.11. |
|
USA Patriot Act, Bank Secrecy Act and Office of Foreign Asset Control |
60 |
12.12. |
|
Related Transaction. |
60 |
-ii-
|
NEGATIVE COVENANTS. |
61 |
|
13.1. |
|
Guaranties. |
61 |
13.2. |
|
Debt. |
61 |
13.3. |
|
Liens. |
61 |
13.4. |
|
Mergers, Sales, Acquisitions, Subsidiaries and Other Transactions Outside the Ordinary Course of Business. |
62 |
13.5. |
|
Restricted Payments. |
62 |
13.6. |
|
Investments; Loans. |
62 |
13.7. |
|
Fundamental Changes, Line of Business; Certain Documents. |
62 |
13.8. |
|
Equipment. |
63 |
13.9. |
|
Affiliate Transactions. |
63 |
13.10. |
|
Settling of Accounts. |
63 |
SECTION 14 |
|
FINANCIAL COVENANTS. |
63 |
14.1. |
|
Consolidated Fixed Charge Coverage. |
63 |
14.2. |
|
Loan Party Fixed Charge Coverage. |
63 |
14.3. |
|
Capital Expenditure Limitations. |
64 |
SECTION 15 |
|
DEFAULT. |
64 |
15.1. |
|
Payment. |
64 |
15.2. |
|
Breach of this Agreement and the other Loan Documents. |
64 |
15.3. |
|
Breaches of Other Obligations. |
64 |
15.4. |
|
Breach of Representations and Warranties. |
65 |
15.5. |
|
Loss of Collateral. |
65 |
15.6. |
|
Levy, Seizure or Attachment. |
65 |
15.7. |
|
Bankruptcy or Similar Proceedings. |
65 |
15.8. |
|
Appointment of Receiver. |
65 |
15.9. |
|
Judgment. |
65 |
15.10. |
|
Death or Dissolution of Loan Party. |
66 |
15.11. |
|
Default or Revocation of Guaranty. |
66 |
15.12. |
|
Criminal Proceedings. |
66 |
15.13. |
|
Change of Control. |
66 |
15.14. |
|
Plans |
66 |
15.15. |
|
Breach of Seed Australia Loan Documents |
66 |
15.16. |
|
Material Adverse Effect. |
66 |
SECTION 16 |
|
REMEDIES UPON AN EVENT OF DEFAULT. |
66 |
16.1. |
|
Acceleration |
66 |
16.2. |
|
Other Remedies |
67 |
16.3. |
|
Credit Bidding. |
68 |
SECTION 17 |
|
CONDITIONS PRECEDENT. |
68 |
17.1. |
|
Conditions to Initial Loans. |
68 |
17.2. |
|
Conditions to All Loans. |
69 |
SECTION 18 |
|
THE AGENT. |
70 |
18.1. |
|
Appointment and Authorization. |
70 |
18.2. |
|
L/C Issuers. |
70 |
18.3. |
|
Delegation of Duties. |
70 |
18.4. |
|
Exculpation of Administrative Agent. |
70 |
-iii-
|
Reliance by Administrative Agent. |
71 |
|
18.6. |
|
Notice of Default. |
71 |
18.7. |
|
Credit Decision. |
72 |
18.8. |
|
Indemnification. |
72 |
18.9. |
|
Administrative Agent in Individual Capacity. |
72 |
18.10. |
|
Successor Administrative Agent. |
73 |
18.11. |
|
Collateral Matters. |
73 |
18.12. |
|
Restriction on Actions by Lenders. |
74 |
18.13. |
|
Administrative Agent May File Proofs of Claim. |
74 |
18.14. |
|
Other Agents; Arrangers and Managers. |
75 |
SECTION 19 |
|
MISCELLANEOUS. |
75 |
19.1. |
|
Assignments; Participations. |
75 |
19.2. |
|
Register. |
77 |
19.3. |
|
Customer Identification - USA Patriot Act Notice. |
77 |
19.4. |
|
Indemnification by Loan Parties. |
77 |
19.5. |
|
Notice. |
78 |
SECTION 20 |
|
GENERAL. |
79 |
20.1. |
|
Waiver; Amendments. |
79 |
20.2. |
|
Headings of Subdivisions. |
80 |
20.3. |
|
Power of Attorney. |
80 |
20.4. |
|
Confidentiality. |
81 |
20.5. |
|
Counterparts. |
81 |
20.6. |
|
Electronic Submissions. |
81 |
20.7. |
|
Waiver of Jury Trial: Other Waivers. |
82 |
20.8. |
|
Choice of Governing Laws; Construction; Forum Selection. |
82 |
20.9. |
|
Cashless Settlements. |
83 |
20.10. |
|
Acknowledgement and Consent to Bail-In of EEA Financial Institutions |
83 |
SECTION 21 |
|
JOINT AND SEVERAL LIABILITY |
84 |
SECTION 22 |
|
NONLIABILITY OF ADMINISTRATIVE AGENT AND LENDERS |
86 |
SECTION 23 |
|
JUDICIAL REFERENCE |
86 |
-iv-
ANNEX 1 – COMMITMENTS
ANNEX 2 – RELATED TRANSACTIONS
EXHIBIT A – COMPLIANCE CERTIFICATE
EXHIBIT B – NOTICE OF BORROWING
EXHIBIT C – NOTICE OF CONVERSION/CONTINUATION
EXHIBIT D – COMMERCIAL TORT CLAIMS
EXHIBIT E – ASSIGNMENT AGREEMENT
SCHEDULE 1 – PERMITTED LIENS
SCHEDULE 11.2 – BUSINESS AND COLLATERAL LOCATIONS
SCHEDULE 11.6 – ORGANIZATIONAL INFORMATION
SCHEDULE 11.7 – LITIGATION
SCHEDULE 11.9 – AFFILIATE TRANSACTIONS
SCHEDULE 11.10 – NAMES & TRADE NAMES
SCHEDULE 11.14 – INDEBTEDNESS
SCHEDULE 11.16 – PARENT, SUBSIDIARIES AND AFFILIATES
SCHEDULE 17.1 – CLOSING DOCUMENT CHECKLIST
-v-
THIS LOAN AND SECURITY AGREEMENT (as amended, modified or supplemented from time to time, this "Agreement") made this 26th day of December, 2019 by and among, the financial institutions that are or may from time to time become parties hereto (together with their respective assigns, the "Lenders"), CIBC BANK USA (in its individual capacity, "CIBC US"), 120 South LaSalle Street, Suite 200, Chicago, Illinois 60603, as administrative agent and sole lead arranger and S&W SEED COMPANY, a Nevada corporation (“S&W Seed”), SEED HOLDING, LLC, a Nevada limited liability company (“Seed Holding”), and STEVIA CALIFORNIA, LLC, a California limited liability company (“Stevia CA”; S&W Seed, Seed Holding and Stevia CA are each individually a “Borrower” and collectively referred to as "Borrowers") and the other Loan Parties party hereto.
W I T N E S S E T H:
WHEREAS, Borrowers may, from time to time, request Loans from Administrative Agent and Lenders, and the parties wish to provide for the terms and conditions upon which such Loans or other financial accommodations, if made by Administrative Agent and Lenders, shall be made;
NOW, THEREFORE, in consideration of any Loan (including any Loan by renewal or extension) hereafter made to Borrowers by Administrative Agent or any Lender, or any Letter of Credit issued for the account of Borrowers, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Loan Party, the parties agree as follows:
When used herein the following terms shall have the following meanings:
Account shall have the meaning ascribed to such term in the UCC.
Account Debtor shall have the meaning ascribed to such term in the UCC.
Acquisition means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or a substantial portion of the assets of a Person, or of all or a substantial portion of any business or division of a Person, (b) the acquisition of in excess of 50% of the equity interests of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is already a Subsidiary).
Adjusted EBITDA shall mean, with respect to any Person and its Subsidiaries for any test period and without duplication, the sum of EBITDA, plus (a) to the extent deducted in determining EBITDA with respect to such Person and its Subsidiaries for such test period, (i) the Corteva/Pioneer Quarterly Addback, (ii) the Corteva/Pioneer One-Time Addback, (iii) one-time expenses incurred in connection with the initial documentation and closing of this Agreement in an amount not to exceed $500,000.00, provided such expenses are incurred not later than 30 days after the Closing Date, (iv) one-time expenses incurred in connection with Permitted Acquisitions in an amount not to exceed $500,000.00 for any Fiscal Year, provided such expenses are incurred not later than 90 days after the closing of the applicable Permitted Acquisition, and (v) one-time expenses incurred in connection with the Related Transactions in an amount not to exceed $[***], provided such expenses are incurred not later than 90 days after the closing of the Related Transactions, and (b) the New Equity Addback for such test period up to the amount of research and develop expenses incurred in such test period (and without duplication of the New Equity Addback utilized by Borrowers to decrease unfinanced Capital Expenditures in Sections 14.1 and 14.2).
Administrative Agent shall mean CIBC US in its capacity as administrative agent for the Lenders hereunder and any successor thereto in such capacity.
Affected Loan shall have the meaning set forth in Section 4.2.3.
Affiliate of any Person shall mean (i) any other Person which directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, such Person, (ii) any other Person which beneficially owns or holds ten percent (10%) or more of the voting control or equity interests of such Person, (iii) any other Person of which ten percent (10%) or more of the voting control or equity interest of which is beneficially owned or held by such Person or (iv) any officer or director of such Person. Unless expressly stated otherwise herein, neither Administrative Agent nor any Lender shall be deemed an Affiliate of any Loan Party. For purposes of clarity, Canadian Imperial Bank of Commerce and each of its direct and indirect subsidiaries are “Affiliates” of CIBC US.
Agent Advance shall have the meaning set forth in Section 2.1.1(c).
Agent Parties shall have the meaning set forth in Section 19.5 (c)(ii).
Applicable Margin shall mean, for any day, the margin set forth below, it being understood that the Applicable Margin for (i) LIBOR Loans shall be the percentage set forth under the column "LIBO Rate Applicable Margin", (ii) Base Rate Loans shall be the percentage set forth under the column "Base Rate Applicable Margin", (iii) the Unused Line Fee shall be the percentage set forth under the column "Unused Line Fee Applicable Margin", and (iv) the Letter of Credit Fee shall be the percentage set forth under the column "Letter of Credit Fee Applicable Margin”:
LIBO Rate Applicable Margin |
Base Rate Applicable Margin |
Unused Line Fee Applicable Margin
|
Letter of Credit Fee Applicable Margin
|
2.50% |
0.50% |
0.375% |
2.50% |
Approved Fund shall mean any Fund that is administered, managed, advised or underwritten by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
Assignee shall have the meaning set forth in Section 19.1.1.
Assignment Agreement shall have the meaning set forth in Section 19.1.1.
Attorney Costs shall mean, with respect to any Person, all reasonable fees and charges of any counsel to such Person, the reasonable allocable cost of internal legal services of such Person, all reasonable disbursements of such internal counsel and all court costs and similar legal expenses.
Bail-In Action means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
Bail-In Legislation means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
Bank Product Agreements shall mean those certain agreements pursuant to which any Lender or its Affiliates provide any of the Bank Products to any Loan Party including, without limitation, Hedging Agreements.
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Bank Product Obligations shall mean all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by the Loan Parties to any Lender or its Affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that a Loan Party is obligated to reimburse to the Administrative Agent or any Lender as a result of the Administrative Agent or any such Lender purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to the Loan Parties pursuant to the Bank Product Agreements.
Bank Products shall mean any service provided to, facility extended to, or transaction entered into with, any Loan Party by any Lender or its Affiliates consisting of, (a) deposit accounts, (b) cash management services, including, without limitation, controlled disbursement, lockbox, electronic funds transfers (including, without limitation, book transfers, fedwire transfers, ACH transfers), online reporting and other services relating to accounts maintained with a Lender or its Affiliates, (c) debit cards and credit cards, (d) Hedging Agreements or (e) so long as prior written notice thereof is provided to Administrative Agent by the Lender (or its Affiliate) providing such service, facility or transaction and Administrative Agent consents in writing to its inclusion as a Bank Product, any other service provided to, facility extended to or transaction entered into with any Loan Party by a Lender or its Affiliates.
Base Rate shall mean at any time the greater of (a) the Federal Funds Rate plus one‑half of one percent (0.5%), and (b) the Prime Rate.
Base Rate Loan shall mean any Loan which bears interest at or by reference to the Base Rate.
Benchmark Replacement means the sum of: (a) the alternate benchmark rate (which may include Term SOFR) that has been selected by Administrative Agent giving due consideration to (i) any selection or recommendation of a replacement rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a rate of interest as a replacement to the Libo Rate for U.S. dollar-denominated syndicated credit facilities and (b) the Benchmark Replacement Adjustment.
Benchmark Replacement Adjustment means, with respect to any replacement of the Libo Rate with an Unadjusted Benchmark Replacement for each applicable Interest Period, the spread adjustment, or method for calculating or determining such spread adjustment (which may be a positive or negative value or zero) that has been selected by Administrative Agent giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of the Libo Rate with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of the Libo Rate with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated syndicated credit facilities at such time.
Benchmark Replacement Conforming Changes means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of Interest Period, timing and frequency of determining rates and making payments of interest and other administrative matters) that Administrative Agent decides may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by Administrative Agent in a manner substantially consistent with market practice (or, if Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if Administrative Agent determines that no market practice for the administration of the Benchmark Replacement exists, in such other manner of administration as Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement).
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Benchmark Replacement Date means the earlier to occur of the following events with respect to the Libo Rate:
(a)in the case of clause (a) or (b) of the definition of “Benchmark Transition Event,” the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the administrator of the Libo Rate permanently or indefinitely ceases to provide the Libo Rate; or
(b)in the case of clause (c) of the definition of “Benchmark Transition Event,” the date of the public statement or publication of information referenced therein.
Benchmark Transition Event means the occurrence of one or more of the following events with respect to the Libo Rate:
(a)a public statement or publication of information by or on behalf of the administrator of the Libo Rate announcing that such administrator has ceased or will cease to provide the Libo Rate, permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the Libo Rate;
(b)a public statement or publication of information by the regulatory supervisor for the administrator of the Libo Rate, the U.S. Federal Reserve System, an insolvency official with jurisdiction over the administrator for the Libo Rate, a resolution authority with jurisdiction over the administrator for the Libo Rate or a court or an entity with similar insolvency or resolution authority over the administrator for the Libo Rate, which states that the administrator of the Libo Rate has ceased or will cease to provide the Libo Rate permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the Libo Rate; or
(c)a public statement or publication of information by the regulatory supervisor for the administrator of the Libo Rate announcing that the Libo Rate is no longer representative.
Benchmark Transition Start Date means (a) in the case of a Benchmark Transition Event, the earlier of (i) the applicable Benchmark Replacement Date and (ii) if such Benchmark Transition Event is a public statement or publication of information of a prospective event, the 90th day prior to the expected date of such event as of such public statement or publication of information (or if the expected date of such prospective event is fewer than 90 days after such statement or publication, the date of such statement or publication) and (b) in the case of an Early Opt-in Election, the date specified by Administrative Agent by notice to Borrowers.
Benchmark Unavailability Period means, if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred with respect to the Libo Rate and solely to the extent that the Libo Rate has not been replaced with a Benchmark Replacement, the period (x) beginning at the time that such Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the Libo Rate for all purposes hereunder in accordance with Section 4.2.9 and (y) ending at the time that a Benchmark Replacement has replaced the Libo Rate for all purposes hereunder pursuant to Section 4.2.9.
Beneficial Ownership Regulation means 31 C.F.R. § 1010.230.
BSA shall have the meaning set forth in Section 12.11(b).
Business Day shall mean any day on which Administrative Agent is open for commercial banking business in Chicago, Illinois and, in the case of a Business Day which relates to a LIBOR Loan, any day on which dealings are carried on in the London Interbank Eurodollar market.
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Capital Expenditures shall mean with respect to any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including expenditures for capitalized lease obligations) by Borrowers and their Subsidiaries during such period that are required by generally accepted accounting principles, consistently applied, to be included in or reflected by the property, plant and equipment or similar fixed asset accounts (or intangible accounts subject to amortization) on the balance sheet of Borrowers and their Subsidiaries.
Cash Collateralize means to deliver cash collateral to the L/C Issuer, for the benefit of one or more of the L/C Issuers or Lenders, to be held as cash collateral for outstanding Letters of Credit, pursuant to documentation satisfactory to such L/C Issuer and in an amount satisfactory to such L/C Issuer. Derivatives of such term have corresponding meanings.
CCCP shall have the meaning set forth in Section 23.
Certificate of Beneficial Ownership means a certificate regarding beneficial ownership delivered pursuant to Section 17, as from time to time updated in accordance with the terms of this Agreement, as required by the Beneficial Ownership Regulation.
CFC means (i) a controlled foreign corporation within the meaning of Section 957 of the Code in which any Loan Party is a "United States shareholder" within the meaning of Section 951(b) of the Code; and (ii) any Subsidiary whose sole assets (other than a de minimis amount) are equity of one or more entities described in clause (i) of this definition.
Change in Law shall mean the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
Chattel Paper shall have the meaning ascribed to such term in the UCC.
CIBC US shall have the meaning set forth in the preamble hereof.
Closing Date shall have the meaning set forth in Section 17.1.
Code shall mean the Internal Revenue Code of 1986, as amended from time to time and any successor statute.
Collateral shall mean all of the property of each Loan Party described in Section 5.1, together with all other real or personal property of any Loan Party or any other Person now or hereafter pledged to Administrative Agent to secure, either directly or indirectly, repayment of any of the Obligations.
Commitment shall mean with respect to each Lender, the commitment of such Lender to make its Pro Rata Share of Revolving Loans and any other Loan from time to time issued hereunder.
Commercial Tort Claims shall have the meaning ascribed to such term in the UCC.
Commodity Exchange Act shall mean the Commodity Exchange Act (7 U.S.C. §1 et seq.), as amended from time to time and any successor statute.
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Consolidated Fixed Charge Coverage Ratio shall mean, for any period, the ratio of (a) Adjusted EBITDA minus, (i) unfinanced Capital Expenditures (net of the New Equity Addback for such period in an amount not to exceed such unfinanced Capital Expenditures, but without duplication of the New Equity Addback utilized to decrease research and development expenses in the definition of Adjusted EBITDA) during the applicable period, (ii) all dividends, other distributions and payments in respect of stock or other equity interests during the applicable period, and (iii) payments during the applicable period in respect of income and franchise taxes, to (b) Fixed Charges, in each case calculated for Borrowers and their Subsidiaries on a consolidated basis.
Contingent Liability means, with respect to any Person, each obligation and liability of such Person and all such obligations and liabilities of such Person incurred pursuant to any agreement, undertaking or arrangement by which such Person: (a) guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, dividend, obligation or other liability of any other Person in any manner (other than by endorsement of instruments in the course of collection), including any indebtedness, dividend or other obligation which may be issued or incurred at some future time; (b) guarantees the payment of dividends or other distributions upon the equity interests of any other Person; (c) undertakes or agrees (whether contingently or otherwise): (i) to purchase, repurchase, or otherwise acquire any indebtedness, obligation or liability of any other Person or any property or assets constituting security therefor, (ii) to advance or provide funds for the payment or discharge of any indebtedness, obligation or liability of any other Person (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, working capital or other financial condition of any other Person, or (iii) to make payment to any other Person other than for value received; (d) agrees to lease property or to purchase securities, property or services from such other Person with the purpose or intent of assuring the owner of such indebtedness or obligation of the ability of such other Person to make payment of the indebtedness or obligation; (e) to induce the issuance of, or in connection with the issuance of, any letter of credit for the benefit of such other Person; or (f) undertakes or agrees otherwise to assure a creditor against loss. The amount of any Contingent Liability shall (subject to any limitation set forth herein) be deemed to be the outstanding principal amount (or maximum permitted principal amount, if larger) of the indebtedness, obligation or other liability guaranteed or supported thereby.
Controlled Group shall mean members of a controlled group of corporations, all members of a controlled group of trades or businesses (whether or not incorporated) under common control and all members of an affiliated service group which, together with any Loan Party or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code or Section 4001 of ERISA.
Corteva/Pioneer One-Time Addback shall mean for the test period ending December 31, 2020 or March 31, 2021, as selected by Borrowers, at amount equal to $500,000; provided (a) such amount shall only be added back to EBITDA for either the test period ending December 31, 2020, or March 31, 2021, as selected by Borrowers, and (b) such amount shall not be added back to EBITDA in subsequent test periods.
Corteva/Pioneer Quarterly Addback shall mean an amount equal to $2,000,000 for each of the Fiscal Quarters ending March 31, 2020 through and including March 31, 2021.
Debt of any Person shall mean, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all indebtedness evidenced by bonds, debentures, notes or similar instruments (including, without limitation, any notes issued to sellers in connection with an Acquisition), (c) all obligations of such Person as lessee under capitalized leases which have been or should be recorded as liabilities on a balance sheet of such Person in accordance with GAAP, (d) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade accounts payable in the ordinary course of business), (e) all indebtedness secured by a lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person; provided that if such Person has not assumed or otherwise become liable for such indebtedness, such indebtedness shall be
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measured at the fair market value of such property securing such indebtedness at the time of determination, (f) all obligations, contingent or otherwise, with respect to the face amount of all letters of credit (whether or not drawn), bankers' acceptances and similar obligations issued for the account of such Person (including the Letters of Credit), (g) all Hedging Obligations of such Person, (h) all Contingent Liabilities of such Person, (i) all Debt of any partnership of which such Person is a general partner unless such Debt is expressly made non-recourse to such Person, (j) all non-compete payment obligations, earn-outs and similar obligations and (k) any equity instrument, whether or not mandatorily redeemable, that under GAAP is characterized as debt, whether pursuant to financial accounting standards board issuance No. 150 or otherwise.
Default shall mean the occurrence of an event or condition which, with the passage of time will become an Event of Default if not cured prior to the expiration of any applicable grace period.
Defaulting Lender shall mean any Lender that (a) has failed to fund any portion of the Loans, participations in Letters of Credit or participations in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder unless such Lender notifies the Administrative Agent and Borrowers in writing that such failure is the result of such Lender's good faith determination that one or more conditions precedent to funding have not been satisfied (each of which failures shall be specifically identified in such notice), (b) has otherwise failed to pay over to Administrative Agent, L/C Issuer, Swing Line Lender or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, (c) has (i) been deemed or has a direct or indirect parent company that has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding, or had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such capacity or (ii) become the subject of a Bail-In Action; provided, that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts with the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender or such Governmental Authority to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender, (d) has notified Borrowers, Administrative Agent, any L/C Issuer, Swing Line Lender or any other Lender that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under other agreements in which it commits to extend credit (unless such notice or public statement indicates that such intention is based on a good faith determination that one or more conditions precedent to funding have not been satisfied (which notice or public statement specifically identifies the conditions not satisfied and the basis therefor)) or (e) has failed to confirm within three Business Days of a request by Administrative Agent that it will comply with the terms of this Agreement relating to its obligations to fund prospective Revolving Loans and participations in then outstanding Letters of Credit and Swing Line Loans. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (e) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.6.4) upon delivery of written notice of such determination to Borrowers, each L/C Issuer, each Swing Line Lender, and each Lender.
Deposit Accounts shall have the meaning ascribed to such term in the UCC.
Dilution shall mean, with respect to any period, the percentage obtained by dividing (i) the sum of non-cash credits against Accounts (including, but not limited to returns, adjustments and rebates) of Borrowers for such period, plus pending or probable, but not yet applied, non-cash credits against Accounts of Borrowers for such period, as determined by Administrative Agent in its sole but Permitted Discretion by (ii) gross invoiced sales of Borrowers for such period.
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Dispute shall have the meaning set forth in Section 23.
Documents shall have the meaning ascribed to such term in the UCC.
Early Opt-in Election means the occurrence of: (a) a determination by Administrative Agent or (b) a notification by Borrowers to Administrative Agent, that U.S. dollar-denominated syndicated credit facilities being executed at such time, or that include language similar to that contained in Section 4.2.9, are being executed or amended, as applicable, to incorporate or adopt a new benchmark interest rate to replace the Libo Rate, and, in the case of clause (b) the agreement by Administrative Agent to amend this Agreement as a result of such election.
EBITDA shall mean, with respect to any Person and its Subsidiaries for any test period, net income after taxes for such period (excluding any after-tax gains or losses on the sale of assets other than the sale of Inventory in the ordinary course of business), plus, to the extent deducted in determining net income, (i) interest expense, income tax expense, depreciation and amortization for such period, (ii) non-cash expenses incurred in connection with stock-based compensation and with amortization of debt discount, (iii) non-cash expenses approved by Administrative Agent for such period, (iv) non-cash goodwill and intangible asset impairments, and (v) non-cash losses incurred as a result of changes in the fair value of Contingent Liabilities in connection with the Related Transactions and Acquisitions, less to the extent included in determining EBITDA, (i) non-cash gains arising as a result of changes in the fair value of Contingent Liabilities in connection with the Related Transactions and Acquisitions, and (ii) other non-cash gains, and plus other non-cash losses which have been subtracted in calculating net income after taxes for such period, all on a consolidated basis.
EEA Financial Institution means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
EEA Member Country means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
EEA Resolution Authority means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
Electronic Chattel Paper shall have the meaning ascribed to such term in the UCC.
Eligible Account shall mean an Account owing to a Borrower which is acceptable to Administrative Agent in its sole discretion determined in good faith for lending purposes. Without limiting Administrative Agent's discretion, Administrative Agent shall, in general, consider an Account to be an Eligible Account if it meets, and so long as it continues to meet, the following requirements:
(i) |
it is genuine and in all respects what it purports to be; |
(ii) |
it is owned by such Borrower, such Borrower has the right to subject it to a security interest in favor of Administrative Agent or assign it to Administrative Agent and it is subject to a first priority perfected security interest in favor of Administrative Agent and to no other claim, lien, security interest or encumbrance whatsoever, other than Permitted Liens; |
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have been completed in accordance with the Account Debtor's specifications (if any) and delivered to the Account Debtor, (y) such Account Debtor has not refused to accept, returned or offered to return, any of the Goods which are the subject of such Account, and (z) such Borrower has possession of, or such Borrower has delivered to Administrative Agent (at Administrative Agent's request) shipping and delivery receipts evidencing delivery of such Goods; |
(v) |
it is a valid, legally enforceable and unconditional obligation of the Account Debtor thereunder, and it shall not be an Eligible Account to the extent of any setoff, counterclaim, credit, allowance or adjustment by such Account Debtor, or if it is subject to any claim by such Account Debtor denying liability thereunder in whole or in part; |
(vi) |
it does not arise out of a contract or order which fails in any material respect to comply with the requirements of applicable law; |
(vii) |
the Account Debtor thereunder is not a director, officer, employee or agent of a Loan Party, or a Subsidiary, Parent or Affiliate of a Loan Party; |
(viii) |
it is not an Account with respect to which the Account Debtor is the United States of America or any state or local government, or any department, agency or instrumentality thereof, unless such Borrower assigns its right to payment of such Account to Administrative Agent pursuant to, and in full compliance with, the Assignment of Claims Act of 1940, as amended, or any comparable state or local law, as applicable; |
(ix) |
it is not an Account with respect to which the Account Debtor is located in a state which requires such Borrower, as a precondition to commencing or maintaining an action in the courts of that state, either to (A) receive a certificate of authority to do business and be in good standing in such state; or (B) file a notice of business activities report or similar report with such state's taxing authority, unless (x) such Borrower has taken one of the actions described in clauses (A) or (B); (y) the failure to take one of the actions described in either clause (A) or (B) may be cured retroactively by such Borrower at its election; or (z) such Borrower has proven, to Administrative Agent's satisfaction, that it is exempt from any such requirements under any such state's laws; |
(x) |
the Account Debtor is located within the United States of America or Canada; |
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return or consignment basis; provided that Administrative Agent may establish reserves for anticipated Inventory returns with respect to Farmer Dealer sales; |
(xii) |
it is not an Account (A) with respect to which any representation or warranty contained in this Agreement is untrue; or (B) which violates any of the covenants of Borrowers contained in this Agreement; |
(xiii) |
it is not an Account which, when added to a particular Account Debtor's other indebtedness to Borrowers, exceeds twenty-five percent (25%) of all Accounts of Borrowers or a credit limit determined by Administrative Agent in its sole discretion determined in good faith for that Account Debtor (except that Accounts excluded from Eligible Accounts solely by reason of this clause (xiii) shall be Eligible Accounts to the extent of such credit limit), provided that Administrative Agent shall give Borrowers written notice of any such credit limit; |
(xiv) |
it is not an Account arising from the sale of any Inventory that constitutes a “perishable agricultural commodity” under PACA; and |
(xv) |
it is not an Account with respect to which the prospect of payment or performance by the Account Debtor is or will be impaired, as determined by Administrative Agent in its sole discretion determined in good faith. |
Eligible Foreign Account shall mean an Account owing to a Borrower (i) which meets all of the requirements of an Eligible Account other than the requirements set forth in clauses (iv)(Y) and (x) of such definition, (ii) which is due and payable within one hundred fifty (150) days past the date of the invoice and does not remain unpaid thirty (30) days after the date upon which it is due; provided, however, that with respect to Accounts with respect to which the Account Debtor is located in Saudi Arabia or Mexico, such Accounts may be due and payable within one hundred eighty (180) days past the date of the invoice but must be paid within thirty (30) days after the date upon which it is due (such Accounts due and payable after one hundred fifty (150) days past the invoice date thereof but prior to one hundred eighty (180) days past the invoice date, the “Saudi/Mexican 180 Accounts”); and provided, further, not more than $3,000,000 of the Saudi/Mexican 180 Accounts may be included as Eligible Foreign Accounts at any time, and (iii) provided the sale of goods or services giving rise to such Account is backed by (a) a letter of credit or banker's acceptance which names the Administrative Agent as the beneficiary thereof, (b) credit insurance assigned to, and issued upon terms approved by, Administrative Agent, or (c) cash against documents.
Eligible In Transit Inventory shall mean, as of any date of determination, a Borrower’s Inventory that is in-transit to such Borrower (i) which has been shipped from a supplier by a common carrier which is not affiliated with the Loan Parties or such supplier, (ii) which has been shipped from any foreign location for receipt by such Borrower within sixty (60) days of the date of shipment (or such longer period of time as the Administrative Agent shall determine in its sole discretion in the case of any Inventory that has been delayed because of a customs audit or inspection), but which has not yet been received by such Borrower, (ii) for which the purchase order is in the name of such Borrower and title has passed to such Borrower, (iii) which is insured pursuant to an insurance policy reasonably acceptable to Administrative Agent and such policy has been assigned to Administrative Agent, (iv) if requested by Administrative Agent, (w) Administrative Agent shall have received a true and correct copy of the bill of lading and other shipping documents for such Inventory, and (x) if the bill of lading is negotiable, confirmation that the bill is issued in the name of the such Borrower and consigned to the order of the Administrative Agent, and (v) if requested by Administrative Agent, such Borrower shall use good faith efforts to promptly deliver to the Administrative Agent collateral access agreements acceptable to Administrative Agent (y) with such Borrower’s customs broker, in which the customs broker agrees that it holds the bill of lading as agent for the Administrative Agent and has granted the Administrative Agent access to the Inventory, and (z) with other third parties as Administrative Agent may request.
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Eligible Inventory shall mean Inventory of a Borrower which is acceptable to Administrative Agent in its sole discretion determined in good faith for lending purposes. Without limiting Administrative Agent's discretion, Administrative Agent shall, in general, consider Inventory to be Eligible Inventory if it meets, and so long as it continues to meet, the following requirements:
(i) |
it is owned by such Borrower, such Borrower has the right to subject it to a security interest in favor of Administrative Agent and it is subject to a first priority perfected security interest in favor of Administrative Agent and to no other claim, lien, security interest or encumbrance whatsoever, other than Permitted Liens; |
(ii) |
it is either (a) located on one of the premises listed on Schedule 11.2 (or other locations of which Administrative Agent has been advised in writing pursuant to Section 12.2.1 hereof), such locations are within the United States and is not in transit, or (b) it is Eligible In-Transit Inventory, provided, however, the aggregate amount of Eligible In Transit Inventory included in Eligible Inventory at any one time shall not exceed $1,000,000; |
(iii) |
if held for sale or lease or furnishing under contracts of service, it is (except as Administrative Agent may otherwise consent in writing) new and unused and free from defects which would, in Administrative Agent's sole determination determined in good faith, affect its market value; |
(iv) |
at all times after the date that is thirty (30) days after the Closing Date, it is not stored with a bailee, consignee, warehouseman, grower, processor or similar party unless Administrative Agent has given its prior written approval and such Borrower has caused any such bailee, consignee, warehouseman, grower, processor or similar party to issue and deliver to Administrative Agent, in form and substance acceptable to Administrative Agent, such Uniform Commercial Code financing statements, warehouse receipts, waivers and other documents as Administrative Agent shall require; |
(v) |
it is produced in compliance with the Fair Labor Standards Act and is not subject to the "hot goods" provisions contained in Title 29 USC §215(as amended from time to time or any successor statute), and otherwise complies in all material respects with all standards imposed by any applicable governmental entity having authority over the disposition, manufacture or use of that Inventory. |
(vi) |
Administrative Agent has determined in good faith, in accordance with Administrative Agent's customary business practices, that it is not unacceptable due to age, type, category or quantity; |
(vii) |
it is (A) alfalfa or sorghum seed stock that is not planted at the time of determination, or (B) alfalfa or sorghum seed that is harvested from seed stock by a third party grower and is not planted at the time of determination; |
(viii) |
it is alfalfa or sorghum seed stock that is packaged for sale to a third party; |
(ix) |
it is not a “perishable agricultural commodity” under PACA; and |
(x) |
it is not Inventory (A) with respect to which any of the representations and warranties contained in this Agreement are untrue; or (B) which violates any of the covenants of Borrowers contained in this Agreement. |
Eligible Inventory Sublimit shall mean (a) during the first twelve (12) month period following the Closing Date (i) $30,000,000 for the first consecutive six (6) month period, and (ii) $25,000,000 for the second consecutive six (6) month period, and (b) during the second twelve (12) month period following the Closing Date, and for each twelve (12) month period thereafter, (a) (i)
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$25,000,000 for the first consecutive six (6) months during each such period, and (ii) $20,000,000 for the second consecutive six (6) months during each such period.
Environmental Laws shall mean all federal, state, district, local and foreign laws, rules, regulations, ordinances, and consent decrees relating to health, safety, hazardous substances, pollution and environmental matters, as now or at any time hereafter in effect, applicable to any Loan Party's business or facilities owned or operated by a Loan Party, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contamination, chemicals, or hazardous, toxic or dangerous substances, materials or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.
Equipment shall have the meaning ascribed to such term in the UCC.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended, modified or restated from time to time.
EU Bail-In Legislation Schedule means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
Event of Default shall have the meaning set forth in Section 15.
Excess Availability shall mean, as of any date of determination by Administrative Agent, the lesser of (i) the Total Revolving Loan Commitment less the sum of the outstanding Revolving Loans and Letter of Credit Obligations and (ii) the Revolving Loan Availability less the sum of the outstanding Revolving Loans and Letter of Credit Obligations, in each case as of the close of business on such date and assuming, for purposes of calculation, that all accounts payable which remain unpaid more than thirty (30) days after the due dates thereof as the close of business on such date are treated as additional Revolving Loans outstanding on such date.
Excluded Taxes shall mean any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to the applicable law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment made at the request of any Loan Party) or (ii) such Lender changes its lending office (other than change in lending office made at the request of any Loan Party), except in each case to the extent that, pursuant to Section 4.4, amounts with respect to such Taxes were payable either to such Lender's assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) United States federal withholding Taxes that would not have been imposed but for such Recipient’s failure to comply with Section 4.4(d) and (d) any U.S. federal withholding Taxes imposed under FATCA.
Extraordinary Receipts shall mean any cash or cash equivalents received by or paid to or for the account of any Loan Party not in the ordinary course of business including without limitation amounts received in respect of foreign, United States, state or local tax refunds, recontributions by equityholders of a Loan Party of distributions paid to such equityholders for taxes, which are determined to exceed the amount permitted to be distributed or reflecting tax benefits and refunds available to such equityholders based on losses incurred by such Loan Party, purchase price adjustments (excluding working capital adjustments), indemnification payments, and pension plan reversions. For the avoidance of doubt, Extraordinary Receipts shall not include any proceeds from the
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issuance of Equity Interests or any other financing (Indebtedness or otherwise) specifically permitted hereunder or any payments or proceeds from licensing transactions permitted hereunder.
Farmer Dealer Account shall mean any Account owing from a customer that is included in S&W Seed’s “farmer dealer network” which include standard payment terms permitting such customer to return goods at the end of the season (typically, at the end of August of each year).
FATCA shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities entered into in connection with the implementation of the foregoing.
FCPA shall have the meaning ascribed to such term in 11.25.4.
Federal Funds Rate shall mean for any day, a fluctuating interest rate equal for each day during such period to the greater of (a) the rate calculated by the Federal Reserve Bank of New York based on such day’s Federal funds transactions by depositary institutions (as determined in such manner as the Federal Reserve Bank of New York shall set forth on its public website from time to time) and published on the next succeeding Business Day by the Federal Reserve Bank of New York as the Federal Funds effective rate and (b) 0%, or, if such rate is not so published for any day which is a Business Day, the rate determined by Administrative Agent in its discretion. Administrative Agent's determination of such rate shall be binding and conclusive absent manifest error.
Federal Reserve Bank of New York’s Website means the website of the Federal Reserve Bank of New York at http://www.newyorkfed.org, or any successor source.
Fiscal Quarter shall mean a fiscal quarter of a Fiscal Year.
Fiscal Year shall mean each twelve (12) month accounting period of Borrowers, which ends on June 30th of each year.
Fixed Charges shall mean with respect to any Person and its Subsidiaries for any test period, without duplication, scheduled payments of principal during the applicable period with respect to all Debt (other than payments of the Revolving Loans), on a consolidated basis, for borrowed money, plus scheduled payments of principal during the applicable period with respect to all capitalized lease obligations, on a consolidated basis, plus scheduled payments of cash interest during the applicable period with respect to all Debt, on a consolidated basis, for borrowed money including capital lease obligations.
Fixtures shall have the meaning ascribed to such term in the UCC.
FRB shall mean the Board of Governors of the Federal Reserve System or any successor thereto.
Fronting Exposure means, at any time there is a Defaulting Lender, (a) with respect to any L/C Issuer, such Defaulting Lender’s Pro Rata Share of the outstanding Letter of Credit Obligations with respect as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof, and (b) with respect to any Swing Line Lender, such Defaulting Lender’s Pro Rata Share of outstanding Swing Line Loans made by such Swing Line Lender other than Swing Line Loans as to which such Defaulting Lender’s participation has been reallocated to other Lenders.
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Fund shall mean any person (other than a natural Person) that is (or will be) primarily engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business.
GAAP shall mean generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession) and the Securities and Exchange Commission, which are applicable to the circumstances as of the date of determination.
General Intangibles shall have the meaning ascribed to such term in the UCC.
Goods shall have the meaning ascribed to such term in the UCC.
Governmental Authority shall mean the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
Group shall have the meaning set forth in Section 2.2.1.
Hazardous Materials shall mean any hazardous, toxic or dangerous substance, materials and wastes, including, without limitation, hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including, without limitation, materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including, without limitation any that are or become classified as hazardous or toxic under any Environmental Law).
Hedging Agreement shall mean any agreement with respect to any swap, collar, cap, future, forward or derivative transaction, whether exchange‑traded, over‑the‑counter or otherwise, including any involving, or settled by reference to, one or more interest rates, currencies, commodities, equity or debt instruments, any economic, financial or pricing index or basis, or any similar transaction, including any option with respect to any of these transactions and any combinations of these transactions.
Hedging Obligation shall mean, with respect to any Person, any liability of such Person under any Hedging Agreement, including any and all cancellations, buy backs, reversals, terminations or assignments under pay Hedging Agreement.
Indemnified Liabilities shall have the meaning set forth in Section 19.4.
Indemnified Taxes shall mean (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by, or on account of any obligation of, any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
Instruments shall have the meaning ascribed to such term in the UCC.
Interest Period shall mean, as to any LIBOR Loan, the period commencing on the date such Loan is borrowed or continued as, or converted into, a LIBOR Loan and ending on the date one,
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two or three months thereafter as selected by a Borrower pursuant to Section 2.2.2 or 2.2.3, as the case may be; provided that:
(a) |
if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; |
(b) |
any Interest Period that begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period; |
(c) |
No Borrower may select any Interest Period for a Revolving Loan which would extend beyond the scheduled Maturity Date; and |
(d) |
Administrative Agent may, in its discretion, require that the first Interest Period under this Agreement be a period less than one (1) month (determined by Administrative Agent).Inventory shall have the meaning ascribed to such term in the UCC. |
Investment Property shall have the meaning ascribed to such term in the UCC.
L/C Application shall mean with respect to any request for the issuance of a Letter of Credit, a letter of credit application in the form being used by the L/C Issuer at the time of such request for the type of Letter of Credit requested.
L/C Issuer shall mean CIBC USA, in its capacity as the issuer of Letters of Credit hereunder, any Affiliate of CIBC USA that may issue Letters of Credit hereunder, or any other financial institution that Administrative Agent may cause to issue Letters of Credit hereunder, and each of their successors and assigns.
Lender shall have the meaning set forth in the preamble of this Agreement. References to the "Lenders" shall include the L/C Issuer(s); for purposes of clarification only, to the extent that CIBC US (or any successor L/C Issuer) may have any rights or obligations in addition to those of the other Lenders due to its status as L/C Issuer, its status as such will be specifically referenced. In addition to the foregoing, for the purpose of identifying the Persons entitled to share in the Collateral and the proceeds thereof under, and in accordance with the provisions of, this Agreement and the Loan Documents, the term "Lender" shall include Affiliates of a Lender providing a Bank Product
Lender Party shall have the meaning set forth in Section 19.4.
Letter of Credit shall mean any Letter of Credit issued on behalf of Borrower in accordance with this Agreement.
Letter of Credit Obligations shall mean, as of any date of determination, the sum of (i) the aggregate undrawn face amount of all Letters of Credit, and (ii) the aggregate unreimbursed amount of all drawn Letters of Credit not already converted to Loans hereunder. The Letter of Credit Obligations of any Lender at any time shall be its Pro Rata Share of the total Letter of Credit Obligations at such time.
Letter-of-Credit Right shall have the meaning ascribed to such term in the UCC.
LIBO Rate shall mean a rate of interest equal to (a) the per annum rate of interest at which United States dollar deposits for a period equal to the relevant Interest Period are offered in the London Interbank Eurodollar market at 11:00 A.M. (London time) two (2) Business Days prior to the commencement of such Interest Period (or three (3) Business Days prior to the commencement of such Interest Period if banks in London, England were not open and dealing in offshore United States dollars
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on such second preceding Business Day), as displayed in the Bloomberg Financial Markets system (or other authoritative source selected by Administrative Agent in its sole discretion), divided by (b) a number determined by subtracting from 1.00 the then stated maximum reserve percentage for determining reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D), or as the LIBO Rate is otherwise determined by Administrative Agent in its sole and absolute discretion. Administrative Agent's determination of the LIBO Rate shall be conclusive, absent manifest error and shall remain fixed during such Interest Period.
LIBOR Loans shall mean the Loans bearing interest with reference to the LIBO Rate.
LIBOR Office shall mean with respect to any Lender the office or offices of such Lender which shall be making or maintaining the LIBOR Loans of such Lender hereunder. A LIBOR Office of a Lender may be, at the option of such Lender, either a domestic or foreign office.
Loan Documents shall mean all agreements, instruments and documents, including, without limitation, guaranties, mortgages, trust deeds, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, leases, financing statements, Hedging Agreements, Bank Product Agreements, the Membership Interest Pledge Agreement and all other writings heretofore, now or from time to time hereafter executed by or on behalf of a Loan Party or any other Person and delivered to Administrative Agent or any Lender or to any parent, Affiliate or Subsidiary of Administrative Agent or any Lender in connection with the Obligations or the transactions contemplated hereby, as each of the same may be amended, modified or supplemented from time to time.
Loan Party shall mean any Borrower and each other person who is or shall become primarily or secondarily liable for any of the Obligations; provided, however, for the avoidance of doubt no CFC shall be a guarantor of, or pledge any assets to support, an "Obligation of United States person" as defined for purpose of Section 956(c) of the Code.
Loan Party Fixed Charge Coverage Ratio shall mean, for any period, the ratio of (a) Adjusted EBITDA, minus (i) unfinanced Capital Expenditures (net of the New Equity Addback for such period in an amount not to exceed such unfinanced Capital Expenditures, but without duplication of the New Equity Addback utilized to decrease research and development expenses in the definition of Adjusted EBITDA) during the applicable period, (ii) all dividends, other distributions and payments in respect of stock or other equity interests during the applicable period, (iii) payments during the applicable period in respect of income and franchise taxes, and (iv) loans to Subsidiaries for such period net of cash repayments of such loans received by the Loan Parties from such Subsidiaries during such period, provided the total amount under this clause (iv) shall not be less than Zero Dollars ($0), to (b) Fixed Charges, in each case calculated for Borrowers and their Loan Party Subsidiaries on a consolidated basis (but excluding, for purposes of clarification, Non-Loan Party Subsidiaries from the calculation thereof). For purposes of calculating Adjusted EBITDA to determine Loan Party Fixed Charge Coverage Ratio, [***].
Loans shall mean all loans and advances made by Administrative Agent and/or Lenders to or on behalf of one or more Borrowers hereunder.
Lockbox and Lockbox Account shall have the meanings set forth Section 8.1.
Master Letter of Credit Agreement shall mean, at any time, with respect to the issuance of Letters of Credit, a master letter of credit agreement or reimbursement agreement in the form being used by the L/C Issuer at such time.
Material Adverse Effect shall mean (i) a material adverse change in, or a material adverse effect on the business, property, assets, or operations of the Loan Parties, taken as a whole, (ii) a material impairment of the ability of the Loan Parties, taken as a whole, to perform any of their
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obligations under this Agreement and the other Loan Documents, (iii) a material adverse effect upon the Collateral or its value, or (iv) a material impairment of the enforceability or priority of Administrative Agent's liens upon the Collateral or the legality, validity, binding effect or enforceability of this Agreement and the other Loan Documents, in each case as determined by Administrative Agent in its sole discretion, determined in good faith.
Maturity Date shall mean December 23, 2022.
Maximum Loan Amount shall mean Thirty-Five Million and No/100 Dollars ($35,000,000.00)
Membership Interest Pledge Agreement shall mean that certain Membership Interest Pledge Agreement of even date herewith executed and delivered by S&W Seed to Administrative Agent, as amended or restated from time to time.
“MFP” means MFP Partners, L.P., a Delaware limited partnership.
New Equity Addback shall mean an amount equal to cash equity received from equity holders of S&W Seed that are not Loan Parties or Subsidiaries of Loan Parties within thirty (30) days after the end of any Fiscal Quarter to the extent Loan Parties deliver to Administrative Agent written notice within such thirty (30) day period that such cash equity is to be used, without duplication, to (a) decrease the research and development expense incurred in such Fiscal Quarter, and/or (b) reduce the unfinanced Capital Expenditures incurred in such Fiscal Quarter and utilized in the calculation of the Consolidated Fixed Charge Coverage Ratio and the Loan Party Fixed Charge Coverage Ratio.
Non-Consenting Lender shall have the meaning set forth in Section 20.1.
Non-Defaulting Lender means, at any time, each Lender that is not a Defaulting Lender at such time.
Non-Loan Party Subsidiaries shall mean any direct or indirect Subsidiary of a Borrower that is not a Borrower under this Agreement or a Loan Party guarantor under Section 21 of this Agreement. As of the date of this Agreement, Non-Loan Party Subsidiaries are SeedVision, Sorghum Solutions, S&W Holdings Australia, S&W Seed Australia, and S&W Seed Hungary, and upon the closing of the Related Transactions, [***] and [***].
Non-U.S. Participant shall have the meaning set forth in Section 4.4(d).
Note shall have the meaning set forth in Section 2.4.
Notice of Borrowing shall have the meaning set forth in Section 2.2.2.
Notice of Conversion/Continuation shall have the meaning set forth in Section 2.2.3(b).
Obligations shall mean any and all obligations, liabilities and indebtedness of each Loan Party to Administrative Agent and each Lender of any and every kind and nature, arising under the Loan Documents howsoever created, arising or evidenced and howsoever owned, held or acquired, whether now or hereafter existing, whether now due or to become due, including interest and fees that accrue after the commencement by or against any Borrower or any Affiliate thereof of any proceeding under any debtor relief laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding, whether primary, secondary, direct, indirect, absolute, contingent or otherwise (including, without limitation, obligations of performance and Bank Product Obligations), whether several, joint or joint and several. Without limiting the foregoing, the Obligations include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses fees, indemnities and other amounts payable by Borrowers under any Loan Document and (b) the obligation of Borrowers to reimburse any amount in
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respect of any of the foregoing that the Administrative Agent or any Lender, in each case in its sole discretion, may elect to pay or advance on behalf of Borrowers.
OFAC shall have the meaning set forth in Section 11.25.2.
Other Connection Taxes means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
Other Taxes means all present or future stamp, court, transfer, value added, excise or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 4.2.7).
Overadvance shall have the meaning set forth in Section 2.1.1(b).
PACA shall mean the federal Perishable Agricultural Commodities Act.
Parent shall mean any Person now or at any time or times hereafter owning or controlling (alone or with any other Person) at least a majority of the issued and outstanding equity of a Borrower and, if a Borrower is a partnership, the general partner of such Borrower.
Participant shall have the meaning set forth in Section 19.1.2.
Participant Register shall have the meaning set forth in Section 19.1.2.
Parties shall have the meaning set forth in Section 23.
PBGC shall have the meaning set forth in Section 12.2.5.
Permitted Acquisition means any Acquisition consummated after the Closing Date by a Borrower or any domestic wholly-owned Subsidiary of all or substantially all of the assets of a Person or of 100% of the equity interests of a Person so long as each of the conditions precedent set forth below shall have been satisfied:
(a)Administrative Agent and Lenders receive not less than fifteen (15) Business Days' prior written notice of such Acquisition, which notice shall include a reasonably detailed description of the proposed terms of such acquisition and identify the anticipated closing date thereof;
(b)such Acquisition is structured as (a) an asset acquisition by a Borrower or a domestic wholly-owned Subsidiary, (b) a merger of the target company with and into a Borrower or a domestic wholly-owned Subsidiary, with a Borrower or such domestic wholly-owned Subsidiary as the surviving corporation in such merger, or (c) a purchase of no less than 100% of the equity interests of the target by a Borrower or a domestic wholly-owned Subsidiary;
(c)Administrative Agent and Lenders receive, not less than ten (10) Business Days' prior to the consummation of such acquisition, a due diligence package, reasonably satisfactory to them, which package shall include, without limitation, the following with regard to the acquisition of the applicable target:
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(i)pro forma financial projections (after giving effect to such acquisition) for the Loan Parties for the current and next two (2) Fiscal Years or through the remaining term of this Agreement;
(ii)appraisals (if existing);
(iii)historical financial statements of the applicable target for the three (3) fiscal years prior to such acquisition (or, if such target has not been in existence for three (3) years, for each year such target has existed);
(iv)a general description of material agreements binding upon the applicable target or any of its personal or real property and, if requested by Administrative Agent, copies of such material agreements;
(v)pending material litigation involving the applicable target;
(vi)a description of the method of financing the acquisition, including sources and uses;
(vii)locations of all material personal and real property of the applicable target, including the location of its chief executive office;
(viii)a description of the applicable target's management;
(ix)any other testing or material due diligence investigation with respect to such acquisition reasonably required by Administrative Agent; and
(x)environmental reports and related information regarding any property owned, leased or otherwise used by the applicable target, which shall be in form and substance satisfactory to Administrative Agent (if existing);
(d)such Acquisition only involves assets located in the United States and comprising a business, or those assets of a business, of the type engaged in by a Borrower as of the Closing Date, and which business would not subject Administrative Agent or any Lender to regulatory or third party approvals in connection with the exercise of its rights and remedies under this Agreement or any other Loan Document other than approvals applicable to the exercise of such rights and remedies with respect to a Borrower prior to such acquisition;
(e)unless waived by the Administrative Agent, Administrative Agent and Lenders receive a financial due diligence report from a nationally recognized accounting firm reasonably acceptable to Administrative Agent with respect to any Acquisition where the aggregate consideration paid in connection with the acquisition exceeds $1,000,000 (for purposes hereof, consideration shall include all amounts paid or payable in connection with an Acquisition including all transaction costs and all debt, liabilities and contingent obligations incurred or assumed in connection therewith);
(f)the applicable target has had positive EBITDA on a cumulative basis for the immediately preceding four (4) fiscal quarters;
(g)No Default or Event of Default exists after giving effect to the Acquisition;
(h)Administrative Agent, for the benefit of Administrative Agent and Lenders, (a) is granted a first priority perfected lien (subject only to Permitted Liens) on all real and personal property being acquired pursuant to such acquisition (and, in the case of an acquisition involving the purchase of any applicable target's equity interests, all of such purchased equity interests are pledged to Administrative Agent for the benefit of
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Administrative Agent and Lenders, and such target guarantees the Obligations and grants to Administrative Agent, for the benefit of Administrative Agent and Lenders, a first priority perfected lien (subject only to Permitted Liens) on such Person's assets) and (b) is provided such other documents, instruments and legal opinions as Administrative Agent shall request in connection therewith, all such documents, instruments and opinions to be delivered no later than five (5) days after the closing of such acquisition, each in form and substance satisfactory to Administrative Agent;
(i)after giving effect to such acquisition and the incurrence of any Loans, other debt or contingent obligations in connection therewith, (a) the Loan Parties shall be in compliance on a pro forma basis with the covenants set forth in Section 14 recomputed for the most recently ended month of Borrowers for which information is available regarding the business being acquired, and (b) Borrowers can demonstrate to Administrative Agent projected pro forma compliance with the covenants set forth in Section 14, for the twelve (12) month period immediately following the consummation of the proposed acquisition based on the combined operating results of the applicable target and of the Loan Parties for the twelve (12) month period ending on the last day of the month for which financial statements for the applicable target and for the Loan Parties are available;
(j)the aggregate consideration paid in connection with the acquisition shall not exceed $2,000,000 and the aggregate consideration paid in connection with all acquisitions shall not exceed $5,000,000(for purposes hereof, consideration shall include all amounts paid or payable in connection with an acquisition (including all transaction costs and all debt, liabilities and contingent obligations incurred or assumed in connection therewith));
(k)all material consents necessary for such acquisition (including such consents as the Administrative Agent deems reasonably necessary) have been acquired and such acquisition is consummated in accordance with the applicable acquisition documents and applicable law;
(l)as soon as practicable after the closing of such acquisition, and in any event within twenty (20) Business Days after such closing, Borrowers shall deliver copies of all documents executed in connection with such acquisition to Administrative Agent and Lenders;
(m)promptly after obtaining knowledge thereof, Borrowers shall provide notice of any material change to any of the documents or information previously provided pursuant to clauses (a) through (l) above;
(n)Immediately after giving effect to the consummation of the Acquisition, Excess Availability shall be equal to or greater than $5,000,000.
“Permitted Discretion” means a determination made in the exercise of Lender’s reasonable (from the perspective of an asset-based secured lender) business judgment.
Permitted Liens shall mean (i) statutory liens of landlords, carriers, warehousemen, processors, mechanics, materialmen or suppliers incurred in the ordinary course of business and securing amounts not yet due or declared to be due by the claimant thereunder or amounts which are being contested in good faith and by appropriate proceedings and for which such Loan Party or Subsidiary has maintained adequate reserves; (ii) liens or security interests in favor of Administrative Agent; (iii) liens for taxes, assessments and governmental charges not yet due and payable or which are being contested in good faith and by appropriate proceedings and such Loan Party or Subsidiary is in compliance with clauses (i) and (iii) of Section 12.8; (iv) zoning restrictions and easements, licenses, covenants and other restrictions affecting the use of real property that do not individually or in the aggregate have a Material Adverse Effect on such Loan Party's or Subsidiary’s ability to use such real property for its intended purpose in connection with such Loan Party's or Subsidiary’s business; (v) liens in connection with purchase money Debt and capitalized leases otherwise permitted pursuant to this Agreement, provided, that such liens attach only to the assets the purchase of which was financed by
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such purchase money Debt or which are the subject of such capitalized leases; (vi) liens set forth on Schedule 1; (vii) liens specifically permitted by Required Lenders in writing; (viii) judgment liens not constituting an Event of Default under Section 15.9; (ix) liens in the form of deposits or pledges incurred in connection with worker's compensation, unemployment compensation and other types of social security (excluding liens arising under ERISA) securing amounts which are not overdue; (x) liens in connection with surety bonds, bids, performance bonds and similar obligations securing amounts not in excess of $250,000.00 and which are not overdue; (xi) involuntary liens securing amounts less than $250,000.00 and which are released or for which a bond acceptable to Administrative Agent in its sole discretion, determined in good faith, has been posted within ten (10) days of its creation, (xii) liens on the Rooster Collateral securing the Rooster Debt, which liens shall be subject to the Rooster Intercreditor Agreement, (xiii) upon consummation of the Related Transactions, liens in favor of [***] encumbering the assets of [***] and [***] and securing the “[***]”, as such term is defined in Annex 2, (xiv) Liens existing on fixed assets of the target of an Permitted Acquisition at the time of such Acquisition, in each case after the date hereof and the replacement, modification, extension or renewal of any Lien permitted by this clause upon or in the same property previously subject thereto in connection with the replacement, modification, extension or renewal of the Debt secured thereby; provided that (A) such Lien was not created in contemplation of such Acquisition, (B) such Lien does not extend to or cover any other assets or property (other than (1) the proceeds or products thereof, (2) after-acquired property that is affixed or incorporated into the property covered by such Lien, and (3) any other Permitted Lien), and (C) any Debt secured thereby is permitted under Section 13.2, and (xv) other liens, in addition to the liens listed above, not incurred in connection with the incurring of Debt, securing amounts, in the aggregate, not to exceed $100,000.00 at any time.
Permitted Tax Distributions shall mean, with respect to each calendar year, the aggregate federal and state income taxes which are payable by the holders of membership or other ownership interests of the Parent for such calendar year, based upon the highest applicable marginal federal and state income tax rates attributable to such holders, on the taxable income derived from the Parent, which must be taken into account by such holders under applicable provisions of the Code (as reflected on the Schedule K-1's provided by the Parent to such holders, copies of which will be supplied to the Administrative Agent upon request), taking into account for this purpose any tax credits or tax credit carryovers derived as the result of having an ownership interest in the Parent that is available to offset such federal and state income taxes. For purposes of calculating the Permitted Tax Distributions for any calendar year, (i) it is assumed that state income taxes will be fully deductible for federal income tax purposes and (ii) net losses from prior years derived from the Parent, whether or not used by the holder on the holder’s federal or state tax income tax return for such prior year, shall be treated as reducing taxable income for the current year on which such Permitted Tax Distributions are computed (to the extent such net losses did not previously reduce taxable income on which Permitted Tax Distributions were computed).
Person shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, entity, party or foreign or United States government (whether federal, state, county, city, municipal or otherwise), including, without limitation, any instrumentality, division, agency, body or department thereof.
Plan shall have the meaning set forth in Section 12.2.5.
Platform shall mean Intralinks, Syndtrack or a substantially similar electronic transmission system.
Pre-Settlement Determination Date shall have the meaning set forth in Section 2.8.
Prime Rate shall mean, for any day, the rate of interest in effect for such day as publicly announced from time to time by Administrative Agent as its prime rate (whether or not such rate is actually charged by Administrative Agent), which is not intended to be Administrative Agent's lowest or most favorable rate of interest at any one time. Administrative Agent may make commercial
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loans or other loans at rates of interest at, above or below the Prime Rate. Any change in the Prime Rate announced by Administrative Agent shall take effect at the opening of business on the day specified in the public announcement of such change; provided that Administrative Agent shall not be obligated to give notice of any change in the Prime Rate.
Pro Rata Share shall mean:
(a) |
with respect to a Lender's obligation to make Revolving Loans, participate in Letters of Credit, reimburse the L/C Issuer(s), and receive payments of principal, interest, fees, costs, and expenses with respect thereto, (x) prior to the Total Revolving Loan Commitment being terminated or reduced to zero, the percentage obtained by dividing (i) such Lender's Revolving Loan Commitment, by (ii) the Total Revolving Loan Commitment and (y) from and after the time the Total Revolving Loan Commitment has been terminated or reduced to zero, the percentage obtained by dividing (i) the aggregate unpaid principal amount of such Lender's Revolving Loans (after settlement and repayment of all Swing Line Loans and Agent Advances by the Lenders) by (ii) the aggregate unpaid principal amount of all Revolving Loans; |
(b) |
with respect to all other matters as to a particular Lender, the percentage obtained by dividing (i) such Lender's Revolving Loan Commitment, by (ii) the Total Revolving Loan Commitment; provided that in the event the Commitments have been terminated or reduced to zero, Pro Rata Share shall be the percentage obtained by dividing (A) the principal amount of such Lender's Revolving Loans (after settlement and repayment of all Swing Line Loans and Agent Advances by the Lenders) by (B) the principal amount of all outstanding Revolving Loans Outstandings. |
Proceeds shall have the meaning ascribed to such term in the UCC.
Public Lender shall have the meaning set forth in Section 19.5(d).
[***] shall mean [***].
Register shall have the meaning set forth in Section 19.2.
Regulation D shall mean Regulation D of the FRB, as in effect from time to time and all official rulings and interpretations thereunder or thereof.
Regulation U shall mean Regulation U of the FRB, as in effect from time to time and all official rulings and interpretations thereunder or thereof.
Related Transactions has the meaning set forth in Annex 2.
Related Transactions Documents has the meaning set forth in Annex 2.
Related Transactions Subordination Agreement means a subordination agreement executed and delivered on or before the closing of the Related Transactions by and among Administrative Agent, as senior lender thereunder, and the [***], as subordinate lenders thereunder, in form and substance satisfactory to Administrative Agent.
Relevant Governmental Body means the Federal Reserve Board and/or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board and/or the Federal Reserve Bank of New York or any successor thereto.
Remote Scanning shall have the meaning set forth in Section 8.1.
Replacement Lender shall have the meaning set forth in Section 4.2.7(b).
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Reportable Event means a reportable event as defined in Section 4043 of ERISA and the regulations issued thereunder as to which the PBGC has not waived the notification requirement of Section 4043(a), or the failure of a Plan to meet the minimum funding standards of Section 412 of the Code (without regard to whether the Plan is a plan described in Section 4021(a)(2) of ERISA) or under Section 302 of ERISA.
Required Lenders shall mean, at any time, Lenders whose Pro Rata Shares exceed 66 2/3% as determined pursuant to clause (d) of the definition of Pro Rata Shares provided, that the Pro Rata Shares held or deemed held by any Defaulting Lender shall be excluded for purposes of making a determination of Required Lender; provided, that at any time that there are two (2) or more Lenders, "Required Lenders" must include at least two (2) Lenders (that are not Affiliates of one another).
Reserve Adjustment EBITDA shall mean, with respect to any Person and its Subsidiaries for any test period, EBITDA, plus, to the extent deducted in determining EBITDA, one-time expenses incurred in connection with Permitted Acquisitions in an amount not to exceed $500,000.00 for any Fiscal Year, provided such expenses are incurred not later than 90 days after the closing of the applicable Permitted Acquisition, all on a consolidated basis.
Restricted Payment shall mean (a) the declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets (other than in the form of common stock) in respect of a Person's equity interests, (b) any payment on account of the purchase, redemption, defeasance, sinking fund or other retirement of a Person's equity interests or any other payment or distribution made in respect thereof, either directly or indirectly, (c) any payment or prepayment of principal of, premium, if any, or interest, fees or other amounts on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to, any Subordinated Debt; (d) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire equity interests of such Person now or hereafter outstanding; and (e) any payment, loan, contribution, or other transfer of funds or other property to any equity holder of such Person.
Revolving Loan Availability shall mean with respect to Borrowers an amount up to the sum of the following sublimits: (i) up to eighty-five percent (85.0%) of the face amount (less maximum discounts, credits and allowances which may be taken by or granted to Account Debtors in connection therewith in the ordinary course of Borrowers’ business) of Borrowers’ Eligible Accounts; provided that such advance rate shall be reduced by one (1) percentage point for each whole or partial percentage point by which Dilution (as determined by Administrative Agent in good faith based on the results of the most recent twelve (12) month period for which Administrative Agent has conducted a field audit of Borrowers) exceeds five percent (5%); plus (ii) up to ninety percent (90.0%) of the face amount (less maximum discounts, credits and allowances which may be taken by or granted to Account Debtors in connection therewith in the ordinary course of Borrowers’ business) of Borrowers’ Eligible Foreign Accounts; provided that Eligible Foreign Accounts backed by cash against documents shall not exceed $3,000,000; plus (iii) up to the lesser of (a) sixty-five percent (65.0%) (or such other percent determined by Lender in its Permitted discretion from time to time) of the lower of cost or market value of Borrowers’ Eligible Inventory, (b) eighty-five percent (85.0%) of the appraised net orderly liquidation value (as determined by an appraiser acceptable to Administrative Agent) of Borrowers’ Eligible Inventory and (c) the Eligible Inventory Sublimit; minus (iv) the Revolving Loan Reserve, (v) minus such other reserves as Administrative Agent elects, in its sole discretion, determined in good faith, to establish from time to time, including, without limitation, reserves with respect to Bank Products Obligations, Hedging Obligations and growers liens.
Revolving Loan Commitment shall mean, with respect to any Lender the amount of such Lender's Commitment to make Revolving Loans and participate in Letters of Credit as set forth on Annex 1 hereto or in any Assignment Agreement.
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Revolving Loan Outstandings shall mean, at any time, the sum of (a) the aggregate principal amount of all outstanding Revolving Loans, plus (b) the aggregate principal amount of all outstanding Swing Line Loans, plus (c) the outstanding Letter of Credit Obligations.
Revolving Loan Reserve shall mean $5,000,000; provided, however, (a) upon Administrative Agent’s receipt of the audited financial statements for the Fiscal Year ending June 30, 2021 in accordance with Section 9.3, and (b) so long as (i) no Event of Default then exists, (ii) the Consolidated Fixed Charge Coverage Ratio and Loan Party Fixed Charge Coverage Ratio, each calculated using Reserve Adjustment EBITDA, rather than Adjusted EBITDA, on a trailing twelve (12) month basis for such Fiscal Year is not less than 1.15 to 1.00, as reflected on such audited financial statements, and (iii) Borrowers have delivered to Administrative Agent a certification that all of the foregoing conditions precedent have been satisfied, including calculations of Consolidated Fixed Charge Coverage Ratio and Loan Party Fixed Charge Coverage Ratio calculated as set forth above, then this Revolving Loan Reserve shall be reduced to $0.00.
Revolving Loans shall have the meaning set forth in Section 2.1.1.
Rooster means Rooster Capital LLC, a Delaware limited liability company.
Rooster Collateral means the real property and related fixtures subject to a mortgage lien and security interest in favor of Rooster, as more fully described in the Rooster Loan Documents.
Rooster Debt means the “Rooster Lender Debt” as that term is defined in the Rooster Intercreditor Agreement.
Rooster Intercreditor Agreement means that certain Intercreditor and Subordination Agreement, of even date herewith by and between Administrative Agent and Rooster, and acknowledged by S&W Seed, as the same may from time to time be amended, restated or otherwise modified.
Rooster Loan Documents means, as applicable, the Rooster Real Estate Note and each other promissory note executed by S&W Seed evidencing the Rooster Debt, and each other agreement executed in connection therewith, as any of the foregoing may from time to time be amended, restated or otherwise modified.
Rooster Real Estate Note means that certain Note, dated November 30, 2017, executed by S&W Seed in favor of Rooster, in the original principal amount of $10,400,000.00.
Sanctions shall have the meaning set forth in Section 11.25.2.
Seed Australia Guarantee means that certain unsecured Corporate Guarantee dated as of April 21, 2015, executed and delivered by S&W Seed to National Australia Bank, which provides an unsecured guaranty by S&W Seed of certain loan obligations of S&W Seed Australia owing to National Australia Bank.
Seed Australia Loan Documents shall mean all agreements, instruments and documents, including, without limitation, loan agreements, notes, guaranties, mortgages, trust deeds, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, leases, financing statements and all other writings, heretofore, now or from time to time hereafter executed by or on behalf of S&W Seed Australia and delivered to National Australia Bank Limited (“National Australia Bank”), as each of the same may be amended, modified or supplemented from time to time, including, without limitation, (1) the credit agreements, or similarly named documents, dated as of February 27, 2013, by and among Seed Australia, National Australia Bank, and the other parties party thereto, (2) the Seed Australia Guarantee, and (3) all other mortgages, deeds of trust, assignment of rents, security agreements and other agreements executed an delivered in connection with any of the foregoing.
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SeedVision means SeedVision Pty Ltd., a corporation duly formed under the laws of South Africa.
Settlement Date shall have the meaning set forth in Section 2.8.
SOFR with respect to any day means the secured overnight financing rate published for such day by the Federal Reserve Bank of New York, as the administrator of the benchmark, (or a successor administrator) on the Federal Reserve Bank of New York’s Website
Sorghum Solutions means Sorghum Solutions Africa Proprietary Limited, a corporation duly formed under the laws of South Africa.
Subordinated Debt shall mean any unsecured Debt of any Borrower and its Subsidiaries which has covenants, pricing and other terms which have been approved in writing by the Administrative Agent and is subordinated to the Obligations pursuant to a subordination agreement in form and substance satisfactory to Administrative Agent.
Subsidiary shall mean with respect to any Person, a corporation of which such Person owns, directly or indirectly, more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time stock of any other class of such corporation shall have or might have voting power by reason of the happening of any contingency) and any partnership, joint venture or limited liability company of which more than fifty percent (50%) of the outstanding equity interests are at the time, directly or indirectly, owned by such Person or any partnership of which such Person is a general partner. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of Borrowers.
Supporting Obligations shall have the meaning set forth in the UCC.
Swing Line Availability means the lesser of (a) the Swing Line Commitment Amount and (b) the amount by which the lesser of (x) Revolving Loan Availability and (y) the Total Revolving Loan Commitment exceeds the sum of the outstanding Revolving Loans and Letter of Credit Obligations.
Swing Line Commitment Amount means $7,000,000.00, which commitment constitutes a subfacility of the Revolving Loan Commitment of the Swing Line Lender.
Swing Line Lender means CIBC US, in its capacity as lender of Swing Line Loans hereunder, or such other Lender as Borrowers may from time to time select as the Swing Line Lender hereunder pursuant to Section 2.1.3.
Swing Line Loan is defined in Section 2.1.3.
S&W Holdings Australia means S&W Holdings Australia Pty Ltd, a corporation duly formed under the laws of Australia.
S&W Seed Australia means S&W Seed Company Australia Pty Ltd, a corporation duly formed under the laws of Australia, formerly known as Seed Genetics International Pty Ltd.
S&W Seed Hungary means S&W Seed Hungary KFT, a corporation duly formed under the laws of Hungary.
Tangible Chattel Paper shall have the meaning ascribed to such term in the UCC.
Taxes shall mean any and all present and future taxes, duties, levies, imposts, deductions, assessments, charges or withholdings (including backup withholdings) and any and all
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liabilities (including interest and penalties and other additions to taxes) with respect to the foregoing, but excluding the Excluded Taxes.
Termination Event means, with respect to a Plan that is subject to Title IV of ERISA, (a) a Reportable Event, (b) the withdrawal of a Loan Party or any other member of the Controlled Group from such Plan during a plan year in which a Loan Party or any other member of the Controlled Group was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f) of ERISA, (c) the termination of such Plan, the filing of a notice of intent to terminate the Plan or the treatment of an amendment of such Plan as a termination under Section 4041 of ERISA, (d) the institution by the PBGC of proceedings to terminate such Plan or (e) any event or condition that might constitute grounds under Section 4042 of ERISA for the termination of, or appointment of a trustee to administer, such Plan.
Term SOFR means the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body.
Total Plan Liability means, at any time, the present value of all vested and unvested accrued benefits under all Plans, determined as of the then most recent valuation date for each Plan, using PBGC actuarial assumptions for single employer plan terminations.
Total Revolving Loan Commitment shall mean an amount equal to Thirty-Five Million and No/100 Dollars ($35,000,000.00) except as such amount may be increased or, following the occurrence of an Event of Default, decreased by Required Lenders in their sole discretion.
UCC shall mean the Uniform Commercial Code as in effect in the State of Illinois.
Unadjusted Benchmark Replacement means the Benchmark Replacement excluding the Benchmark Replacement Adjustment.
Unfunded Liability shall mean the amount (if any) by which the present value of all vested and unvested accrued benefits under all Plans exceeds the fair market value of all assets allocable to those benefits, all determined as of the then most recent valuation date for each Plan, using PBGC actuarial assumptions for single employer plan terminations.
U.S. Tax Compliance Certificate shall have the meaning set forth in Section 4.4(d).
USA Patriot Act shall have the meaning set forth in Section 19.3.
Write-Down and Conversion Powers means, with respect to any EEA Resolution Authority, the Write-Down and Conversion Powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which Write-Down and Conversion Powers are described in the EU Bail-In Legislation Schedule.
2.1.1.Revolving Loans.
(a)Advances. Subject to the terms and conditions of this Agreement and the other Loan Documents, prior to the Maturity Date, each Lender with a Revolving Loan Commitment shall make its Pro Rata Share of revolving loans and advances (the "Revolving Loans") to Borrowers up to its Revolving Loan Commitment; upon request of the Borrowers; provided that the aggregate unpaid principal balance of the Revolving Loan Outstandings outstanding at such time shall not at any time exceed the lesser of (i) Borrowers’ Revolving Loan Availability and (ii) the Total Revolving Loan Commitment.
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(b)Repayments of Overadvances; Overadvances. If at any time the Revolving Loan Outstandings exceeds either the Revolving Loan Availability or the Total Revolving Loan Commitment, or any portion of the Revolving Loan Outstandings exceed any applicable sublimit within the Revolving Loan Availability, Borrowers shall immediately, and without the necessity of demand by Administrative Agent, pay to Administrative Agent such amount as may be necessary to eliminate such excess and Administrative Agent shall apply such payment to the Revolving Loans to eliminate such excess; provided that Administrative Agent may, in its sole discretion, permit such excess (the "Overadvance") to remain outstanding and continue to cause Revolving Loans to be advanced to Borrowers (including by the Swing Line Lender) without the consent of any Lender for a period of up to forty-five (45) calendar days, so long as (i) the amount of the Overadvances does not exceed at any time fifteen percent (15%) of the Total Revolving Loan Commitment, (ii) the Revolving Loan Outstandings do not exceed the Total Revolving Loan Commitment, and (iii) Administrative Agent has not been notified by Required Lenders to cease making such Revolving Loans. If the Overadvance is not repaid in full within forty-five (45) days of the initial occurrence of the Overadvance, no future advances may be made to Borrowers without the consent of Required Lenders until the Overadvance is repaid in full.
(c)Agent Advances. Subject to the limitations set forth in this subsection, Administrative Agent is hereby authorized by Borrowers and Lenders, from time to time in Administrative Agent's sole discretion (and subject to the terms of this paragraph, the making of each Agent Advance shall be deemed to be a request by Borrowers and the Lenders to make such Agent Advance), (i) after the occurrence of an Event of Default or an event which, with the passage of time or giving of notice, will become an Event of Default, or (ii) at any time that any of the other applicable conditions precedent set forth in Section 17.2 hereof have not been satisfied (including without limitation the conditions precedent that the aggregate principal amount of all Revolving Loan Outstandings do not exceed the Revolving Loan Availability), to make Revolving Loans to Borrowers on behalf of Lenders which Administrative Agent, in its sole discretion, determined in good faith deems necessary or desirable (A) to preserve or protect the business conducted by any Loan Party, the Collateral, or any portion thereof, (B) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations, or (C) to pay any amount chargeable to any Borrower pursuant to the terms of this Agreement or the other Loan Documents (any of the advances described in this subsection being hereafter referred to as “Agent Advances”); provided, that (x) the outstanding amount of Agent Advances does not exceed at any time twenty percent (20%) of the Total Revolving Loan Commitment, (y) the Revolving Loan Outstandings do not exceed the Total Revolving Loan Commitment, and (z) Administrative Agent has not been notified by Required Lenders to cease making such Agent Advances. For all purposes in this Agreement, Agent Advances shall be treated as Revolving Loans and shall constitute a Base Rate Loan. Agent Advances shall be repaid on demand by Administrative Agent.
(a)The Administrative Agent shall notify the Swing Line Lender upon the Administrative Agent's receipt of any Notice of Borrowing. Subject to the terms and conditions hereof, the Swing Line Lender may, in its sole discretion, make available from time to time until the Maturity Date, advances (each, a "Swing Line Loan") in accordance with any such notice, notwithstanding that after making a requested Swing Line Loan, the sum of the Swing Line Lender's Pro Rata Share of the Revolving Loan Outstandings, may exceed the Swing Line Lender's Pro Rata Share of the Revolving Loan Commitment. The provisions of this Section 2.1.3 shall not relieve Lenders of their obligations to make Revolving Loans under Section 2.1.1; provided that if the Swing Line Lender makes a Swing Line Loan pursuant to any such notice, such Swing Line Loan shall be in lieu of any Revolving Loan that otherwise may be made by the Lenders pursuant to such notice. The aggregate amount of Swing Line Loans outstanding shall not exceed at any time Swing Line Availability. Until the Maturity Date, Borrowers may from time to time borrow, repay and reborrow under this Section 2.1.3. Each Swing Line Loan shall be made pursuant to a Notice of Borrowing delivered by Borrowers to the Administrative Agent in accordance with Section 2.2.2. Any such notice must be given no later than 11:00 A.M., Chicago time, on the Business Day of the proposed Swing Line Loan. Unless the Swing Line Lender has received at
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least one Business Day's prior written notice from the Required Lenders instructing it not to make a Swing Line Loan, the Swing Line Lender shall, notwithstanding the failure of any condition precedent set forth in Section 17.2, be entitled to fund that Swing Line Loan, and to have Lenders settle in accordance with Section 2.8(a) or purchase participating interests in accordance with Section 2.8(b). Notwithstanding any other provision of this Agreement or the other Loan Documents, each Swing Line Loan shall constitute a Base Rate Loan. Borrowers shall repay the aggregate outstanding principal amount of each Swing Line Loan upon demand therefor by the Administrative Agent.
(b)The entire unpaid balance of each Swing Line Loan and all other noncontingent Obligations shall be immediately due and payable in full in immediately available funds on the Maturity Date if not sooner paid in full.
2.2.1.Various Types of Loans. Each Revolving Loan shall be divided into tranches which are, either Base Rate Loans or LIBOR Loans (each a "type" of Loan), as Borrowers shall specify in the related notice of borrowing or conversion pursuant to Section 2.2.2 or 2.2.3. LIBOR Loans having the same Interest Period which expire on the same day are sometimes called a "Group" or collectively "Groups." Base Rate Loans and LIBOR Loans may be outstanding at the same time, provided that not more than three different Groups of LIBOR Loans shall be outstanding at any one time. At any time that an Event of Default has occurred and is continuing, Borrowers shall no longer have the option to request that Loans be advanced as, continued as, or converted to, LIBOR Loans.
(a)Borrowers shall give written notice (each such written notice, a "Notice of Borrowing") substantially in the form of Exhibit B or telephonic notice (followed immediately by a Notice of Borrowing) to Administrative Agent of each proposed Base Rate or LIBOR borrowing not later than (a) in the case of a Base Rate borrowing, 11:00 A.M., Chicago time, on the proposed date of such borrowing, and (b) in the case of a LIBOR borrowing, 11:00 A.M., Chicago time, at least three (3) Business Days prior to the proposed date of such borrowing. Each such notice shall be effective upon receipt by Administrative Agent, shall be irrevocable, and shall specify the date, amount and type of borrowing and, in the case of a LIBOR borrowing, the initial Interest Period therefor. Each borrowing shall be on a Business Day. Each LIBOR borrowing shall be in an aggregate amount of at least $1,000,000 and an integral multiple of at least $500,000.
(b)Each Borrower hereby authorizes Administrative Agent in its sole discretion, to advance Revolving Loans as Base Rate Loans to pay any Obligations (whether principal, interest, fees or other charges when due), and any such Obligations becoming due shall be deemed a request for a Base Rate borrowing of a Revolving Loan on the due date, in the amount of such Obligations. The proceeds of such Revolving Loans shall be disbursed as direct payment of the relevant Obligation. In addition, Administrative Agent may, at its option, charge such Obligations against any operating, investment or other account of a Borrower maintained with Administrative Agent or any of its Affiliates.
2.2.3.Conversion and Continuation Procedures.
(a)Subject to Section 2.2.1, Borrowers may, upon irrevocable written notice to Administrative Agent in accordance with clause (b) below:
(i)elect, as of any Business Day, to convert any Loans (or any part thereof in an aggregate amount not less than $1,000,000 and a higher integral multiple of $500,000) into Loans of the other type; or
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(ii)elect, as of the last day of the applicable Interest Period, to continue any LIBOR Loans having Interest Periods expiring on such day (or any part thereof in an aggregate amount not less than $1,000,000 or a higher integral multiple of $500,000) for a new Interest Period;
provided that after giving effect to any prepayment, conversion or continuation, the aggregate principal amount of each Group of LIBOR Loans shall be at least $1,000,000 and an integral multiple of $500,000.
(b)Borrowers shall give written notice (each such written notice, a "Notice of Conversion/Continuation") substantially in the form of Exhibit C or telephonic notice (followed immediately by a Notice of Conversion/Continuation) to Administrative Agent of each proposed conversion or continuation not later than (i) in the case of conversion into Base Rate Loans, 11:00 A.M., Chicago time, on the proposed date of such conversion, and (ii) in the case of conversion into or continuation of LIBOR Loans, 11:00 A.M., Chicago time, at least three (3) Business Days prior to the proposed date of such conversion or continuation, specifying in each case:
(i)the proposed date of conversion or continuation;
(ii)the aggregate amount of Loans to be converted or continued;
(iii)the type of Loans resulting from the proposed conversion or continuation; and
(iv)in the case of conversion into, or continuation of, LIBOR Loans, the duration of the requested Interest Period therefor.
(c)If upon the expiration of any Interest Period applicable to LIBOR Loans, Borrowers have failed to select timely a new Interest Period to be applicable to such LIBOR Loans, Borrowers shall be deemed to have elected to continue such LIBOR Loans as LIBOR Loans having the same Interest Period effective on the last day of such Interest Period.
Any conversion of a LIBOR Loan on a day other than the last day of an Interest Period therefor shall be subject to Section 4.2.4.
The Obligations shall be repaid as follows:
2.3.1.Repayment of Revolving Loans. The Revolving Loans and all other Obligations shall be repaid on the Maturity Date.
2.3.2.Reserved.
2.3.3.Mandatory Prepayments of the Loans.
(a)Sales or Other Disposition of Assets. Upon receipt of the proceeds of the sale or other disposition of any Equipment or real property of a Loan Party which is subject to a mortgage in favor of Administrative Agent, or if any of the Equipment or real property subject to such mortgage is damaged, destroyed or taken by condemnation in whole or in part, the proceeds thereof shall be paid by such Loan Party to Administrative Agent as a mandatory prepayment of the Revolving Loan, such payment to be applied against the outstanding principal amount thereof until repaid in full, and then against the other Obligations, as determined by Administrative Agent, in its sole discretion. For the avoidance of doubt, any proceeds from the sale of any Equipment or real property subject to a mortgage in favor of Rooster pursuant to the Rooster Loan Documents shall not be required to prepay the Revolving Loan.
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(b)Upon receipt of any Extraordinary Receipts by a Loan Party, the proceeds thereof shall be paid by such Loan Party to Administrative Agent as a mandatory prepayment of the Revolving Loans to be applied to the outstanding principal of the Revolving Loans until paid in full and then against the other Obligations as determined by Administrative Agent.
(c)Reserved.
2.3.4.Making of Payments. All payments of principal or interest on the Note(s), and of all fees, shall be made by Borrowers to the Administrative Agent in immediately available funds at the office specified by the Administrative Agent not later than noon, Chicago time, on the date due; and funds received after that hour shall be deemed to have been received by the Administrative Agent on the following Business Day. Subject to Section 2.6 and Section 2.8, the Administrative Agent shall promptly remit to each Lender its share of all such payments received in collected funds by the Administrative Agent for the account of such Lender. All payments under Section 4.2.1 shall be made by Borrowers directly to the Lender entitled thereto without setoff, counterclaim or other defense.
2.3.5.Application of Certain Payments. So long as no Event of Default has occurred and is continuing, (a) payments matching specific scheduled payments then due shall be applied to those scheduled payments and (b) mandatory prepayments shall be applied as set forth in Section 2.3.3. After the occurrence and during the continuance of a Default or an Event of Default, all amounts collected or received by the Administrative Agent or any Lender as proceeds from the sale of, or other realization upon, all or any part of the Collateral shall be applied as the Administrative Agent shall determine in its discretion or, in the absence of a specific determination by the Administrative Agent in the order set forth in Section 16.2. Concurrently with each remittance to any Lender of its share of any such payment, the Administrative Agent shall advise such Lender as to the application of such payment.
2.3.6.Setoff. Each Loan Party, agrees that the Administrative Agent and each Lender have all rights of set-off and bankers' lien provided by applicable law, and in addition thereto, each other Loan Party, agrees that at any time any Event of Default exists, the Administrative Agent and each Lender may apply to the payment of any Obligations of Borrowers and each other Loan Party hereunder, whether or not then due, any and all balances, credits, deposits, accounts or moneys of Borrowers and each other Loan Party then or thereafter with the Administrative Agent or such Lender. The exercise of the right to setoff shall be subject to the provisions of Section 18.12
2.3.7.Proration of Payments. Except as provided in Section 2.6, if any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise), on account of (a) principal of or interest on any Loan (but excluding (i) any payment pursuant to Section 4.2 or 19.1 and (ii) payments of interest on any Affected Loan) or (b) its participation in any Letter of Credit in excess of its applicable Pro Rata Share of payments and other recoveries obtained by all Lenders on account of principal of and interest on the Loans (or such participation) then held by them, then such Lender shall purchase from the other Lenders such participations in the Loans (or sub-participations in Letters of Credit) held by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and the purchase price restored to the extent of such recovery.
The Loans shall, in each Lender's sole discretion, be evidenced by one or more promissory notes in form and substance satisfactory to such Lender (each a "Note" and collectively, the "Notes"). However, if such Loans are not so evidenced, such Loans may be evidenced solely by entries upon the books and records maintained by Administrative Agent.
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Administrative Agent shall record in its records, the date and amount of each Loan made by Lenders, each repayment or conversion thereof and, in the case of each LIBOR Loan, the dates on which each Interest Period for such Loan shall begin and end. The aggregate unpaid principal amount so recorded shall be rebuttably presumptive evidence of the principal amount of the Loans owing and unpaid. The failure to so record any such amount or any error in so recording any such amount shall not, however, limit or otherwise affect the Obligations of Borrowers hereunder or under any Note to repay the principal amount of the Loans hereunder, together with all interest accruing thereon.
2.6.1.Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:
(a)Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders and Section 15.1.
(b)Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Section 13 or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 7.4 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to any L/C Issuer or Swing Line Lender hereunder; third, to Cash Collateralize the L/C Issuers’ Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.7; fourth, as Borrowers may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and Borrowers, to be held in a deposit account and released pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) Cash Collateralize the L/C Issuers’ future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.7; sixth, to the payment of any amounts owing to the Lenders, the L/C Issuers or Swing Line Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender, the L/C Issuers or Swing Line Lenders against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing to Borrowers as a result of any judgment of a court of competent jurisdiction obtained by Borrowers against such Defaulting Lender as a result of such Defaulting Lender's breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or payment made by an L/C Issuer pursuant to a Letter of Credit in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 12.2 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and payments made by an L/C Issuer pursuant to a Letter of Credit owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or payment made by an L/C Issuer pursuant to a Letter of Credit owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in Letter of Credit Obligations and Swing Line Loans are held by the Lenders pro rata in accordance with the Commitments without giving effect to clause (iv) below. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section shall be
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deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(c)Commitment and Letter of Credit Fees.
(i)No Defaulting Lender shall be entitled to receive any fee described in Section 4.3.1 for any period during which that Lender is a Defaulting Lender (and Borrowers shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).
(ii)Each Defaulting Lender shall be entitled to receive fees described in Section 3.1 for any period during which that Lender is a Defaulting Lender only to the extent allocable to its Pro Rata Share of the Stated Amount of Letters of Credit for which it has provided cash collateral pursuant to Section 2.7.
(iii)With respect to any fees described in Section 3.1 not required to be paid to any Defaulting Lender pursuant to clause (A) or (B) above, Borrowers shall (x) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in Letter of Credit Obligations or Swing Line Loans that has been reallocated to such Non-Defaulting Lender pursuant to clause (iv) below, (y) pay to each L/C Issuer and Swing Line Lender, as applicable, the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to such L/C Issuer’s or Swing Line Lender’s Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.
(d)Reallocation of Participations to Reduce Fronting Exposure. All or any part of such Defaulting Lender’s participation in Letter of Credit Obligations and Swing Line Loans shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Pro Rata Shares (calculated without regard to such Defaulting Lender’s Commitment) but only to the extent that such reallocation does not cause the aggregate revolving credit exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lender’s Commitment. Subject to Section 20.10, no reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
(e)Cash Collateral, Repayment of Swing Line Loans. If the reallocation described in clause (d) above cannot, or can only partially, be effected, Borrowers shall, without prejudice to any right or remedy available to it hereunder or under law, (x) first, prepay Swing Line Loans in an amount equal to the Swing Line Lenders’ Fronting Exposure and (y) second, Cash Collateralize the L/C Issuers’ Fronting Exposure in accordance with the procedures set forth in Section 2.7.
2.6.2.Defaulting Lender Cure. If Borrowers, the Administrative Agent and each Swing Line Lender and L/C Issuer agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any cash collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit and Swing Line Loans to be held pro rata by the Lenders in accordance with the Commitments (without giving effect to Section 2.6.1(d) above), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of Borrowers while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
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2.6.3.New Swing Line Loans/Letters of Credit. So long as any Lender is a Defaulting Lender, (i) no Swing Line Lender shall be required to fund any Swing Line Loans unless it is satisfied that it will have no Fronting Exposure after giving effect to such Swing Line Loan and (ii) no L/C Issuer shall be required to issue, extend, renew or increase any Letter of Credit unless it is satisfied that it will have no Fronting Exposure after giving effect thereto.
2.6.4.Termination of Defaulting Lender. Borrowers may terminate the unused amount of the Commitment of any Lender that is a Defaulting Lender upon not less than five (5) Business Days’ prior notice to the Administrative Agent (which shall promptly notify the Lenders thereof), and in such event the provisions of Section 2.6.1(b) will apply to all amounts thereafter paid by Borrowers for the account of such Defaulting Lender under this Agreement (whether on account of principal, interest, fees, indemnity or other amounts); provided that (i) no Event of Default shall have occurred and be continuing, and (ii) such termination shall not be deemed to be a waiver or release of any claim any Borrower, the Administrative Agent, any L/C Issuer, the Swing Line Bank or any Lender may have against such Defaulting Lender.
2.7.1.Obligation to Cash Collateralize. At any time that there shall exist a Defaulting Lender, within one Business Day following the written request of the Administrative Agent or any L/C Issuer (with a copy to the Administrative Agent) Borrowers shall Cash Collateralize the L/C Issuers’ Fronting Exposure with respect to such Defaulting Lender (determined after giving effect to Section 2.6.1 (d) and any cash collateral provided by such Defaulting Lender) in an amount not less than 105% of the stated amount of all outstanding Letters of Credit.
2.7.2.Grant of Security Interest. Borrowers, and to the extent provided by any Defaulting Lender, such Defaulting Lender, hereby grants to the Administrative Agent, for the benefit of the L/C Issuers, and agrees to maintain, a first priority security interest in all such cash collateral as security for the Defaulting Lenders’ obligation to fund participations in respect of Letter of Credit Obligations, to be applied pursuant to clause (c) below. If at any time the Administrative Agent determines that cash collateral is subject to any right or claim of any Person other than the Administrative Agent and the L/C Issuers as herein provided, or that the total amount of such cash collateral is less than 105% of the stated amount of all outstanding Letters of Credit, Borrowers will, promptly upon demand by the Administrative Agent, pay or provide to the Administrative Agent additional cash collateral in an amount sufficient to eliminate such deficiency (after giving effect to any cash collateral provided by the Defaulting Lender).
2.7.3.Application. Notwithstanding anything to the contrary contained in this Agreement, cash collateral provided under this Section or Section 2.6 in respect of Letters of Credit shall be applied to the satisfaction of the Defaulting Lender’s obligation to fund participations in respect of Letter of Credit Obligations (including, as to cash collateral provided by a Defaulting Lender, any interest accrued on such obligation) for which the cash collateral was so provided, prior to any other application of such property as may otherwise be provided for herein.
2.7.4.Termination of Requirement. Cash Collateral (or the appropriate portion thereof) provided to reduce any L/C Issuer’s Fronting Exposure shall no longer be required to be held as Cash Collateral pursuant to this Section following (i) the elimination of the applicable Fronting Exposure (including by the termination of Defaulting Lender status of the applicable Lender), or (ii) the determination by the Administrative Agent and each L/C Issuer that there exists excess Cash Collateral; provided that, subject to Section 2.6 the Person providing Cash Collateral and each L/C Issuer may agree that Cash Collateral shall be held to support future anticipated Fronting Exposure or other obligations and provided further that to the extent that such Cash Collateral was provided by Borrowers, such Cash Collateral shall remain subject to the security interest granted pursuant to the Loan Documents.
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(a)On a weekly basis (or more frequently if requested by Administrative Agent or Swing Line Lender) (a "Settlement Date"), Administrative Agent shall provide each Lender with a statement of the outstanding balance of the Revolving Loans and Swing Line Loans as of the end of the Business Day immediately preceding the Settlement Date (the "Pre-Settlement Determination Date") and the current balance of the Revolving Loans funded by each Lender (whether made directly by such Lender to Borrowers or constituting a settlement by such Lender of a previous Swing Line Loan or Agent Advance). If such statement discloses that such Lender’s current balance of the Revolving Loans as of the Pre-Settlement Determination Date exceeds such Lender’s Pro Rata Share of the aggregate of the Revolving Loans outstanding as of the Pre-Settlement Determination Date, then Administrative Agent shall, on the Settlement Date, transfer, by wire transfer, the net amount due to such Lender in accordance with such Lender’s instructions, and if such statement discloses that such Lender’s current balance of the aggregate of the Revolving Loans, Swing Line Loans and Agent Advances as of the Pre-Settlement Determination Date is less than such Lender’s Pro Rata Share of the Revolving Loans outstanding as of the Pre-Settlement Determination Date, then Borrowers shall be deemed to have requested a Revolving Loan and such Lender shall, on the Settlement Date make a Revolving Loan, transfer, by wire transfer the net amount due to the Administrative Agent or Swing Line Lender, as applicable in accordance with Administrative Agent’s instructions to repay the Swing Line Loan or Agent Advances.
(b)If, prior to settling pursuant to clause (a) above, one of the events described in Section 15.7 or 15.8 has occurred, then, subject to the provisions of Section 2.6.1(d) below, each Lender shall, on the date such Revolving Loan was to have been made for the benefit of Borrowers to settle outstanding Swing Line Loans or Agent Advances, purchase from the Swing Line Lender or Administrative Agent, as applicable, an undivided participation interest in the Swing Line Loan or Agent Advance in an amount equal to its Pro Rata Share of such Swing Line Loan or Agent Advance. Upon request, each Lender shall promptly transfer to the Swing Line Lender, in immediately available funds, the amount of its participation interest.
(c)Each Lender's obligation to make Revolving Loans in accordance with Section 2.8(a) and to purchase participation interests in accordance with Section 2.8(b) shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any setoff, counterclaim, recoupment, defense or other right that such Lender may have against the Swing Line Lender or Administrative Agent, Borrowers or any other Person for any reason whatsoever; (ii) the occurrence or continuance of any Default or Event of Default; (iii) any inability of Borrowers to satisfy the conditions precedent to borrowing set forth in this Agreement at any time or (iv) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If and to the extent any Lender shall not have made such amount available to the Administrative Agent or the Swing Line Lender, as applicable, by 2:00 P.M., Chicago time, the amount required pursuant to Sections 2.1.1(a) or 2.8(a), as the case may be, on the Business Day on which such Lender receives notice from the Administrative Agent of such payment or disbursement (it being understood that any such notice received after noon, Chicago time, on any Business Day shall be deemed to have been received on the next following Business Day), such Lender agrees to pay interest on such amount to the Administrative Agent for the Swing Line Lender's account forthwith on demand, for each day from the date such amount was to have been delivered to the Administrative Agent to the date such amount is paid, at a rate per annum equal to (a) for the first three days after demand, the Federal Funds Rate from time to time in effect and (b) thereafter, the Base Rate from time to time in effect.
The failure of any Lender to make a requested loan on any date shall not relieve any other Lender of its obligation (if any) to make a Loan on such date, but no Lender shall be responsible for the failure of any other Lender to make any Loan to be made by such other Lender.
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Subject to the terms and conditions of this Agreement and the other Loan Document prior to the Maturity Date, Administrative Agent may, in its sole discretion, determined in good faith, from time to time cause to be issued by an L/C Issuer and co-sign for or otherwise guarantee, upon a Borrower’s request, commercial and/or standby Letters of Credit; provided, that the aggregate undrawn face amount of all such Letters of Credit shall at no time exceed Three Million and No/100 Dollars ($3,000,000.00). Payments made by the L/C Issuer to any Person on account of any Letter of Credit shall be immediately payable by Borrowers without notice, presentment or demand and each Borrower agrees that each payment made by the L/C Issuer in respect of a Letter of Credit shall constitute a request by such Borrower for a Loan to reimburse L/C Issuer. In the event such Loan is not advanced by Administrative Agent, Swing Line Lender or Lenders for any reason, such reimbursement obligations (whether owing to the L/C Issuer or Administrative Agent if Administrative Agent is not the L/C Issuer) shall become part of the Obligations hereunder and shall bear interest at the rate then applicable to Revolving Loans constituting Base Rate Loans until repaid. Borrowers shall remit to Administrative Agent, for the ratable benefit of Lenders having Revolving Loan Commitments, a Letter of Credit fee equal to the Letter of Credit Fee Applicable Margin per annum on the aggregate undrawn face amount of all Letters of Credit outstanding, which fee shall be payable in advance for the term of the Letter of Credit. Upon the occurrence of an Event of Default and during the continuance thereof, each the Letter of Credit fee shall be increased to an amount equal to two percent (2%) per annum in excess of the Letter of Credit fee otherwise payable thereon, which fee shall be payable on demand. Said fee shall be calculated on the basis of a 360 day year. Each Borrower shall also pay on demand the normal and customary administrative charges of L/C Issuer for issuance, amendment, negotiation, renewal or extension of any Letter of Credit.
3.2.Letter of Credit Procedures.
3.2.1.L/C Applications. Each Borrower shall execute and deliver to the L/C Issuer the Master Letter of Credit Agreement from time to time in effect. Borrowers shall give notice to Administrative Agent and the L/C Issuer of the proposed issuance of each Letter of Credit on a Business Day which is at least three Business Days (or such lesser number of days as the L/C Issuer and Administrative Agent shall agree in any particular instance in their sole discretion) prior to the proposed date of issuance of such Letter of Credit. Each such notice shall be accompanied by an L/C Application, duly executed by Borrowers and in all respects satisfactory to the L/C Issuer, together with such other documentation as the L/C Issuer may request in support thereof, it being understood that each L/C Application shall specify, among other things, the date on which the proposed Letter of Credit is to be issued, the expiration date of such Letter of Credit (which shall not be later than the scheduled Maturity Date (unless such Letter of Credit is Cash Collateralized at least 30 days prior to the scheduled Maturity Date)) and whether such Letter of Credit is to be transferable in whole or in part. Any Letter of Credit outstanding after the scheduled Maturity Date which is Cash Collateralized for the benefit of the L/C Issuer shall be the sole responsibility of the L/C Issuer. In the event of any inconsistency between the terms of the Master Letter of Credit Agreement, any L/C Application and the terms of this Agreement, the terms of this Agreement shall control.
3.2.2.Reimbursement Obligations Unconditional. Borrowers' reimbursement obligations hereunder shall be irrevocable and unconditional under all circumstances, including (a) any lack of validity or enforceability of any Letter of Credit, this Agreement or any other Loan Document, (b) the existence of any claim, set-off, defense or other right which any Loan Party may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with any Letter of Credit, this Agreement, any other Loan Document, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between any Loan Party and the beneficiary named in any Letter of Credit), (c) the
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validity, sufficiency or genuineness of any document which the L/C Issuer has determined complies on its face with the terms of the applicable Letter of Credit, even if such document should later prove to have been forged, fraudulent, invalid or insufficient in any respect or any statement therein shall have been untrue or inaccurate in any respect, or (d) the surrender or impairment of any security for the performance or observance of any of the terms hereof. Without limiting the foregoing, no action or omission whatsoever by Administrative Agent or any Lender under or in connection with any Letter of Credit or any related matters shall result in any liability of Administrative Agent or any Lender to any Loan Party, or relieve any Loan Party of any of its obligations hereunder to any such Person.
3.3.Expiration Dates of Letters of Credit.
The expiration date of each Letter of Credit shall be no later than the earlier of (i) one (1) year from the date of issuance and (ii) the thirtieth (30th) day prior to the Maturity Date. Notwithstanding the foregoing, a Letter of Credit may provide for automatic extensions of its expiration date for one or more one (1) year periods, so long as the issuer thereof has the right to terminate the Letter of Credit at the end of each one (1) year period and no extension period extends past the thirtieth (30th) day prior to the Maturity Date.
3.4.Participations in Letters of Credit.
Concurrently with the issuance of each Letter of Credit, the applicable L/C Issuer shall be deemed to have sold and transferred to each Lender with a Revolving Loan Commitment, and each such Lender shall be deemed irrevocably and unconditionally to have purchased and received from such L/C Issuer, without recourse or warranty, an undivided interest and participation, to the extent of such Lender's Pro Rata Share, in such Letter of Credit and Borrowers’ reimbursement obligations with respect thereto. If Borrowers do not pay any reimbursement obligation when due, Borrowers shall be deemed to have immediately requested that the Lenders make a Revolving Loan which is a Base Rate Loan in a principal amount equal to such reimbursement obligations in accordance with Section 3.1. The Administrative Agent shall promptly notify such Lenders of such deemed request and, without the necessity of compliance with the requirements of Section 2.2.2, Section 17.2 or otherwise such Lender shall make available to the Administrative Agent its Pro Rata Share of such Loan. The proceeds of such Loan shall be paid over by the Administrative Agent to the applicable L/C Issuer for the account of Borrowers in satisfaction of such reimbursement obligations. For the purposes of this Agreement, the unparticipated portion of each Letter of Credit shall be deemed to be the applicable L/C Issuer's "participation" therein. Each L/C Issuer hereby agrees to notify the Administrative Agent of the issuance of any Letter of Credit and, upon request of the Administrative Agent or any Lender, to deliver to the Administrative Agent or such Lender a list of all outstanding Letters of Credit issued by such L/C Issuer, together with such information related thereto as the Administrative Agent or such Lender may reasonably request.
Subject to the terms and conditions set forth below, the Loans shall bear interest at the per annum rate of interest set forth in subsection (a), (b) or (c) below, payable as set forth below:
(a)The Applicable Margin with respect to Base Rate Loans per annum plus the Base Rate in effect from time to time, payable on the first day of each month in arrears for interest through the last day of the prior month. Said rate of interest shall increase or decrease by an amount equal to each increase or decrease in the Base Rate effective on the effective date of each such change in the Base Rate.
(b)The Applicable Margin with respect to LIBOR Loans plus the LIBO Rate for the applicable Interest Period, such rate to remain fixed for such Interest Period. Interest shall be payable
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with respect to one (1) month Interest Periods, on the last Business Day of such Interest Period, and with respect to two (2) and three (3) month Interest Periods, on the same date of each month as the initial date of the Interest Period during such Interest Period (or if there is no corresponding date, then on the last day of such month), and on the Maturity Date.
(c)Upon the occurrence of an Event of Default and during the continuance thereof and at the Administrative Agent’s and Required Lenders’ election, the Loans shall bear interest at the rate of two percent (2.0%) per annum plus the interest rate otherwise payable thereon, which interest shall be payable on demand. All interest shall be computed for the actual number of days elapsed on the basis of a 360 day year.
(d)The applicable LIBO Rate for each Interest Period shall be determined by the Administrative Agent, and notice thereof shall be given by Administrative Agent promptly to Borrowers. Each determination of the applicable LIBO Rate by Administrative Agent shall be conclusive and binding upon the parties hereto, in the absence of demonstrable error. Administrative Agent shall, upon written request of Borrowers, deliver to Borrowers a statement showing the computations used by Administrative Agent in determining any applicable LIBO Rate hereunder.
4.2.Increased Costs; Special Provisions For LIBOR Loans.
(a)If, after the Closing Date, any Change in Law: (i) shall impose, modify or deem applicable any reserve (including any reserve imposed by the FRB, but excluding any reserve included in the determination of the LIBO Rate pursuant to Section 4), special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in, by any Lender or L/C Issuer; (ii) subject any Recipient to any Taxes (other than Indemnified Taxes and Excluded Taxes) on its loan, loan principal, letters of credit, commitments, or other obligations, or its deposit reserves, other liabilities or capital attributable thereto; or (iii) shall impose on any Lender or L/C Issuer any other condition affecting this Agreement or its LIBOR Loans, its Note or its obligation to make LIBOR Loans; and the result of anything described in clauses (i), (ii) and (iii) above is to increase the cost to (or to impose a cost on) any Lender (or any LIBOR Office of such Lender) of making or maintaining any LIBOR Loan, or to reduce the amount of any sum received or receivable by any Lender (or its LIBOR Office) (whether of principal, interest or any other amount) under this Agreement or under its Note with respect thereto, then upon demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail), Borrowers shall pay directly to such Lender such additional amount as will compensate such Lender for such increased cost or such reduction so long as such amounts have accrued on or after the day which is nine months prior to the date on which such Lender first made demand therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).
(b)If any Lender or L/C Issuer shall reasonably determine that any Change in Law regarding capital adequacy, affecting such Lender or L/C Issuer, or any lending office of such Lender, or such Lender’s or L/C Issuer’s holding company, if any, has or would have the effect of reducing the rate of return on such Lender's or L/C Issuer’s holding company’s capital as a consequence of such Lender's obligations hereunder or under any Letter of Credit to a level below that which such Lender or such controlling Person could have achieved but for such Change in Law (taking into consideration such Lender's or such controlling Person's policies with respect to capital adequacy) by an amount deemed by such Lender or such controlling Person to be material, then from time to time, upon demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail), Borrowers shall pay to such Lender such additional amount as will compensate such Lender or such controlling Person for such reduction.
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4.2.2.Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period:
(a)The Administrative Agent reasonably determines (which determination shall be binding and conclusive on Borrowers) that by reason of circumstances affecting the interbank LIBOR market adequate and reasonable means do not exist for ascertaining the applicable LIBO Rate pursuant to the definition thereof; or
(b)the Required Lenders advise Administrative Agent that for any reason in connection with request for a LIBOR Loan or a conversion thereto or a continuation thereof that Dollar deposits are not being offered to banks in the London interbank Eurodollar market for the applicable amount and Interest Period of such LIBOR Loans, the LIBO Rate as determined by Administrative Agent will not adequately and fairly reflect the cost to any Lenders of maintaining or funding LIBOR Loans for such Interest Period or that the making or funding of LIBOR Loans has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of such Lender materially affects such Loans;
then Administrative Agent shall promptly notify Borrowers and, so long as such circumstances shall continue, (i) no Lender shall be under any obligation to make or convert any Base Rate Loans into LIBOR Loans and (ii) on the last day of the current Interest Period for each LIBOR Loan, such Loan shall, unless then repaid in full, automatically convert to a Base Rate Loan until the Administrative Agent revokes such notice.
4.2.3.Changes in Law Rendering LIBOR Loans Unlawful. If any Change in Law, should make it (or in the good faith judgment of any Lender cause a substantial question as to whether it is) unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender to make, maintain or fund LIBOR Loans or to determine or charge interest rates based on LIBOR, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then such Lender shall promptly notify each of the other parties hereto and, so long as such circumstances shall continue, (a) such Lender shall have no obligation to make continue LIBOR Loans or convert any Base Rate Loan into a LIBOR Loan (but shall make Base Rate Loans concurrently with the making of or conversion of Base Rate Loans into LIBOR Loans by such Lender which are not so affected, in each case in an amount equal to the amount of LIBOR Loans which would be made or converted into by such Lender at such time in the absence of such circumstances) and (b) on the last day of the current Interest Period for each LIBOR Loan of such Lender (or, in any event, on such earlier date as may be required by the relevant law, regulation or interpretation), such LIBOR Loan shall, unless then repaid in full, automatically convert to a Base Rate Loan. Each Base Rate Loan made by a Lender which, but for the circumstances described in the foregoing sentence, would be a LIBOR Loan (an "Affected Loan") shall remain outstanding for the period corresponding to the Group of LIBOR Loans of which such Affected Loan would be a part absent such circumstances.
4.2.4.Funding Losses. Borrowers hereby agree that upon demand by any Lender (which demand shall be accompanied by a statement setting forth the basis for the amount being claimed, a copy of which shall be furnished to Administrative Agent) Borrowers will indemnify such Lender against any net loss or expense which such Lender may sustain or incur (including any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain any LIBOR Loan), as reasonably determined by such Lender, as a result of (a) any payment, prepayment or conversion of any LIBOR Loan of such Lender on a date other than the last day of an Interest Period for such Loan (including any conversion pursuant to Section 2.2.3), (b) any failure of Borrowers to borrow, prepay, convert or continue any Loan on a date specified therefor in a notice of borrowing, prepayment, conversion or continuation pursuant to this Agreement, (c) the conversion of any LIBOR Loan other than on the last day of the Interest Period applicable thereto, or (d) the assignment of any LIBOR Loan other than on the last day of the Interest Period. For this purpose, all notices to Administrative Agent pursuant to this
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Agreement shall be deemed to be irrevocable and conclusive absent manifest error. Borrowers shall pay such Lender the amount shown as due on any such notice within 10 days after receipt thereof.
4.2.5.Right of Lenders to Fund through Other Offices. Each Lender may, if it so elects, fulfill its commitment as to any LIBOR Loan by causing a foreign branch or Affiliate of such Lender to make such Loan; provided that in such event for the purposes of this Agreement such Loan shall be deemed to have been made by such Lender and the obligation of Borrowers to repay such Loan shall nevertheless be to such Lender and shall be deemed held by it, to the extent of such Loan, for the account of such branch or Affiliate.
4.2.6.Discretion of Lenders as to Manner of Funding. Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Lender had actually funded and maintained each LIBOR Loan during each Interest Period for such Loan through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the LIBO Rate for such Interest Period.
4.2.7.Mitigation of Circumstances; Replacement of Lender.
(a)Each Lender shall promptly notify Borrowers and Administrative Agent of any event of which it has knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Lender's sole judgment, otherwise disadvantageous to such Lender) to mitigate or avoid, (i) any obligation by Borrowers to pay any amount pursuant to Sections 4.2.1 or 4.4 or (ii) the occurrence of any circumstances described in Sections 4.2.2 or 4.2.3 (and, if such Lender has given notice of any such event described in clause (i) or (ii) above and thereafter such event ceases to exist, such Lender shall promptly so notify Borrowers and Administrative Agent). Without limiting the foregoing, each Lender will designate a different funding office if such designation will avoid (or reduce the cost to Borrowers of) any event described in clause (i) or (ii) above and such designation will not, in Lender's sole judgment, be otherwise disadvantageous to such Lender. Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b)If (i) Borrowers become obligated to pay additional amounts to any Lender pursuant to Sections 4.2.1 or 4.4, or any Lender gives notice of the occurrence of any circumstances described in Sections 4.2.2 or 4.2.3 and in each case, such Lender has declined or is unable to designate a different lending office in accordance with paragraph (a) of this Section, (ii) any Lender becomes a Defaulting Lender, or (iii) any Lender becomes a Non-Consenting Lender pursuant to Section 20.1, then Borrowers may designate another bank which is acceptable to the Administrative Agent and the L/C Issuer in their reasonable discretion (such other bank being called a "Replacement Lender") to purchase the Loans of such Lender and such Lender's rights hereunder (other than its existing rights to payment pursuant to Section 4.2.1 or Section 4.4), and obligations under this Agreement and the related Loan Documents, without recourse to or warranty by, or expense to, such Lender, provided that: (i) the purchase price is equal to the outstanding principal amount of the Loans payable to such Lender plus any accrued but unpaid interest on such Loans and all accrued but unpaid fees owed to such Lender and any other amounts payable to such Lender under this Agreement (including any amounts under Section 4.2.4), and to assume all the obligations of such Lender hereunder, and, upon such purchase and assumption (pursuant to an Assignment Agreement), such Lender shall no longer be a party hereto or have any rights hereunder (other than rights with respect to indemnities and similar rights applicable to such Lender prior to the date of such purchase and assumption) and shall be relieved from all obligations to Borrowers hereunder, and the Replacement Lender shall succeed to the rights and obligations of such Lender hereunder; (ii) in the case of any such purchase resulting from a claim for compensation under Section 4.2.1 or Section 4.4, such purchase will result in a reduction in such compensation or payments thereafter; (iii) such purchase does not conflict with applicable law; and (iv) in the case of any purchase resulting from a Lender becoming a Non-Consenting Lender, the Replacement Lender shall have consented to the applicable amendment, waiver, or consent.
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A Lender shall not be required to make any such purchase or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling Borrowers to require such purchase and delegation cease to apply.
Notwithstanding anything in this Section to the contrary, (i) any Lender that acts as an L/C Issuer may not be replaced hereunder at any time it has any Letter of Credit outstanding hereunder unless arrangements satisfactory to such Lender (including the furnishing of a back-up standby Letter of Credit in form and substance, and issued by an issuer, reasonably satisfactory to such L/C Issuer or the depositing of cash collateral into a cash collateral account in amounts and pursuant to arrangements reasonably satisfactory to L/C Issuer) have been made with respect to such outstanding Letter of Credit and (ii) the Lender that acts as the Administrative Agent may not be replaced hereunder except in accordance with the terms of Section 18.10.
4.2.8.Conclusiveness of Statements; Survival of Provisions. Determinations and statements of a Lender pursuant to Sections 4.2.1, 4.2.2, 4.2.3 or 4.2.4 shall be conclusive absent demonstrable error. Each Lender may use reasonable averaging and attribution methods in determining compensation under Sections 4.2.1 and 4.2.4, and the provisions of such Sections shall survive repayment of the Obligations, cancellation of any Notes, expiration or termination of the Letters of Credit and termination of this Agreement.
4.2.9.Effect of Benchmark Transition Event.
(a)Benchmark Replacement. Notwithstanding anything to the contrary herein or in any other Loan Document, upon the occurrence of a Benchmark Transition Event or an Early Opt-in Election, as applicable, Administrative Agent (without, except as specifically provided in the two following sentences, any action or consent by any other party to this Agreement) may amend this Agreement to replace the Libo Rate with a Benchmark Replacement. Any such amendment with respect to a Benchmark Transition Event will become effective at 5:00 p.m. (Chicago time) on the fifth (5th) Business Day after Administrative Agent has posted such proposed amendment to Borrowers. Any such amendment with respect to an Early Opt-in Election will become effective on the date that Borrowers have delivered to Administrative Agent written notice that Borrowers accept such amendment. No replacement of LIBOR with a Benchmark Replacement pursuant to Section 4.2.9 will occur prior to the applicable Benchmark Transition Start Date.
(b)Benchmark Replacement Conforming Changes. In connection with the implementation of a Benchmark Replacement, Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement.
(c)Notices; Standards for Decisions and Determinations. Administrative Agent will promptly notify Borrowers of (i) any occurrence of a Benchmark Transition Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date and Benchmark Transition Start Date, (ii) the implementation of any Benchmark Replacement, (iii) the effectiveness of any Benchmark Replacement Conforming Changes and (iv) the commencement or conclusion of any Benchmark Unavailability Period. Any determination, decision or election that may be made by Administrative Agent pursuant to Section 4.2.9, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action, will be conclusive and binding absent manifest error and may be made in its sole discretion and without consent from any other party hereto, except, in each case, as expressly required pursuant to Section 4.2.9.
(d)Benchmark Unavailability Period. Upon Borrowers’ receipt of notice of the commencement of a Benchmark Unavailability Period, Borrowers will be deemed to have converted any pending request for a LIBOR Loan, and any conversion to or continuation of any LIBOR Loans to be
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made, converted or continued during any Benchmark Unavailability Period into a request for a borrowing of or conversion to Base Rate Loans.
4.3.1.Closing Fee: Borrowers shall pay to Administrative Agent, for the ratable benefit of Lenders, a closing fee of Two Hundred Sixty-Two Thousand Five Hundred and no/100 Dollars ($262,500.00), which fee shall be fully earned and payable on the date of disbursement of the initial Loans hereunder
4.3.2.Collateral Management Fee: Borrowers jointly and severally agree to pay to Lender an annual collateral management fee of Fifteen Thousand and no/100 Dollars ($15,000.00), which fee shall be fully earned by Administrative Agent and paid by Borrowers on the Closing Date and on each anniversary date of the Closing Date thereafter.
4.3.3.Unused Line Fee: Borrowers shall pay to Administrative Agent, for the ratable benefit of Lenders having Revolving Loan Commitments, an unused line fee equal to the Unused Line Fee Applicable Margin multiplied by the difference between the Total Revolving Loan Commitment and the average daily balance of the Revolving Loans plus the Letter of Credit Obligations for each month, which fee shall be fully earned by such Lenders on the first day of each month and payable monthly in arrears on the first Business Day of each month with respect to all activity through the last day of the prior month. Said fee shall be calculated on the basis of a 360 day year.
4.3.4.Costs and Expenses: Borrowers shall reimburse Administrative Agent, for all reasonable costs and expenses, including, without limitation, Attorney Costs incurred by Administrative Agent in connection with the (i) documentation and consummation of this transaction and any other transactions among Borrowers, Administrative Agent and Lender including, without limitation, Uniform Commercial Code and other public record searches and filings, overnight courier or other express or messenger delivery, appraisal costs, surveys, title insurance and environmental audit or review costs; (ii) collection, protection or enforcement of any rights in or to the Collateral; (iii) collection of any Obligations; and (iv) administration and enforcement of any of Administrative Agent's and Lenders rights under this Agreement or any other Loan Document (including, without limitation, any costs and expenses of any third party provider engaged by Lender for such purposes). Borrowers shall also pay all normal service charges with respect to all accounts maintained by any Borrower with Administrative Agent and any additional services requested by any Borrower from Administrative Agent.
(a)All payments made by a Loan Party hereunder or under any Loan Documents shall be made without setoff, counterclaim, or other defense. To the extent permitted by applicable law, all payments hereunder or under the Loan Documents (including any payment of principal, interest, or fees) to, or for the benefit, of any person shall be made by the Loan Party free and clear of and without deduction or withholding for, or account of, any Taxes now or hereinafter imposed by any taxing authority.
(b)If a Loan Party shall be required by applicable law (as determined in the good faith discretion of an applicable Administrative Agent) to deduct any Taxes from or in respect of any sum payable to any Recipient hereunder or any other Loan Document: (i) such Loan Party shall make such deductions; (ii) such Loan Party shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law; and (iii) if the Taxes are Indemnified Taxes, the sum payable shall be increased by the Loan Party as much as shall be necessary so that after making all the required deductions (including deductions applicable to additional sums payable under this Section 4.4), the Recipient receives an amount equal to the sum it should have received had no such deductions been made. In addition, the Loan Parties shall timely pay to the relevant Governmental
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Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes. As soon as practicable after any payment of Taxes by the Loan Parties to a Governmental Authority pursuant to this Section, Borrowers shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(c)The Loan Parties shall jointly and severally indemnify, and within ten (10) days of demand therefor, pay Administrative Agent and each other Recipient for the full amount of Indemnified Taxes and other liabilities, expenses and costs related thereto (including without limitation, reasonable attorneys' or tax advisors' fees and disbursements and Taxes imposed on amounts received under this Section 4.4) that are paid by, or imposed on, Administrative Agent or such other Recipient (and any of their respective affiliates), whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A demand as to the amount of such payment or liability delivered to the Loan Parties by a lender (with a copy to Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d)(i)To the extent permitted by applicable law, each Lender that is not a United States person within the meaning of Code Section 7701(a)(30) (a "Non-U.S. Participant") shall deliver to Borrowers and the Administrative Agent on or prior to the Closing Date (or in the case of a Lender that is an Assignee, on the date of such assignment to such Lender) two accurate and complete original signed copies of IRS Form W-8BEN, W-8BEN-E, W-8ECI, or W-8IMY (or any successor or other applicable form prescribed by the IRS) certifying to such Lender's entitlement to a complete exemption from, or a reduced rate in, United States federal withholding tax on interest payments to be made hereunder or any Loan. If a Lender that is a Non-U.S. Participant is claiming exemption from withholding on interest pursuant to Code Sections 871(h) or 881(c), such Lender shall deliver (along with two accurate and complete original signed copies of IRS Form W-8BEN or W-8BEN-E, as applicable) a certificate in form and substance reasonably acceptable to Administrative Agent (any such certificate, a "U.S. Tax Compliance Certificate"). In addition, each Lender that is a Non-U.S. Participant agrees that from time to time after the Closing Date, (or in the case of a Lender that is an Assignee, after the date of the assignment to such Lender), when a lapse in time (or change in circumstances occurs) renders the prior certificates hereunder obsolete or inaccurate in any material respect, such Lender shall, to the extent permitted under applicable law, deliver to Borrowers and the Administrative Agent two new and accurate and complete original signed copies of an IRS Form W‑8BEN, W-8BEN-E, W-8ECI, or W-8IMY (or any successor or other applicable forms prescribed by the IRS), and if applicable, a new U.S. Tax Compliance Certificate, to confirm or establish the entitlement of such Lender or the Administrative Agent to an exemption from, or reduction in, United States withholding tax on interest payments to be made hereunder or any Loan, or promptly notify Borrowers and the Administrative Agent in writing of its legal inability to do so. If a payment made to a Lender under this Agreement, whether made by any Loan Party or Administrative Agent, would be subject to United States federal withholding taxes imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to Borrowers and Administrative Agent, at the time or times prescribed by law and at such time or times reasonably requested by Borrowers or Administrative Agent, such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Borrowers or Administrative Agent as may be necessary for Borrowers and Administrative Agent to comply with their applicable obligations under FATCA, to determine that such Lender has or has not complied with the such Recipient's obligations under FATCA, or to determine the amount to deduct and withhold from such payment.
(ii)Each Lender that is not a Non-U.S. Participant shall provide two properly completed and duly executed copies of IRS Form W-9 (or any successor or other applicable form) to Borrowers and the Administrative Agent certifying that such Lender is exempt from United States backup withholding tax. To the extent that a form provided pursuant to this Section 4.4(d)(ii) is
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rendered obsolete or inaccurate in any material respect as result of change in circumstances with respect to the status of a Lender, such Lender shall, to the extent permitted by applicable law, deliver to Borrowers and the Administrative Agent revised forms necessary to confirm or establish the entitlement to such Lender's or Administrative Agent's exemption from United States backup withholding tax or promptly notify Borrowers and Administrative Agent in writing of its legal inability to do so.
(e)Each Lender agrees to severally indemnify the Administrative Agent and hold the Administrative Agent harmless for the full amount of any and all present or future Taxes and related liabilities (including penalties, interest, additions to tax and expenses, and any Taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this Section 4.4) which are imposed on or with respect to principal, interest or fees payable to such Lender hereunder and which are not paid by a Loan Party pursuant to this Section 4.4, whether or not such Taxes or related liabilities were correctly or legally asserted. This indemnification shall be made within 10 days from the date the Administrative Agent makes written demand therefor. A demand as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).
It is the intent of the parties that the rate of interest and other charges to Borrowers under this Agreement and the other Loan Documents shall be lawful; therefore, if for any reason the interest or other charges payable under this Agreement are found by a court of competent jurisdiction, in a final determination, to exceed the limit which a Lender may lawfully charge Borrowers, then the obligation to pay interest and other charges shall automatically be reduced to such limit and, if any amount in excess of such limit shall have been paid, then such amount shall be refunded to Borrowers.
5.1.Grant of Security Interest to Administrative Agent.
As security for the payment of all Loans now or in the future made by Administrative Agent and Lenders to Borrowers hereunder and for the payment, performance or other satisfaction of all other Obligations owing to Administrative Agent, Lenders and, to the extent constituting Obligations hereunder, any Affiliate of any Lender and all guaranties of the Obligations by the Loan Parties, each Loan Party hereby assigns to Administrative Agent, for the benefit of itself, the Lenders and their applicable Affiliates, and grants to Administrative Agent, for the benefit of itself, the Lenders and their applicable Affiliates, a continuing security interest in the following property of each such Loan Party, whether now or hereafter owned, existing, acquired or arising and wherever now or hereafter located: (a) all Accounts (whether or not Eligible Accounts) and all Goods whose sale, lease or other disposition by such Loan Party has given rise to Accounts and have been returned to, or repossessed or stopped in transit by, such Loan Party; (b) all Chattel Paper, Instruments, Documents and General Intangibles (including, without limitation, all patents, patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, copyright applications, registrations, licenses, software, franchises, customer lists, tax refund claims, claims against carriers and shippers, guarantee claims, contract rights, payment intangibles, security interests, security deposits and rights to indemnification); (c) all Inventory (whether or not Eligible Inventory); (d) all Goods (other than Inventory), including, without limitation, Equipment, vehicles and Fixtures; (e) all Investment Property; (f) all Deposit Accounts, bank accounts, deposits and cash; (g) all Letter-of-Credit Rights; (h) Commercial Tort Claims listed on Exhibit D hereto (i) all Supporting Obligations; (j) any other property of such Loan Party now or hereafter in the possession, custody or control of Administrative Agent or any Lender or any agent or any parent, affiliate or subsidiary of Administrative Agent or any Lender or any participant with Administrative Agent or any Lender in the Loans, for any purpose
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(whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise) and (k) all additions and accessions to, substitutions for, and replacements, products and Proceeds of the foregoing property, including, without limitation, proceeds of all insurance policies insuring the foregoing property, and all of such Loan Party's books and records relating to any of the foregoing and to such Loan Party's business. Notwithstanding the foregoing, in no event shall the Collateral include any of such Loan Party’s right, title or interest in (a) any of the outstanding voting capital stock or other ownership interests of (i) [***] or [***], or (ii) a CFC or any direct or indirect subsidiary of a CFC in excess of sixty five percent (65%) of the voting power of all classes of capital stock or other ownership interests of such CFC entitled to vote if an adverse tax consequence to such Loan Party shall arise or exist in connection therewith, and (b) any immaterial lease, license, contract or agreement to which any Loan Party is a party, in each case, if and only if, and solely to the extent that, the grant of a security interest therein shall constitute or result in a material breach, termination or default or invalidity thereunder or thereof (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC of any relevant jurisdiction or any other applicable law or principles of equity); provided that (y) immediately upon the time at which the consequences described in the foregoing shall no longer exist, the Collateral shall include, and such Loan Party shall be deemed to have granted a security interest in, all of such Loan Party’s right, title and interest in such lease, license, contract or agreement, and (z) the foregoing property excluded from Collateral shall not include any Proceeds from the sale, use or other disposition thereof.
Administrative Agent, in its sole discretion, without waiving or releasing (i) any obligation, liability or duty of any Loan Party under this Agreement or the other Loan Documents or (ii) any Event of Default, may at any time or times hereafter, but shall not be obligated to, pay, acquire or accept an assignment of any security interest, lien, encumbrance or claim asserted by any Person in, upon or against the Collateral, provided, that Administrative Agent may take such actions with respect to Permitted Liens only after the occurrence and during the continuance of an Event of Default. All sums paid by Administrative Agent in respect thereof and all costs, fees and expenses including, without limitation, Attorney Costs, all court costs and all other charges relating thereto incurred by Administrative Agent shall constitute Obligations, payable by Borrowers to Administrative Agent on demand and, until paid, shall bear interest at the highest rate then applicable to Loans hereunder.
Within five (5) Business Days upon a Loan Party's receipt of any portion of the Collateral evidenced by an agreement, Instrument or Document, including, without limitation, any tangible Chattel Paper and any Investment Property consisting of certificated securities, such Loan Party shall deliver the original thereof to Administrative Agent together with an appropriate endorsement or other specific evidence of assignment thereof to Administrative Agent (in form and substance acceptable to Administrative Agent). If an endorsement or assignment of any such items shall not be made for any reason, Administrative Agent is hereby irrevocably authorized, as such Loan Party's attorney and agent-in-fact, to endorse or assign the same on such Loan Party's behalf.
To the extent that a Loan Party obtains or maintains any Electronic Chattel Paper, such Loan Party shall create, store and assign the record or records comprising the Electronic Chattel Paper in such a manner that (i) a single authoritative copy of the record or records exists which is unique, identifiable and except as otherwise provided in clauses (iv), (v) and (vi) below, unalterable, (ii) the authoritative copy identifies Administrative Agent as the assignee of the record or records, (iii) the authoritative copy is communicated to and maintained by the Administrative Agent or its designated custodian, (iv) copies or revisions that add or change an identified assignee of the authoritative copy can only be made with the participation of Administrative Agent, (v) each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy and
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(vi) any revision of the authoritative copy is readily identifiable as an authorized or unauthorized revision.
Each Loan Party shall, at Administrative Agent's request, at any time and from time to time, authenticate, execute and deliver to Administrative Agent such financing statements, documents and other agreements and instruments (and pay the cost of filing or recording the same in all public offices deemed necessary or desirable by Administrative Agent) and do such other acts and things or cause third parties to do such other acts and things as Administrative Agent may deem necessary or desirable in its sole discretion in order to establish and maintain a valid, attached and perfected security interest in the Collateral in favor of Administrative Agent (free and clear of all other liens, claims, encumbrances and rights of third parties whatsoever, whether voluntarily or involuntarily created, except Permitted Liens) to secure payment of the Obligations, and in order to facilitate the collection of the Collateral. Each Loan Party irrevocably hereby makes, constitutes and appoints Administrative Agent (and all Persons designated by Administrative Agent for that purpose) as such Loan Party's true and lawful attorney and agent-in-fact to execute and file such financing statements, documents and other agreements and instruments and do such other acts and things as may be necessary to preserve and perfect Administrative Agent's security interest in the Collateral. Each Loan Party further ratifies and confirms the prior filing by Administrative Agent of any and all financing statements which identify the such Loan Party as debtor, Administrative Agent as secured party and any or all Collateral as collateral.
Until otherwise notified by Administrative Agent following the occurrence of an Event of Default, each Loan Party shall have the right, except as otherwise provided in this Agreement, in the ordinary course of such Loan Party's business, to (a) sell, lease or furnish under contracts of service any of such Loan Party's Inventory normally held by such Loan Party for any such purpose; (b) use and consume any raw materials, work in process or other materials normally held by such Loan Party for such purpose; and (c) dispose of obsolete or unuseful Equipment so long as all of the proceeds thereof are paid to Administrative Agent for application to the Obligations (except for such proceeds which are required to be delivered to the holder of a Permitted Lien which is prior in right of payment); provided, however, that a sale in the ordinary course of business shall not include any transfer or sale in satisfaction, partial or complete, of a debt owed by such Loan Party.
8.1.Lockbox and Lockbox Account.
Each Loan Party shall direct all of its Account Debtors to make all payments on the Accounts directly to a mailing address designated by, and under the exclusive control of Administrative Agent, at a financial institution acceptable to Administrative Agent (the "Lockbox"); provided, that with the consent of Administrative Agent, each Loan Party may collect payments and remotely scan such checks to Administrative Agent in a manner satisfactory to Administrative Agent ("Remote Scanning") on a daily basis as such checks are received. Loan Parties shall establish an account (the "Lockbox Account") in each Loan Party’s name, for the benefit of Administrative Agent, with a financial institution acceptable to Administrative Agent, into which all payments received in the Lockbox shall be deposited, and into which each Loan Party will immediately deposit all payments received by such Loan Party on Accounts in the identical form in which such payments were received, whether by cash or check. If any Loan Party, any Affiliate or Subsidiary, any shareholder, officer, director, employee or agent of any Loan Party or any Affiliate or Subsidiary, or any other Person acting for or in concert with such Loan Party shall receive any monies, checks, notes, drafts or other payments relating to or as Proceeds of Accounts or other Collateral, such Loan Party and each such Person shall receive all such items in trust for, and as the sole and exclusive property of, Administrative Agent and, immediately
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upon receipt thereof, shall remit the same (or cause the same to be remitted) in kind to the Lockbox Account in a manner satisfactory to Administrative Agent including by Remote Scanning. The financial institution with which the Lockbox Account is established shall acknowledge and agree, in a manner satisfactory to Administrative Agent, that the checks, instruments, and other property in such Lockbox and Lockbox Account are the sole and exclusive property of Administrative Agent, that such financial institution will follow the instructions of Administrative Agent with respect to disposition of funds in the Lockbox and Lockbox Account without further consent from a Loan Party, the financial institution will not accept instructions of such Loan Party with respect to the Lockbox Account, that such financial institution has no right to setoff against the Lockbox or Lockbox Account or against any other account maintained by such financial institution into which the contents of the Lockbox or Lockbox Account are transferred, and that such financial institution shall wire, or otherwise transfer in immediately available funds to Administrative Agent in a manner satisfactory to Administrative Agent, funds deposited in the Lockbox Account on a daily basis as such funds are collected; provided that if the Lockbox Account is at Administrative Agent, the daily ledger balance of such accounts as of the beginning of each Business Day shall be transferred to Administrative Agent each Business Day for application in accordance with Section 8.3. Each Loan Party agrees that all payments made to such Lockbox Account or otherwise received by Administrative Agent, whether in respect of the Accounts or as Proceeds of other Collateral or otherwise (except for proceeds of Collateral which are required to be delivered to the holder of a Permitted Lien which is prior in right of payment), will be applied on account of the Obligations in accordance with the terms of this Agreement; provided, that so long as no Event of Default has occurred, payments received by Administrative Agent shall not be applied to the unmatured portion of the LIBOR Loans, but shall be held in a cash collateral account maintained by Administrative Agent/transferred to such Loan Party's operating account at Administrative Agent, until the earlier of (i) the last Business Day of the Interest Period applicable to such LIBOR Loan and (ii) the occurrence of an Event of Default; provided further, that so long as no Event of Default has occurred, the immediately available funds in such cash collateral account may be disbursed, at such Loan Party's discretion, to such Loan Party so long as after giving effect to such disbursement, Loan Parties’ availability under Section 2.1.1 hereof at such time, equals or exceeds the outstanding Revolving Loans at such time. Loan Parties agree to pay all customary fees, costs and expenses in connection with opening and maintaining the Lockbox and Lockbox Account. All of such fees, costs and expenses if not paid by Loan Parties, may be paid by Administrative Agent (if at a financial institution other than Administrative Agent) or otherwise charged to Loan Parties and in such event all amounts paid by Administrative Agent or charged by Administrative Agent shall constitute Obligations hereunder, shall be payable to Administrative Agent by Loan Parties upon demand, and, until paid, shall bear interest at the highest rate then applicable to Loans hereunder. All checks, drafts, instruments and other items of payment or Proceeds of Collateral shall be endorsed by such Loan Party to Administrative Agent, and, if that endorsement of any such item shall not be made for any reason, Administrative Agent is hereby irrevocably authorized to endorse the same on such Loan Party's behalf. For the purpose of this section, each Loan Party irrevocably hereby makes, constitutes and appoints Administrative Agent (and all Persons designated by Administrative Agent for that purpose) as such Loan Party’s true and lawful attorney and agent-in-fact (i) to endorse such Loan Party’s name upon said items of payment and/or Proceeds of Collateral and upon any Chattel Paper, Document, Instrument, invoice or similar document or agreement relating to any Account of such Loan Party or Goods pertaining thereto; (ii) to take control in any manner of any item of payment or Proceeds thereof and (iii) to have access to any lockbox or postal box into which any of such Loan Party's mail is deposited, and open and process all mail addressed to such Loan Party and deposited therein.
8.2.Administrative Agent's Rights.
Administrative Agent may, at any time and from time to time after the occurrence and during the continuance of an Event of Default, whether before or after notification to any Account Debtor and whether before or after the maturity of any of the Obligations, (i) enforce collection of any of any Loan Party's Accounts or other amounts owed to a Loan Party by suit or otherwise; (ii) exercise all of any Loan Party's rights and remedies with respect to proceedings brought to collect any Accounts or other amounts owed to a Loan Party; (iii) surrender, release or exchange all or any part of any Accounts or other amounts owed to a Loan Party, or compromise or extend or renew for any period
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(whether or not longer than the original period) any indebtedness thereunder; (iv) sell or assign any Account of a Loan Party or other amount owed to a Loan Party upon such terms, for such amount and at such time or times as Administrative Agent deems advisable; (v) prepare, file and sign the applicable Loan Party's name on any proof of claim in bankruptcy or other similar document against any Account Debtor or other Person obligated to such Loan Party; and (vi) do all other acts and things which are necessary, in Administrative Agent's sole discretion, to fulfill each Loan Party's obligations under this Agreement and the other Loan Documents and to allow Administrative Agent to collect the Accounts or other amounts owed to a Loan Party. In addition to any other provision hereof, Administrative Agent may at any time, after the occurrence and during the continuance of an Event of Default, at Borrowers’ expense, notify any parties obligated on any of the Accounts to make payment directly to Administrative Agent of any amounts due or to become due thereunder.
For purposes of calculating interest and fees, Administrative Agent shall, within one (1) Business Days after application of the opening daily ledger balance to the Obligations as set forth in the immediately following sentence, apply the whole or any part of such collections or Proceeds against the Obligations in such order as Administrative Agent shall determine in its sole discretion and in the absence of any determination, in accordance with the order set forth in Section 16.2. For purposes of determining the amount of Loans available for borrowing purposes, Administrative Agent shall apply the opening daily ledger balance in the Lockbox Account as of the beginning of each Business Day in whole or in part against the Obligations, in such order as Administrative Agent shall determine in its sole discretion (and in the absence of any such determination, in the order set forth in Section 16.2), subject to actual collection.
On a monthly basis, Administrative Agent shall deliver to Borrowers an account statement showing all Loans, charges and payments, which shall be deemed final, binding and conclusive upon Borrowers unless Borrowers notify Administrative Agent in writing, specifying any error therein, within thirty (30) days of the date such account statement is sent to Borrowers and any such notice shall only constitute an objection to the items specifically identified.
Each Borrower shall deliver to Administrative Agent and each Lender an executed loan report and certificate in Administrative Agent's then current form at least once each week, which shall be accompanied by copies of such Borrower’s sales journal, cash receipts journal and credit memo journal for the relevant period. Such report shall reflect the activity of such Borrower with respect to Accounts for the immediately preceding week, and shall be in a form and with such specificity as is satisfactory to Administrative Agent and shall contain such additional information concerning Accounts and Inventory as may be requested by Administrative Agent including, without limitation, but only if specifically requested by Administrative Agent, copies of all invoices prepared in connection with such Accounts. Provided average Excess Availability for the immediately preceding 30 day period is equal to or exceeds Five Million and no/100 Dollars ($5,000,000), the reports set forth in this Section 9.1 can be provided monthly and shall be due within ten (10) days after the end of each month.
Each Borrower shall deliver to Administrative Agent, in addition to any other reports, as soon as practicable and in any event: (i) within twenty (20) days after the end of each month, (A) a detailed trial balance of such Borrower’s Accounts aged per invoice date, in form and substance reasonably satisfactory to Administrative Agent including, without limitation, the names and addresses of all Account Debtors of such Borrower, and (B) a summary and detail of accounts payable (such
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Accounts and accounts payable divided into such time intervals as Administrative Agent may require in its sole discretion), including a listing of any held checks; and (ii) within twenty (20) days after the end of each month, the general ledger inventory account balance, a perpetual inventory report and Administrative Agent's standard form of Inventory report then in effect or the form most recently requested from such Borrower by Administrative Agent, for such Borrower by each category of Inventory, together with a description of the monthly change in each category of Inventory.
Borrowers shall deliver to Administrative Agent and each Lender the following financial information, all of which shall be prepared in accordance with generally accepted accounting principles consistently applied: (i) no later than thirty (30) days after each calendar month, copies of internally prepared financial statements, including, without limitation, balance sheets and statements of income, retained earnings and cash flow of Borrowers, on a consolidated and consolidating basis, (ii) no later than forty five (45) days after each calendar quarter, copies of internally prepared financial statements, including, without limitation, balance sheets and statements of income, retained earnings and cash flow of Borrowers, on a consolidated and consolidating basis, certified by the Chief Financial Officer of each Borrower and accompanied by a compliance certificate in the form of Exhibit A hereto, which compliance certificate shall include a calculation of all financial covenants contained in this Agreement; and (iii) no later than ninety (90) days after the end of each of Borrowers' Fiscal Years, audited annual financial statements with an unqualified opinion by Crowe LLP or other independent certified public accountants selected by Borrowers and reasonably satisfactory to Administrative Agent, which financial statements shall be accompanied by copies of any management letters sent to a Borrower by such accountants and by a compliance certificate in the form of Exhibit A hereto, which compliance certificate shall include a calculation of all financial covenants contained in this Agreement.
As soon as practicable and in any event prior to the 90th day of such Fiscal Year, Borrowers shall deliver to Administrative Agent projected balance sheets, statements of income and cash flow for Borrowers, consolidated and consolidating basis for each of the twelve (12) months during such Fiscal Year, which shall include the assumptions used therein, together with appropriate supporting details as reasonably requested by Administrative Agent.
9.5.Explanation of Budgets and Projections.
In conjunction with the delivery of the annual presentation of projections or budgets referred to in Section 9.4 above, Borrowers shall deliver a letter signed by the President or a Vice President of Borrowers and by the Treasurer or Chief Financial Officer of Borrowers, describing, comparing and analyzing, in detail, all changes and developments between the anticipated financial results included in such projections or budgets and the historical financial statements of Borrowers.
Promptly upon the filing thereof, Borrowers shall deliver to Administrative Agent copies of all registration statements and annual, quarterly, monthly or other regular reports which any Borrower or any of its Subsidiaries files with the Securities and Exchange Commission, as well as promptly providing to Administrative Agent copies of any reports and proxy statements delivered to its shareholders.
Promptly, but not greater than ten (10) days following request therefor by Administrative Agent, such other business or financial data, reports, appraisals and projections with respect to each Loan Party as Administrative Agent may reasonably request.
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Each Lender's obligations under this Agreement shall be in effect from the Closing Date until the Maturity Date or such earlier date that the Obligations are accelerated pursuant to Section 16. Upon the Maturity Date or the earlier acceleration of the Obligations as set forth above, (i) neither Administrative Agent nor any Lender shall be obligated to make any additional Loans on or after the date identified as the date on which the Obligations are to be repaid; and (ii) this Agreement shall terminate on the date thereafter that the Obligations are paid in full (except for such provisions that by their terms survive the termination of this Agreement) and all Letters of Credit are returned to the L/C Issuer for cancellation or Cash Collateralized in a manner satisfactory to Administrative Agent and the L/C Issuer. Prior to such time as Borrowers have repaid all of the Obligations and return all Letters of Credit to L/C Issuer for cancellation or such Letters of Credit are Cash Collateralized in a manner satisfactory to Administrative Agent and the L/C Issuer and this Agreement is to be terminated, if Borrowers are obtaining new financing from another lender, each Borrower shall deliver such lender's indemnification of Administrative Agent and Lenders, in form and substance satisfactory to Administrative Agent, for checks or other amounts which Administrative Agent has credited to any Borrower’s account, but which subsequently are dishonored, returned or reversed for any reason or for automatic clearinghouse or wire transfers not yet posted to such Borrower’s account. If, during the term of this Agreement, Borrowers prepay all of the Obligations, return all Letters of Credit for cancellation or Cash Collateralizes such Letters of Credit in a manner satisfactory to Administrative Agent and the L/C Issuer and this Agreement is terminated, Borrowers jointly and severally agree to pay to Administrative Agent, for the ratable benefit of Lenders as a prepayment fee, in addition to the payment of all other Obligations, an amount equal to (i) two percent (2.0%) of the Maximum Loan Amount if such prepayment occurs after the Closing Date but prior to the first anniversary of the Closing Date, (ii) one percent (1.0%) of the Maximum Loan Amount if such prepayment occurs on or after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date, or (iii) zero percent (0.0%) of the Maximum Loan Amount if such prepayment occurs on or after the second anniversary of the Closing Date; provided, however, such prepayment fee shall be waived in the event of a refinancing with CIBC US.
Each Loan Party hereby represents and warrants to Administrative Agent and Lenders, which representations and warranties (whether appearing in this Section 11 or elsewhere) shall be true at the time of each Loan Party's execution hereof and the closing of the transactions described herein or related hereto, shall remain true until the repayment in full and satisfaction of all the Obligations and termination of this Agreement, and shall be remade by each Loan Party at the time each Loan is made pursuant to this Agreement, provided, that representations and warranties made as of a particular date shall be true and correct as of such date.
11.1.Financial Statements and Other Information.
The financial statements and other information delivered or to be delivered by each Loan Party to Administrative Agent or any Lender at or prior to the date of this Agreement fairly present in all material respects the financial condition of such Loan Party, and there has been no material adverse change in the financial condition, the operations or any other status of such Loan Party since the date of the financial statements delivered to Administrative Agent or any Lender most recently prior to the date of this Agreement. All written information now or heretofore furnished by each Loan Party to Administrative Agent or any Lender is true and correct in all material respects as of the date with respect to which such information was furnished and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances under which made.
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The office where each Loan Party keeps its books, records and accounts (or copies thereof) concerning the Collateral, each Loan Party's principal place of business and all of each Loan Party's other places of business, locations of Collateral and post office boxes and locations of bank accounts are as set forth in Schedule 11.2 and at other locations within the continental United States of which Administrative Agent has been advised by a Borrower in accordance with Section 12.2.1. The Collateral, including, without limitation, the Equipment (except any part thereof which a Borrower shall have advised Administrative Agent in writing consists of Collateral normally used in more than one state) is kept, or, in the case of vehicles, based, only at the addresses set forth on Schedule 11.2, and at other locations within the continental United States of which Administrative Agent has been advised by a Borrower in writing in accordance with Section 12.2.1.
No Loan Party has made any loans or advances to any Affiliate or other Person except for advances authorized hereunder to employees, officers and directors of each Loan Party for travel and other expenses arising in the ordinary course of such Loan Party's business.
Each Account or item of Inventory which a Borrower shall, expressly or by implication, request Administrative Agent to classify as an Eligible Account or as Eligible Inventory, respectively, shall, as of the time when such request is made, conform in all respects to the requirements of such classification as set forth in the respective definitions of Eligible Account and Eligible Inventory as set forth herein and as otherwise established by Administrative Agent from time to time.
Each Loan Party is the lawful owner of all Collateral now purportedly owned or hereafter purportedly acquired by such Loan Party, free from all liens, claims, security interests and encumbrances whatsoever, whether voluntarily or involuntarily created and whether or not perfected, other than the Permitted Liens.
11.6.Organization, Authority and No Conflict.
Each Loan Party is an entity of the type set forth on Schedule 11.6, duly organized, validly existing and in good standing in its state of organization set forth on Schedule 11.6, its state organizational identification number is set forth on Schedule 11.6, and is duly qualified and in good standing in all states ’except where the failure to qualify could not reasonably be expected to result in a Material Adverse Effect. Each Loan Party has the right and power and is duly authorized and empowered to enter into, execute and deliver this Agreement and the other Loan Documents to which it is a party and perform its obligations hereunder and thereunder. Each Loan Party's execution, delivery and performance of this Agreement and the other Loan Documents does not conflict with the provisions of the organizational documents of such Loan Party, any statute, regulation, ordinance or rule of law, or any agreement, contract or other document which may now or hereafter be binding on such Loan Party, except for conflicts with agreements, contracts or other documents which would not have a Material Adverse Effect on such Loan Party, and such Loan Party's execution, delivery and performance of this Agreement and the other Loan Documents shall not result in the imposition of any lien or other encumbrance upon any of such Loan Party's property (other than Permitted Liens) under any existing indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument by which such Loan Party or any of its property may be bound or affected. If a Loan Party is a partnership or limited liability company, such Loan Party has not expressly elected to have its equity interests treated as "Securities" under and as defined in Article 8 of the Uniform Commercial Code as in effect in the state of formation for such Loan Party9.
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Except as disclosed on Schedule 11.7 hereto, there are no actions or proceedings which are pending or, to the best of any Loan Party's knowledge, threatened against any Loan Party or any Subsidiary which is reasonably likely to have a Material Adverse Effect on such Loan Party or Subsidiary, and each Loan Party shall, promptly upon becoming aware of any such pending or threatened action or proceeding, give written notice thereof to Administrative Agent. No Loan Party has any Commercial Tort Claims pending other than those set forth on Exhibit D hereto as Exhibit D may be amended from time to time.
11.8.Compliance with Laws and Maintenance of Permits; Taxes.
(i)Each Loan Party and each of their Subsidiaries has obtained all governmental consents, franchises, certificates, licenses, authorizations, approvals and permits, the lack of which would have a Material Adverse Effect on such Loan Party or Subsidiary. Each Loan Party and each of their Subsidiaries is in compliance in all material respects with all applicable federal, state, local and foreign statutes, orders, regulations, rules and ordinances (including, without limitation, Environmental Laws) the failure to comply with which would have a Material Adverse Effect on such Loan Party or Subsidiary.
(ii)Each Loan Party and each of their Subsidiaries has timely filed all Tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges due and payable with respect to such return or otherwise owing by a Loan Party or a Subsidiary, except any such Taxes which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books and such proceedings stay the enforcement and collection upon any Lien for such Taxes. The Loan Parties and their Subsidiaries have made adequate reserves on their books and records in accordance with GAAP for all Taxes that have accrued but which are not yet due and payable. Neither any Loan Party nor any Subsidiary has participated in any transaction that relates to a year of the taxpayer (which is still open under the applicable statute of limitations) which is a "reportable transaction" within the meaning of Treasury Regulation Section 1.6011-4(b)(2) (irrespective of the date when the transaction was entered into).
Except as set forth on Schedule 11.9 hereto or as permitted pursuant to Section 11.3 hereof, no Loan Party is conducting, permitting or suffering to be conducted, transactions with any Affiliate other than transactions with Affiliates for the purchase or sale of Inventory or services in the ordinary course of business pursuant to terms that are no less favorable to such Loan Party than the terms upon which such transactions would have been made had they been made to or with a Person that is not an Affiliate.
Each Loan Party's name has always been as set forth on the first page of this Agreement and no Loan Party uses any trade names, assumed names, fictitious names or division names in the operation of its business, except as set forth on Schedule 11.10 hereto.
Except for Permitted Liens, each Loan Party has good and indefeasible and merchantable title to and ownership of all Equipment. No Equipment is a Fixture to real estate unless such real estate is owned by a Loan Party and is subject to a mortgage in favor of Administrative Agent other than with respect Equipment that is a Fixture to real estate that is subject to a mortgage in favor of Rooster pursuant to the Rooster Loan Documents, or if such real estate is leased, is, within thirty (30) days after the Closing Date, subject to a landlord's agreement in favor of Administrative Agent on
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terms acceptable to Administrative Agent, or an accession to other personal property unless such personal property is subject to a first priority lien in favor of Administrative Agent.
This Agreement and the other Loan Documents to which a Loan Party is a party are the legal, valid and binding obligations of such Loan Party and are enforceable against such Loan Party in accordance with their respective terms.
Each Loan Party is, after giving effect to the transactions contemplated hereby, solvent, able to pay its debts as they become due, has capital sufficient to carry on its business, now owns property having a value both at fair valuation and at present fair saleable value greater than the amount required to pay its debts, and will not be rendered insolvent by the execution and delivery of this Agreement or any of the other Loan Documents or by completion of the transactions contemplated hereunder or thereunder.
Except as set forth on Schedule 11.14, as of the Closing Date, no Loan Party is obligated (directly or indirectly), for any Debt for borrowed money other than the Obligations.
11.15.Margin Security and Use of Proceeds.
No Loan Party owns any margin securities, and none of the proceeds of the Loans hereunder shall be used for the purpose of (a) purchasing or carrying any margin securities or for the purpose of reducing or retiring any Debt which was originally incurred to purchase any margin securities or for any other purpose not permitted by Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time, or (b) making any loans to Non-Loan Party Subsidiaries.
11.16.Parent, Subsidiaries and Affiliates.
Except as set forth on Schedule 11.16 hereto, no Loan Party has Parents, Subsidiaries or other Affiliates or divisions, nor is any Loan Party engaged in any joint venture or partnership with any other Person.
No Loan Party nor any Subsidiary is in default under any material contract, lease or commitment to which it is a party or by which it is bound, nor does any Loan Party know of any dispute regarding any contract, lease or commitment which would have a Material Adverse Effect on such Loan Party or Subsidiary.
There are no controversies pending or threatened between any Loan Party or any of their Subsidiaries and any of its employees, agents or independent contractors other than employee grievances arising in the ordinary course of business which would not, in the aggregate, have a Material Adverse Effect on such Loan Party or Subsidiary, and each Loan Party and each Subsidiary is in compliance with all federal and state laws respecting employment and employment terms, conditions and practices except for such non-compliance which would not have a Material Adverse Effect on such Loan Party or Subsidiary.
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Each Loan Party possesses adequate licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications, trade styles and trade names to continue to conduct its business as heretofore conducted by it except to the extent that the failure to possess such items would not have a Material Adverse Effect on such Loan Party.
No Loan Party nor any Subsidiary has generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates in any material respect any Environmental Law or any license, permit, certificate, approval or similar authorization thereunder and the operations of each Loan Party and Subsidiary comply in all material respects with all Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder. There has been no investigation, proceeding, complaint, order, directive, claim, citation or notice by any governmental authority or any other Person, nor is any pending or to the best of any Loan Party's knowledge threatened with respect to any non-compliance with or violation of the requirements of any Environmental Law by any Loan Party or Subsidiary or the release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter, which affects such Loan Party or such Subsidiary, or any Loan Party’s or any Subsidiary’s business, operations or assets or any properties at which such Loan Party or such Subsidiary has transported, stored or disposed of any Hazardous Materials. No Loan Party nor any Subsidiary has material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials.
(a)(i) Each Plan complies with, and has been operated in accordance with, all applicable laws, including ERISA and the Code, and the terms of such Plan; (ii) any Plan intended by a Loan Party or a Subsidiary to be qualified under Section 401 of the Code is so qualified and (iii) no Loan Party nor any Subsidiary has any liability for any damages, fines, penalties, excise taxes or other similar amounts with respect to any Plan.
(b)The Unfunded Liability of all Plans does not in the aggregate exceed twenty percent (20%) of the Total Plan Liability for all such Plans. Each Plan and any other employee benefit plan within the meaning of Section 3(3) of ERISA for which a Loan Party or a Subsidiary may have liability to contribute complies in all material respects with all applicable requirements of law and regulations. No contribution failure under Section 412 of the Code, Section 302 of ERISA or the terms of any Plan has occurred with respect to any Plan, sufficient to give rise to a Lien under Section 303(k) of ERISA or Section 430(k) of the Code, or otherwise to have a Material Adverse Effect. There are no pending or, to the knowledge of any Loan Party, threatened, claims, actions, investigations or lawsuits against any Plan, any fiduciary of any Plan, or any Loan Party, any Subsidiary or other any member of the Controlled Group with respect to a Plan which could reasonably be expected to have a Material Adverse Effect. Neither any Loan Party, nor any Subsidiary, nor any other member of the Controlled Group has engaged in any prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) in connection with any Plan which would subject that Person to any material liability. Within the past five years, neither any Loan Party, nor any Subsidiary nor any other member of the Controlled Group has engaged in a transaction which resulted in a Plan with an Unfunded Liability being transferred out of the Controlled Group, which could reasonably be expected to have a Material Adverse Effect. No Termination Event has occurred or is reasonably expected to occur with respect to any Plan, which could reasonably be expected to have a Material Adverse Effect. Each "employee" pension benefit plan within the meaning of Section 3(2) of a Loan Party or a Subsidiary that is intended to be qualified under Section 401(a) of the Code has secured a determination letter or opinion letter
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from the IRS to that effect, and such determination letter or opinion letter is in effect. No Loan Party nor any Subsidiary has incurred any material excise taxes under Chapter 43 of the Code with respect to any employee benefit plan within the meaning of Section 3(3) of ERISA.
(c)All contributions (if any) have been made to any "multiemployer plan" (as such term is defined in Section 4001(3) of ERISA) (a "Multiemployer Plan") that are required to be made by a Loan Party, a Subsidiary or any other member of the Controlled Group under the terms of the plan or of any collective bargaining agreement or by applicable law; no Loan Party, no Subsidiary nor any other member of the Controlled Group has withdrawn or partially withdrawn from any Multiemployer Plan, incurred any withdrawal liability with respect to any such plan or received notice of any claim or demand for withdrawal liability or partial withdrawal liability from any such plan, and no condition has occurred which, if continued, could result in a withdrawal or partial withdrawal from any such plan; and no Loan Party, no Subsidiary nor any other member of the Controlled Group has received any notice that any Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of any excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent.
No Loan Party is an "investment company" or a company "controlled" by an "investment company" or a "subsidiary" of an "investment company" within the meaning of the Investment Company Act of 1940.
(a)No Loan Party or Subsidiary thereof (and, to the knowledge of each Loan Party, no joint venture thereof) is in violation in any material respects of any United States Requirements of Law relating to terrorism, sanctions or money laundering (the "Anti-Terrorism Laws"), including the United States Executive Order No. 13224 on Terrorist Financing (the "Anti-Terrorism Order") and the USA Patriot Act.
(b)No Loan Party or Subsidiary thereof (and, to the knowledge of each Loan Party, no joint venture thereof) (i) is listed in the annex to, or is otherwise subject to the provisions of, the Anti-Terrorism Order, (ii) is owned or controlled by, or acting for or on behalf of, any person listed in the annex to, or is otherwise subject to the provisions of, the Anti-Terrorism Order, (iii) commits, threatens or conspires to commit or supports "terrorism" as defined in the Anti-Terrorism Order or (iv) is named as a "specially designated national and blocked person" in the most current list published by OFAC.
(c)No Loan Party or Subsidiary thereof (and, to the knowledge of each Loan Party, no joint venture or other Affiliate thereof) (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in clauses (b)(i) through (b)(iv) above, (ii) deals in, or otherwise engages in any transactions relating to, any property or interests in property blocked pursuant to the Anti-Terrorism Order or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.
11.25.USA Patriot Act; Sanctions; Anti-Corruption; Beneficial Ownership.
11.25.1.USA Patriot Act. To the extent applicable, each Borrower and each of its Subsidiaries is in compliance in all material respects with (i) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury
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Department (31 CFR, Subtitle B, Chapter V, as amended), and any other enabling legislation or executive order relating thereto, and (ii) the Patriot Act.
11.25.2.Sanctioned Persons. None of Borrowers, any of their Subsidiaries or any director, officer, employee, agent, or affiliate of Borrowers or any of their Subsidiaries is a Person that is, or is owned or controlled by Persons that are: (i) the subject or target of any sanctions administered or enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the U.S. Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury, the Australian Department of Foreign Affairs and Trade (collectively, “Sanctions”), or (ii) located, organized or resident in a country or territory that is, or whose government is, the subject of Sanctions (including, without limitation, currently, Crimea, Cuba, Iran, North Korea, Sudan and Syria).
11.25.3.Dealings with Sanctioned Persons. For the past five years, neither any Borrower nor any of a Borrower’s Subsidiaries have knowingly engaged in, or is now knowingly engaged in any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was, or whose government is or was, the subject of Sanctions.
11.25.4.Anti-Corruption Laws. Each Borrower, its Subsidiaries and their respective directors, officers and employees and, to the knowledge of each Borrower, the agents of such Borrower and its Subsidiaries, are in compliance with the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the “FCPA”) and any other applicable anti-corruption law in all material respects. Each Borrower and its Subsidiaries have instituted and maintain policies and procedures designed to promote and achieve continued compliance therewith.
11.25.5.Certificate of Beneficial Ownership. As of Closing Date, the information contained in the Certificate of Beneficial Ownership is true, correct and complete.
Until payment and satisfaction in full of all Obligations and termination of this Agreement, unless Borrowers obtain Required Lenders' prior written consent waiving or modifying any of any Loan Party's covenants hereunder in any specific instance, each Loan Party covenants and agrees as follows:
Each Loan Party shall at all times keep accurate and complete books, records and accounts with respect to all of such Loan Party's business activities, in accordance with sound accounting practices and GAAP consistently applied, and shall keep such books, records and accounts, and any copies thereof, only at the addresses indicated for such purpose on Schedule 11.2.
Each Loan Party shall:
12.2.1.Locations. Promptly (but in no event less than ten (10) days prior to the occurrence thereof) notify Administrative Agent of the proposed opening of any new place of business or new location of Collateral, the closing of any existing place of business or location of Collateral, any change of the location of any Loan Party's books, records and accounts (or copies thereof), the opening or closing of any post office box, the opening or closing of any bank account or, if any of the Collateral consists of Goods of a type normally used in more than one state, the use of any such Goods in any state other than a state in which such Borrower or such Loan Party has previously advised Administrative Agent that such Goods will be used.
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12.2.2.Eligible Accounts and Inventory. Promptly upon becoming aware thereof, notify Administrative Agent if any Account or Inventory identified by a Borrower to Administrative Agent as an Eligible Account or Eligible Inventory becomes ineligible for any reason.
12.2.3.Litigation and Proceedings. Promptly upon becoming aware thereof, notify Administrative Agent of any actions or proceedings which are pending or threatened against a Loan Party which seek damages in excess of $250,000.00 or which would, if adversely determined, be reasonably expected to have a Material Adverse Effect on such Loan Party and of any Commercial Tort Claims of any Borrower which may arise, which notice shall constitute such Loan Party's authorization to amend Exhibit D to add such Commercial Tort Claim.
12.2.4.Names and Trade Names. Notify Administrative Agent within ten (10) days of the change of its name or the use of any trade name, assumed name, fictitious name or division name not previously disclosed to Administrative Agent in writing.
12.2.5.ERISA Matters. Promptly notify Administrative Agent of (i) the occurrence of any Reportable Event which might result in the termination by the Pension Benefit Guaranty Corporation (the “PBGC”) of any employee benefit plan subject to Title IV of ERISA ("Plan") covering any officers or employees of a Loan Party or any Subsidiary, any benefits of which are, or are required to be, guaranteed by the PBGC, (ii) receipt of any notice from the PBGC of its intention to seek termination of any Plan or appointment of a trustee therefor, (iii) its intention to terminate or withdraw from any Plan, (iv) the receipt of any notice that any Multiemployer Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of an excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent, or (v) the receipt of any notice from a Governmental Authority that any Plan intended to be qualified under Section 401 of the Code is not so qualified or that damages, fines, excise taxes, or penalties may be imposed on any Loan Party with respect to a Plan.
12.2.6.Environmental Matters. Promptly notify Administrative Agent upon becoming aware of any investigation, proceeding, complaint, order, directive, claim, citation or notice with respect to any non-compliance with or violation of the requirements of any Environmental Law by any Loan Party or Subsidiary thereof, or the generation, use, storage, treatment, transportation, manufacture handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter which affects any Loan Party or any Subsidiary thereof, or its business operations or assets or any properties at which any Loan Party or Subsidiary has transported, stored or disposed of any Hazardous Materials unless the foregoing could not reasonably be expected to have a Material Adverse Effect on such Loan Party or Subsidiary.
12.2.7.Related Transaction Notices. Promptly following receipt, copies of any notices (including notices of default or acceleration) received from any holder or trustee of, under or with respect to the Related Transactions. Furthermore, not later than five (5) Business Days prior to the closing date thereof, Borrowers shall cause to be delivered to Administrative Agent true and correct copies of the Related Transactions Documents set forth on Annex 2 hereto, with no material changes from the terms previously disclosed to Administrative Agent.
12.2.8.Default; Material Adverse Change. Promptly advise Administrative Agent of the occurrence of any event having or causing a Material Adverse Effect on any Loan Party, the occurrence of any Default or Event of Default hereunder.
12.2.9.Certificate of Beneficial Ownership. (a) Promptly after any change in the individual(s) identified as a beneficial owner in the Certificate of Beneficial Ownership and in no event later than contemporaneously with the next scheduled delivery of financial statements pursuant to Section 9, deliver to Administrative Agent and each Lender an updated Certificate of Beneficial Ownership in form and substance acceptable to Administrative Agent and, (b) promptly
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from time to time, deliver to Administrative Agent and each Lender such other information and documentation related to compliance with applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act and Beneficial Ownership Regulation, as any Lender or Administrative Agent may reasonably request.
All of the foregoing notices shall be provided by Borrowers to Administrative Agent in writing.
12.3.Compliance with Laws and Maintenance of Permits.
Each Loan Party shall, and shall cause each Subsidiary to, maintain all governmental consents, franchises, certificates, licenses, authorizations, approvals and permits, the lack of which would have a Material Adverse Effect on such Loan Party or Subsidiary and each Loan Party shall, and shall cause each Subsidiary to, remain in compliance with all applicable federal, state, local and foreign statutes, orders, regulations, rules and ordinances (including, without limitation, Environmental Laws and statutes, orders, regulations, rules and ordinances relating to taxes, employer and employee contributions and similar items, securities, ERISA or employee health and safety) the failure with which to comply would have a Material Adverse Effect on such Loan Party or Subsidiary. Following any determination by Administrative Agent that there is non-compliance, or any condition which requires any action by or on behalf of any Loan Party or Subsidiary in order to avoid non-compliance, with any Environmental Law, at Loan Parties’ expense cause an independent environmental engineer acceptable to Administrative Agent to conduct such tests of the relevant site(s) as are appropriate and prepare and deliver a report setting forth the results of such tests, a proposed plan for remediation and an estimate of the costs thereof.
12.4.Inspection, Audits and Appraisals.
Each Loan Party shall permit Administrative Agent, or any Persons designated by it, to call at such Loan Party's places of business during regular business hours (unless an Event of Default has occurred and is continuing, then at any reasonable time), and, without hindrance or delay, to inspect the Collateral and to inspect, audit, check and make extracts from such Loan Party's books, records, journals, orders, receipts and any correspondence and other data relating to such Loan Party's business, the Collateral or any transactions between the parties hereto, and shall have the right to make such verification concerning such Loan Party's business as Administrative Agent may consider reasonable under the circumstances. Each Loan Party shall furnish to Administrative Agent such information relevant to Administrative Agent's rights under this Agreement and the other Loan Documents as Administrative Agent shall at any time and from time to time request. Administrative Agent, through its officers, employees or agents shall have the right, at any time and from time to time, to verify the validity, amount or any other matter relating to any of any Loan Party's Accounts, by mail, telephone, telecopy, electronic mail, or otherwise. Each Loan Party authorizes Administrative Agent and its agents to discuss the affairs, finances and business of such Loan Party with any officers, employees or directors of each Loan Party or with its Parent or any Affiliate or the officers, employees or directors of its Parent or any Affiliate, and to discuss the financial condition of each Loan Party with such Loan Party's independent public accountants. Any such discussions shall be without liability to Administrative Agent or to such Loan Party's independent public accountants. Administrative Agent may engage appraisers to appraise the Collateral at such intervals as Administrative Agent shall determine and each Loan Party shall cooperate with such appraisers including providing access to the Collateral and its books and records to such appraisers during regular business hours (unless an Event of Default has occurred and is continuing, then at any reasonable time). Borrowers shall pay to Administrative Agent all customary fees and all reasonable costs and out-of-pocket expenses incurred by Administrative Agent in the exercise of its rights hereunder, and all of such fees, costs and expenses shall constitute Obligations hereunder, shall be payable on demand and, until paid, shall bear interest at the highest rate then applicable to Loans hereunder. Any Lender may accompany Administrative Agent on any such audit or inspection at its own cost. Notwithstanding the foregoing, provided no Event of Default then exists, (y) Administrative Agent shall limit the number of field audits to no more than two (2) in any Fiscal Year, and (z) Borrowers shall not be required to reimburse Lender for audit fees related to such two (2) field audits in excess of $40,000 in any Fiscal Year.
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Each Loan Party shall:
12.5.1.Casualty Insurance; Business Interruption Insurance. Keep the Collateral properly housed and insured for the full insurable value thereof against loss or damage by fire, theft, explosion, sprinklers, collision (in the case of motor vehicles) and such other risks as are customarily insured against by Persons engaged in businesses similar to that of such Loan Party, with such companies, in such amounts, with such deductibles, and under policies in such form, as shall be reasonably satisfactory to Administrative Agent. Within thirty (30) days following a request by Administrative Agent, Borrowers shall deliver original (or certified) copies of such policies of insurance to Administrative Agent, together with evidence of payment of all premiums therefor, such policies shall contain an endorsement, in form and substance reasonably acceptable to Administrative Agent, showing loss under such insurance policies payable to Administrative Agent. Such endorsement, or an independent instrument furnished to Administrative Agent, shall provide that the insurance company shall give Administrative Agent at least thirty (30) days (except for non-payment of premium, in which case a ten (10) days) written notice before any such policy of insurance is altered or canceled and that no act, whether willful or negligent, or default of such Loan Party or any other Person shall affect the right of Administrative Agent or Lenders to recover under such policy of insurance in case of loss or damage. In addition, each Loan Party shall cause to be executed and delivered to Administrative Agent an assignment of proceeds of its business interruption insurance policies. Each Loan Party hereby directs all insurers under all policies of insurance to pay all proceeds payable thereunder directly to Administrative Agent. Each Loan Party irrevocably makes, constitutes and appoints Administrative Agent (and all officers, employees or agents designated by Administrative Agent) as such Loan Party's true and lawful attorney (and agent-in-fact) for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of such Loan Party on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and making all determinations and decisions with respect to such policies of insurance, provided however, that if no Event of Default shall have occurred and is continuing, each Loan Party may make, settle and adjust claims involving less than $250,000.00 in the aggregate without Administrative Agent's consent.
12.5.2.Liability Insurance. Maintain, at its expense, such public liability and third party property damage insurance as is customary for Persons engaged in businesses similar to that of such Loan Party with such companies and in such amounts, with such deductibles and under policies in such form as shall be reasonably satisfactory to Administrative Agent and within thirty (30) days following request by Administrative Agent, Borrowers shall deliver original (or certified) copies of such policies to Administrative Agent, together with evidence of payment of all premiums therefor. Each such policy shall contain an endorsement showing Administrative Agent and Lenders as additional insured thereunder and providing that the insurance company shall give Administrative Agent at least thirty (30) days (except for non-payment of premium, in which case a ten (10) days) written notice before any such policy shall be altered or canceled.
12.5.3.ADMINISTRATIVE AGENT MAY PURCHASE INSURANCE. IF ANY LOAN PARTY AT ANY TIME OR TIMES HEREAFTER SHALL FAIL TO OBTAIN OR MAINTAIN ANY OF THE POLICIES OF INSURANCE REQUIRED ABOVE (AND PROVIDE EVIDENCE THEREOF TO ADMINISTRATIVE AGENT) OR TO PAY ANY PREMIUM RELATING THERETO, THEN ADMINISTRATIVE AGENT, WITHOUT WAIVING OR RELEASING ANY OBLIGATION OR DEFAULT BY BORROWERS HEREUNDER, MAY (BUT SHALL BE UNDER NO OBLIGATION TO) OBTAIN AND MAINTAIN SUCH POLICIES OF INSURANCE AND PAY SUCH PREMIUMS AND TAKE SUCH OTHER ACTIONS WITH RESPECT THERETO AS ADMINISTRATIVE AGENT DEEMS ADVISABLE UPON NOTICE TO BORROWERS. SUCH INSURANCE, IF OBTAINED BY ADMINISTRATIVE AGENT, MAY, BUT NEED NOT, PROTECT ANY LOAN PARTY'S INTERESTS OR PAY ANY CLAIM MADE BY OR AGAINST ANY LOAN PARTY WITH RESPECT TO THE COLLATERAL. SUCH INSURANCE MAY BE MORE EXPENSIVE THAN THE COST OF INSURANCE ANY LOAN PARTY MAY BE ABLE TO OBTAIN ON ITS OWN AND MAY BE CANCELLED ONLY UPON THE APPLICABLE LOAN PARTY PROVIDING EVIDENCE THAT IT HAS OBTAINED THE
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INSURANCE AS REQUIRED ABOVE. ALL SUMS DISBURSED BY ADMINISTRATIVE AGENT IN CONNECTION WITH ANY SUCH ACTIONS, INCLUDING, WITHOUT LIMITATION, COURT COSTS, EXPENSES, OTHER CHARGES RELATING THERETO AND REASONABLE ATTORNEY COSTS, SHALL CONSTITUTE LOANS HEREUNDER, SHALL BE PAYABLE ON DEMAND BY BORROWERS TO ADMINISTRATIVE AGENT AND, UNTIL PAID, SHALL BEAR INTEREST AT THE HIGHEST RATE THEN APPLICABLE TO LOANS HEREUNDER. THIS PROVISION SHALL CONSTITUTE THE NOTICE TO THE APPLICABLE LOAN PARTY REQUIRED PURSUANT TO PARAGRAPH (3) OF SECTION 180/10 OF CHAPTER 815 OF THE ILLINOIS COMPILED STATUTES (2004).
Each Loan Party shall keep the Collateral in good condition, repair and order and shall make all necessary repairs to the Equipment and replacements thereof so that the operating efficiency and the value thereof shall at all times be preserved and maintained in all material respects. Each Loan Party shall permit Administrative Agent to examine any of the Collateral at any reasonable time and wherever the Collateral may be located and, each Loan Party shall, immediately upon request therefor by Administrative Agent, deliver to Administrative Agent any and all evidence of ownership of any of the Equipment including, without limitation, certificates of title and applications of title. Each Loan Party shall, at the request of Administrative Agent, indicate on its records concerning the Collateral a notation, in form satisfactory to Administrative Agent, of the security interest of Administrative Agent hereunder. Upon Administrative Agent’s request, each Loan Party shall deliver or cause to be delivered to Administrative Agent landlord's agreements, bailee agreements, warehouseman's agreements and other collateral access agreements with respect to each location of Collateral with an aggregate value of assets exceeding $500,000.00 now existing or hereafter arising. For purposes of clarification, at all times from and after the date that is 30 days after the Closing Date, Borrowers will certify on each loan report and certificate delivered to Administrative Agent pursuant to Section 9.1 that no Inventory is included in Eligible Inventory unless the location of such Inventory is subject to a collateral access agreement in form and substance satisfactory to Administrative Agent.
All monies and other property obtained by Borrowers from Administrative Agent and Lenders pursuant to this Agreement shall be used solely to (i) finance the Related Transactions as set forth in Annex 2, (ii) refinance Debt outstanding immediately prior to the Closing Date, (iii) for Permitted Acquisitions and (iv) for working capital and other business purposes of Borrowers, and shall not be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of (x) "purchasing or carrying" any margin stock, (y) funding, supporting or paying any obligation under the Seed Australia Loan Documents, or (z) loaning or distributing funds to Non-Loan Party Subsidiaries other than as permitted hereunder.
Each Loan Party shall, and shall cause each Subsidiary to, file all required tax returns and pay all of its taxes when due, subject to any extensions granted by the applicable taxing authority, including, without limitation, taxes imposed by federal, state or municipal agencies, and shall cause any liens for taxes to be promptly released; provided, that each Loan Party and each Subsidiary shall have the right to contest the payment of such taxes in good faith by appropriate proceedings so long as (i) the amount so contested is shown on such Loan Party's or Subsidiary’s financial statements; (ii) the contesting of any such payment does not give rise to a lien for taxes; (iii) Borrowers keep on deposit with Administrative Agent (such deposit to be held without interest) or a reserve is maintained against Borrowers’ availability to borrow money under Section 2.1, in either case, in an amount of money which, in the sole judgment of Administrative Agent, is sufficient to pay such taxes and any interest or penalties that may accrue thereon; and (iv) if such Loan Party or Subsidiary fails to prosecute such contest with reasonable diligence, Administrative Agent may apply the money so deposited in payment of such taxes. If any Loan Party or Subsidiary fails to pay any such taxes and in the absence of any such contest by such Loan Party or Subsidiary, Administrative Agent may (but shall be under no obligation
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to) advance and pay any sums required to pay any such taxes and/or to secure the release of any lien therefor, and any sums so advanced by Administrative Agent shall constitute Loans hereunder, shall be payable by Borrowers to Administrative Agent on demand, and, until paid, shall bear interest at the highest rate then applicable to Loans hereunder.
Each Loan Party shall maintain adequate licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications, trade styles and trade names to continue its business as heretofore conducted by it or as hereafter conducted by it unless the failure to maintain any of the foregoing could not reasonably be expected to have a Material Adverse Effect on such Loan Party.
12.10.Checking Accounts and Cash Management Services.
Unless Administrative Agent otherwise consents in writing, in order to facilitate Administrative Agent's maintenance and monitoring of the Collateral, each Loan Party shall maintain, and shall cause each Loan Party to maintain its general checking/controlled disbursement account and its other deposit accounts with Administrative Agent. Each Loan Party shall be responsible for all normal charges assessed thereon. Each Loan Party shall notify Administrative Agent in writing ten (10) days prior to opening any new Deposit Account and shall enter into a control agreement satisfactory to Administrative Agent for each such Deposit Account of such Loan Party on or before the opening of such Deposit Account. Notwithstanding the foregoing, Loan Parties shall be permitted to maintain their existing bank accounts maintained with KeyBank for a period not to exceed ninety (90) days after the Closing Date, provided all of the Loan Parties’ Account and other collections are promptly remitted to Lender for application to the Obligations in a manner satisfactory to Administrative Agent.
12.11.USA Patriot Act, Bank Secrecy Act and Office of Foreign Asset Control
(a)Ensure, and cause each other Loan Party to ensure, that no Person who owns a controlling interest in or otherwise controls a Loan Party is or shall be (i) listed on the Specially Designated Nationals and Blocked Person List maintained by OFAC, Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (ii) a Person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders, and
(b)comply, and cause each other Loan Party to comply, with all applicable Bank Secrecy Act ("BSA") and anti-money laundering laws and regulations.
The Related Transaction shall close not later than April 1, 2020 unless Borrowers irrevocably elect to not close the Related Transaction. As of the closing date thereof, the Related Transactions shall be consummated in accordance with the terms of the Related Transaction Documents and applicable law and all necessary consents and approvals shall have been obtained in connection therewith, with no material changes from the terms thereof previously disclosed to Administrative Agent. Prior to closing the Related Transaction, Borrowers shall provide evidence satisfactory to Administrative Agent that immediately after giving effect to (A) the closing of the Related Transaction and all payments required to be made in connection with such closing, (B) the making of any Loans requested to be made in connection with such closing, (C) the payment of all fees due upon such date, and (D) the payment or reimbursement by Borrowers of all closing costs and expenses incurred in connection with the transactions contemplated thereby, Borrowers have Excess Availability of not less than [***] Dollars ($[***]).
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Until payment and satisfaction in full of all Obligations (other than inchoate indemnity obligations which expressly survive the termination of this Agreement) and termination of this Agreement, unless Borrowers obtain Required Lenders' prior written consent waiving or modifying any of the Loan Parties' covenants hereunder in any specific instance, each Loan Party agrees as follows:
Other than the Seed Australia Guarantee in an aggregate guaranty amount not to exceed Fifteen Million Australian Dollars (AUD $15,000,000), no Loan Party nor any Subsidiary shall assume, guarantee or endorse, or otherwise become liable in connection with, the obligations of any Person, except by endorsement of instruments for deposit or collection or similar transactions in the ordinary course of business.
No Loan Party nor any Subsidiary shall create, incur, assume or become obligated (directly or indirectly), for any Debt other than the Obligations, except that the Loan Parties and Subsidiaries may (i) incur Subordinated Debt; (ii) maintain their present Debt listed on Schedule 11.14 hereto; (iii) incur Contingent Liabilities arising with respect to customary indemnification obligations and earn out payments and with respect to Non-Loan Party Subsidiaries deferred consideration from the proceeds of Inventory and accounts receivable (subordinated to the Obligations in a manner satisfactory to Administrative Agent unless waived by Administrative Agent) in favor seller in connection with the Related Transactions or in connection with Permitted Acquisitions and purchases in connection with dispositions permitted under this Agreement; (iv) incur purchase money Debt or capitalized lease obligations in connection with Capital Expenditures permitted pursuant to Section 14.5 hereof incurred in connection with the purchase of Equipment; (v) incur Hedging Obligation approved by Administrative Agent and in favor of a Lender or an Affiliate thereof for bona fide hedging purposes and not for speculation;(vi) solely with respect to the Loan Parties, incur operating lease obligations requiring payments not to exceed $2,000,000.00 in the aggregate during any Fiscal Year of the Loan Parties; (vii) make loans to, and guaranties of Debt of, one another so long as (X) each is a Loan Party, or (Y) with respect to Non-Loan Party Subsidiaries, the amount thereof does not exceed $250,000.00 in the aggregate; (viii) incur other unsecured Debt, in addition to the Debt listed above, in an aggregate principal amount not to exceed $250,000.00, (ix) incur the Rooster Debt, so long as such Debt is subject to the Rooster Intercreditor Agreement, (x) upon consummation of the Related Transactions, incur the Debt as set forth on Annex 2, provided any such Debt is subject to the Related Transactions Subordination Agreement, and (xi) maintain Debt pursuant to extensions, renewals and refinancing of the Debt set forth in clauses (i), (ii) and (iv) above so long as the principal amount of such Debt is not increased (and any terms with respect to clause (i) above are permitted by the applicable subordination agreement).
No Loan Party nor any Subsidiary shall grant or permit to exist (voluntarily or involuntarily) any lien, claim, security interest or other encumbrance whatsoever on any of its assets, other than Permitted Liens.
13.4.Mergers, Sales, Acquisitions, Subsidiaries and Other Transactions Outside the Ordinary Course of Business.
No Loan Party shall (i) enter into any merger or consolidation, other than in connection with a Permitted Acquisition; provided, however, a Loan Party or any of its Subsidiaries may merge with another Loan Party so long as the Loan Party is the surviving entity,(ii) change the state of such Loan Party's organization or enter into any transaction which has the effect of changing such Loan Party's state of organization; (iii) sell, lease or otherwise dispose of any of its assets other than (X) in
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the ordinary course of business, (Y) assets that are obsolete or no longer useful in such Loan Party’s business; provided, however, a Loan Party may sell, lease or otherwise dispose of its assets to another Loan Party, or (Z) as permitted pursuant to the Rooster Intercreditor Agreement; (iv) purchase the stock, other equity interests or all or a material portion of the assets of any Person or division of such Person, other than in connection with a Permitted Acquisition or the Related Transactions; or (v) enter into any other transaction outside the ordinary course of such Loan Party's business (other than a Permitted Acquisition), including, without limitation, any purchase, redemption or retirement of any shares of any class of its stock or any other equity interest, and any issuance of any shares of, or warrants or other rights to receive or purchase any shares of, any class of its stock or any other equity interest. No Loan Party shall form any Subsidiaries or enter into any joint ventures or partnerships with any other Person other than for purposes of consummating a Permitted Acquisition.
No Loan Party shall make any Restricted Payments except for the following: (i) payments of dividends or other distributions by Subsidiaries of Borrowers to Borrowers or to other Subsidiaries of Borrowers that are Loan Parties; (ii) payments with respect to Subordinated Debt to the extent such payments are permitted pursuant to the subordination agreement or other subordination terms applicable thereto, (iii) so long as no Event of Default is continuing and (a) the applicable Loan Party shall not be a separately taxable entity for federal income tax purposes, and (b) such Loan Party gives Administrative Agent sufficient documentation to verify compliance with this clause one (1) Business Day prior to the distribution, such Loan Party may make Permitted Tax Distributions, (iv) so long as no Event of Default is continuing or would not be caused thereby on a pro forma basis, repurchases of a Loan Party’s stock in the aggregate amount not to exceed $1,000,000.00 in any Fiscal Year, provided such Loan Party gives Administrative Agent sufficient documentation to verify compliance with such requirements one (1) Business Day prior to the redemption, and (v) so long as no Event of Default is continuing, regularly scheduled payments (but not prepayments) of principal and interest with respect to the Rooster Debt and Related Transactions.
No Loan Party and no Subsidiary shall purchase or otherwise acquire, or contract to purchase or otherwise acquire, the obligations or stock of any Person, other than (i) direct obligations of the United States, (ii) obligations insured by the Federal Deposit Insurance Corporation and obligations unconditionally guaranteed by the United States, (iii) provided no Default or Event of Default then exists or would be caused thereby on a pro forma basis, loans to Subsidiaries after the Closing Date in an aggregate amount not to exceed $1,000,000 in any Fiscal Year, and (iv) Permitted Acquisitions; nor shall a Loan Party or Subsidiary lend or otherwise advance funds to any Person except for advances made to employees, officers and directors for travel and other expenses arising in the ordinary course of business.
13.7.Fundamental Changes, Line of Business; Certain Documents.
No Loan Party shall (i) amend its organizational documents or change its Fiscal Year unless (w) such actions would not have a Material Adverse Effect on the such Loan Party; (x) such actions would not affect the obligations of any Borrower or any Loan Party to Administrative Agent and Lenders; (y) such actions would not adversely affect the interpretation of any of the terms of this Agreement or the other Loan Documents and (z) Administrative Agent has received ten (10) days prior written notice of such amendment or change (ii) amend or modify any of the Related Transaction Documents other than immaterial amendments, modifications and waivers not adverse to the interests of Lenders or any documents evidencing Subordinated Debt except to the extent permitted pursuant to the applicable subordination agreement or subordination terms governing such Subordinated Debt or (iii) enter into a new line of business materially different from such Loan Party's current business
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No Loan Party shall (i) permit any Equipment to become a Fixture to real property after the Closing Date unless such real property is owned by such Loan Party and is subject to a mortgage in favor of Administrative Agent, or if such real estate is leased, is subject to a landlord's agreement in favor of Administrative Agent on terms acceptable to Administrative Agent, or (ii) permit any Equipment to become an accession to any other personal property unless such personal property is subject to a first priority lien in favor of Administrative Agent.
Except as set forth on Schedule 11.9 hereto or as permitted pursuant to Section 11.3 hereof, no Loan Party shall conduct, permit or suffer to be conducted, transactions with Affiliates other than transactions for the purchase or sale of Inventory or services in the ordinary course of business pursuant to terms that are no less favorable to such Loan Party than the terms upon which such transactions would have been made had they been made to or with a Person that is not an Affiliate. Without limiting the foregoing, no Loan Party will make any loans to, investments in or other transfers of property or business opportunities to any Non-Loan Party Subsidiary, nor will any Loan Party engage in any transaction with or for the benefit of a Non-Loan Party Subsidiary, other than de minimus activities related to a Loan Party being the parent company of a Non-Loan Party Subsidiary and de minimus transactions incidental thereto. Furthermore, any and all earn-out payments required to be made in connection with the Related Transaction shall not be funded by any Loan Party or any Subsidiary other than payments made from (y) cash equity received by the Loan Parties for the express purpose of satisfying such earn-out payments, and (z) the cash flow of [***] and [***].
No Borrower shall settle or adjust any Account identified by a Borrower as an Eligible Account or with respect to which the Account Debtor is an Affiliate without the consent of Administrative Agent, provided, that following the occurrence and during the continuance of an Event of Default, no Loan Party shall settle or adjust any Account without the consent of Administrative Agent.
Borrowers shall maintain and keep in full force and effect each of the financial covenants set forth below:
14.1.Consolidated Fixed Charge Coverage.
Loan Parties shall not permit the Consolidated Fixed Charge Coverage Ratio, tested as of the last day of each Fiscal Quarter, to be less than (X) 1.10 to 1.00 for any Fiscal Quarter from the Fiscal Quarter ending March 31, 2020, through and including the Fiscal Quarter ending March 31, 2021, or (Y) 1.15 to 1.00 for any Fiscal Quarter from and after the Fiscal Quarter ending June 30, 2021.
14.2.Loan Party Fixed Charge Coverage.
Loan Parties shall not permit the Loan Party Fixed Charge Coverage Ratio, tested as of the last day of each Fiscal Quarter, to be less than (X) 1.10 to 1.00 for any Fiscal Quarter from the Fiscal Quarter ending March 31, 2020, through and including the Fiscal Quarter ending March 31, 2021, or (Y) 1.15 to 1.00 for any Fiscal Quarter from and after the Fiscal Quarter ending June 30, 2021.
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14.3.Capital Expenditure Limitations.
Loan Parties and their Subsidiaries shall not make any Capital Expenditures if, after giving effect to such Capital Expenditure, the aggregate cost of all Capital Expenditures would exceed $2,500,000.00 during any Fiscal Year.
The occurrence of any one or more of the following events shall constitute an "Event of Default" by Borrowers hereunder:
The failure of any Loan Party to pay when due, declared due, or demanded by Administrative Agent (at the request of Required Lenders), any of the Obligations.
15.2.Breach of this Agreement and the other Loan Documents.
The failure of any Loan Party to perform, keep or observe any of the covenants, conditions, promises, agreements or obligations of such Loan Party under this Agreement or any of the other Loan Documents; provided that any such failure by a Loan Party under subsections 12.2.1, 12.2.4, 12.2.5, 12.2.6, 12.3 and 12.8 shall not constitute an Event of Default hereunder until the thirteeth (30th) day following the occurrence thereof.
15.3.Breaches of Other Obligations.
The failure of any Loan Party to perform, keep or observe (after any applicable notice and cure period) any of the covenants, conditions, promises, agreements or obligations of such Loan Party under any other agreement with any Person if such failure might have a Material Adverse Effect on such Loan Party.
15.4.Breach of Representations and Warranties.
The making or furnishing by any Loan Party to Administrative Agent or any Lender of any representation, warranty, certificate, schedule, report or other communication within or in connection with this Agreement or the other Loan Documents or in connection with any other agreement between such Loan Party and Administrative Agent or any Lender, which is untrue or misleading in any material respect as of the date made.
The loss, theft, damage or destruction of any of the Collateral in an amount in excess of $1,000,000.00 in the aggregate for all such events during any Fiscal Year as determined by Administrative Agent in its sole discretion determined in good faith, or (except as permitted hereby) the sale, lease or furnishing under a contract of service of, any of the Collateral.
15.6.Levy, Seizure or Attachment.
The making or any attempt by any Person to make any levy, seizure or attachment upon any of the Collateral.
15.7.Bankruptcy or Similar Proceedings.
The commencement of any proceedings in bankruptcy by or against any Loan Party or for the liquidation or reorganization of any Loan Party, or alleging that such Loan Party is insolvent or unable to pay its debts as they mature, or for the readjustment or arrangement of any Loan Party 's
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debts, whether under the United States Bankruptcy Code or under any other law, whether state or federal, now or hereafter existing, for the relief of debtors, or the commencement of any analogous statutory or non-statutory proceedings involving any Loan Party; provided, however, that if such commencement of proceedings against such Loan Party is involuntary, such action shall not constitute an Event of Default unless such proceedings are not dismissed within forty-five (45) days after the commencement of such proceedings, though Administrative Agent and Lenders shall have no obligation to make Loans to or issue, or cause to be issued, Letters of Credit on behalf of any Borrower during such forty-five (45) day period or, if earlier, until such proceedings are dismissed.
The appointment of a receiver or trustee for any Loan Party, for any of the Collateral or for any substantial part of any Loan Party 's assets or the institution of any proceedings for the dissolution, or the full or partial liquidation, or the merger or consolidation, of any Loan Party which is a corporation, limited liability company or a partnership; provided, however, that if such appointment or commencement of proceedings against such Loan Party is involuntary, such action shall not constitute an Event of Default unless such appointment is not revoked or such proceedings are not dismissed within forty-five (45) days after the commencement of such proceedings, though Administrative Agent and Lenders shall have no obligation to make Loans to or issue, or cause to be issued, Letters of Credit on behalf of any Borrower during such forty-five (45) day period or, if earlier, until such appointment is revoked or such proceedings are dismissed.
The entry of any final judgments or orders aggregating in excess of $500,000.00 (not covered by insurance from a third party insurance carrier) against any Loan Party which remains unsatisfied or undischarged and in effect for thirty (30) days after such entry without a stay of enforcement or execution.
15.10.Death or Dissolution of Loan Party.
The dissolution of any Loan Party which is a partnership, limited liability company, corporation or other entity.
15.11.Default or Revocation of Guaranty.
The occurrence of an event of default under, or the revocation or termination of, any agreement, instrument or document executed and delivered by any Person to Administrative Agent pursuant to which such Person has guaranteed to Administrative Agent and Lenders the payment of all or any of the Obligations or has granted Administrative Agent a security interest in or lien upon some or all of such Person's real and/or personal property to secure the payment of all or any of the Obligations.
The institution in any court of a criminal proceeding against any Loan Party which would have a Material Adverse Effect on such Loan Party, or the indictment of any Loan Party, or any officer of a Loan Party for any crime.
The acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group other than MFP (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), of Equity Interests representing more than 40% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower.
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(a)Any Person institutes steps to terminate a Plan if as a result of such termination any Loan Party or any member of the Controlled Group could be required to make a contribution to such Plan, or could incur a liability or obligation to such Plan, in excess of $500,000.00; (b) a contribution failure occurs with respect to any Plan sufficient to give rise to a Lien under Section 303(k) of ERISA or 430(i) of the Code; (c) the Unfunded Liability exceeds twenty percent of the Total Plan Liability, or (d) there shall occur any withdrawal or partial withdrawal from a Multiemployer Plan and the withdrawal liability (without unaccrued interest) to Multiemployer Plans as a result of such withdrawal (including any outstanding withdrawal liability that any Loan Party or any member of the Controlled Group have incurred on the date of such withdrawal) exceeds $250,000.00.
15.15.Breach of Seed Australia Loan Documents
The occurrence of a breach, default or event of default under any Seed Australia Loan Document, and such breach, default or event of default is not cured or waived within the time, if any, specified therein.
15.16.Material Adverse Effect.
The occurrence of any event having a Material Adverse Effect.
Upon the occurrence and during the continuance of an Event of Default described in Sections 15.7 or 15.8 hereof, all of the Obligations shall immediately and automatically become due and payable, without notice of any kind (provided, however, that notwithstanding the foregoing, Hedging Obligations shall only terminate in accordance with the terms of the relevant Hedging Agreement). Upon the occurrence of any other Event of Default, the Obligations may, at the option of Administrative Agent or at the direction of Required Lenders, in whole or in part at Administrative Agent's or Required Lenders' sole discretion, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable.
Upon the occurrence and during the continuance of an Event of Default, Administrative Agent may, and at the direction of Required Lenders shall, exercise from time to time any rights and remedies available to it under the Uniform Commercial Code and any other applicable law in addition to, and not in lieu of, any rights and remedies expressly granted in this Agreement or in any of the other Loan Documents and all of Administrative Agent's and Lender's rights and remedies shall be cumulative and non-exclusive to the extent permitted by law. In particular, but not by way of limitation of the foregoing, Administrative Agent may, and at the direction of Required Lenders shall, without notice, demand or legal process of any kind, take possession of any or all of the Collateral (in addition to Collateral of which it already has possession), wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may enter onto any of any Loan Party's premises where any of the Collateral may be, and search for, take possession of, remove, keep and store any of the Collateral until the same shall be sold or otherwise disposed of, and Administrative Agent shall have the right to store the same at any of any Loan Party's premises without cost to Administrative Agent or Lenders. At Administrative Agent's request, each Loan Party shall, at Borrowers’ expense, assemble the Collateral and make it available to Administrative Agent at one or more places to be designated by Administrative Agent and reasonably convenient to Administrative Agent and such Loan Party. Each Loan Party recognizes that if a Loan Party fails to perform, observe or discharge any of its Obligations under this Agreement or the other Loan Documents, no remedy at law will provide adequate relief to Administrative Agent or Lenders, and agrees that Administrative Agent
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shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. Any notification of intended disposition of any of the Collateral required by law will be deemed to be a reasonable authenticated notification of disposition if given at least ten (10) days prior to such disposition and such notice shall (i) describe Administrative Agent and Lenders and such Loan Party, (ii) describe the Collateral that is the subject of the intended disposition, (iii) state the method of the intended disposition, (iv) state that such Loan Party is entitled to an accounting of the Obligations and state the charge, if any, for an accounting and (v) state the time and place of any public disposition or the time after which any private sale is to be made. Administrative Agent may disclaim any warranties that might arise in connection with the sale, lease or other disposition of the Collateral and has no obligation to provide any warranties at such time. Any Proceeds of any disposition by Administrative Agent of any of the Collateral may be applied by Administrative Agent to the payment of expenses in connection with the Collateral, including, without limitation, Attorney Costs, and any balance of such Proceeds and all other payments received by Administrative Agent during the continuance of an Event of Default may be applied by Administrative Agent toward the payment of such of the Obligations, and in such order of application, as Administrative Agent may from time to time elect. In the absence of a specific determination by Administrative Agent, the Proceeds from the sale of, or other realization upon, all or any part of the Collateral in payment of the Obligations shall be applied in the following order.
FIRST, to the payment of all fees, costs, expenses and indemnities of Administrative Agent (in its capacity as such), including Attorney Costs, and any other Obligations owing to Administrative Agent in respect of sums advanced by Administrative Agent to preserve the Collateral or to preserve its security interest in the Collateral, until paid in full:
SECOND, to the payment of all of the Obligations in respect of the Swing Line Loans to the Swing Line Lender, until paid in full;
THIRD, to the payment of all of the Obligations consisting of accrued and unpaid interest owing to the Lenders and Letter of Credit fees owing to the L/C Issuer, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause THIRD payable to them, until paid in full;
FOURTH, to the payment of all Obligations consisting of principal owing to the Lenders and Bank Product Obligations owing to Lenders or their Affiliates, ratably among the Lenders and their Affiliates in proportion to the respective amounts described in this clause FOURTH held by them, until paid in full;
FIFTH, to the payment of the Lenders an amount equal to all Obligations in respect of outstanding Letters of Credit to be held as Cash Collateral in respect of such Obligations;
SIXTH, to the payment of all other Obligations owing to the Lenders until paid in full; and
SEVENTH, to the payment of any remaining Proceeds, if any, to whomever may be lawfully entitled to receive such amounts.
The Loan Parties and the Lenders hereby irrevocably authorize (and by entering into a Bank Product Agreement, each Bank Product provider shall be deemed to authorize) Administrative Agent, based upon the instruction of the Required Lenders, to Credit Bid and purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral (and the Loan Parties shall approve Administrative Agent as a qualified bidder and such Credit Bid as qualified bid) at any sale thereof conducted by Administrative Agent, based upon the instruction of the Required Lenders, under any provisions of the Uniform Commercial Code, as part of any sale or investor solicitation process conducted by any Lender Party, any interim receiver, receiver, receiver and manager,
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administrative receiver, trustee, agent or other Person pursuant or under any insolvency laws; provided, however, that (i) the Required Lenders may not direct the Administrative Agent in any manner that does not treat each of the Lenders equally, without preference or discrimination, in respect of consideration received as a result of the Credit Bid, (ii) the acquisition documents shall be commercially reasonable and contain customary protections for minority holders such as among other things, anti-dilution and tag-along rights, (iii) the exchanged debt or equity securities must be freely transferable, without restriction (subject to applicable securities laws) and (iv) reasonable efforts shall be made to structure the acquisition in a manner that causes the governance documents pertaining thereto to not impose any obligations or liabilities upon the Lenders individually (such as indemnification obligations).
For purposes of the preceding sentence, the term "Credit Bid" shall mean, an offer submitted by the Administrative Agent (on behalf of the Lender group), based upon the instruction of the Required Lenders, to acquire the property of any Loan Party or any portion thereof in exchange for and in full and final satisfaction of all or a portion (as determined by the Administrative Agent, based upon the instruction of the Required Lenders) of the claims and Obligations under this Agreement and other Loan Documents.
17.1.Conditions to Initial Loans.
The obligation of Lenders to fund the initial Revolving Loans, and to issue or cause to be issued the initial Letter of Credit, is subject to the satisfaction or waiver of the following conditions precedent (and the date on which all such conditions precedent have been satisfied and the initial Loans are advanced by Lenders is called the "Closing Date"):
(a)Administrative Agent shall have received each of the agreements, opinions, reports, approvals, consents, certificates and other documents set forth on the closing document list attached hereto as Schedule 17.1 (the "Closing Document List") in each case in form and substance satisfactory to Administrative Agent;
(b)Since June 30, 2019, no event shall have occurred which has had or could reasonably be expected to have a Material Adverse Effect on any Loan Party, as determined by Administrative Agent in its sole discretion, determined in good faith;
(c)Administrative Agent shall have received payment in full of all fees and expenses payable to it by Borrowers or any other Person in connection herewith, on or before disbursement of the initial Loans hereunder;
(d)Administrative Agent shall have determined that immediately after giving effect to (A) the making of the initial Loans requested to be made on the Closing Date, (B) the issuance of the initial Letter of Credit, if any, requested to be made on such date, (C) the payment of all fees due upon such date, and (D) the payment or reimbursement by Borrowers of Administrative Agent for all closing costs and expenses incurred in connection with the transactions contemplated hereby, Borrowers have Excess Availability of not less than Five Million and no/100 Dollars ($5,000,000.00); and
(e)The Loan Parties shall have executed and delivered to Administrative Agent all such other documents, instruments and agreements which Administrative Agent determines are reasonably necessary to consummate the transactions contemplated hereby.
Lenders shall not be obligated to fund any Loans, arrange for the issuance of any Letters of Credit or grant any other accommodation for the benefit of any Borrower, unless the following conditions are satisfied ; provided, that if Administrative Agent chooses to cause Loans to be
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advanced or Letters of Credit to be issued notwithstanding the failure of any such conditions to be satisfied, all Lenders shall be required to fund such Loans and participate in such Letters of Credit unless Required Lenders has directed Administrative Agent not to fund such Loans or caused such Letters of Credit to be issued:
(a)No Default or Event of Default shall exist at the time of or result from such funding, issuance or grant;
(b)The representations and warranties of each Loan Party in this Agreement and the other Loan Documents shall be true and correct as of the date, and after giving effect to such funding, issuance or grant (except for representations and warranties that expressly relate to an earlier date which must be true and correct as of such earlier date); and
(c)No event shall have occurred or circumstances exist that has or could reasonably be expected to have a Material Adverse Effect.
Each request (or deemed request) by a Borrower for funding of a Loan, issuance of a Letter of Credit or grant of an accommodation shall constitute a representation by Borrowers that the foregoing conditions are satisfied on the date of such request and on the date of such funding, issuance or grant. As an additional condition to any funding, issuance or grant, Administrative Agent shall have received such other information, documents, instruments and agreements as it deems appropriate in connection therewith.
18.1.Appointment and Authorization.
Each Lender and the L/C Issuer hereby irrevocably (subject to Section 18.10) appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duty or responsibility except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" herein and in other Loan Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. Administrative Agent shall provide copies of all financial statements and projections delivered to Administrative Agent by any Loan Party pursuant to Section 9 hereof, and copies of all material notices delivered to Administrative Agent by any Loan Party either by delivering copies to each Lender by electronic mail or by posting such materials to an internet service accessible by such Lenders such as "Intralinks". Each Loan Party and each Lender agrees that Administrative Agent may, in its sole discretion, utilize Intralinks or electronic mail for such purpose.
The L/C Issuers shall act on behalf of the Lenders (according to their Pro Rata Shares) with respect to any Letters of Credit issued by them and the documents associated therewith. The L/C Issuers shall have all of the benefits and immunities (a) provided to the Administrative Agent in this Section 18 with respect to any acts taken or omissions suffered by the L/C Issuers in connection with Letters of Credit issued by them or proposed to be issued by them and the applications and
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agreements for letters of credit pertaining to such Letters of Credit as fully as if the term "Administrative Agent", as used in this Section 18, included the L/C Issuers with respect to such acts or omissions and (b) as additionally provided in this Agreement with respect to the L/C Issuers.
The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys‑in‑fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney‑in‑fact that it selects in the absence of a finding by a court of competent jurisdiction in a final and nonappealable judgment that the Administrative Agent acted with gross negligence or willful misconduct.
18.4.Exculpation of Administrative Agent.
None of the Administrative Agent nor any of its directors, officers, employees or agents shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except to the extent resulting from its own gross negligence or willful misconduct in connection with its duties expressly set forth herein as determined by a final, nonappealable judgment by a court of competent jurisdiction), (b) not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any debtor relief law or that may affect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any debtor relief law or (c) be responsible in any manner to any Lender or participant for any recital, statement, representation or warranty made by any Loan Party or Affiliate of any Loan Party, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document (or the creation, perfection or priority of any Lien or security interest therein), or for any failure of any Loan Party or any other party to any Loan Document to perform its Obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of each Loan Party or any of any Loan Party's Subsidiaries or Affiliates.
18.5.Reliance by Administrative Agent.
The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, electronic mail message, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Loan Parties), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, confirmation from the Lenders of their obligation to indemnify the Administrative Agent against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The
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Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon each Lender. For purposes of determining compliance with the conditions specified in Section 12, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received written notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Default except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Lenders, unless the Administrative Agent shall have received written notice from a Lender or a Loan Party referring to this Agreement, describing such Event of Default or Default and stating that such notice is a "notice of default". The Administrative Agent will notify the Lenders of its receipt of any such notice. The Administrative Agent shall take such action with respect to such Event of Default or Default as may be requested by the Required Lenders in accordance with Section 16; provided that unless and until the Administrative Agent has received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default or Default as it shall deem advisable or in the best interest of the Lenders.
Each Lender acknowledges that the Administrative Agent has not made any representation or warranty to it, and that no act by the Administrative Agent hereafter taken, including any consent and acceptance of any assignment or review of the affairs of the Loan Parties, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender as to any matter, including whether the Administrative Agent has disclosed material information in its possession. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties, and made its own decision to enter into this Agreement and to extend credit to Borrowers hereunder. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial or other condition or creditworthiness of the Loan Parties which may come into the possession of the Administrative Agent.
Whether or not the transactions contemplated hereby are consummated, each Lender shall indemnify upon demand the Administrative Agent and its directors, officers, employees and agents (to the extent not reimbursed by or on behalf of Borrowers and without limiting the obligation of Borrowers to do so), according to its applicable Pro Rata Share, from and against any and all Indemnified Liabilities (as hereinafter defined); provided that no Lender shall be liable for any payment to any such Person of any portion of the Indemnified Liabilities to the extent determined by a
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final, nonappealable judgment by a court of competent jurisdiction to have resulted from the applicable Person's own gross negligence or willful misconduct. No action taken in accordance with the directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any Agent Advances and any costs or out‑of‑pocket expenses (including Attorney Costs and Taxes) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of Borrowers. The undertaking in this Section shall survive repayment of the Loans, cancellation of the Notes, expiration or termination of the Letters of Credit, any foreclosure under, or modification, release or discharge of, any or all of the Loan Documents, termination of this Agreement and the resignation or replacement of the Administrative Agent.
18.9.Administrative Agent in Individual Capacity.
CIBC US and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Loan Parties and Affiliates as though CIBC US were not the Administrative Agent hereunder and without notice to or consent of any Lender. Each Lender acknowledges that, pursuant to such activities, CIBC US or its Affiliates may receive information regarding the Loan Parties or their Affiliates (including information that may be subject to confidentiality obligations in favor of the Loan Parties or such Affiliate) and acknowledge that the Administrative Agent shall be under no obligation to provide such information to them. With respect to their Loans (if any), CIBC US and its Affiliates shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though CIBC US were not the Administrative Agent, and the terms "Lender" and "Lenders" include CIBC US and its Affiliates, to the extent applicable, in their individual capacities.
18.10.Successor Administrative Agent.
The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Lenders. If the Administrative Agent resigns under this Agreement, the Required Lenders shall, with (so long as no Event of Default exists) the consent of Borrowers (which shall not be unreasonably withheld or delayed), appoint from among the Lenders a successor agent for the Lenders. If no successor agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and (so long as no Event of Default is then continuing) Borrowers, a successor agent from among the Lenders. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term "Administrative Agent" shall mean such successor agent, and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated (except for any indemnity payments owed to the retiring or removed Administrative Agent). After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 18 and Sections 4.3.5 and 19.2 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. If no successor agent has accepted appointment as Administrative Agent by the date which is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (c) of the definition thereof, the Required Lenders may, to the extent permitted by applicable law, by notice in writing to Borrowers and such Person remove such Person as Administrative Agent and, in consultation with Borrowers, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the
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Required Lenders), then such removal shall nonetheless become effective in accordance with such notice on such date.
(a)Each Lender authorizes and directs Administrative Agent to enter into the other Loan Documents for the benefit of Lenders. Each Lender hereby agrees that, except as otherwise set forth herein, any action taken by Required Lenders in accordance with the provisions of this Agreement or the other Loan Documents, and the exercise by the Required Lenders of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all Lenders. Administrative Agent is hereby authorized on behalf of all Lenders, without the necessity of any notice to or further consent from any Lender to take any action with respect to any Collateral or other Loan Documents which may be necessary to perfect and maintain perfected the Liens upon the Collateral granted pursuant to this Agreement and the other Loan Documents.
(b)The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion, (i) to release any Lien granted to or held by the Administrative Agent under any Loan Document (x) upon termination of the Commitments and payment in full of all Loans and all other obligations of Borrowers hereunder and the expiration or termination of all Letters of Credit (including by means of credit bidding in accordance with Section 16.3); (y) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder (including the release of any guarantor); or (z) subject to Section 20.1 if approved, authorized or ratified in writing by the Required Lenders; or (ii) to subordinate its interest in any Collateral to any holder of a Lien on such Collateral which is permitted by clause (v) of the definition of Permitted Liens (it being understood that the Administrative Agent may conclusively rely on a certificate from Borrowers in determining whether the Debt secured by any such Lien is permitted by Section 13.2). Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agent's authority to release, or subordinate its interest in, particular types or items of Collateral pursuant to this Section 18.11. Each Lender hereby authorizes the Administrative Agent to give blockage notices in connection with any Subordinated Debt at the direction of Required Lenders and agrees that it will not act unilaterally to deliver such notices.
18.12.Restriction on Actions by Lenders.
Each Lender agrees that it shall not, without the express written consent of Administrative Agent, and shall, upon the written request of Administrative Agent (to the extent it is lawfully entitled to do so), set off against the Obligations, any amounts owing by such Lender to a Loan Party or any Deposit Accounts of any Loan Party now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so in writing by Administrative Agent, take or cause to be taken, any action, including the commencement of any legal or equitable proceedings to foreclose any loan or otherwise enforce any security interest in any of the Collateral or to enforce all or any part of this Agreement or the other Loan Documents. All enforcement actions under this Agreement and the other Loan Documents against the Loan Parties or any third party with respect to the Obligations or the Collateral may only be taken by the Administrative Agent (at the direction of the Required Lenders or as otherwise permitted in this Agreement) or by its agents at the direction of the Administrative Agent.
18.13.Administrative Agent May File Proofs of Claim.
18.13.1.Filing Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on any Loan Party) shall be entitled and empowered, by intervention in such proceeding or otherwise:
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(a)to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 4.3, and 193) allowed in such judicial proceedings; and
(b)to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.1.1(c), 4.3, 4.4 and 19.4.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
18.14.Other Agents; Arrangers and Managers.
None of the Lenders or other Persons identified on the facing page or signature pages of this Agreement as a "syndication agent," "documentation agent," "co-agent," "book manager," "lead manager," "arranger," "lead arranger" or "co-arranger", if any, shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than, in the case of such Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder.
19.1.Assignments; Participations.
(a)Any Lender may at any time assign to one or more Persons (any such Person, an "Assignee") all or any portion of such Lender's Loans and Commitments, with the prior written consent of the Administrative Agent, the L/C Issuers (for an assignment of the Revolving Loans and the Revolving Loan Commitment) and, so long as no Event of Default exists, Borrowers (which consents shall not be unreasonably withheld or delayed and shall not be required for an assignment by a Lender to a Lender (other than a Defaulting Lender) or an Affiliate of a Lender (other than an Affiliate of a Defaulting Lender) or an Approved Fund (other than an Approved Fund of a Defaulting Lender)). Except as the Administrative Agent may otherwise agree, any such assignment shall be in a minimum aggregate amount equal to $5,000,000 or, if less, the remaining Commitment and Loans held by the assigning Lender (provided, that an assignment to a Lender, an Affiliate of a Lender or an Approved Fund shall not be subject to the foregoing minimum assignment limitations). The Loan Parties and the Administrative Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned to an Assignee until the Administrative Agent shall have received and accepted an effective assignment agreement in substantially the form of Exhibit E hereto
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(an "Assignment Agreement") executed, delivered and fully completed by the applicable parties thereto and a processing fee of $3,500. Notwithstanding anything herein to the contrary, no assignment may be made to any equity holder of a Loan Party, any Affiliate of any equity holder of a Loan Party, any Loan Party, any holder of Subordinated Debt of a Loan Party, any holder of any Debt that is secured by liens or security interests that have been contractually subordinated to the liens and security interests securing the Obligations or any Affiliate of any of the foregoing Persons without the prior written consent of Administrative Agent, which consent may be withheld in Administrative Agent's sole discretion and, in any event, if granted, may be conditioned on such terms and conditions as Administrative Agent shall require in its sole discretion, including, without limitation, a limitation on the aggregate amount of Loans and Commitments which may be held by such Person and/or its Affiliates and/or limitations on such Person's and/or its Affiliates' voting and consent rights and/or rights to attend Lender meetings or obtain information provided to other Lenders. Any attempted assignment not made in accordance with this Section 19.1.1 shall be treated as the sale of a participation under Section 19.1.2. Borrowers shall be deemed to have granted their consent to any assignment requiring its consent hereunder unless Borrowers have expressly objected to such assignment within three (3) Business Days after notice thereof.
(b)From and after the date on which the conditions described above have been met, (i) such Assignee shall be deemed automatically to have become a party hereto and, to the extent that rights and obligations hereunder have been assigned to such Assignee pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (ii) the assigning Lender, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, shall be released from its rights (other than its indemnification rights) and obligations hereunder. Upon the request of the Assignee (and, as applicable, the assigning Lender) pursuant to an effective Assignment Agreement, Borrowers shall execute and deliver to the Administrative Agent for delivery to the Assignee (and, as applicable, the assigning Lender), a Note in the principal amount of the Assignee's Pro Rata Share of the Total Revolving Loan Commitment (and, as applicable, a Note in the principal amount of the Pro Rata Share of the Total Revolving Loan Commitment retained by the assigning Lender). Each such Note shall be dated the effective date of such assignment. Upon receipt by the Administrative Agent of such Note(s), the assigning Lender shall return to Borrowers any prior Note held by it.
(c)Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
19.1.2.Participations. Any Lender may at any time sell to one or more Persons participating interests in its Loans, Revolving Loan Commitment or other interests hereunder (any such Person, a "Participant"). In the event of a sale by a Lender of a participating interest to a Participant, (a) such Lender's obligations hereunder shall remain unchanged for all purposes, (b) each Loan Party shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations hereunder, (c) all amounts payable by Borrowers shall be determined as if such Lender had not sold such participation and shall be paid directly to such Lender and (d) each Lender granting a participation hereunder shall maintain, as a non-fiduciary agent of Borrowers, a register (the “Participation Register”) as to the participations granted and transferred under this Section 19.1.2 containing the same information specified in Section 19.2 on the Register as if the each participant were a Lender, and no participation may be transferred except as recorded in such Participation Register. No Participant shall have any direct or indirect voting rights hereunder except with respect to any event described in Section 20.1 expressly requiring the unanimous vote of all Lenders or, as applicable, all affected Lenders. Each Lender agrees to incorporate the requirements of the preceding sentence into each participation agreement which such Lender enters into with any Participant. Notwithstanding anything herein to the contrary, no participation may be sold to any equity holder of a Loan Party, any Affiliate of any equity holder of
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a Loan Party, any Loan Party, any holder of any Subordinated Debt of a Loan Party, any holder of any Debt that is secured by liens and security that have been contractually subordinated to the liens and security interests securing the Obligations or any Affiliate of any of the foregoing Persons without the prior written consent of Administrative Agent, which consent may be withheld in Administrative Agent's sole discretion and, in any event, if granted, may be conditioned on such terms and conditions as Administrative Agent shall require in its sole discretion, including, without limitation, a limitation on the aggregate amount of Loans and Commitments which may be participated such Person and/or its Affiliates and/or limitations on such Person's and/or its Affiliates' voting and consent rights and/or rights to attend Lender meetings or obtain information provided to other Lenders. Each Loan Party agrees that if amounts outstanding under this Agreement are due and payable (as a result of acceleration or otherwise), each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and with respect to any Letter of Credit to the same extent as if the amount of its participating interest were owing directly to it as such Lender under this Agreement; provided that such right of set-off shall be subject to the obligation of each Participant to share with such Lender, and such Lender agrees to share with each Participant, on a pro rata basis. Borrowers also agree that each Participant shall be entitled to the benefits of Section 4.2 or 4.4 as if it were Lender (provided that on the date of the participation no Participant shall be entitled to any greater compensation pursuant to Section 4.2 or 4.4 than would have been paid to such Lender on such date if no participation had been sold).
The Administrative Agent shall, as a non-fiduciary agent of the Borrowers, maintain a copy of each Assignment Agreement delivered and accepted by it and register (the "Register") for the recordation of names and addresses of the Lenders and the Commitment of each Lender and principal and stated interest of each Loan owing to each Lender from time to time and whether such Lender is the original Lender or the Assignee. No assignment shall be effective unless and until the Assignment Agreement is accepted and registered in the Register. All records of transfer of a Lender's interest in the Register shall be conclusive, absent manifest error, as to the ownership of the interests in the Loans. The Administrative Agent shall not incur any liability of any kind with respect to any Lender with respect to the maintenance of the Register. Each Lender granting a participation shall, as a non-fiduciary agent of the Borrowers, maintain a register containing information similar to that of the Register in a manner such that the loans hereunder are in "registered form" for the purposes of the Code. This Section and Section 19.1.2 shall be construed so that the Loans are at all times maintained in "registered form" for the purpose of the Code and any related regulations (and any successor provisions).
19.3.Customer Identification - USA Patriot Act Notice.
Each Lender and Administrative Agent (for itself and not on behalf of any other party) hereby notifies the Loan Parties that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56, signed into law October 26, 2001 (the "USA Patriot Act"), it is required to obtain, verify and record information that identifies the Loan Parties, which information includes the name and address of the Loan Parties and other information that will allow such Lender or Administrative Agent, as applicable, to identify the Loan Parties in accordance with the Act.
19.4.Indemnification by Loan Parties.
IN CONSIDERATION OF THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE AGREEMENT TO EXTEND THE COMMITMENTS PROVIDED HEREUNDER, EACH LOAN PARTY HEREBY AGREES TO INDEMNIFY, EXONERATE AND HOLD ADMINISTRATIVE AGENT, EACH LENDER AND EACH OF THE OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES AND AGENTS OF ADMINISTRATIVE AGENT AND EACH LENDER (EACH A "LENDER PARTY") FREE AND HARMLESS FROM AND AGAINST ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, LOSSES, LIABILITIES, DAMAGES AND EXPENSES, INCLUDING ATTORNEY COSTS (COLLECTIVELY, THE "INDEMNIFIED LIABILITIES"), INCURRED BY LENDER PARTIES OR ANY OF THEM AS A
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RESULT OF, OR ARISING OUT OF, OR RELATING TO (A) ANY TENDER OFFER, MERGER, PURCHASE OF CAPITAL SECURITIES, PURCHASE OF ASSETS (INCLUDING THE RELATED TRANSACTIONS) OR OTHER SIMILAR TRANSACTION FINANCED OR PROPOSED TO BE FINANCED IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, WITH THE PROCEEDS OF ANY OF THE LOANS, (B) THE USE, HANDLING, RELEASE, EMISSION, DISCHARGE, TRANSPORTATION, STORAGE, TREATMENT OR DISPOSAL OF ANY HAZARDOUS MATERIAL AT ANY PROPERTY OWNED OR LEASED BY ANY LOAN PARTY, (C) ANY VIOLATION OF ANY ENVIRONMENTAL LAWS WITH RESPECT TO CONDITIONS AT ANY PROPERTY OWNED OR LEASED BY ANY LOAN PARTY OR THE OPERATIONS CONDUCTED THEREON, (D) THE INVESTIGATION, CLEANUP OR REMEDIATION OF OFFSITE LOCATIONS AT WHICH ANY LOAN PARTY OR THEIR RESPECTIVE PREDECESSORS ARE ALLEGED TO HAVE DIRECTLY OR INDIRECTLY DISPOSED OF HAZARDOUS MATERIALS OR (E) THE EXECUTION, DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BY ANY OF LENDER PARTIES, EXCEPT FOR ANY SUCH INDEMNIFIED LIABILITIES ARISING ON ACCOUNT OF THE APPLICABLE LENDER PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED BY A FINAL, NONAPPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION. IF AND TO THE EXTENT THAT THE FOREGOING UNDERTAKING MAY BE UNENFORCEABLE FOR ANY REASON, EACH LOAN PARTY HEREBY AGREES TO MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED LIABILITIES WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. ALL OBLIGATIONS PROVIDED FOR IN THIS SECTION 19.4 SHALL SURVIVE REPAYMENT OF THE LOANS, CANCELLATION OF THE NOTES, EXPIRATION OR TERMINATION OF THE LETTERS OF CREDIT, ANY FORECLOSURE UNDER, OR ANY MODIFICATION, RELEASE OR DISCHARGE OF, ANY OR ALL OF THE LOAN DOCUMENTS AND TERMINATION OF THIS AGREEMENT.
(a)Generally. Except as otherwise provided in Section 2.2.2 and Section 2.2.3, or clauses (b) and (c) below, all notices hereunder shall be in writing (including facsimile transmission and email). All written notices and other written communications with respect to this Agreement shall be sent by ordinary, certified or overnight mail, by telecopy or delivered in person, and in the case of Administrative Agent shall be sent to it at 120 South LaSalle Street, Suite 200, Chicago, Illinois 60603, attention: Ms. Jennifer Kempton, facsimile number: (312) 564-3932, with a copy to Thompson Coburn LLP, 55 East Monroe Street, 37th Floor, Chicago, Illinois 60603, attention: Victor A. DesLaurier, facsimile number: (312) 580-2201, and in the case of any Loan Party shall be sent to Borrowers at their principal place of business set forth on Schedule 11.2 hereto or as otherwise directed by Borrowers in writing, and in the case of Lenders shall be sent to the locations provided to Administrative Agent by such Lenders. All notices shall be deemed received upon actual receipt thereof or refusal of delivery.
(b)Electronic Communications. Notices and other communications to the Lenders and the L/C Issuers hereunder may be delivered or furnished by electronic communication (including email, and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent provided that the foregoing shall not apply to notices to any Lender or L/C Issuer pursuant to Section 2 if such Lender or L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Section by electronic communication. The Administrative Agent or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an email address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return email or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its email address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.
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(c)Platform.
(i)Each Loan Party agrees that the Administrative Agent may, but shall not be obligated to, make the Communications (as defined below) available to the L/C Issuer and the other Lenders by posting the Communications on the Platform.
(ii)The Platform is provided "as is" and "as available." The Agent Parties (as defined below) do not warrant the adequacy of the Platform and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or the Platform. In no event shall the Administrative Agent or any of its Affiliates or the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of the Administrative Agent or its Affiliates (collectively, the "Agent Parties") have any liability to the Borrowers or the other Loan Parties, any Lender or any other Person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of any Borrower’s, any Loan Party’s or the Administrative Agent’s transmission of communications through the Platform. "Communications" means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Loan Party pursuant to any Loan Document or the transactions contemplated therein which is distributed to the Administrative Agent, any Lender or any L/C Issuer by means of electronic communications pursuant to this Section, including through the Platform.
(d)Public Information. Borrowers hereby acknowledge that certain of the Lenders (each, a “Public Lender”) may have personnel who do not wish to receive material non-public information with respect to Borrowers or their Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons’ securities. Borrowers hereby agree that they will use commercially reasonable efforts to identify that portion of the materials and information provided by or on behalf of Borrowers hereunder and under the other Loan Documents (collectively, “Borrower Materials”) that may be distributed to the Public Lenders and that (1) all such Borrower Materials shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (2) by marking Borrower Materials “PUBLIC,” Borrowers shall be deemed to have authorized the Agent Parties, the L/C Issuer and the Lenders to treat such Borrower Materials as not containing any material non-public information with respect to Borrowers or their securities for purposes of U.S. Federal and state securities laws (provided, however, that to the extent that such Borrower Materials constitute non-public information, they shall be subject to Section 20.4); (3) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Side Information;” and (4) the Agent Parties shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Side Information”. Each Public Lender will designate one or more representatives that shall be permitted to receive information that is not designated as being available for Public Lenders.
No delay on the part of the Administrative Agent or any Lender in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by any of them of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy. Except to the extent set forth in Section 4.2.9 hereof, no amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the other Loan Documents shall in any event be effective unless the same shall be in writing and
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acknowledged by Lenders having an aggregate Pro Rata Shares of not less than the aggregate Pro Rata Shares expressly designated herein with respect thereto or, in the absence of such designation as to any provision of this Agreement, by the Required Lenders, and then any such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Except to the extent set forth in Section 16.3 hereof, no amendment, modification, waiver or consent shall (a) extend or increase the Commitment of any Lender without the written consent of such Lender, (b) extend the date scheduled for payment of any principal (excluding mandatory prepayments) of or interest on the Loans or any fees payable hereunder without the written consent of each Lender directly affected thereby, (c) reduce the principal amount of any Loan, the rate of interest thereon or any fees payable hereunder, without the consent of each Lender directly affected thereby (except for periodic adjustments of interest rates and fees resulting from a change in the Applicable Margin as provided for in this Agreement); or (d) release any guarantor from its obligations under the Guaranty, other than as part of or in connection with any disposition permitted hereunder, or release or subordinate its liens on all or any substantial part of the Collateral granted under any of the other Loan Documents (except as permitted by Section 18.11), change the definition of Required Lenders, any provision of Section 16.2, any provision of this Section 20.1, the provisions of Section 16.3 or reduce the aggregate Pro Rata Share required to effect an amendment, modification, waiver or consent, without, in each case set forth in this clause (e), the written consent of all Lenders. No provision of Section 2.3.3 with respect to the timing or application of mandatory prepayments of the Loans shall be amended, modified or waived without the consent of Lenders having a majority of the aggregate Pro Rata Shares of the Loans affected thereby. No provision of Section 18 or other provision of this Agreement affecting the Administrative Agent in its capacity as such shall be amended, modified or waived without the consent of the Administrative Agent. No provision of this Agreement relating to the rights or duties of the L/C Issuers in their capacities as such shall be amended, modified or waived without the consent of the L/C Issuers. No provision of this Agreement relating to the rights or duties of the Swing Line Lender in its capacity as such shall be amended, modified or waived without the consent of the Swing Line Lender.
Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent and Borrowers (a) to add one or more additional credit facilities to this Agreement and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Revolving Loans, the Revolving Loan Commitments and the accrued interest and fees in respect thereof and (b) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders.
If, in connection with any proposed amendment, modification, waiver or termination requiring the consent of all Lenders, the consent of the Required Lenders is obtained, but the consent of other Lenders whose consent is required is not obtained (any such Lender whose consent is not obtained being referred to as a "Non-Consenting Lender"), then, so long as the Administrative Agent is not a Non-Consenting Lender, the Administrative Agent and/or a Person or Persons reasonably acceptable to the Administrative Agent shall have the right to purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree that they shall, upon the Administrative Agent's request, sell and assign to the Administrative Agent and/or such Person or Persons, all of the Loans and Revolving Loan Commitments of such Non-Consenting Lenders for an amount equal to the principal balance of all such Loans and Revolving Loan Commitments held by such Non-Consenting Lenders and all accrued interest, fees, expenses and other amounts then due with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment Agreement.
Notwithstanding anything herein to the contrary, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent that by its terms requires the consent of all the Lenders or each affected Lender) may be effected with the consent of the applicable Lenders other than Defaulting Lenders, except that (x) the Commitment of any Defaulting Lender may not be increased or extended, or the maturity of any of its Loan may not be extended, the rate of interest on any of its Loans may not be reduced and the
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principal amount of any of its Loans may not be forgiven, in each case without the consent of such Defaulting Lender and (y) any amendment, waiver or consent requiring the consent of all the Lenders or each affected Lender that by its terms affects any Defaulting Lender more adversely than the other affected Lenders shall require the consent of such Defaulting Lender.
In addition, notwithstanding anything in this Section to the contrary, if the Administrative Agent and Borrowers shall have jointly identified an obvious error or any error or omission of a technical nature, in each case, in any provision of the Loan Documents, then the Administrative Agent and Borrowers shall be permitted to amend such provision, and, in each case, such amendment shall become effective without any further action or consent of any other party to any Loan Document if the same is not objected to in writing by the Required Lenders to the Administrative Agent within ten Business Days following receipt of notice thereof.
20.2.Headings of Subdivisions.
The headings of subdivisions in this Agreement are for convenience of reference only, and shall not govern the interpretation of any of the provisions of this Agreement.
Each Loan Party acknowledges and agrees that its appointment of Administrative Agent as its attorney and agent-in-fact for the purposes specified in this Agreement is an appointment coupled with an interest and shall be irrevocable until all of the Obligations are satisfied and paid in full and this Agreement is terminated.
Administrative Agent and each Lender hereby agrees to use commercially reasonable efforts to assure that any and all information relating to any Loan Party which is (i) furnished by a Loan Party to Administrative Agent or such Lender (or to any Affiliate of Administrative Agent or such Lender); and (ii) non-public, confidential or proprietary in nature, shall be kept confidential by Administrative Agent and such Lender or such Affiliate in accordance with applicable law; provided, however, that such information and other credit information relating to a Loan Party may be distributed by Administrative Agent or such Lender or such Affiliate to Administrative Agent's or such Lender's or such Affiliate's directors, managers, officers, employees, attorneys, Affiliates, assignees, participants, auditors, agents and regulators, and upon the order of a court or other governmental agency having jurisdiction over Lender or such Affiliate, to any other party. In addition such information and other credit information may be distributed by Administrative Agent or such Lender to potential participants or assignees of any portion of the Obligations, provided, that such potential participant or assignee agrees to follow the confidentiality requirements set forth herein. Each Loan Party and Administrative Agent and each Lender further agree that this provision shall survive the termination of this Agreement. Notwithstanding the foregoing, each Loan Party hereby consents to Administrative Agent and Lender publishing a tombstone or similar advertising material relating to the financing transaction contemplated by this Agreement.
This Agreement, any of the other Loan Documents, and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which, when so executed and delivered, shall be deemed an original, but all of which counterparts together shall constitute but one agreement.
Administrative Agent may permit or require that any of the documents, certificates, forms, deliveries or other communications, authorized, required or contemplated by this Agreement or
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the other Loan Documents, be submitted to Administrative Agent in "Approved Electronic Form" (as hereafter defined), subject to any reasonable terms, conditions and requirements in the applicable Approved Electronic Forms Notice. For purposes hereof "Electronic Form" means e-mail, e-mail attachments, data submitted on web-based forms or any other communication method that delivers machine readable data or information to Administrative Agent, "Approved Electronic Form" means an Electronic Form that has been approved by Administrative Agent (which approval has not been revoked or modified by Lender) and "Approved Electronic Communication" means each notice, demand, communication, information, document and other material transmitted, posted or otherwise made or communicated by e-mail, internet portal or other Platform. Except as otherwise specifically provided in the applicable Approved Electronic Form Notice, any submissions made in an applicable Approved Electronic Form shall have the same force and effect that the same submissions would have had if they had been submitted in any other applicable form authorized, required or contemplated by this Agreement or the other Loan Documents. Approved Electronic Communications that do not bear or are not readily capable of bearing either a signature or a reproduction of a signature shall be deemed signed, by attaching to, or logically associating with such Approved Electronic Communication an electronic symbol, encryption, digital signature or process (including the name or an abbreviation of the name of the party or the company transmitting the Approved Electronic Communication), and Administrative Agent and Lenders are entitled to rely on such Approved Electronic Communications as signed. Each of the Loan Parties, Administrative Agent and the Lenders hereby acknowledge and agree that the use of Approved Electronic Communications is not necessarily secure and that there are risks associated with such use, including risks of interception, disclosure and abuse and each assumes and accepts such risks by hereby authorizing each of the Administrative Agent, each Lender and each of their Affiliates to accept and transmit Approved Electronic Communications.
20.7.Waiver of Jury Trial: Other Waivers.
(a)EACH LOAN PARTY AND ADMINISTRATIVE AGENT AND EACH LENDER EACH HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY ANY LOAN PARTY, ADMINISTRATIVE AGENT OR LENDER OR WHICH, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP AMONG THE LOAN PARTIES, ADMINISTRATIVE AGENT AND ANY LENDER. IN NO EVENT SHALL ADMINISTRATIVE AGENT OR ANY LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.
(b)Each Loan Party hereby waives demand, presentment, protest and notice of nonpayment, and further waives the benefit of all valuation, appraisal and exemption laws.
(c)Each Loan Party hereby waives the benefit of any law that would otherwise restrict or limit Administrative Agent or any Lender or any Affiliate of Administrative Agent or any Lender in the exercise of its right, which is hereby acknowledged and agreed to, to set-off against the Obligations, without notice at any time hereafter, any Debt, matured or unmatured, owing by Administrative Agent or any Lender or such Affiliate of Lender to Borrowers, including, without limitation any Deposit Account at Administrative Agent or any Lender or such Affiliate.
(d)EACH LOAN PARTY HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY ADMINISTRATIVE AGENT OF ITS RIGHTS TO REPOSSESS THE COLLATERAL OF SUCH LOAN PARTY WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH COLLATERAL, PROVIDED THAT IN THE EVENT THAT ADMINISTRATIVE AGENT TO ENFORCE ITS RIGHTS HEREUNDER BY JUDICIAL PROCESS OR SELF HELP, ADMINISTRATIVE AGENT SHALL PROVIDE SUCH LOAN PARTY WITH SUCH NOTICES AS ARE REQUIRED BY LAW.
Administrative Agent's or Lenders' failure, at any time or times hereafter, to require strict performance by any Loan Party of any provision of this Agreement or any of the other Loan Documents shall not waive, affect or diminish any right of Administrative Agent and Lenders thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Administrative
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Agent, Required Lenders or all Lenders, as applicable of an Event of Default under this Agreement or any default under any of the other Loan Documents shall not suspend, waive or affect any other Event of Default under this Agreement or any other default under any of the other Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character. No delay on the part of Administrative Agent or any Lender in the exercise of any right or remedy under this Agreement or any other Loan Document shall preclude other or further exercise thereof or the exercise of any right or remedy. None of the undertakings, agreements, warranties, covenants and representations of the Loan Parties contained in this Agreement or any of the other Loan Documents and no Event of Default under this Agreement or default under any of the other Loan Documents shall be deemed to have been suspended or waived by Administrative Agent or Lenders unless such suspension or waiver is in writing, signed by a duly authorized officer of Administrative Agent, Required Lenders or all Lenders, as applicable, and directed to Borrowers specifying such suspension or waiver.
20.8.Choice of Governing Laws; Construction; Forum Selection.
This Agreement and the other Loan Documents are submitted by Borrowers to Administrative Agent and Lenders for Administrative Agent's and Lenders' acceptance or rejection at Administrative Agent's principal place of business as an offer by Borrowers to borrow monies from Administrative Agent and Lenders now and from time to time hereafter, and shall not be binding upon Administrative Agent or any Lender or become effective until accepted by Administrative Agent and Lenders, in writing, at said place of business. If so accepted by Administrative Agent and Lenders, this Agreement and the other Loan Documents shall be deemed to have been made at said place of business. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING, WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL LOCATED OUTSIDE OF THE STATE OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or remaining provisions of this Agreement.
To induce Administrative Agent and each Lender to accept this Agreement, each Loan Party irrevocably agrees that, subject to Administrative Agent's sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. EACH LOAN PARTY HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE. EACH LOAN PARTY HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON EACH LOAN PARTY BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWERS AT THE ADDRESS SET FORTH FOR NOTICE IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED. Administrative Agent agrees to endeavor to provide a copy of such process to the law firm of Cooley LLP by mail at the address of 4401 Eastgate Mall, San Diego CA 92121-1909, Attention: Cynthia Lovering, or by facsimile transmission at facsimile number (858) 550-6420. Failure of Administrative Agent to provide a copy of such process shall not impair Administrative Agent's and Lenders' rights hereunder, create a cause of action against Administrative Agent or create any claim or right on behalf of any Loan Party or any third party. EACH LOAN PARTY HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST SUCH LOAN PARTY BY ADMINISTRATIVE AGENT OR LENDERS IN ACCORDANCE WITH THIS SECTION.
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Notwithstanding anything to the contrary contained in this Agreement, any Lender may exchange, continue or rollover all or a portion of its Loans in connection with any refinancing, extension, loan modification or similar transaction permitted by the terms of this Agreement, pursuant to a cashless settlement mechanism approved by Borrowers, Administrative Agent and such Lender.
20.10.Acknowledgement and Consent to Bail-In of EEA Financial Institutions
Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the Write-Down and Conversion Powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a)the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b)the effects of any Bail-in Action on any such liability, including, if applicable:
(i)a reduction in full or in part or cancellation of any such liability;
(ii)a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(c)the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution Authority.
(a)Notwithstanding anything to the contrary contained herein, all Obligations of each Loan Party hereunder shall be joint and several obligations of Loan Parties. Each Loan Party hereby absolutely and unconditionally guarantees to Lender, the prompt payment and performance when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, of the Obligations. Each Loan Party further agrees that the Obligations may be extended or renewed in whole or in part without notice to or further assent from it, and that it remains bound upon its guarantee notwithstanding any such extension or renewal. The guaranty provided hereunder is a guaranty of payment and not of collection. Each Loan Party waives any right to require Lender to sue any other Loan Party or any other Loan Party, or otherwise to enforce its payment against any collateral securing all or any part of the Obligations. Each Loan Party is jointly and severally liable for all amounts due to Lender under this Agreement and the other Loan Documents, regardless of which Loan Party actually receives Loans or other extensions of credit hereunder or the amount of such Loans received or the manner in which Lender accounts for such Loans or other extensions of credit on its books and records. Each Loan Party acknowledges that Loans and Letters of Credit may be issued to any one or more Borrowers and that each Loan Party is jointly and severally liable for all Loans and/or Letter of Credit Obligations.
(b)Notwithstanding any provisions of this Agreement to the contrary, it is intended that the joint and several nature of the Obligations of Loan Parties and the liens and security interests granted by Loan Parties to secure the Obligations, not constitute a "Fraudulent Conveyance" (as defined below). Consequently, Administrative Agent and Loan Parties agree that if the Obligations of a Loan Party, or any liens or security interests granted by such Loan Party securing the Obligations would, but
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for the application of this sentence, constitute a Fraudulent Conveyance, the Obligations of such Loan Party and the liens and security interests securing such Obligations shall be valid and enforceable only to the maximum extent that would not cause such Obligations or such lien or security interest to constitute a Fraudulent Conveyance, and the Obligations of such Loan Party and this Agreement shall automatically be deemed to have been amended accordingly. For purposes hereof, "Fraudulent Conveyance" means a fraudulent conveyance under Section 548 of Chapter 11 of Title II of the United States Code (11 U.S.C. § 101, et seq.), as amended (the "Bankruptcy Code") or a fraudulent conveyance or fraudulent transfer under the applicable provisions of any fraudulent conveyance or fraudulent transfer law or similar law of any state, nation or other governmental unit, as in effect from time to time.
(c)Each Loan Party assumes responsibility for keeping itself informed of the financial condition of each other Loan Party, and any and all endorsers and/or guarantors of any instrument or document evidencing all or any part of such other Loan Party's Obligations and of all other circumstances bearing upon the risk of nonpayment by such other Loan Parties of their Obligations and each Loan Party agrees that Administrative Agent shall not have any duty to advise such Loan Party of information known to Administrative Agent regarding such condition or any such circumstances or to undertake any investigation not a part of its regular business routine. If Administrative Agent, in its sole discretion, undertakes at any time or from time to time to provide any such information to a Loan Party, Administrative Agent shall not be under any obligation to update any such information or to provide any such information to such Loan Party on any subsequent occasion.
(d)Administrative Agent is hereby authorized, without notice or demand and without affecting the liability of a Loan Party hereunder, to, at any time and from time to time, (i) renew, extend, accelerate or otherwise change the time for payment of, or other terms relating to a Loan Party's Obligations or otherwise modify, amend or change the terms of any promissory note or other agreement, document or instrument now or hereafter executed by a Loan Party and delivered to Administrative Agent; (ii) accept partial payments on a Loan Party's Obligations; (iii) take and hold security or collateral for the payment of a Loan Party's Obligations hereunder or for the payment of any guaranties of a Loan Party's Obligations or other liabilities of a Loan Party and exchange, enforce, waive and release any such security or collateral; (iv) apply such security or collateral and direct the order or manner of sale thereof as Administrative Agent, in its sole discretion, may determine; and (v) settle, release, compromise, collect or otherwise liquidate a Loan Party's Obligations and any security or collateral therefor in any manner, without affecting or impairing the obligations of the other Loan Parties. Administrative Agent shall have the exclusive right to determine the time and manner of application of any payments or credits, whether received from a Loan Party or any other source, and such determination shall be binding on such Loan Party. All such payments and credits may be applied, reversed and reapplied, in whole or in part, to any of a Loan Party's Obligations as Administrative Agent shall determine in its sole discretion without affecting the validity or enforceability of the Obligations of the other Loan Parties.
(e)Each Loan Party hereby agrees that, except as hereinafter provided, its obligations hereunder shall be unconditional, irrespective of (i) the absence of any attempt to collect a Loan Party's Obligations from any Loan Party or any guarantor or other action to enforce the same; (ii) the waiver or consent by Administrative Agent with respect to any provision of any instrument evidencing Loan Parties' Obligations, or any part thereof, or any other agreement heretofore, now or hereafter executed by a Loan Party and delivered to Administrative Agent; (iii) failure by Administrative Agent to take any steps to perfect and maintain its security interest in, or to preserve its rights to, any security or collateral for Loan Parties' Obligations; (iv) the institution of any proceeding under the Bankruptcy Code, or any similar proceeding, by or against a Loan Party or Administrative Agent’s election in any such proceeding of the application of Section 1111(b)(2) of the Bankruptcy Code; (v) any borrowing or grant of a security interest by any Loan Party as debtor-in-possession, under Section 364 of the Bankruptcy Code; (vi) the disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of Administrative Agent’s claim(s) for repayment of any of Loan Parties' Obligations; or (vii) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor.
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(f)No payment made by or for the account of a Loan Party including, without limitations, (i) a payment made by such Loan Party on behalf of another Loan Party's Obligations or (ii) a payment made by any other person under any guaranty, shall entitle such Loan Party, by subrogation or otherwise, to any payment from such other Loan Party or from or out of such other Loan Party's property and such Loan Party shall not exercise any right or remedy against such other Loan Party or any property of such other Loan Party by reason of any performance of such Loan Party of its joint and several obligations hereunder.
(g)Each Loan Party unconditionally and irrevocably waives each and every defense which would otherwise impair, restrict, diminish or affect any of the Obligations. Without limiting the foregoing, Administrative Agent and Lenders shall have the exclusive right from time to time without impairing, restricting, diminishing or affecting any of the Obligations, and without notice of any kind to any Loan Party, to (1) provide additional financial accommodations to one or more Loan Parties; (2) accept partial payments on the Obligations; (3) take and hold collateral or security to secure the Obligations, or take any other guaranty to secure the Obligations; (4) in its sole discretion, apply any such collateral or security, and direct the order or manner of sale thereof, and the application of the proceeds thereof; (5) release any Loan Party or any other guarantor or co-obligor of the Obligations; and (6) settle, release, compromise, collect or otherwise liquidate the Obligations or exchange, enforce, sell, lease, use, maintain, impair and release any collateral or security therefor in any manner, without affecting or impairing each Loan Party’s joint and several Obligations hereunder.
(h)Each Loan Party appoints each other Loan Party as its agent for all purposes relevant to this Agreement and the other Loan Documents, including, without limitation, the giving and receipt of notices and execution and delivery of all documents, instruments and certificates contemplated herein and all modifications hereto. Any acknowledgment, consent, direction, certification or other action which might otherwise be valid or effective only if given or taken by all of the Loan Parties or any Loan Party acting singly, shall be valid and effective if given or taken only by one Loan Party, whether or not the other Loan Parties join therein.
(i)The successful operation and condition of each of the Loan Parties is dependent on the continued successful performance of the functions of the group of the Loan Parties as a whole and the successful operation of each of the Loan Parties is dependent on the successful performance and operation of each other Loan Party. Each Loan Party expects to derive benefit (and its board of directors or other governing body has determined that it may reasonably be expected to derive benefit), directly and indirectly, from (i) successful operations of each of the other Loan Parties and (ii) the credit extended by Administrative Agent and/or Lenders to Loan Parties hereunder, both in their separate capacities and as members of the group of companies. Each Loan Party has determined that execution, delivery, and performance of this Agreement and any other Loan Documents to be executed by such Loan Party is within its purpose, in furtherance of its direct and/or indirect business interests, will be of direct and indirect benefit to such Loan Party, and is in its best interest.
The relationship among each Loan Party on the one hand and Administrative Agent and Lenders on the other hand shall be solely that of borrower or debtor, as applicable, and lender. Neither Administrative Agent nor any Lender has any fiduciary relationship with or duty to any Loan Party arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Loan Parties, on the one hand, and Administrative Agent and Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditors. Neither Administrative Agent nor any Lender undertakes any responsibility to any Loan Party to review or inform any Loan Party of any matter in connection with any phase of any Loan Party's business or operations. Each Loan Party agrees that neither Administrative Agent nor any Lender shall have any liability to any Loan Party (whether sounding in tort, contract or otherwise) for losses suffered by any Loan Party in connection with, arising out of, or in any way related to the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in
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connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. NO LENDER PARTY SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY OTHERS OF ANY INFORMATION OR OTHER MATERIALS OBTAINED THROUGH INTRALINKS OR OTHER SIMILAR INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS AGREEMENT, NOR SHALL ANY LENDER PARTY HAVE ANY LIABILITY WITH RESPECT TO, AND EACH BORROWER AND EACH OTHER LOAN PARTY, HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE FOR ANY SPECIAL, PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ARISING OUT OF ITS ACTIVITIES IN CONNECTION HEREWITH OR THEREWITH (WHETHER BEFORE OR AFTER THE CLOSING DATE). Each Loan Party acknowledges that it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party. No joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Loan Parties, Administrative Agent and Lenders.
(a)Any and all disputes, claims and controversies arising out of, connected with or relating to this Agreement or any other Loan Document or the transactions contemplated thereby (individually, a “Dispute”) that are brought before a forum in which pre-dispute waivers of the right to trial by jury are invalid under applicable law shall be subject to the terms of this Section in lieu of the jury trial waivers otherwise provided in the Loan Documents. Disputes may include, without limitation, tort claims, counterclaims, claims brought as class actions, claims arising from Loan Documents executed in the future, disputes as to whether a matter is subject to judicial reference, or claims concerning any aspect of the past, present or future relationships arising out of or connected with the Loan Documents. Notwithstanding the foregoing, this paragraph shall not apply to any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act or any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement or any similar master agreement governing any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, fixed-price physical delivery contracts, whether or not exchange traded, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing).
(b)Any and all Disputes shall be heard by a referee and resolved by judicial reference pursuant to California Code of Civil Procedure (“CCCP”) §§ 638 et seq.
(c)The referee shall be a retired California state court judge or an attorney licensed to practice law in the State of California with at least 10 years’ experience practicing commercial law. The parties hereto (the “Parties”) shall not seek to appoint a referee that may be disqualified pursuant to CCCP § 641 or § 641.2 without the prior written consent of all Parties. If the Parties are unable to agree upon a referee within 10 calendar days after one Party serves a written notice of intent for judicial reference upon the other Parties, then the referee will be selected by the court in accordance with CCCP § 640(b).
(d)The referee shall render a written statement of decision and shall conduct the proceedings in accordance with the CCCP, the Rules of Court, and the California Evidence Code, except as otherwise specifically agreed by the Parties and approved by the referee. The referee’s statement of decision shall set forth findings of fact and conclusions of law. The decision of the referee shall be entered as a judgment in the court in accordance with CCCP §§ 644 and 645. The decision of the referee shall be appealable to the same extent and in the same manner that such decision would be appealable if rendered by a judge of the superior court.
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(e)Notwithstanding the preceding agreement to submit Disputes to a judicial referee, the Parties and the other Loan Documents preserve, without diminution, certain rights and remedies at law or equity and under the Loan Documents that such Parties may employ or exercise freely, either alone or in conjunction with or during a Dispute. Each Party shall have and hereby reserves the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (A) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted in the Loan Documents or under applicable law or by judicial foreclosure and sale, including a proceeding to confirm the sale, (B) all rights of self-help including peaceful occupation of property and collection of rents, setoff, and peaceful possession of property, (C) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and in filing an involuntary bankruptcy proceeding, and (D) when applicable, a judgment by confession of judgment. Preservation of these remedies does not limit the power of a judicial referee to grant similar remedies that may be requested by a party in a Dispute. No provision in the Loan Documents regarding submission to jurisdiction and/or venue in any court is intended or shall be construed to be in derogation of the provisions in any Loan Document for judicial reference of any Dispute. The Parties do not waive any applicable federal or state substantive law (including without limitation the protections afforded to banks under 12 U.S.C. § 91 or any similar applicable state law) except as provided herein.
(f)If a Dispute includes multiple claims, some of which are found not subject to this Section, the Parties shall stay the proceedings of the claims not subject to this Section until all other claims are resolved in accordance with this Section. If there are Disputes by or against multiple parties, some of which are not subject to this Section, the Parties shall sever the Disputes subject to this Section and resolve them in accordance with this Section.
(g)During the pendency of any Dispute that is submitted to judicial reference in accordance with this Section, each of the Parties to such Dispute shall bear equal shares of the fees charged and costs incurred by the referee in performing the services described in this Section. The compensation of the referee shall not exceed the prevailing rate for like services. The prevailing Party shall be entitled to reasonable court costs and legal fees, including customary reasonable attorney fees, expert witness fees, paralegal fees, the fees of the referee and other reasonable costs and disbursements charged to the party by its counsel, in such amount as is determined by the referee. In the event of any challenge to the legality or enforceability of this Section, the prevailing Party shall be entitled to recover the costs and expenses from the non-prevailing Party, including reasonable attorneys’ fees, incurred by it in connection therewith.
(h)THIS SECTION CONSTITUTES A “REFERENCE AGREEMENT” BETWEEN THE PARTIES WITHIN THE MEANING OF AND FOR PURPOSES OF CCCP § 638.”
[signature page follows]
(a)
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above.
BORROWERS:
S&W Seed Company, a Nevada corporation Matthew K. Szot, Executive Vice President and Chief Financial Officer |
Seed Holding, LLC, a Nevada limited liability company Matthew K. Szot, Manager |
|
|
Stevia California, LLC, a California limited liability company Matthew K. Szot, Manager |
|
Signature Page to Loan and Security Agreement
|
CIBC BANK USA, as Administrative Agent and a Lender Jennifer Kempton, Managing Director |
Signature Page to Loan and Security Agreement
Lender |
Revolving Loan Commitment |
Percentage |
CIBC BANK USA |
$35,000,000.00 |
100.000000000 |
Total |
$35,000,000.00 |
100.000000000 |
Annex 1 – Page 1
ANNEX 2 – RELATED TRANSACTIONS
[***]
Exhibit 10.2
AMENDMENT TO NOTE
Loan # R1036
This Amendment to Note (this “Amendment”) is made and entered into as of this 24th day of December, 2019 (the “Effective Date”), and is by and between S&W Seed Company, a Nevada corporation (“Borrower”), and ROOSTER CAPITAL LLC, a Delaware limited liability company (“Lender”).
WHEREAS, on November 30, 2017, Borrower executed a promissory note (the “Note”) in the original principal amount of $10,400,000.00, plus interest, in favor of Conterra Agricultural Capital, LLC, and secured by two first priority deeds of trust (collectively, the “Security Instruments”), of even date therewith, recorded on December 4, 2017, as Document No. 2017-0156048-00, in the land records of Fresno County, California, and recorded on December 4, 2017, as Instrument # 2017-052694, in the land records of Canyon County, Idaho.
WHEREAS, Lender is the present holder of the Note and the Security Instruments.
WHEREAS, pursuant to Section 4 of the Note, Borrower has exercised its options to extend the Maturity Date of the Note to November 30, 2022.
WHEREAS, pursuant to Borrower’s exercise of its option to extend the Maturity Date under the Note and Lender’s approval thereof, Borrower and Lender desire to amend the Note as set forth in this Amendment and as further reflected in the amendment to Security Instrument entered into as of the Effective Date of this Amendment;
NOW, THEREFORE, for the reasons set forth above and for other good and valuable consideration, the sufficiency of which is acknowledged, Borrower and Lender (each a “Party” and collectively, the “Parties”) hereby agree as follows:
|
1. |
AMENDMENT TO NOTE |
The Parties agree that the recitals set forth above are true and accurate and are hereby incorporated in and made a part of this Agreement. The Note is hereby amended by the following:
|
a. |
Section 3(A) of the Note is hereby deleted in its entirety and replaced with the following: |
|
(A) |
Time and Amount of Payments |
1 interest payment on January 1, 2018, with interest calculated from the date of closing on the unpaid principal balance at 7.750% per annum; 4 consecutive semi- annual principal and interest payments of $515,710.54 each, beginning July 1, 2018; 5 consecutive semi-annual principal and interest payments of $454,185.24 each, beginning January 1, 2020; and a final payment of $8,957,094.57 on November 30, 2022.
|
2. |
LENDER’S FEE AND OTHER EXPENSES |
In consideration of Lender entering into this Amendment, Borrower shall pay to Lender on the date hereof an extension fee equal to 0.50% ($46,477.00) of the Principal balance of the Note as of the Effective Date, plus any costs and expenses incurred by Lender in connection with this Amendment.
|
3. |
TERMS OF NOTE |
Capitalized terms used in this Amendment that are not defined shall have the meaning assigned to such terms in the Note. Except as set forth in this Amendment, all of the provisions of the Note shall remain unchanged, shall continue in full force and effect, and are hereby ratified and confirmed in all respects by the Parties.
IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound, have executed this Amendment as of the day and date first written above.
S&W SEED COMPANY,
a Nevada corporation
By: /s/ Matthew K. Szot Name: Matthew K. Szot
ROOSTER CAPITAL LLC,
a Delaware limited liability company
By: Conterra Holdings, LLC, Title: Administrative Member
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Mark W. Wong, certify that:
1. |
I have reviewed this report on Form 10-Q of S&W Seed Company (the "registrant"); |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: February 12, 2020
/s/ Mark W. Wong |
President and Chief Executive Officer |
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Matthew K. Szot, certify that:
1. |
I have reviewed this report on Form 10-Q of S&W Seed Company (the "registrant"); |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: February 12, 2020
/s/ Matthew K. Szot |
Executive Vice President of Finance and Administration and Chief Financial Officer |
(Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q of S&W Seed Company (the "Company") for the quarter ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report") I, Mark W. Wong, President and Chief Executive Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, that to my knowledge:
1. |
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 780(d)); and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: February 12, 2020
/s/ Mark W. Wong |
Mark W. Wong |
President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q of S&W Seed Company (the "Company") for the quarter ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report") I, Matthew K. Szot, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, that to my knowledge:
1. |
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 780(d)); and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: February 12, 2020
/s/ Matthew K. Szot |
Matthew K. Szot |
Executive Vice President of Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) |
Background and Organization |
6 Months Ended |
---|---|
Dec. 31, 2019 | |
Organization Consolidation And Presentation Of Financial Statements [Abstract] | |
BACKGROUND AND ORGANIZATION |
NOTE 1 - BACKGROUND AND ORGANIZATION Organization S&W Seed Company, a Nevada corporation (the “Company”), began as S&W Seed Company, a general partnership, in 1980 and was originally in the business of breeding, growing, processing and selling alfalfa seed. We then incorporated a corporation with the same name in Delaware in October 2009, which is the successor entity to Seed Holding, LLC, having purchased a majority interest in the general partnership between June 2008 and December 2009. Following the Company’s initial public offering in May 2010, the Company purchased the remaining general partnership interests and became the sole owner of the general partnership’s original business. Seed Holding, LLC remains a consolidated subsidiary of the Company. In December 2011, the Company reincorporated in Nevada as a result of a statutory short-form merger of the Delaware corporation into its wholly-owned subsidiary, S&W Seed Company, a Nevada corporation. On April 1, 2013, the Company, together with its wholly-owned subsidiary, S&W Holdings Australia Pty Ltd, an Australia corporation (f/k/a S&W Seed Australia Pty Ltd “S&W Holdings”), consummated an acquisition of all of the issued and outstanding shares of Seed Genetics International Pty Ltd, an Australia corporation (“SGI”), from SGI’s shareholders. In April 2018, SGI changed its name to S&W Seed Company Australia Pty Ltd (“S&W Australia”). On September 19, 2018, the Company and AGT Foods Africa Proprietary Limited (“AGT”) formed a venture based in South Africa named SeedVision Proprietary Limited (“SeedVision”). SeedVision will leverage AGT's African-based production and processing facilities to produce S&W's hybrid sunflower, grain sorghum, and forage sorghum to be sold by SeedVision in the African continent, Middle East countries, and Europe. Business Overview Since its establishment, the Company, including its predecessor entities, has been principally engaged in breeding, growing, processing and selling agricultural seeds, primarily alfalfa seed. The Company owns seed cleaning and processing facilities, which are located in Five Points, California, Nampa, Idaho, Dumas, Texas, New Deal, Texas and Keith, South Australia. The Company’s seed products are primarily grown under contract by farmers. The Company began its stevia initiative in fiscal year 2010 and is currently focused on breeding improved varieties of stevia and developing marketing and distribution programs for its stevia products. The Company has also been actively engaged in expansion initiatives through a combination of organic growth and strategic acquisitions, including in December 31, 2014, when the Company purchased certain alfalfa research and production facilities and conventional (non-GMO) alfalfa germplasm assets and assumed certain related liabilities (the “Pioneer Acquisition”) of Pioneer Hi-Bred International, Inc. (“Pioneer”). The Company had a long-term distribution agreement with Pioneer regarding conventional (non-GMO) varieties, and a production agreement with Pioneer (relating to GMO-traited varieties). These agreements were terminated on May 20, 2019. See Note 4 for further discussion. In May 2016, the Company acquired the assets and business of SV Genetics, a private Australian company specializing in the breeding and licensing of proprietary hybrid sorghum and sunflower seed germplasm, which represented the Company’s initial effort to diversify its product portfolio beyond alfalfa seed and stevia. In October 2018, the Company acquired substantially all of the assets of Chromatin, Inc., a U.S.-based sorghum genetics and seed company, as part of the Company's efforts to expand its penetration into the hybrid sorghum market.
In August 2019, S&W Australia, a wholly owned subsidiary of S&W Seed Company, licensed certain wheat germplasm varieties and acquired certain equipment from affiliates of Corteva. In the transaction, S&W Australia paid a one-time license fee of $2.3 million and an equipment purchase price of $0.3 million. The license has an initial term of 15 years. The Company’s operations span the world’s alfalfa seed production regions with operations in the San Joaquin and Imperial Valleys of California, Texas, five other U.S. states, Australia, and three provinces in Canada, and the Company sells its seed products in more than 30 countries around the globe. |
Leases - Summary of Components of Lease Cost (Details) - USD ($) |
3 Months Ended | 6 Months Ended |
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Dec. 31, 2019 |
Dec. 31, 2019 |
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Lessee Lease Description [Line Items] | ||
Total lease costs | $ 369,037 | $ 783,913 |
Cost of Revenue | ||
Lessee Lease Description [Line Items] | ||
Operating lease cost | 71,591 | 142,885 |
Selling, General and Administrative Expenses | ||
Lessee Lease Description [Line Items] | ||
Operating lease cost | 109,287 | 307,334 |
Research and Development Expenses | ||
Lessee Lease Description [Line Items] | ||
Operating lease cost | 52,304 | 104,532 |
Depreciation and Amortization | ||
Lessee Lease Description [Line Items] | ||
Finance lease cost | $ 135,855 | $ 229,162 |
Summary of Significant Accounting Policies - Schedule of Calculation of Basic and Diluted EPS (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
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Dec. 31, 2019 |
Dec. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Numerator: | ||||
Net loss attributable to S&W Seed Company | $ (6,664,857) | $ (2,766,056) | $ (11,590,347) | $ (2,745,125) |
Numerator for basis EPS | (6,664,857) | (2,766,056) | (11,590,347) | (2,745,125) |
Effect of dilutive securities: | ||||
Warrants | 0 | 0 | 0 | 0 |
Total effect of dilutive securities: | 0 | 0 | 0 | 0 |
Numerator for diluted EPS | $ (6,664,857) | $ (2,766,056) | $ (11,590,347) | $ (2,745,125) |
Denominator: | ||||
Denominator for basic EPS-weighted- average shares | 33,301,578 | 29,153,852 | 33,294,344 | 26,996,483 |
Effect of dilutive securities: | ||||
Employee stock options | 0 | 0 | 0 | 0 |
Employee restricted stock units | 0 | 0 | 0 | 0 |
Warrants | 0 | 0 | 0 | 0 |
Dilutive potential common shares | 0 | 0 | 0 | 0 |
Denominator for diluted EPS - adjusted weighted average shares and assumed conversions | 33,301,578 | 29,153,852 | 33,294,344 | 26,996,483 |
Basic EPS | $ (0.20) | $ (0.09) | $ (0.35) | $ (0.10) |
Diluted EPS | $ (0.20) | $ (0.09) | $ (0.35) | $ (0.10) |
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) |
3 Months Ended | 6 Months Ended | ||
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Dec. 31, 2019 |
Dec. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Revenue | ||||
Total revenue | $ 12,353,100 | $ 18,580,996 | $ 24,625,557 | $ 44,701,133 |
Revenue from Contract with Customer, Product and Service [Extensible List] | sanw:SeedMillingAndResearchAndDevelopmentServicesMember | sanw:SeedMillingAndResearchAndDevelopmentServicesMember | sanw:SeedMillingAndResearchAndDevelopmentServicesMember | sanw:SeedMillingAndResearchAndDevelopmentServicesMember |
Cost of revenue | ||||
Total cost of revenue | $ 10,160,727 | $ 13,897,455 | $ 19,360,313 | $ 34,554,463 |
Type of Cost, Good or Service [Extensible List] | sanw:SeedMillingAndResearchAndDevelopmentServicesMember | sanw:SeedMillingAndResearchAndDevelopmentServicesMember | sanw:SeedMillingAndResearchAndDevelopmentServicesMember | sanw:SeedMillingAndResearchAndDevelopmentServicesMember |
Gross profit | $ 2,192,373 | $ 4,683,541 | $ 5,265,244 | $ 10,146,670 |
Operating expenses | ||||
Selling, general and administrative expenses | 5,119,598 | 4,342,696 | 9,767,924 | 7,230,074 |
Research and development expenses | 1,671,873 | 1,373,554 | 3,260,064 | 2,365,667 |
Depreciation and amortization | 1,346,004 | 1,035,606 | 2,410,802 | 1,890,714 |
(Gain) loss on disposal of property, plant and equipment | (1,500) | 3,463 | (13,075) | 3,463 |
Total operating expenses | 8,135,975 | 6,755,319 | 15,425,715 | 11,489,918 |
Loss from operations | (5,943,602) | (2,071,778) | (10,160,471) | (1,343,248) |
Other expense | ||||
Foreign currency gain | (112,363) | (32,987) | (14,176) | (58,430) |
Change in estimated value of assets held for sale | 7,238 | 92,931 | ||
Loss on extinguishment of debt | 140,638 | 140,638 | 0 | |
Interest expense - amortization of debt discount | 111,810 | 68,914 | 297,712 | 135,392 |
Interest expense | 501,781 | 641,479 | 938,279 | 1,298,709 |
Loss before income taxes | (6,592,706) | (2,749,184) | (11,615,855) | (2,718,919) |
Provision for income taxes | 23,290 | (4,801) | 24,520 | 4,533 |
Net loss | (6,615,996) | (2,744,383) | (11,640,375) | (2,723,452) |
Net income (loss) attributed to noncontrolling interests | 48,861 | 21,673 | (50,028) | 21,673 |
Net loss attributable to S&W Seed Company | $ (6,664,857) | $ (2,766,056) | $ (11,590,347) | $ (2,745,125) |
Net loss attributable to S&W Seed Company per common share: | ||||
Basic | $ (0.20) | $ (0.09) | $ (0.35) | $ (0.10) |
Diluted | $ (0.20) | $ (0.09) | $ (0.35) | $ (0.10) |
Weighted average number of common shares outstanding: | ||||
Basic | 33,301,578 | 29,153,852 | 33,294,344 | 26,996,483 |
Diluted | 33,301,578 | 29,153,852 | 33,294,344 | 26,996,483 |
Debt - Schedule of Annual Maturities of Short-Term and Long-Term Debt (Details) |
Dec. 31, 2019
USD ($)
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Debt Disclosure [Abstract] | |
Remaining in 2020 | $ 1,148,701 |
2021 | 1,247,718 |
2022 | 9,645,966 |
2023 | 716,007 |
2024 | 136,506 |
Thereafter | 27,681 |
Total | $ 12,922,579 |
Business Combinations (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Acquisition [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Acquisition, Pro Forma Information |
The following unaudited pro forma financial information presents results as if the Acquisition occurred on July 1, 2018.
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Chromatin Acquisition | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Acquisition [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Purchase Price Allocation |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date of October 25, 2018:
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Assets Held for Sale |
Management determined that one of the facilities acquired as part of the Chromatin acquisition would not be operated and is being held for sale. The components of that facility are:
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Useful Lives of Acquired Intangibles in business Combination |
The values and useful lives of the acquired intangibles are as follows:
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Related Party Transactions |
6 Months Ended |
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Dec. 31, 2019 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS |
NOTE 14 - RELATED PARTY TRANSACTIONS On September 5, 2018, the Company entered into the Securities Purchase Agreement with MFP, pursuant to which the Company sold the Common Shares at the Initial Closing and the Preferred Shares at the Second Closing. The Initial Closing was completed on September 5, 2018 and the Second Closing was completed on October 23, 2018. See Note 11 for further discussion on the Second Closing. On December 18, 2018, the Company entered into a Loan and Security Agreement (the "MFP Loan Agreement") with MFP, pursuant to which the Company was able to borrow up to $5,000,000, in minimum increments of $1,000,000, from MFP during the period beginning on December 18, 2018 and ending on the earlier to occur of (i) March 18, 2019 and (ii) certain specified events of default. Pursuant to the MFP Loan Agreement, interest accrued on outstanding principal at a fixed per annum rate of 6.0%. In addition, the Company was obligated to pay to MFP a fee equal to 2.0% of each advance under the MFP Loan Agreement. Concurrently with the execution of the MFP Loan Agreement, the Company drew down $1,000,000 under the MFP Loan Agreement, which was disbursed to the Company on December 21, 2018. On December 31, 2018, the Company repaid in full the $1,000,000 disbursed to the Company. As of December 31, 2019, no amounts remained outstanding under the MFP Loan Agreement. |
Summary of Significant Accounting Policies (Policies) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Principles of Consolidation |
Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of S&W Seed Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements were prepared in accordance with U.S. GAAP and include the assets, liabilities, revenue and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company's exercises control. Outside stockholders' interests in subsidiaries are shown on the condensed consolidated financial statements as Noncontrolling interests. The Company owns 50.1% of SeedVision, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and SeedVision is being funded through advances, as needed, from its investors. The Company has concluded that it is the primary beneficiary of SeedVision because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of SeedVision, which are considered to be the activities that have the greatest impact on the future economic performance of SeedVision. The Company owns 51.0% of Sorghum Solutions South Africa, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and Sorghum Solutions South Africa is being funded through advances, as needed, from its investors. The Company has concluded that it is the primary beneficiary of Sorghum Solutions South Africa because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of Sorghum Solutions South Africa, which are considered to be the activities that have the greatest impact on the future economic performance of Sorghum Solutions South Africa. Because the Company is its primary beneficiary, SeedVision's and Sorghum Solutions South Africa’s financial results are included in these financial statements. We have recorded a combined $0.8 million of current assets (restricted) and $0.5 million of current liabilities (nonrecourse) for these entities in our consolidated balance sheet as of December 31, 2019. We have recorded a combined $0.6 million of current assets (restricted) and $0.2 million of current liabilities (nonrecourse) for these entities in our consolidated balance sheet as of June 30, 2019. |
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Unaudited Interim Financial Information |
Unaudited Interim Financial Information The Company has prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in the Company’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the Company’s consolidated balance sheets, statements of operations, comprehensive income (loss), cash flows and stockholders’ equity for the periods presented. Operating results for the periods presented are not necessarily indicative of the results to be expected for the full year ending June 30, 2020. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019, as filed with the SEC. |
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Use of Estimates |
Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are adjusted to reflect actual experience when necessary. Significant estimates and assumptions affect many items in the financial statements. These include allowance for doubtful trade receivables, revenue recognition, inventory valuation, asset impairments, provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the Company), contingencies and litigation. Significant estimates and assumptions are also used to establish the fair value and useful lives of depreciable tangible and certain intangible assets, goodwill as well as valuing stock-based compensation. Actual results may differ from those estimates and assumptions, and such results may affect income, financial position or cash flows. |
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Certain Risks and Concentrations |
Certain Risks and Concentrations The Company’s revenue is principally derived from the sale of seed, the market for which is highly competitive. The Company depends on a core group of significant customers. One customer accounted for 27% and 52% of its revenue for the three months ended December 31, 2019 and 2018, respectively. One customer accounted for 41% and 65% of its revenue for the six months ended December 31, 2019 and 2018, respectively. Two customers accounted for 26% of the Company’s accounts receivable at December 31, 2019. One customer accounted for 19% of the Company’s accounts receivable at June 30, 2019. The Company sells a substantial portion of its products to international customers. Sales to international markets represented 51% and 33% of revenue during the three months ended December 31, 2019 and 2018, respectively. Sales to international markets represented 48% and 23% of revenue during the six months ended December 31, 2019 and 2018, respectively. The net book value of fixed assets located outside the United States was 13% and 11% of total fixed assets at December 31, 2019 and June 30, 2019, respectively. Cash balances located outside of the United States may not be insured and totaled $518,429 and $236,822 at December 31, 2019 and June 30, 2019, respectively. The following table shows revenue from external sources by destination country:
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International Operations |
International Operations The Company translates its foreign operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at the current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of accumulated other comprehensive income (loss). Gains or losses from foreign currency transactions are included in the consolidated statement of operations. |
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Cost of Revenue |
Cost of Revenue The Company records purchasing and receiving costs, inspection costs and warehousing costs in cost of revenue. When the Company is required to pay for outward freight and/or the costs incurred to deliver products to its customers, the costs are included in cost of revenue. |
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Cash and Cash Equivalents |
Cash and Cash Equivalents For financial statement presentation purposes, the Company considers time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. At times, cash and cash equivalents balances exceed amounts insured by the Federal Deposit Insurance Corporation. |
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Accounts Receivable |
Accounts Receivable The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. The allowance for doubtful trade receivables was $1,798,093 and $1,742,887 at December 31, 2019 and June 30, 2019, respectively. |
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Inventories |
Inventories Inventories consist of seed and packaging materials. Inventories are stated at the lower of cost or net realizable value, and an inventory reserve permanently reduces the cost basis of inventory. Inventories are valued as follows: Actual cost is used to value raw materials such as packaging materials, as well as goods in process. Costs for substantially all finished goods, which include the cost of carryover crops from the previous year, are valued at actual cost. Actual cost for finished goods includes plant conditioning and packaging costs, direct labor and raw materials and manufacturing overhead costs based on normal capacity. The Company records abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) as current period charges and allocates fixed production overhead to the costs of finished goods based on the normal capacity of the production facilities. The Company’s subsidiary, S&W Australia, does not fix the final price for seed payable to its growers until the completion of a given year’s sales cycle pursuant to its standard contract production agreement. S&W Australia records an estimated unit price; accordingly, inventory, cost of revenue and gross profits are based upon management’s best estimate of the final purchase price to growers. Inventory is periodically reviewed to determine if it is marketable, obsolete or impaired. Inventory that is determined to be obsolete or impaired is written off to expense at the time the impairment is identified. Inventory quality is a function of germination percentage. Our experience has shown that our alfalfa seed quality tends to be stable under proper storage conditions; therefore, we do not view inventory obsolescence for alfalfa seed as a material concern. Hybrid crops (sorghum and sunflower) seed quality may be affected by warehouse storage pests such as insects and rodents. The Company maintains a strict pest control program to mitigate risk and maximize hybrid seed quality. Components of inventory are:
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Property, Plant and Equipment |
Property, Plant and Equipment Property, plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset - periods of 5-35 years for buildings, 2-20 years for machinery and equipment, and 2-5 years for vehicles. |
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Intangible Assets |
Intangible Assets Intangible assets acquired in business acquisitions are reported at their initial fair value less accumulated amortization. Intangible assets are amortized using the straight-line method over the estimated useful life of the asset. Periods of 10-30 years for technology/IP/germplasm, 5-20 years for customer relationships and trade names and 3-20 for other intangible assets. The weighted average estimated useful lives are 25 years for technology/IP/germplasm, 17 years for customer relationships, 18 years for trade names, 15 years for license agreements and 16 years for other intangible assets. |
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Goodwill |
Goodwill Goodwill originated from acquisitions of Imperial Valley Seeds, Inc. (“IVS”) and S&W Australia in fiscal year 2013, the acquisition of the alfalfa business from Pioneer in fiscal year 2015, the acquisition of assets of SV Genetics in fiscal year 2016 and acquisition of substantially all of the assets of Chromatin, Inc. in fiscal year 2019. Goodwill is assessed at least annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses market capitalization and an estimate of a control premium to estimate the fair value of its one reporting unit as well as discounted cash flow analysis. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company performed a quantitative assessment of goodwill at June 30, 2019 and determined that goodwill was fully impaired. See Note 7 for further information. |
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Investment in Bioceres S.A |
Investment in Bioceres S.A. The Company owns less than 1% of Bioceres, S.A., a provider of crop productivity solutions headquartered in Argentina. The carrying value of the investment is $1.3 million at December 31, 2019 and June 30, 2019, and the investment is included in Other Assets on the Consolidated Balance Sheet. The Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities beginning July 1, 2018. As such, this investment is accounted for in accordance with ASC 321, Investments – Equity Securities. As the stock is not publicly traded, the Company has elected to account for its investment at cost, with adjustments to fair value when there are observable transactions that provide an indicator of fair value. In addition, if qualitative factors indicate a potential impairment, fair value must be estimated and the investment written down to that fair value if it is lower than the carrying value. No adjustments for impairment or observable transactions were made for the three months or six months ended December 31, 2019 or December 31, 2018. |
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Research and Development Costs |
Research and Development Costs The Company is engaged in ongoing research and development (“R&D”) of proprietary seed and stevia varieties. All R&D costs must be charged to expense as incurred. Accordingly, internal R&D costs are expensed as incurred. Third-party R&D costs are expensed when the contracted work has been performed or as milestone results have been achieved. The costs associated with equipment or facilities acquired or constructed for R&D activities that have alternative future uses are capitalized and depreciated on a straight-line basis over the estimated useful life of the asset. |
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Income Taxes |
Income Taxes Deferred tax assets and liabilities are determined based on differences between the financial statement and tax basis of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s effective tax rate for the three and six months ended December 31, 2019 and December 31, 2018 has been affected by the valuation allowance on the Company’s deferred tax assets. |
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Net Income (Loss) Per Common Share Data |
Net Income (Loss) Per Common Share Data Basic net income (loss) per common share ("EPS"), is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated by adjusting both the numerator (net income (loss)) and the denominator (weighted-average number of shares outstanding) for the dilutive effects of potentially dilutive securities, including options, restricted stock awards and common stock warrants. The treasury stock method is used for common stock warrants, stock options, and restricted stock awards. Under this method, consideration that would be received upon exercise (as well as remaining compensation cost to be recognized for awards not yet vested) is assumed to be used to repurchase shares of stock in the market, with net number of shares assumed to be issued added to the denominator. The calculation of Basic and Diluted EPS is shown in the table below.
The effects of employee stock options and stock units, and warrants are excluded because they would be anti-dilutive due to the Company’s net loss for the three and six months ended December 31, 2019 and 2018. |
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Impairment of Long-lived Assets |
Impairment of Long-Lived Assets The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. Refer to Note 4 and Note 7 for impairment discussion. |
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Derivative Financial Instruments |
Derivative Financial Instruments Foreign Exchange Contracts The Company’s subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company at times manages through the use of foreign currency forward contracts. The Company has entered into certain derivative financial instruments (specifically foreign currency forward contracts), and accounts for these instruments in accordance with ASC Topic 815, “Derivatives and Hedging”, which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. The Company’s foreign currency contracts are not designated as hedging instruments under ASC 815; accordingly, changes in the fair value are recorded in current period earnings. |
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Fair Values of Financial Instruments |
Fair Value of Financial Instruments The Company discloses assets and liabilities that are recognized and measured at fair value, presented in a three-tier fair value hierarchy, as follows:
The assets acquired and liabilities assumed in the Chromatin acquisition were valued at fair value on a non-recurring basis as of October 25, 2018. The assets acquired and liabilities assumed in the Dow Wheat acquisition (see Note 7 below) were valued at fair value on a non-recurring basis as of August 15, 2019. The carrying value of cash and cash equivalents, accounts payable, short-term and all long-term borrowings, as reflected in the consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments or interest rates commensurate with market rates. There have been no changes in operations and/or credit characteristics since the date of issuance that could impact the relationship between interest rate and market rates. Assets and liabilities that are recognized and measured at fair value on a recurring basis are categorized as follows:
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Recently Adopted Accounting Pronouncements |
Recently Adopted Accounting Pronouncements The Company adopted Accounting Standards Update No. 2016-02: Leases (“ASU 2016-02”) effective July 1, 2019. ASC 842 superseded previously existing guidance on accounting for leases and generally requires all leases to be recognized in the statement of financial position. The adoption of ASC 842 resulted in the recognition of $2.6 million of right-of-use assets ("ROU assets") and $4.3 million related lease liabilities as of July 1, 2019, with no cumulative effect adjustment. The adoption of ASC 842 had no impact on the Company’s consolidated statement of operations and consolidated statement of cash flows. The Company adopted ASC 842 on a modified retrospective approach at the effective date and, therefore, did not revise comparative period information or disclosure. In addition, the Company elected the package of practical expedients permitted under ASC 842. See "Note 3—Leases" for additional information on the adoption of ASC 842. |
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Recently Issued, but Not Yet Adopted, Accounting Pronouncements |
Recently Issued, but Not Yet Adopted, Accounting Pronouncements In August 2018, the FASB issued authoritative guidance intended to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires presentation of the capitalized implementation costs in the statement of financial position and in the statement of cash flows in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented, and the expense related to the capitalized implementation costs to be presented in the same line item in the statement of operations as the fees associated with the hosting element (service) of the arrangement. This guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of the adoption of Subtopic 350-40 on its consolidated financial statements and related disclosures. |
Business Combinations |
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BUSINESS COMBINATIONS |
NOTE 6 - BUSINESS COMBINATIONS On October 25, 2018, the Company completed the acquisition of substantially all of the assets of Chromatin, Inc. (together with certain of its subsidiaries and affiliates in receivership, "Chromatin"), as well as the assumption of certain contracts and limited specified liabilities of Chromatin, for an aggregate cash purchase price of approximately $26.5 million (the "Acquisition"), pursuant to the terms of its Asset Purchase Agreement, dated September 14, 2018, with Novo Advisors, solely in its capacity as the receiver for, and on behalf of, Chromatin ("Novo"). The acquisition expanded the Company's sorghum production capabilities, diversified its product offerings and provided access to new distribution channels. The Acquisition has been accounted for as a business combination, and the Company valued and recorded all assets acquired and liabilities assumed at their estimated fair values on the date of the Acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date of October 25, 2018:
Management determined that one of the facilities acquired as part of the Chromatin acquisition would not be operated and is being held for sale. The components of that facility are:
Management expected the sale to be completed within 12 months and planned to pay down a portion of the Company's short-term debt with the proceeds, accordingly, these held for sale assets were presented as current assets.
The estimated fair value of accounts receivable acquired was $947,015, with the gross contractual amount totaling $2,164,476, less $1,217,461 expected to be uncollectible. The current liabilities assumed relate to inventory acquired in the acquisition as well as customer deposits. The excess of the purchase price over the fair value of the net assets acquired, amounting to $1,573,546, was recorded as goodwill on the consolidated balance sheet. The primary item that generated goodwill was the premium paid by the Company for the ability to control the acquired business, technology, and the distribution channels. Goodwill is not amortized for financial reporting purposes, but is amortized for tax purposes. Management assigned fair values to the identifiable intangible assets through a combination of the relief from royalty method, the multi-period excess earnings method, and the replacement cost method. In-process research and development costs are being accounted for as an indefinite lived intangible asset subject to impairment testing until completion or abandonment of research and development efforts associated with the in-process projects. Upon successful completion of each project, the Company will make a determination about the then remaining useful life of the intangible asset and begin amortization. The values and useful lives of the acquired intangibles are as follows:
The Company incurred acquisitions costs of $586,800 and $995,316 during the three and six months ended December 31, 2018 that have been recorded in selling, general and administrative expenses on the consolidated statement of operations. The results of the Chromatin acquisition are included in our consolidated financial statements from the date of acquisition through December 31, 2019. The following unaudited pro forma financial information presents results as if the Acquisition occurred on July 1, 2018.
For purposes of the pro forma disclosures above, there are no adjustments for the three and six months ended December 31, 2019.
For purposes of the pro forma disclosures above, the primary adjustments for the three and six months ended December 31, 2018 include the elimination of acquisition expenses of $586,800 and $995,316, respectively. |
Warrants |
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Warrants And Rights Note Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
WARRANTS |
NOTE 10 - WARRANTS The following table summarizes the total warrants outstanding at December 31, 2019:
The following table summarizes the total warrants outstanding at June 30, 2019:
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Equity-Based Compensation (Tables) |
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Summary of Activity Related to Non-Vested Restricted Stock Units | A summary of activity related to non-vested restricted stock units is presented below:
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Schedule of Weighted Average Assumptions Used in Black-Scholes-Merton Model |
Weighted average assumptions used in the Black-Scholes-Merton model are set forth below:
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Summary of Stock Option Activity |
A summary of stock option activity for the six months ended December 31, 2019 and the year ended June 30, 2019 is presented below:
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Goodwill and Intangible Assets (Tables) |
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Goodwill And Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Activity of Goodwill |
The following table summarizes the activity of goodwill for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively.
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Schedule of Intangible Assets |
For the year ended June 30, 2019, the Company recorded an impairment charge on its intangible assets of $6.0 million. Refer to Note 4 for further information. Intangible assets consist of the following:
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Intangible Assets (Future Amortization) | Estimated aggregate remaining amortization is as follows:
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Property, Plant and Equipment - Components of Property, Plant and Equipment (Details) - USD ($) |
Dec. 31, 2019 |
Jun. 30, 2019 |
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Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | $ 27,053,381 | $ 26,914,626 |
Less: accumulated depreciation | (6,708,707) | (6,279,677) |
Property, plant and equipment, net | 20,344,674 | 20,634,949 |
Land and improvements | ||
Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | 2,166,279 | 2,150,085 |
Buildings and improvements | ||
Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | 10,450,880 | 10,018,108 |
Machinery and Equipment | ||
Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | 12,894,482 | 12,579,698 |
Vehicles | ||
Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | 1,458,395 | 2,099,814 |
Construction in progress | ||
Property, Plant and Equipment [Line Items] | ||
Total property, plant and equipment | $ 83,345 | $ 66,921 |
Business Combinations - Additional information (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||||
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Dec. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
Jun. 30, 2019 |
Oct. 25, 2018 |
Jun. 30, 2018 |
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Business Combinations [Abstract] | ||||||
Business Acquisition, Description of Acquired Entity | On October 25, 2018, the Company completed the acquisition of substantially all of the assets of Chromatin, Inc. (together with certain of its subsidiaries and affiliates in receivership, "Chromatin"), as well as the assumption of certain contracts and limited specified liabilities of Chromatin, for an aggregate cash purchase price of approximately $26.5 million (the "Acquisition"), pursuant to the terms of its Asset Purchase Agreement, dated September 14, 2018, with Novo Advisors, solely in its capacity as the receiver for, and on behalf of, Chromatin ("Novo"). | |||||
Total acquisition cost allocated | $ 26,450,000 | |||||
Business Acquisition [Line Items] | ||||||
Estimated fair value of accounts receivable acquired | 947,015 | |||||
Business Combination, Acquired Receivables, Gross Contractual Amount | 2,164,476 | |||||
Business Combination, Acquired Receivables, Estimated Uncollectible | 1,217,461 | |||||
Goodwill | $ 0 | $ 0 | $ 1,573,546 | $ 10,292,265 | ||
Business Combination, Goodwill Recognized, Description | The estimated fair value of accounts receivable acquired was $947,015, with the gross contractual amount totaling $2,164,476, less $1,217,461 expected to be uncollectible. The current liabilities assumed relate to inventory acquired in the acquisition as well as customer deposits. The excess of the purchase price over the fair value of the net assets acquired, amounting to $1,573,546, was recorded as goodwill on the consolidated balance sheet. The primary item that generated goodwill was the premium paid by the Company for the ability to control the acquired business, technology, and the distribution channels. Goodwill is not amortized for financial reporting purposes, but is amortized for tax purposes. | |||||
Chromatin Acquisition | ||||||
Business Acquisition [Line Items] | ||||||
Elimination of acquisition expenses | $ 586,800 | $ 995,316 | ||||
Business Acquisition, Pro Forma Information, Description | For purposes of the pro forma disclosures above, there are no adjustments for the three and six months ended December 31, 2019. For purposes of the pro forma disclosures above, the primary adjustments for the three and six months ended December 31, 2018 include the elimination of acquisition expenses of $586,800 and $995,316, respectively. | |||||
Chromatin Acquisition | Selling, General and Administrative Expenses | ||||||
Business Acquisition [Line Items] | ||||||
Acquisitions costs | $ 586,800 | $ 995,316 |
Non-Cash Activities for Statements of Cash Flows - Schedule of Consolidated Statements of Cash Flows for Non-Cash Activities (Details) - USD ($) |
6 Months Ended | |
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Dec. 31, 2019 |
Dec. 31, 2018 |
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Supplemental Cash Flow Elements [Abstract] | ||
Purchases of equipment classified as finance lease | $ (396,680) | $ 0 |
Revenue Recognition |
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Revenues [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE RECOGNITION |
NOTE 5 - REVENUE RECOGNITION The Company derives its revenue from 1) the sale of seed, 2) milling and packaging services 3) research and development services and 4) product licensing agreements.
The following table disaggregates the Company’s revenue by type of contract:
Pioneer Product Sales In the three and six months ended December 31, 2019, Pioneer product sales consisted of product shipments to Pioneer under the termination agreement discussed in Note 4. In the three and six months ended December 31, 2018, Pioneer product sales consisted of revenue under the Distribution and Production Agreements. Under the production and distribution agreements with Pioneer, the Company grew, processed, and delivered alfalfa seed for and to Pioneer. The Company concluded that none of the individual activities performed under these contracts were distinct, as the customer was contracting for processed and packaged product. Until those contracts were terminated in May 2019 (see Note 4), Pioneer submitted a demand plan to the Company in advance of the growing season specifying the amount of seed that it intends to order for the upcoming sales year. The Company was required to use commercially reasonable efforts to arrange for the requisite amount of seed to be grown, processed and packaged. Once the demand plan was submitted, Pioneer was committed to at least that amount of seed. In addition, the Company was not permitted to sell products produced for Pioneer under the agreements to other customers. Therefore, as provided in Topic 606, the Company recognized revenue from these agreements over time in 2019, as it incurred costs to fulfill its obligations. To the extent the Company produced more product than Pioneer specified in its demand plan, the Company was required to first offer such product to Pioneer. If Pioneer did not purchase such excess product, the Company was permitted to sell the excess product to other customers subject to certain limitations. The agreements specified prices per finished unit which were adjusted each year, up or down, based on current market conditions, by a maximum of 4% per year. The prices for a given crop year were determined one year in advance of the beginning of the sales season. The Company concluded that cost was the best measure of progress under these contracts because no other measure adequately reflected the value added to the product by each of the Company's major tasks - having the crop grown, processing, and packaging. As the Company typically contracted out the growing of seed to third parties, the vast majority of the Company's costs under these agreements were incurred, and therefore the vast majority of the revenue from such agreements was recognized, when the raw seed was purchased from the third-party contract growers. The rest of the costs were incurred, and therefore the rest of the revenue was recognized, as the Company processed and packaged the product. As of the date of the termination of the production and distribution agreements with Pioneer (see Note 4), all seed covered by the active demand plan had been grown, processed and packaged. Licensing Contemporaneously with the termination in Note 4, the Company entered into a license with Corteva, under which Corteva received a fully pre-paid, exclusive license to produce and distribute certain of the Company's alfalfa seed varieties world-wide (except South America). The licensed seed varieties include certain of the Company's existing commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties. Other Product Sales Revenue from other product sales is recognized at the point in time at which control of the product is transferred to the customer. Generally, this occurs upon shipment of the product. Pricing for such transactions is negotiated and determined at the time the contracts are signed. We have elected the practical expedient that allows us to account for shipping and handling activities as a fulfillment cost, and we accrue those costs when the related revenue is recognized. The Company has certain contracts with customers that offer a limited right of return on certain branded products. The products must be in an unopened and undamaged state and must be resalable in the sole opinion of the Company to qualify for refund. Returns are only accepted on product received by August 31st of the current sales year. The Company uses the three-year historical returns percentage to estimate the refund liability and records a reduction of revenue in the period in which revenue is recognized. Services Revenue from milling and packaging services, which are performed on the customer's product, is recognized as services are completed and the milled product is delivered to the customer. Revenue from research and development services is recognized over time as the services are performed. R&D services are generally paid for in advance. During the three and six months ended December 31, 2019, R&D revenue relates to a single contract in which the customer may decide annually whether to continue the arrangement. Revenue is recognized straight-line over time, as services are expected to be provided roughly evenly throughout the year. Payment Terms and Related Balance Sheet Accounts Accounts receivable represent amounts that are payable to the Company by its customers subject only to the passage of time. Payment terms on invoices are generally 30 to 120 days for export customers and end of sales season (September 30th) for branded products sold within the United States. As the period between the transfer of goods and/or services to the customer and receipt of payment is less than one year, the Company does not separately account for a financing component in its contracts with customers. Unbilled receivables represent contract assets that arise when the Company has partially performed under a contract, but is not yet able to invoice the customer until the Company has made additional progress. Unbilled receivables arose from the distribution and production agreements for which the Company recognized revenue over time, as the Company bills for these arrangements upon product delivery, while revenue was recognized, as described above, as costs were incurred. Unbilled receivables may arise as much as three months before billing is expected to occur. Losses on accounts receivable and unbilled receivables are recognized if and when it becomes probable that amounts will not be paid. These losses are reversed in subsequent periods if these amounts are paid. During the three months ended December 31, 2019, the Company recognized a net gain from collections on amounts previously written off to bad debt expense of $48,657. During the six months ended December 31, 2019, the Company recognized a net gain from collections on amounts previously written off to bad debt expense of $36,018. Deferred revenue represents payments received from customers in advance of completion of the Company's performance obligation. |
Debt |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEBT |
NOTE 9 - DEBT Total debt outstanding is presented on the consolidated balance sheet as follows:
In September 2015, the Company entered into a credit and security agreement (the “KeyBank Credit Facility”) with KeyBank. Key provisions of the KeyBank Credit Facility, as amended, included:
In connection with the consummation of the Loan Agreement with CIBC described below, the Company terminated the KeyBank Credit Facility on December 26, 2019. In connection with such termination, the Company paid KeyBank approximately $5.9 million in aggregate principal, interest and fees that were outstanding and payable under the KeyBank Credit Facility at the time of its termination, and all liens on the assets of the Company and its subsidiaries guaranteeing such facility, together with such subsidiary guarantees, were released and terminated.
On December 26, 2019, the Company entered into a $35.0 million aggregate principal amount (the “CIBC Credit Facility”) Loan and Security Agreement (the “Loan Agreement”) by and among the Company and CIBC Bank USA (“CIBC”). The following is a summary of the terms of the CIBC Credit Facility:
In November 2017, the Company entered into a secured note financing transaction (the "Loan Transaction") with Conterra Agricultural Capital, LLC ("Conterra") for $12.5 million in gross proceeds. Pursuant to the Loan Transaction, the Company issued two secured promissory notes (the "Notes") to Conterra as follows:
On August 15, 2018, the Company completed a sale and leaseback transaction with American AgCredit involving certain equipment located at the Company's Five Points, California and Nampa, Idaho production facilities. Due to its terms, the sale and leaseback transaction was required to be accounted for as a financing arrangement. Accordingly, the proceeds received from American AgCredit were accounted for as proceeds from a debt financing. Under the terms of the transaction:
S&W Australia finances the purchase of most of its seed inventory from growers pursuant to a seasonal credit facilities with National Australia Bank Ltd (“NAB”). The current facilities (the “NAB Facilities”) were amended as of July 9, 2019 and expire on March 31, 2021. As of December 31, 2019, AUD $14,373,038 (USD $10,076,937) was outstanding under the NAB Facilities. The NAB Facilities, as recently amended, comprise two distinct facility lines: (i) an overdraft facility (the “Overdraft Facility”), having a credit limit of AUD $2,000,000 (USD $1,402,200) and a borrowing base facility (the “Borrowing Base Facility”), having a credit limit of AUD $13,000,000 (USD $9,114,300). The Borrowing Base Facility permits S&W Australia to borrow funds for periods of up to 180 days, at S&W Australia’s discretion, provided that the term is consistent with its trading terms. Interest for each drawdown is set at the time of the drawdown as follows: (i) for Australian dollar drawings, based on the Australian Trade Refinance Rate plus 1.5% per annum and (ii) for foreign currency drawings, based on the British Bankers’ Association Interest Settlement Rate for the relevant foreign currency for the relevant period, or if such rate is not available, the rate reasonably determined by NAB to be the appropriate equivalent rate, plus 1.5% per annum. As of December 31, 2019, the Borrowing Base Facility accrued interest on Australian dollar drawings at approximately 4.3% calculated daily. The Borrowing Base Facility is secured by a lien on all the present and future rights, property and undertakings of S&W Australia, the mortgage on S&W Australia’s Keith, South Australia property and the Company’s corporate guarantee (up to a maximum of AUD $15,000,000). The Overdraft Facility permits S&W Australia to borrow funds on a revolving line of credit up to the credit limit. Interest accrues daily and is calculated by applying the daily interest rate to the balance owing at the end of the day and is payable monthly in arrears. As of December 31, 2019, the Overdraft Facility accrued interest at approximately 5.97% calculated daily. For both the Overdraft Facility and the Borrowing Base Facility, interest is payable each month in arrears. In the event of a default, as defined in the NAB Facility Agreement, the principal balance due under the facilities will thereafter bear interest at an increased rate per annum above the interest rate that would otherwise have been in effect from time to time under the terms of each facility (i.e., the interest rate increases by 4.3% per annum under the Borrowing Base Facility and the Overdraft Facility rate increases to 13.94% per annum upon the occurrence of an event of default). Both facilities constituting the NAB Facilities are secured by a fixed and floating lien over all the present and future rights, property and undertakings of S&W Australia and are guaranteed by the Company as noted above. The NAB Facilities contain customary representations and warranties, affirmative and negative covenants and customary events of default that permit NAB to accelerate S&W Australia’s outstanding obligations, all as set forth in the NAB facility agreements. S&W Australia was in compliance with all NAB debt covenants at December 31, 2019. In January 2015, NAB and S&W Australia entered into a new business markets – flexible rate loan (the “Keith Building Loan”) and a separate machinery and equipment facility (the “Keith Machinery and Equipment Facility”). In February 2016, NAB and S&W Australia also entered into a master asset finance facility (the “Master Assets Facility”). The Master Asset Facility has various maturity dates through 2023 and have interest rates ranging from 3.64% to 5.31%. The credit limit under the facility is AUD $1,200,000 (USD $841,320) at December 31, 2019. The Keith Building Loan and Keith Machinery and Equipment Facility are used for the construction of a building on S&W Australia’s Keith, South Australia property, purchase of adjoining land and for the machinery and equipment for use in the operations of the building. The Keith Building Loan matures on November 30, 2024. The interest rate on the Keith Building Loan varies from pricing period to pricing period (each such period approximately 30 days), based on the weighted average of a specified basket of interest rates (5.49% as of December 31, 2019). Interest is payable each month in arrears. The Keith Machinery and Equipment Facility bears interest, payable in arrears, based on the Australian Trade Refinance Rate quoted by NAB at the time of the drawdown, plus 2.9%. The Keith Credit Facilities contain customary representations and warranties, affirmative and negative covenants and customary events of default that permit NAB to accelerate S&W Australia’s outstanding obligations, all as set forth in the facility agreement. They are secured by a lien on all the present and future rights, property and undertakings of S&W Australia, the Company’s corporate guarantee and a mortgage on S&W Australia’s Keith, South Australia property. As of December 31, 2019, USD $326,012 and USD $833,327 was outstanding under the Keith Building Loan and the Keith Machinery and Equipment Facility, respectively. The annual maturities of short-term and long-term debt are as follows:
|
Summary of Significant Accounting Policies - Components of Inventory (Details) - USD ($) |
Dec. 31, 2019 |
Jun. 30, 2019 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials and supplies | $ 1,275,442 | $ 664,541 |
Work in progress | 9,266,827 | 5,664,934 |
Finished goods | 65,068,050 | 64,966,045 |
Inventories | $ 75,610,319 | $ 71,295,520 |
Non-Cash Activities for Statements of Cash Flows (Tables) |
6 Months Ended | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2019 | ||||||||||||||||||||||||||||
Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||
Schedule of Consolidated Statements of Cash Flows for Non-Cash Activities |
The below table represents supplemental information to the Company's consolidated statements of cash flows for non-cash activities during the six months ended December 31, 2019 and 2018, respectively.
|
Property, Plant and Equipment (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property Plant And Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Property, Plant and Equipment |
Components of property, plant and equipment were as follows:
|
Revenue Recognition - Additional Information (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Dec. 31, 2019 |
Dec. 31, 2019 |
Dec. 31, 2018 |
|
Revenue Recognition [Line Items] | |||
Finished unit maximum price adjustment percentage per year | 4.00% | ||
Price determination period for sales season | 1 year | ||
Unbilled receivables billing term | 3 months | ||
Bad debt expense | $ 48,657 | $ (36,018) | $ (154,364) |
Minimum | |||
Revenue Recognition [Line Items] | |||
Term of customer invoice payment | 30 days | ||
Maximum term of payments for transfer goods and services | 1 year | ||
Maximum | |||
Revenue Recognition [Line Items] | |||
Term of customer invoice payment | 120 days |
Business Combinations (Pro Forma Financial Information) (Details) |
6 Months Ended |
---|---|
Dec. 31, 2018
USD ($)
| |
Business Combinations [Abstract] | |
Revenue | $ 46,374,310 |
Net loss | $ (4,889,152) |
Goodwill and Intangible Assets - Intangible Assets (Future Amortization) (Details) |
Dec. 31, 2019
USD ($)
|
---|---|
Goodwill And Intangible Assets Disclosure [Abstract] | |
2020 | $ 1,010,287 |
2021 | 2,014,124 |
2022 | 2,059,372 |
2023 | 1,981,632 |
2024 | 1,959,097 |
Thereafter | $ 25,192,702 |
Equity-Based Compensation - Schedule of Weighted Average Assumptions (Details) - Stock Options |
6 Months Ended | |
---|---|---|
Dec. 31, 2019 |
Dec. 31, 2018 |
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Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||
Risk free rate, minimum | 1.50% | 2.70% |
Risk free rate, maximum | 1.60% | 3.00% |
Dividend yield | 0.00% | 0.00% |
Volatility of common stock, minimum | 39.40% | 40.40% |
Volatility of common stock, maximum | 44.20% | 45.50% |
Average forfeiture assumptions | 2.70% | 1.40% |
Revenue Recognition - Disaggregation of Revenue (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2019 |
Dec. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
|
Disaggregation Of Revenue [Line Items] | ||||
Total revenue | $ 12,353,100 | $ 18,580,996 | $ 24,625,557 | $ 44,701,133 |
Pioneer product sales | ||||
Disaggregation Of Revenue [Line Items] | ||||
Total revenue | 3,144,106 | 9,677,988 | 6,407,122 | 29,185,614 |
Other product sales | ||||
Disaggregation Of Revenue [Line Items] | ||||
Total revenue | 8,908,371 | 8,761,172 | 17,536,548 | 15,336,201 |
Services | ||||
Disaggregation Of Revenue [Line Items] | ||||
Total revenue | $ 300,623 | $ 141,836 | $ 681,887 | $ 179,318 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2019 |
Dec. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Statement Of Income And Comprehensive Income [Abstract] | ||||
Net loss | $ (6,615,996) | $ (2,744,383) | $ (11,640,375) | $ (2,723,452) |
Foreign currency translation adjustment, net of income taxes | 189,570 | (143,198) | (54,495) | (325,621) |
Comprehensive loss | (6,426,426) | (2,887,581) | (11,694,870) | (3,049,073) |
Comprehensive income (loss) attributable to noncontrolling interests | 48,861 | 21,673 | (50,028) | 21,673 |
Comprehensive loss attributable to S&W Seed Company | $ (6,475,287) | $ (2,909,254) | $ (11,644,842) | $ (3,070,746) |
Summary of Significant Accounting Policies |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of S&W Seed Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements were prepared in accordance with U.S. GAAP and include the assets, liabilities, revenue and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company's exercises control. Outside stockholders' interests in subsidiaries are shown on the condensed consolidated financial statements as Noncontrolling interests. The Company owns 50.1% of SeedVision, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and SeedVision is being funded through advances, as needed, from its investors. The Company has concluded that it is the primary beneficiary of SeedVision because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of SeedVision, which are considered to be the activities that have the greatest impact on the future economic performance of SeedVision. The Company owns 51.0% of Sorghum Solutions South Africa, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and Sorghum Solutions South Africa is being funded through advances, as needed, from its investors. The Company has concluded that it is the primary beneficiary of Sorghum Solutions South Africa because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of Sorghum Solutions South Africa, which are considered to be the activities that have the greatest impact on the future economic performance of Sorghum Solutions South Africa. Because the Company is its primary beneficiary, SeedVision's and Sorghum Solutions South Africa’s financial results are included in these financial statements. We have recorded a combined $0.8 million of current assets (restricted) and $0.5 million of current liabilities (nonrecourse) for these entities in our consolidated balance sheet as of December 31, 2019. We have recorded a combined $0.6 million of current assets (restricted) and $0.2 million of current liabilities (nonrecourse) for these entities in our consolidated balance sheet as of June 30, 2019. Unaudited Interim Financial Information The Company has prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in the Company’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the Company’s consolidated balance sheets, statements of operations, comprehensive income (loss), cash flows and stockholders’ equity for the periods presented. Operating results for the periods presented are not necessarily indicative of the results to be expected for the full year ending June 30, 2020. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019, as filed with the SEC. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are adjusted to reflect actual experience when necessary. Significant estimates and assumptions affect many items in the financial statements. These include allowance for doubtful trade receivables, revenue recognition, inventory valuation, asset impairments, provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the Company), contingencies and litigation. Significant estimates and assumptions are also used to establish the fair value and useful lives of depreciable tangible and certain intangible assets, goodwill as well as valuing stock-based compensation. Actual results may differ from those estimates and assumptions, and such results may affect income, financial position or cash flows. Certain Risks and Concentrations The Company’s revenue is principally derived from the sale of seed, the market for which is highly competitive. The Company depends on a core group of significant customers. One customer accounted for 27% and 52% of its revenue for the three months ended December 31, 2019 and 2018, respectively. One customer accounted for 41% and 65% of its revenue for the six months ended December 31, 2019 and 2018, respectively. Two customers accounted for 26% of the Company’s accounts receivable at December 31, 2019. One customer accounted for 19% of the Company’s accounts receivable at June 30, 2019. The Company sells a substantial portion of its products to international customers. Sales to international markets represented 51% and 33% of revenue during the three months ended December 31, 2019 and 2018, respectively. Sales to international markets represented 48% and 23% of revenue during the six months ended December 31, 2019 and 2018, respectively. The net book value of fixed assets located outside the United States was 13% and 11% of total fixed assets at December 31, 2019 and June 30, 2019, respectively. Cash balances located outside of the United States may not be insured and totaled $518,429 and $236,822 at December 31, 2019 and June 30, 2019, respectively. The following table shows revenue from external sources by destination country:
International Operations The Company translates its foreign operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at the current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of accumulated other comprehensive income (loss). Gains or losses from foreign currency transactions are included in the consolidated statement of operations. Cost of Revenue The Company records purchasing and receiving costs, inspection costs and warehousing costs in cost of revenue. When the Company is required to pay for outward freight and/or the costs incurred to deliver products to its customers, the costs are included in cost of revenue. Cash and Cash Equivalents For financial statement presentation purposes, the Company considers time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. At times, cash and cash equivalents balances exceed amounts insured by the Federal Deposit Insurance Corporation. Accounts Receivable The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. The allowance for doubtful trade receivables was $1,798,093 and $1,742,887 at December 31, 2019 and June 30, 2019, respectively. Inventories Inventories consist of seed and packaging materials. Inventories are stated at the lower of cost or net realizable value, and an inventory reserve permanently reduces the cost basis of inventory. Inventories are valued as follows: Actual cost is used to value raw materials such as packaging materials, as well as goods in process. Costs for substantially all finished goods, which include the cost of carryover crops from the previous year, are valued at actual cost. Actual cost for finished goods includes plant conditioning and packaging costs, direct labor and raw materials and manufacturing overhead costs based on normal capacity. The Company records abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) as current period charges and allocates fixed production overhead to the costs of finished goods based on the normal capacity of the production facilities. The Company’s subsidiary, S&W Australia, does not fix the final price for seed payable to its growers until the completion of a given year’s sales cycle pursuant to its standard contract production agreement. S&W Australia records an estimated unit price; accordingly, inventory, cost of revenue and gross profits are based upon management’s best estimate of the final purchase price to growers. Inventory is periodically reviewed to determine if it is marketable, obsolete or impaired. Inventory that is determined to be obsolete or impaired is written off to expense at the time the impairment is identified. Inventory quality is a function of germination percentage. Our experience has shown that our alfalfa seed quality tends to be stable under proper storage conditions; therefore, we do not view inventory obsolescence for alfalfa seed as a material concern. Hybrid crops (sorghum and sunflower) seed quality may be affected by warehouse storage pests such as insects and rodents. The Company maintains a strict pest control program to mitigate risk and maximize hybrid seed quality. Components of inventory are:
Property, Plant and Equipment Property, plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset - periods of 5-35 years for buildings, 2-20 years for machinery and equipment, and 2-5 years for vehicles. Intangible Assets Intangible assets acquired in business acquisitions are reported at their initial fair value less accumulated amortization. Intangible assets are amortized using the straight-line method over the estimated useful life of the asset. Periods of 10-30 years for technology/IP/germplasm, 5-20 years for customer relationships and trade names and 3-20 for other intangible assets. The weighted average estimated useful lives are 25 years for technology/IP/germplasm, 17 years for customer relationships, 18 years for trade names, 15 years for license agreements and 16 years for other intangible assets. Goodwill Goodwill originated from acquisitions of Imperial Valley Seeds, Inc. (“IVS”) and S&W Australia in fiscal year 2013, the acquisition of the alfalfa business from Pioneer in fiscal year 2015, the acquisition of assets of SV Genetics in fiscal year 2016 and acquisition of substantially all of the assets of Chromatin, Inc. in fiscal year 2019. Goodwill is assessed at least annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses market capitalization and an estimate of a control premium to estimate the fair value of its one reporting unit as well as discounted cash flow analysis. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company performed a quantitative assessment of goodwill at June 30, 2019 and determined that goodwill was fully impaired. See Note 7 for further information. Investment in Bioceres S.A. The Company owns less than 1% of Bioceres, S.A., a provider of crop productivity solutions headquartered in Argentina. The carrying value of the investment is $1.3 million at December 31, 2019 and June 30, 2019, and the investment is included in Other Assets on the Consolidated Balance Sheet. The Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities beginning July 1, 2018. As such, this investment is accounted for in accordance with ASC 321, Investments – Equity Securities. As the stock is not publicly traded, the Company has elected to account for its investment at cost, with adjustments to fair value when there are observable transactions that provide an indicator of fair value. In addition, if qualitative factors indicate a potential impairment, fair value must be estimated and the investment written down to that fair value if it is lower than the carrying value. No adjustments for impairment or observable transactions were made for the three months or six months ended December 31, 2019 or December 31, 2018. Research and Development Costs The Company is engaged in ongoing research and development (“R&D”) of proprietary seed and stevia varieties. All R&D costs must be charged to expense as incurred. Accordingly, internal R&D costs are expensed as incurred. Third-party R&D costs are expensed when the contracted work has been performed or as milestone results have been achieved. The costs associated with equipment or facilities acquired or constructed for R&D activities that have alternative future uses are capitalized and depreciated on a straight-line basis over the estimated useful life of the asset. Income Taxes Deferred tax assets and liabilities are determined based on differences between the financial statement and tax basis of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s effective tax rate for the three and six months ended December 31, 2019 and December 31, 2018 has been affected by the valuation allowance on the Company’s deferred tax assets. Net Income (Loss) Per Common Share Data Basic net income (loss) per common share ("EPS"), is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated by adjusting both the numerator (net income (loss)) and the denominator (weighted-average number of shares outstanding) for the dilutive effects of potentially dilutive securities, including options, restricted stock awards and common stock warrants. The treasury stock method is used for common stock warrants, stock options, and restricted stock awards. Under this method, consideration that would be received upon exercise (as well as remaining compensation cost to be recognized for awards not yet vested) is assumed to be used to repurchase shares of stock in the market, with net number of shares assumed to be issued added to the denominator. The calculation of Basic and Diluted EPS is shown in the table below.
The effects of employee stock options and stock units, and warrants are excluded because they would be anti-dilutive due to the Company’s net loss for the three and six months ended December 31, 2019 and 2018. Impairment of Long-Lived Assets The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. Refer to Note 4 and Note 7 for impairment discussion. Derivative Financial Instruments Foreign Exchange Contracts The Company’s subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company at times manages through the use of foreign currency forward contracts. The Company has entered into certain derivative financial instruments (specifically foreign currency forward contracts), and accounts for these instruments in accordance with ASC Topic 815, “Derivatives and Hedging”, which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. The Company’s foreign currency contracts are not designated as hedging instruments under ASC 815; accordingly, changes in the fair value are recorded in current period earnings. Fair Value of Financial Instruments The Company discloses assets and liabilities that are recognized and measured at fair value, presented in a three-tier fair value hierarchy, as follows:
The assets acquired and liabilities assumed in the Chromatin acquisition were valued at fair value on a non-recurring basis as of October 25, 2018. The assets acquired and liabilities assumed in the Dow Wheat acquisition (see Note 7 below) were valued at fair value on a non-recurring basis as of August 15, 2019. The carrying value of cash and cash equivalents, accounts payable, short-term and all long-term borrowings, as reflected in the consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments or interest rates commensurate with market rates. There have been no changes in operations and/or credit characteristics since the date of issuance that could impact the relationship between interest rate and market rates. Assets and liabilities that are recognized and measured at fair value on a recurring basis are categorized as follows:
Recently Adopted Accounting Pronouncements The Company adopted Accounting Standards Update No. 2016-02: Leases (“ASU 2016-02”) effective July 1, 2019. ASC 842 superseded previously existing guidance on accounting for leases and generally requires all leases to be recognized in the statement of financial position. The adoption of ASC 842 resulted in the recognition of $2.6 million of right-of-use assets ("ROU assets") and $4.3 million related lease liabilities as of July 1, 2019, with no cumulative effect adjustment. The adoption of ASC 842 had no impact on the Company’s consolidated statement of operations and consolidated statement of cash flows. The Company adopted ASC 842 on a modified retrospective approach at the effective date and, therefore, did not revise comparative period information or disclosure. In addition, the Company elected the package of practical expedients permitted under ASC 842. See "Note 3—Leases" for additional information on the adoption of ASC 842. Recently Issued, but Not Yet Adopted, Accounting Pronouncements In August 2018, the FASB issued authoritative guidance intended to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires presentation of the capitalized implementation costs in the statement of financial position and in the statement of cash flows in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented, and the expense related to the capitalized implementation costs to be presented in the same line item in the statement of operations as the fees associated with the hosting element (service) of the arrangement. This guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of the adoption of Subtopic 350-40 on its consolidated financial statements and related disclosures. |
Leases - Summary of Maturities of Lease Liabilities (Details) - USD ($) |
Dec. 31, 2019 |
Jul. 01, 2019 |
---|---|---|
Operating Leases | ||
Remainder of 2020 | $ 534,093 | |
2021 | 840,640 | |
2022 | 630,613 | |
2023 | 444,342 | |
2024 | 397,761 | |
After 2024 | 417,663 | |
Total lease payments | 3,265,112 | |
Less: Interest | 346,095 | |
Present value of lease liabilities | 2,919,017 | $ 4,300,000 |
Finance Leases | ||
Remainder of 2020 | 399,664 | |
2021 | 805,446 | |
2022 | 736,979 | |
2023 | 628,491 | |
2024 | 59,861 | |
Total lease payments | 2,630,441 | |
Less: Interest | 262,676 | |
Present value of lease liabilities | $ 2,367,765 |
Summary of Significant Accounting Policies - Schedule of Assets and Liabilities Recognized and Measured at Fair Value on Recurring Basis (Details) - USD ($) |
Dec. 31, 2019 |
Jun. 30, 2019 |
---|---|---|
Level 1 | ||
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items] | ||
Foreign exchange contract asset | $ 0 | |
Total | 0 | |
Foreign exchange contract liability | $ 0 | |
Total | 0 | |
Level 2 | ||
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items] | ||
Foreign exchange contract asset | 32,827 | |
Total | 32,827 | |
Foreign exchange contract liability | 42,255 | |
Total | 42,255 | |
Level 3 | ||
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items] | ||
Foreign exchange contract asset | 0 | |
Total | $ 0 | |
Foreign exchange contract liability | 0 | |
Total | $ 0 |
Commitments and Contingencies |
6 Months Ended |
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Dec. 31, 2019 | |
Commitments And Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES |
NOTE 13 - COMMITMENTS AND CONTINGENCIES Contingencies Based on information currently available, management is not aware of any other matters that would have a material adverse effect on the Company's financial condition, results of operations or cash flows. Legal Matters The Company may be subject to various legal proceedings from time to time. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. Any current litigation is considered immaterial and counter claims have been assessed as remote. |
Subsequent Events |
6 Months Ended |
---|---|
Dec. 31, 2019 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS |
NOTE 17 - SUBSEQUENT EVENTS None.
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Revenue Recognition (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Revenues [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of disaggregation of revenues |
The following table disaggregates the Company’s revenue by type of contract:
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Warrants (Tables) |
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Warrants And Rights Note Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Warrants Outstanding |
The following table summarizes the total warrants outstanding at December 31, 2019:
The following table summarizes the total warrants outstanding at June 30, 2019:
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Equity |
6 Months Ended |
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Dec. 31, 2019 | |
Equity [Abstract] | |
EQUITY |
NOTE 11 - EQUITY On September 5, 2018, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with MFP Partners, L.P. ("MFP"), pursuant to which the Company sold to MFP 1,607,717 shares of common stock of the Company (the "Common Shares") at a purchase price of $3.11 per share at an initial closing, and agreed to sell, subject to the satisfaction of certain conditions, 7,235 shares of newly designated Series A Convertible Preferred Stock of the Company ("Preferred Shares") to MFP at a purchase price of $3,110 per share at a second closing (the "Second Closing"). The Second Closing was completed on October 23, 2018, for aggregate gross proceeds of approximately $22.5 million, which was used primarily to fund the Chromatin Acquisition. The Preferred Shares carried no voting rights and were automatically convertible into shares of common stock at the rate of 1,000 shares of common stock per Preferred Share upon the approval of the Company's stockholders for the issuance of the requisite shares of common stock. Pursuant to the Securities Purchase Agreement, the Company agreed to use its reasonable best efforts to solicit the approval of its shareholders for the issuance of stock upon the conversion of the Preferred Shares at a special meeting of shareholders, and at each annual meeting of shareholders thereafter, if necessary. Approval was obtained at a Special Meeting of Stockholders held on November 20, 2018, and the Preferred Shares automatically converted into 7,235,000 shares of common stock on that same day. |
Leases |
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Lessee Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASES |
NOTE 3 - LEASES S&W leases office and laboratory space, research plots and equipment used in connection with its operations under various operating and finance leases. ROU assets represent the Company’s right to use the underlying assets for the lease term and lease liabilities represent the net present value of the Company’s obligation to make payments arising from these leases. The lease liabilities are based on the present value of fixed lease payments over the lease term using the implicit lease interest rate or, when unknown, the Company's incremental borrowing rate on the lease commencement date or July 1, 2019 for leases that commenced prior to that date. If the lease includes one or more options to extend the term of the lease, the renewal option is considered in the lease term if it is reasonably certain the Company will exercise the option(s). Operating lease expense is recognized on a straight-line basis over the term of the lease. As permitted by ASC 842, leases with an initial term of twelve months or less ("short-term leases") are not recorded on the accompanying consolidated balance sheet. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component under the practical expedient provisions of the standard. The Company has lease agreements with terms less than one year. For the qualifying short-term leases, the Company elected the short-term lease recognition exemption in which the Company will not recognize ROU assets or lease liabilities, including the ROU assets or lease liabilities for existing short-term leases of those assets in upon adoption. Variable lease payments consist primarily of common area maintenance, utilities and taxes, which are not included in the recognition of ROU assets and related lease liabilities. Variable lease payments and short-term lease expenses were immaterial to the Company’s financial statements for the three and six months ended December 31, 2019. The Company’s lease agreements do not contain material restrictive covenants. The components of lease assets and liabilities are as follows:
The components of lease cost are as follows:
Maturities of lease liabilities as of December 31, 2019 are as follows:
Future minimum lease payments for operating leases accounted for under ASC 840, “Leases” in excess of one year at December 31, 2019 are as follows:
The following are the weighted average assumptions used for lease term and discount rate and supplemental cash flow information related to leases as of December 31, 2019:
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Goodwill and Intangible Assets |
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Goodwill And Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND INTANGIBLE ASSETS |
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS During the fourth quarter of the year ended June 30, 2019, the Company terminated its production and distribution agreements with Pioneer, thereby triggering a potential indicator of goodwill impairment. As a result, the Company initiated a goodwill impairment test for the year ended June 30, 2019. The Company compared the carrying value of its invested capital to its estimated fair values at June 30, 2019. The Company estimated the fair value based on the income approach. The discounted cash flows served as the primary basis for the income approach and were based on discrete financial forecasts developed by management. Cash flows beyond the discrete forecast period of ten years were estimated using the perpetuity growth method calculation. The income approach valuation included estimated weighted average cost of capital, which was 10.6%. Upon completing the impairment test, the Company determined that the fair value of invested capital was less than the carrying value by approximately 10%, thus indicating an impairment. The Company recognized a goodwill impairment charge of $11.9 million for the year ended June 30, 2019, which represented the entire goodwill balance prior to the impairment charge. The following table summarizes the activity of goodwill for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively.
For the year ended June 30, 2019, the Company recorded an impairment charge on its intangible assets of $6.0 million. Refer to Note 4 for further information. Intangible assets consist of the following:
Amortization expense totaled $531,373 and $552,967 for the three months ended December 31, 2019 and 2018, respectively. Amortization expense totaled $1,012,328 and $1,059,585 for the six months ended December 31, 2019 and 2018, respectively.
Estimated aggregate remaining amortization is as follows:
Acquisition of Wheat Assets
On August 15, 2019, the Company entered into several agreements to effectuate the purchase of a wheat breeding program in Australia (“Wheat Acquisition”) from Dow AgroScience (“Dow”). In the transaction, the Company acquired:
The wheat market in Australia operates under an End Point Royalty (“EPR”) System in which the wheat variety owner earns a fixed royalty on every metric ton of grain produced. With the Wheat Acquisition, the Company has the right to collect EPR on commercialized wheat varieties included in its license.
The purchase price was approximately $2.6 million, which was paid in cash. The purchase price was allocated to the assets acquired based on the relative fair values of the license and fixed assets. $2.4 million was allocated to the license, which will be amortized over 15 years in accordance with the term of the agreement. The fair value of the license was determined using a discounted cash flow analysis. $0.2 million was allocated to the fixed assets, which have useful lives of 3 - 5 years.
The acquired assets did not meet the definition of a business in the Accounting Standards Codification.
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Related Party Transactions - Additional Information (Details) - MFP Loan Agreement - USD ($) |
Dec. 31, 2018 |
Dec. 21, 2018 |
Dec. 31, 2019 |
Dec. 18, 2018 |
---|---|---|---|---|
Related Party Transaction [Line Items] | ||||
Line of credit facility, maximum borrowing capacity | $ 5,000,000 | |||
Line of credit facility, minimum increment borrowing capacity | $ 1,000,000 | |||
Line of credit facility, fixed per annum rate | 6.00% | |||
Line of credit facility, fee percentage | 2.00% | |||
Line of credit facility, drew down amount | $ 1,000,000 | |||
Repayments of line of credit | $ 1,000,000 | |||
Facility outstanding amount | $ 0 |
Business Combinations (Purchase Price Allocation and Assets Held for Sale) (Details) - USD ($) |
1 Months Ended | |||
---|---|---|---|---|
Oct. 25, 2018 |
Dec. 31, 2019 |
Jun. 30, 2019 |
Jun. 30, 2018 |
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Business Combinations [Abstract] | ||||
Cash and cash equivalents | $ 95,049 | |||
Accounts receivable | 947,015 | |||
Inventories | 6,959,936 | |||
Prepaid expenses and other current assets | 16,501 | |||
Property, plant and equipment | 10,193,620 | |||
Assets held for sale | 1,930,400 | |||
In-process research and development | 380,000 | |||
Technology/IP - germplasm | 7,200,000 | |||
Trade names | 150,000 | |||
Goodwill | 1,573,546 | $ 0 | $ 0 | $ 10,292,265 |
Current liabilities | (2,881,198) | |||
Noncurrent liabilities | (114,869) | |||
Total acquisition cost allocated | (26,450,000) | |||
Assets held for sale | ||||
Land and improvements | 320,000 | |||
Buildings and improvements | 1,380,000 | |||
Machinery and equipment | 332,000 | |||
Less: Costs to sell | (101,600) | |||
Less: Fair value adjustment subsequently recorded | (1,230,400) | |||
Assets recorded as held for sale that have been subsequently sold | $ 700,000 |
Goodwill and Intangible Assets - Summary of Activity of Goodwill (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
---|---|---|
Dec. 31, 2019 |
Jun. 30, 2019 |
|
Goodwill And Intangible Assets Disclosure [Abstract] | ||
Goodwill, Beginning Balance | $ 0 | $ 10,292,265 |
Goodwill additions | 0 | 1,573,546 |
Goodwill Impairment | 0 | (11,865,811) |
Goodwill, Ending Balance | $ 0 | $ 0 |
Warrants - Schedule of Warrants Outstanding (Details) - $ / shares |
6 Months Ended | 12 Months Ended |
---|---|---|
Dec. 31, 2019 |
Jun. 30, 2019 |
|
Class Of Warrant Or Right [Line Items] | ||
Warrants outstanding, beginning | 2,699,999 | 2,699,999 |
Warrant issuances | 0 | 0 |
Warrants expired | 0 | 0 |
Warrants outstanding. ending | 2,699,999 | 2,699,999 |
Warrants | ||
Class Of Warrant Or Right [Line Items] | ||
Warrant issue date | 2014-12 | 2014-12 |
Exercise Price Per Share | $ 4.32 | $ 4.32 |
Warrant expiration date | 2020-06 | 2020-06 |
Warrants outstanding, beginning | 2,699,999 | 2,699,999 |
Warrant issuances | 0 | 0 |
Warrants expired | 0 | 0 |
Warrants outstanding. ending | 2,699,999 | 2,699,999 |
Property, Plant and Equipment - Additional Information (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2019 |
Dec. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
|
Property Plant And Equipment [Abstract] | ||||
Depreciation expense | $ 733,073 | $ 482,639 | $ 1,257,166 | $ 831,130 |
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