<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
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 000-28052
EN POINTE TECHNOLOGIES, INC
(Exact name of registrant as specified in its charter)
State or other jurisdiction of I.R.S. Employer I.D.
incorporation or organization: Delaware Number: 75-2467002
100 N. Sepulveda Blvd., 19th Floor
El Segundo, California 90245
(Address of principal executive offices) (ZIP CODE)
Registrant's telephone number, including area code: (310) 725-5200
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 X NO
---- ----
As of August 6, 1998, 5,899,407 shares of Common Stock of the Registrant were
issued and outstanding.
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<PAGE>
INDEX
EN POINTE TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
<S> <C> <C>
ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS - JUNE 30, 1998 AND SEPTEMBER 30, 1997 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - THREE AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS ENDED JUNE 30, 1998 AND 1997 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 1998 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II OTHER INFORMATION
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ITEM 1 LEGAL PROCEEDINGS 10
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
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</TABLE>
<PAGE>
EN POINTE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
----------- -------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 2,244 $ 3,315
Restricted cash 2,409 412
Accounts receivable, net 88,441 76,875
Inventories 8,867 4,663
Prepaid expenses and other current assets 1,036 1,569
-------- -------
Total current assets 102,997 86,834
Property and equipment, net of accumulated
depreciation 14,439 3,278
Other assets 5,211 750
-------- -------
Total assets $122,647 $90,862
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Borrowings under lines of credit $ 64,784 $50,692
Accounts payable 9,744 3,798
Accrued liabilities 2,540 2,709
Other current liabilities 3,621 4,593
Current portion of notes payable 755 198
Deferred taxes 91 91
-------- -------
Total current liabilities 81,535 62,081
Notes payable 7,126 463
Deferred taxes 1,310 --
-------- -------
Total liabilities 89,971 62,544
Stockholders' equity:
Common stock 6 6
Additional paid-in capital 18,688 18,283
Retained earnings 12,097 10,029
Unrealized holding gains 1,885 --
-------- -------
Total stockholders' equity: 32,676 28,318
-------- -------
Total liabilities and stockholders' equity $122,647 $90,862
-------- -------
-------- -------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
EN POINTE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $143,811 $128,400 $409,303 $356,661
Cost of sales 130,258 116,671 369,566 325,456
-------- -------- -------- --------
Gross profit 13,553 11,729 39,737 31,205
Selling and marketing expenses 8,547 5,737 25,302 15,898
General and administrative expenses 3,557 3,193 9,989 7,673
-------- -------- -------- --------
Operating income 1,449 2,799 4,446 7,634
Interest expense 298 312 1,145 927
Other income, net (70) (44) (204) (172)
-------- -------- -------- --------
Income before income taxes 1,221 2,531 3,505 6,879
Provision for income taxes 501 1,070 1,437 2,907
-------- -------- -------- --------
Net income $ 720 $ 1,461 $ 2,068 $ 3,972
-------- -------- -------- --------
-------- -------- -------- --------
Net income per share:
Basic $ 0.12 $ 0.26 $ 0.35 0.70
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $ 0.12 $ 0.25 $ 0.34 0.68
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding:
Basic 5,898 5,693 5,867 5,669
-------- -------- -------- --------
-------- -------- -------- --------
Diluted 5,926 5,785 6,019 5,832
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
EN POINTE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended
June 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,068 $ 3,972
Adjustments to reconcile net income to
net cash used by operations:
Depreciation and amortization 1,322 880
Deferred compensation 21 80
Allowance for doubtful accounts 599 437
Allowance for returns -- 150
Net change in operating assets and
liabilities (14,294) (14,906)
-------- --------
Net cash provided (used) by operating activities (10,284) (9,387)
Cash flows from investing activities:
Purchase of property and equipment (8,483) (1,425)
-------- --------
Net cash used by investing activities (8,483) (1,425)
Cash flows from financing activities:
Net borrowings (payments) under lines of credit 14,092 7,448
Proceeds from lease obligation -- 402
Proceeds from equipment financing 3,500 --
Payment on notes payable (280) (141)
Proceeds from sales of stock to employees 384 734
-------- --------
Net cash provided by financing activities 17,696 8,443
-------- --------
Decrease in cash $ (1,071) $ (2,369)
-------- --------
-------- --------
Supplemental disclosures of cash flow
information:
Interest paid $ 1,146 $ 911
-------- --------
-------- --------
Income taxes paid $ 1,591 $ 3,868
-------- --------
-------- --------
Long-term debt acquired in purchase of plant $ 4,000
--------
--------
Unrealized gain on equity holdings, net of taxes $ 1,885
--------
--------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
EN POINTE TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND GENERAL INFORMATION
In the opinion of management, the unaudited condensed consolidated balance
sheet of En Pointe Technologies, Inc. (the "Company" or "En Pointe") at
June 30, 1998, and the unaudited condensed consolidated statements of income
and unaudited condensed consolidated statements of cash flows for the interim
periods ended June 30, 1998 and 1997 include all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly these financial
statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The year-end balance sheet data
was derived from audited financial statements, but does not include
disclosures required by generally accepted accounting principles. Operating
results for the three and nine months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended September 30,
1998. It is suggested that these condensed statements be read in conjunction
with the Company's most recent Form 10-K and Annual Report as of September 30,
1997.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Significant estimates in these financial statements include
allowances for uncollectible accounts receivable and for unreimbursed product
returns and the net realizable value of rebates. Actual results could differ
from those estimates.
This Form 10-Q contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements and their inclusion
should not be regarded as a representation by the Company or any other person
that the objectives or plans will be achieved. Factors that might cause such
a difference include, but are not limited to, competitive, technological,
financial and business challenges making it more difficult than expected to
continue to sell information technology products and services. The Company
may be unable to retain existing key sales, technical and management
personnel; there may be other material adverse changes in the information
technology industry or in the Company's operations or business, and any or
all of these factors may affect the Company's ability to continue its current
rate of sales growth or may result in lower sales volume than currently
experienced.
Certain important factors affecting the forward-looking statements made
herein include, but are not limited to (I) a significant portion of the
Company's sales continuing to be to certain large customers, (II) continued
dependence by the Company on certain Allied Distributors, (III) continued
downward pricing pressures in the information technology market, (IV) the
lack of prior experience of the Company in the provision of value-added
services and (V) the decision by the Company to expand its sales force into
various new geographic territories. Assumptions relating to budgeting,
marketing, and other management decisions are subjective in many respects and
thus susceptible to interpretations and periodic revisions based on actual
experience and business developments, the impact of which may cause the
Company to alter its marketing, capital expenditure or other budgets, which
may in turn affect the Company's business, financial position, results of
operations and cash flows. The reader is therefore cautioned not to place
undue reliance on forward-looking statements contained herein and to consider
other risks detailed more fully in the Company's most recent Form 10-K and
Annual Report as of September 30, 1997.
As mentioned in the Company's most recent Form 10-K, there is a risk
associated with the dependency on major customers. IBM is a major customer
whose extended contract expires in December of 1998. At that time IBM will
enter into new contracts with certain resellers to supply it, and certain of
its customers, with products and services. Although the Company intends to
bid for such contract, there can be no assurance that the Company will be
successful in obtaining such contract.
<PAGE>
A significant portion of the Company's operating expenses are fixed, and
planned expenditures are based primarily on sales forecasts and product
development programs. If sales do not meet the Company's expectations in any
given period, any resulting adverse impact on operating results may be
further magnified by the Company's inability to adjust operating expenses
sufficiently or quickly enough to compensate for such a shortfall.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The forward-looking statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations, which reflect
management's best judgment based on factors currently known, involve risks
and uncertainties. Actual results could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including but not limited to those discussed below. Forward-looking
information provided by En Pointe pursuant to the safe harbor established by
recent securities legislation should be evaluated in the context of these
factors.
The following table sets forth certain financial data as a percentage of net
sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 90.6 90.9 90.3 91.3
-------- -------- -------- --------
Gross profit.................................... 9.4 9.1 9.7 8.7
Selling and marketing expenses.................... 5.9 4.4 6.2 4.4
General and administrative expenses............... 2.5 2.5 2.4 2.2
-------- -------- -------- --------
Operating income................................ 1.0 2.2 1.1 2.1
Interest expense.................................. 0.2 0.2 0.2 0.2
Other income, net................................. 0.0 0.0 0.0 0.0
-------- -------- -------- --------
Income before income taxes...................... 0.8 2.0 0.9 1.9
Provision for income taxes........................ 0.3 0.9 0.4 0.8
-------- -------- -------- --------
Net income...................................... 0.5% 1.1% 0.5% 1.1%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
COMPARISON OF THE QUARTER AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
All comparisons within the following discussion are related to the same period
of the previous year.
NET SALES. Net sales in the third quarter increased $15.4 million, or 12.0%,
to $143.8 million from the corresponding quarter a year ago. Five new sales
offices accounted for $6.1 million of the net sales increase. Sales under the
IBM global contract amounted to $30.1 million (20.9% of total net sales) and
$33.2 million (25.8% of total net sales), respectively. The decline in IBM
sales reflects a lessening of computer product demand for the period.
Service revenues were $3.4 million (2.4% of total net sales) and $1.9 million
(1.5% of total net sales), respectively.
Net sales for the nine months increased $52.6 million, or 14.8%, to
$409.3 million from the corresponding period a year ago. Five new sales
offices accounted for $13.4 million of the net sales increase. Increased
governmental sales accounted for another $19.3 million. Sales under the IBM
global contract amounted to $90.8 million (22.2% of total net sales) and
$105.0 million (29.4% of total net sales), respectively. Service revenues
were $8.6 million (2.1% of total net sales) and $3.3 million (0.9% of total
net sales), respectively.
<PAGE>
GROSS PROFIT. Gross profit as a percentage of sales improved to 9.4% from
9.1% in the corresponding quarter a year ago. The .3% improvement in margins
was chiefly attributed to improved purchasing terms and associated rebates
from vendors. For the nine months, gross profits improved by 1.0% to 9.7%
from 8.7% in the corresponding period a year ago.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses in the third
quarter increased $2.8 million, or 49.0%, to $8.5 million from the
corresponding quarter a year ago. As a percentage of net sales, selling and
marketing increased to 5.9% from 4.4%. However, in the prior sequential
quarters, selling and marketing expenses were already poised above 6% of net
sales. The current quarter continues that trend which is primarily wage
related and represents an additional investment in the service and marketing
infrastructure of $1.1 million. For the nine months, selling and marketing
expenses increased $9.4 million or 59.2%, to $25.3 million from the
corresponding period a year ago.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses in
the third quarter increased $.4 million, or 11.4%, to $3.6 million from the
corresponding quarter a year ago. As a percentage of net sales, general and
administrative expenses remained constant at 2.5%. For the nine months
general and administrative expenses increased $2.3 million or 30.2%, to
$10.0 million from the corresponding period a year ago. The increase was
attributable to increased staff and other administrative functions necessary
to support the increase in sales volume.
INTEREST EXPENSE. Interest expense in the third quarter decreased
$14 thousand, or 4.5%, to $0.3 million from the corresponding quarter a year
ago. As a percentage of net sales, interest expense remained constant at
0.2%. The increase is attributable to increased sales volume and related
receivables subject to financing. For the nine months interest increased
$0.2 million, or 23.5%, to $1.1 million from the corresponding period a year
ago, but remained unchanged on a percentage of net sales basis. Interest of
$130 thousand relating to the Company's new configuration facility in Ontario
was capitalized during the quarter, pending completion of construction of the
facility. Total interest capitalized on the project to date is $329 thousand.
NET INCOME. Net income in the third quarter decreased $.7 million, or 50.7%,
to $720 thousand from the corresponding quarter a year ago. Net income
decreased primarily as a result of the increases in selling and marketing and
general and administrative expense that exceeded the increases in sales
volume and gross profits. For the nine months net income decreased
$1.9 million or 47.9%, to $2.1 million, again due to increased overhead
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash totaling $10.3 million during the nine months
ended June 30, 1998. Net cash used in operating activities has been
significant due to the working capital requirements resulting from the growth
of the Company and, more specifically, the financing of accounts receivable
resulting from increased sales.
As of June 30, 1998, accounts receivable increased $12.2 million, reflecting
continuing sales growth. Inventories increased $4.2 million due to a spike
up in the in transit inventory and the staging of material for the start up
for the Ontario configuration center. The Company's accounts receivable
balance at June 30, 1998 and September 30, 1997 was $90.2 and $78.0 million.
The number of days' sales outstanding in accounts receivable was 56 and 58 days
respectively as of June 30, 1998 and September 30, 1997.
Investing activities used cash totaling $8.5 million during the nine months
ended June 30, 1998. The investing activities related chiefly to the purchase
of equipment and improvements for the Ontario facility of $5.5 million with
the remaining $3.0 million expended for computer equipment, office
furnishings, and other support equipment.
<PAGE>
Investment in marketable securities included in Other Assets increased
$3.2 million. The increase reflects an increase in market value on securities
(Shopping.com) that may be sold within the next twelve months. The after tax
unrealized gain amounts to $1.9 million and is a component of Stockholders'
Equity.
Financing activities provided net cash totaling $17.7 million during the nine
months ended June 30, 1998. The primary increase in cash was from net
borrowings under lines of credit of $14.1 million. In addition $3.5 million
was provided from equipment financing related to Ontario. As of June 30,
1998, the Company had approximately $2.2 million in cash, $2.4 million in
restricted cash, and $21.5 million in working capital. The $2.4 million in
restricted cash relates to the Ontario equipment financing and is set aside
to finance equipment purchases.
The Company has several revolving credit facilities collateralized by
accounts receivable and all other assets of the Company, including a $70
million line with IBM Credit Corporation ("IBM Credit"). As of June 30, 1998,
such lines of credit provided for maximum aggregate borrowings of
approximately $101 million, of which $64.8 million was outstanding. Because
the lines of credit are primarily collateralized by accounts receivable, the
available credit and credit limit are dependent upon the amount of accounts
receivable at any given point in time. Outstanding borrowings on the lines of
credit bear interest at the prime rate less .25%. The lines of credit may be
renewed annually unless notification of an election not to renew is made by
either the Company or creditor on or prior to the renewal date. Borrowings
are collateralized by substantially all of the Company's assets. In addition,
the lines of credit contain certain financing and operating covenants
relating to net worth, liquidity, profitability, repurchase of indebtedness
and prohibition on payment of dividends.
On July 1, 1998 the Ontario facility was completed and operations commenced,
as planned. The facility has a high capacity for unit configuration, but is
not scheduled to reach full production capability for at least the next
couple of quarters. In the meantime, some negative cash flow is anticipated
until full production can be achieved.
Because of the Ontario cash needs, including certain unanticipated costs
associated with the completion of the facility, as well as the decline in
operating profits attributable to the ramp up of technical services,
management believes that additional cash is needed and is actively pursuing
alternative courses.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement No. 128, "Earnings
per Share," which modifies the way in which earnings per share ("EPS") is
calculated and disclosed. Previously, the Company disclosed primary and fully
diluted EPS. Upon adoption of this standard for the interim period ended
December 31, 1997, the Company is disclosing basic and diluted EPS for fiscal
1998 and has restated all prior period EPS data presented.
The FASB issued Statement No. 130, "Reporting Comprehensive Income" which
establishes standards for the reporting and display of comprehensive income
in general-purpose financial statements. This standard is effective for
fiscal years beginning after December 15, 1997. The Company has not assessed
the impact of this Standard on its financial statements.
The FASB issued Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for the
reporting of operating segments in the financial statements. This standard is
effective for fiscal years beginning after December 15, 1997. The Company
has not assessed the impact of this Standard on its financial statements.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are various claims and legal actions pending against the Company.
In the opinion of management, the outcome of such claims and litigation will
not have a material adverse effect upon the Company's financial position or
results of operations. There have been no material changes in the legal
proceedings reported in the Company's Annual Report on Form 10-K for the year
ended September 30, 1997.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
10.16 Loan Agreement among Associates Commercial Corporation, as
Lender, and California Statewide Communities Development
Authority, as Issuer, and the Registrant, dated April 16,
1998
11 Computation of Earnings Per Common Share
27 Financial Data Schedule for the quarter ended June 30, 1998
</TABLE>
b. The Company did not file any reports on Form 8-K during the three
months ended June 30, 1998.
SIGNATURES
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.
EN POINTE TECHNOLOGIES, INC.
----------------------------
(REGISTRANT)
Date: August 14, 1998 By: /s/ C. Stephen Cordial
-------------------------------------------
C. Stephen Cordial, Chief Financial Officer
<PAGE>
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LOAN AGREEMENT
AMONG
ASSOCIATES COMMERCIAL CORPORATION,
AS LENDER,
AND
CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY,
AS ISSUER,
AND
EN POINTE TECHNOLOGIES, INC.,
AS BORROWER
DATED AS OF APRIL 16, 1998
RELATING TO
CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
EQUIPMENT PURCHASE PROGRAM NOTE
(EN POINTE TECHNOLOGIES, INC. PROJECT), SERIES 1998-5A
AND
CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
TAXABLE EQUIPMENT PURCHASE PROGRAM NOTE
(EN POINTE TECHNOLOGIES, INC. PROJECT), SERIES 1998-5B
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FOR PURPOSE OF ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE, NO ASSIGNMENT OF, OR
SECURITY INTEREST IN, THIS LOAN AGREEMENT MAY BE CREATED OR PERFECTED BY THE
TRANSFER OF POSSESSION OF ANY COUNTERPART HEREOF OTHER THAN THE COUNTERPART
DESIGNATED AS "COUNTERPART NUMBER 1."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
RECITALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I: DEFINITIONS AND EXHIBITS
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Exhibits . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.03. Rules of Construction. . . . . . . . . . . . . . . . . 2
ARTICLE II: THE NOTE, TERMS OF LOAN AND FINANCING OF EQUIPMENT
Section 2.01. Issuance of the Notes. . . . . . . . . . . . . . . . . 3
Section 2.02. Loan . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.03. Interest . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.04. Payments . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.05. Payment on Non-Business Days . . . . . . . . . . . . . 3
Section 2.06. Loan Payments To Be Unconditional. . . . . . . . . . . 3
Section 2.07. Prepayments. . . . . . . . . . . . . . . . . . . . . . 4
Section 2.08. Special Obligations. . . . . . . . . . . . . . . . . . 4
Section 2.09. Additional Payments. . . . . . . . . . . . . . . . . . 4
Section 2.10. Initial and Annual Administrative Fees . . . . . . . . 4
ARTICLE III: REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties of Issuer . . . . . . . 4
Section 3.02. Representations and Warranties of Borrower . . . . . . 5
Section 3.03. Representations and Warranties of Lender . . . . . . . 6
ARTICLE IV: TITLE TO EQUIPMENT; SECURITY INTEREST
Section 4.01. Title to the Equipment . . . . . . . . . . . . . . . . 7
Section 4.02. Security Interest in Equipment . . . . . . . . . . . . 7
Section 4.03. Change in Name or Business Organization Type of
Borrower; Change in Location of Borrower's
Principal Place of Business. . . . . . . . . . 7
Section 4.04. Personal Property. . . . . . . . . . . . . . . . . . . 7
Section 4.05. Assignment of Insurance. . . . . . . . . . . . . . . . 7
Section 4.06. Occupancy. . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.07. Agreement as Financing Statement . . . . . . . . . . . 8
ARTICLE V: AFFIRMATIVE COVENANTS OF BORROWER
Section 5.01. Reporting Requirements . . . . . . . . . . . . . . . . 8
Section 5.02. Books and Records. . . . . . . . . . . . . . . . . . . 9
Section 5.03. Compliance With Laws; Environmental Indemnity. . . . . 9
Section 5.04. Payment of Taxes and Other Claims. . . . . . . . . . . 9
Section 5.05. Acquisition of Equipment . . . . . . . . . . . . . . . 9
Section 5.06. Maintenance of Equipment . . . . . . . . . . . . . . . 9
Section 5.07. Insurance. . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.08. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.09. Preservation of Existence. . . . . . . . . . . . . . . 10
Section 5.10 Performance by Lender . . . . . . . . . . . . . . . . . 10
Section 5.11. Limitations of Liability . . . . . . . . . . . . . . . 11
ARTICLE VI: NEGATIVE COVENANTS OF BORROWER
Section 6.01. Liens. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.02. Sale of Assets . . . . . . . . . . . . . . . . . . . . 11
Section 6.03. Accounting . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.04. Transfers. . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.05. Other Defaults . . . . . . . . . . . . . . . . . . . . 11
Section 6.06. Location of Equipment. . . . . . . . . . . . . . . . . 11
Section 6.07. Modifications and Substitutions. . . . . . . . . . . . 11
Section 6.08. Use of the Equipment . . . . . . . . . . . . . . . . . 11
ARTICLE VII: DAMAGE AND DESTRUCTION; USE OF NET PROCEEDS
Section 7.01. Damages and Destruction; Use of Net Proceeds . . . . . 11
</TABLE>
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<TABLE>
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<S> <C>
ARTICLE VIII: ASSIGNMENT, LEASING AND SELLING
Section 8.01. Registration of Notes; Transfer and
Assignment by Lender . . . . . . . . . . . . . . 12
Section 8.02. No Sale, Leasing or Assignment by Borrower . . . . . . 12
ARTICLE IX: EVENTS OF DEFAULT AND REMEDIES
Section 9.01. Events of Default. . . . . . . . . . . . . . . . . . . 12
Section 9.02. Remedies on Default. . . . . . . . . . . . . . . . . . 12
Section 9.03. Return of Equipment. . . . . . . . . . . . . . . . . . 13
Section 9.04. No Remedy Exclusive. . . . . . . . . . . . . . . . . . 13
Section 9.05. Late Charge. . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE X: MISCELLANEOUS
Section 10.01. Disclaimer of Warranties. . . . . . . . . . . . . . . 13
Section 10.02. Tax Compliance Agreement. . . . . . . . . . . . . . . 13
Section 10.03. Notices . . . . . . . . . . . . . . . . . . . . . . . 14
Section 10.04. Further Assurance and Corrective Instruments. . . . . 14
Section 10.05. Binding Effect; Time of the Essence . . . . . . . . . 14
Section 10.06. Severability. . . . . . . . . . . . . . . . . . . . . 14
Section 10.07. Amendments. . . . . . . . . . . . . . . . . . . . . . 14
Section 10.08. Execution in Counterparts . . . . . . . . . . . . . . 14
Section 10.09. Term of Loan Agreement. . . . . . . . . . . . . . . . 15
Section 10.10. Applicable Law. . . . . . . . . . . . . . . . . . . . 15
Section 10.11. Entire Agreement. . . . . . . . . . . . . . . . . . . 15
Section 10.12. Usury . . . . . . . . . . . . . . . . . . . . . . . . 15
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit A - Schedule of Equipment, Acquisition Costs, Issuer Fees,
General Information and Additional Provisions
Exhibit B - Forms of Notes
Exhibit C - Form of Investor's Letter of Representation
</TABLE>
(ii)
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT dated the date shown on the cover page (this
"Agreement") is entered into among the lender identified on the cover page
(together with its successors and assigns, "Lender"), the California
Statewide Communities Development Authority, a public entity created pursuant
to the provisions relating to the joint exercise of powers found in Chapter 5
of Division 7 of Title 1 (commencing with Section 6500) of the Government
Code of the State of California, as issuer ("Issuer"), and the borrower
identified on the cover page (together with its successors, "Borrower").
RECITALS
1. Issuer is authorized and empowered to finance certain capital
projects consisting of industrial facilities pursuant to the California
Industrial Development Financing Act, Title 10 of the Government Code of the
State of California, as now in effect and as it may from time to time
hereafter be amended or supplemented (the "Act").
2. Issuer is authorized to issue notes and to lend the proceeds
thereof pursuant to loan agreements, contracts and other instruments and
documents necessary or convenient for the purpose of facilitating the
financing of certain capital projects as described in the Act.
3. In furtherance of the purposes of the Act, Issuer proposes to
finance all or a portion of the acquisition and installation of the Equipment
(as hereinafter defined) by Borrower pursuant to this Agreement by its notes
to Lender and lending the proceeds of the notes to Borrower.
4. Borrower proposes to borrow the proceeds received from the issuance
of the notes upon the terms and conditions set forth in this Agreement to
finance the acquisition and installation of all or a portion of the Equipment.
5. Borrower shall make Loan Payments (as hereinafter defined) directly
to Lender, as assignee of Issuer, pursuant to the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the payments to be made under this
Agreement and the representations, covenants and agreements contained in this
Agreement, Lender, Issuer and Borrower agree as follows:
ARTICLE I
DEFINITIONS AND EXHIBITS
SECTION 1.01. DEFINITIONS. The following terms used herein will have
the meanings indicated below unless the context clearly requires otherwise:
"ACT" means the California Industrial Development Financing Act, Title 10
of the Government Code of the State of California, as now in effect and as it
may from time to time hereafter be amended or supplemented.
"ACQUISITION COSTS" means the contract price paid or to be paid to
Vendors for any portion of the Equipment upon Borrower's acceptance thereof,
and any administrative, engineering, legal, financial and other costs
incurred by Lender, Issuer, Borrower, Escrow Agent and Vendors in connection
with the acquisition, installation and financing by Lender of that Equipment,
which Acquisition Costs are set forth in EXHIBIT A.
"ADDITIONAL PAYMENTS" means the amounts, other than Loan Payments,
payable by Borrower pursuant to this Agreement, including the fees pursuant
to SECTION 2.10.
"AFFILIATE" means a corporation, partnership, trust or limited liability
company that controls, is controlled by or is under common control with
Lender. "Control" means having the authority, directly or indirectly, to
elect a majority of the board of directors or other governing body of the
entity controlled.
"AGREEMENT" means this Loan Agreement, including all exhibits hereto, as
supplemented or amended from time to time in accordance with the terms hereof.
"BORROWER" means the entity identified as such on the cover page of this
Agreement and its successors.
"CLOSING DATE" means the date of the original issuance and delivery of
the Notes, which shall be the date the Note Proceeds are deposited in the
Escrow Fund.
"CODE" means the Internal Revenue Code of 1986, as amended, and United
States Treasury regulations promulgated thereunder.
"DEFAULT" means an Event of Default or an event that, with giving of
notice or passage of time or both, would constitute an Event of Default.
"DETERMINATION OF TAXABILITY" means (a) any determination, decision or
decree by the Commissioner of Internal Revenue, or any District Director of
Internal Revenue or any court of competent jurisdiction, or an opinion
obtained by Lender of counsel qualified in such matters and reasonably
acceptable to Issuer, that an Event of Taxability has occurred, (b) the
filing by Borrower or Lender of any statement, supplemental statement, or
other tax schedule, return or document that discloses that an Event of
Taxability has occurred, or (c) the enactment of any federal legislation
enacted after the date of this Agreement or promulgation of any income tax
regulation or ruling by the Internal Revenue Service that causes an Event of
Taxability after the date of this Agreement.
"EQUIPMENT" means the property identified in EXHIBIT A to be used in
connection with Borrower's operations (including, to the extent permitted
pursuant to the Code without jeopardizing the tax-exempt status of the
interest on the Tax-Exempt Note, certain items originally financed through
internal advances of Borrower in anticipation of obtaining permanent
financing through Issuer), together with all replacement parts, additions,
repairs, accessions and accessories incorporated therein or affixed to that
property, and all replacements and substitutions for any of that property
pursuant to ARTICLE VII.
"ESCROW AGENT" means the entity acting as escrow agent under the Escrow
Agreement.
"ESCROW AGREEMENT" means the Escrow Agreement dated as of the date
hereof among Lender, Issuer, Borrower and Escrow Agent, as supplemented and
amended from time to time.
"ESCROW FUND" means the fund, which shall be comprised of an Acquisition
Account and an Issuance Expense Account, established and held by Escrow
Agent pursuant to the Escrow Agreement.
"EVENT OF DEFAULT" means any of the events described as such in
SECTION 9.01.
<PAGE>
"EVENT OF TAXABILITY" means any act, failure to act or use of the
Tax-Exempt Note Proceeds, any change in use of the Equipment or any
misrepresentation or inaccuracy in any of the representations, warranties or
covenants contained in this Agreement or the Tax Compliance Agreement by
Issuer or Borrower or the enactment of any federal legislation after the date
of this Agreement or the promulgation of any income tax regulation or ruling
by the Internal Revenue Service after the date of this Agreement, or any
non-appealable final judgment or determination by the Internal Revenue
Service or a court of competent jurisdiction that results in the interest on
the Tax-Exempt Note being, or determines that the interest on the Tax-Exempt
Note is, includable in Lender's gross income for federal income tax purposes.
"GROSS-UP INTEREST PAYMENT" means, with respect to any interest payment on
the Tax-Exempt Note (including payments made before an Event of Taxability), an
additional payment in an amount sufficient such that the sum of the interest
payment (excluding the additional payment) plus the additional payment would,
after being reduced by the federal tax (including interest and penalties)
actually imposed thereon, equal the amount of that interest payment before
adding the additional payment.
"ISSUER" means the California Statewide Communities Development Authority,
a joint exercise of powers agency organized and existing pursuant to the laws of
the State.
"JOINT POWERS AGREEMENT" means the Amended and Restated Joint Exercise of
Powers Agreement Relating to the California Statewide Communities Development
Authority, dated as of June 1, 1988, among the signatory California public
entities, including the Local Government Participant, as amended and
supplemented to the date hereof.
"LAWS" means all applicable federal, state and local constitutions,
statutes, ordinances, codes, rules, regulations and court and administrative
decisions, determinations and orders.
"LENDER" means (i) the entity identified as such on the cover page of this
Agreement, (ii) its successors, and (iii) except where the context requires
otherwise, any assignee(s) of Lender.
"LIEN" means any mortgage, pledge, lien, charge, encumbrance or claim on or
with respect to property.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Escrow Agreement, the
Tax Compliance Agreement and any guaranty agreement, mortgage, deed of trust,
security agreement, financing statement, contract assignment, or other security
agreement executed by Borrower or by any guarantor of the Loans or the Notes,
required by Issuer or Lender as additional security for the Loans or the Notes,
and all future renewals and extensions or restatements of, or amendments or
supplements to, any of the foregoing.
"LOAN PAYMENTS" means the loan payments payable by Borrower pursuant to
this Agreement, which shall be in the same amounts as the payments of principal
of and premium, if any, and interest on the Notes and shall be due at the same
times as those payments.
"LOAN PROCEEDS" means the total amount of money to be loaned to Borrower
pursuant to SECTION 2.02 and to be delivered on behalf of Borrower to Escrow
Agent for application in accordance with the Escrow Agreement.
"LOANS" means the Tax-Exempt Loan and the Taxable Loan.
"LOCAL GOVERNMENT PARTICIPANT" means the local governmental entity
identified as such in EXHIBIT A.
"NOTE PROCEEDS" means the Tax-Exempt Note Proceeds and the Taxable Note
Proceeds.
"NOTES" means the Tax-Exempt Note and the Taxable Note.
"PREPAYMENT AMOUNT" means, with respect to each Loan, the amount that
Borrower may or is required to pay to Lender as assignee of Issuer to prepay all
or part of that Loan, which amount shall equal (a) the prepayment amount set
forth in the Schedule of Note and Loan Payments for the prepayment date in
Exhibit B-1 for the Tax-Exempt Loan and in Exhibit B-2 for the Taxable Loan (or
the last date preceding the prepayment date, if the prepayment date is not a
date listed in Exhibit B-1 or B-2 as appropriate), or, if less than all of that
Loan is to be prepaid, plus (b) accrued interest thereon to the date of
prepayment (including any unpaid Gross-Up Interest Payment in the case of the
Tax-Exempt Loan) plus (c) any other amounts then due to Lender under this
Agreement with respect to that Loan.
"PURCHASE AGREEMENTS" means Borrower's purchase agreements with Vendors for
purchase of the Equipment.
"STATE" means the State of California.
"TAXABLE LOAN" means the taxable loan from Issuer to Borrower pursuant to
this Agreement.
"TAXABLE NOTE" means Issuer's taxable promissory note issued to finance a
portion of the cost of the Equipment for Borrower pursuant to this Agreement, in
substantially the form set forth as EXHIBIT B-2, the interest on which Lender
expects to be included in Lender's gross income for federal income tax purposes.
"TAXABLE NOTE PROCEEDS" means the proceeds of the sale of the Taxable Note
to the Lender.
"TAX COMPLIANCE AGREEMENT" means the Tax Compliance Agreement dated as of
the date hereof among Borrower, Escrow Agent and Issuer with respect to the
Tax-Exempt Note, as the same may be amended from time to time in accordance with
its terms.
"TAX-EXEMPT LOAN" means the tax-exempt loan from Issuer to Borrower
pursuant to this Agreement.
"TAX-EXEMPT NOTE" means Issuer's tax-exempt promissory note issued to
finance a portion of the cost of the Equipment for Borrower pursuant to this
Agreement, in substantially the form set forth as EXHIBIT B-1, the interest on
which Lender expects to be excluded from Lender's gross income for federal
income tax purposes.
"TAX-EXEMPT NOTE PROCEEDS" means the tax-exempt proceeds of the sale of the
Tax-Exempt Note to the Lender.
"UCC" means the Uniform Commercial Code as adopted and in effect in the
State.
"VENDOR" means the manufacturer or vendor of an item of Equipment, as well
as the agents or dealers of the manufacturer, from whom Borrower has purchased
or is purchasing items of Equipment.
SECTION 1.02. EXHIBITS. The following exhibits are attached hereto and
made a part hereof:
EXHIBIT A: SCHEDULE OF EQUIPMENT, ACQUISITION COSTS, ISSUER FEES, GENERAL
INFORMATION AND ADDITIONAL PROVISIONS. Issuer hereby authorizes Lender to
insert in EXHIBIT A the serial or other identifying numbers relating to the
Equipment when available.
EXHIBIT B: FORMS OF NOTES.
Exhibit C: FORM OF INVESTOR'S LETTER OF REPRESENTATION.
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<PAGE>
SECTION 1.03. RULES OF CONSTRUCTION.
(a) To the extent EXHIBIT A modifies, deletes or supplements any provision
of this Agreement, this Agreement shall be read and construed with that
provision so modified, deleted or supplemented. To the extent that any
provision of EXHIBIT A conflicts with any provision set forth elsewhere in this
Agreement, EXHIBIT A shall govern.
(b) The singular form of any word used herein, including the terms defined
SECTION 1.01, shall include the plural, and vice versa. The use herein of a
word of any gender shall include correlative words of all genders.
(c) Unless otherwise specified, references to Articles, Sections and other
subdivisions of this Agreement are to the designated Articles, Sections and
other subdivision of this Agreement. The words "hereof," "herein," "hereunder"
and words of similar import refer to this Agreement as a whole.
(d) The headings or titles of the several articles and sections shall be
solely for convenience of reference and shall not affect the meaning,
construction or effect of the provisions of this Agreement.
(e) Whenever an item or items are listed after the word "including," such
listing is not intended to be a listing to exclude items not listed.
ARTICLE II
THE NOTES, TERMS OF LOANS AND FINANCING OF EQUIPMENT
SECTION 2.01. ISSUANCE OF THE NOTES.
(a) The Notes may be issued to obtain moneys to make the Loans to the
benefit of Issuer and Borrower. The Tax-Exempt Note shall be designated as set
forth in EXHIBIT B-1 and shall be in the initial principal amount set forth in
EXHIBIT B-1. The Tax-Exempt Note shall be dated the Closing Date and shall
mature (subject to prepayment as provided herein and in the Tax-Exempt Note) in
installments as set forth in EXHIBIT B-1. The Taxable Note shall be designated
as set forth in EXHIBIT B-2 and shall be in the initial principal amount set
forth in EXHIBIT B-2. The Taxable Note shall be dated the Closing Date and
shall mature (subject to prepayment as provided herein and in the Taxable Note)
in installments as set forth in EXHIBIT B-2.
(b) The purchase price to be paid for the issuance of each Note shall be
an amount equal to the principal amount of that Note. The Note Proceeds shall be
deposited in the Escrow Fund to be held, invested and disbursed as provided in
the Escrow Agreement.
SECTION 2.02. LOANS. Simultaneously with the payment by Lender of the
purchase price of the Notes in accordance with SECTION 2.01, Issuer will lend
to Borrower an amount equal to the aggregate principal amount of the Notes
and Borrower will borrow that amount from Issuer. Issuer's obligation to pay
principal of and premium, if any, and interest on the Notes and Borrower's
obligation to repay the Loans shall commence, and interest shall begin to
accrue, from the Closing Date upon the issuance of the Notes.
SECTION 2.03. INTEREST. The principal amount of the Tax-Exempt Note
and the Tax-Exempt Loan outstanding from time to time shall bear interest
(computed on the basis of a year of 360 days and over 12 months of 30 days
each) at the rate set forth in EXHIBIT B-1 plus any Gross-Up Interest
Payments. Interest accruing on the principal balance of the Tax-Exempt Note
and the Tax-Exempt Loan outstanding from time to time shall be payable as
provided in EXHIBIT B-1 and upon earlier demand in accordance with this
Agreement or upon prepayment in accordance with SECTION 2.07. Upon the
occurrence of a Determination of Taxability, interest on the Tax-Exempt Note
and interest on the Tax-Exempt Loan shall include Gross-Up Interest Payments.
Gross-Up Interest Payments shall be payable on the Tax-Exempt Note and the
Tax-Exempt Loan with respect to all interest on the Tax-Exempt Note that has
been determined by the Determination of Taxability to be includable in gross
income for federal income tax purposes, whether the interest has been paid
before the Determination of Taxability or becomes due after the Determination
of Taxability. The provisions of this Agreement regarding Gross-Up Interest
Payments shall survive any payment, discharge or cancellation of the
Tax-Exempt Note or termination of this Agreement. The principal amount of
the Taxable Note and the Taxable Loan outstanding from time to time shall
bear interest (computed on the basis of a year of 360 days and over 12 months
of 30 days each) at the rate set forth in EXHIBIT B-2. Interest accruing on
the principal balance of the Taxable Note and the Taxable Loan outstanding
from time to time shall be payable as provided in EXHIBIT B-2 and upon
earlier demand in accordance with this Agreement or upon prepayment in
accordance with SECTION 2.07.
SECTION 2.04. PAYMENTS. Issuer shall pay the principal of and premium,
if any, and interest on the Notes, but only out of the amounts paid to Issuer
by Borrower pursuant to this Agreement. Borrower shall pay to Lender, as
assignee of Issuer, Loan Payments, in the amounts and on the dates set forth
in EXHIBIT B-1 with respect to the Tax-Exempt Note, plus any Gross-Up
Interest Payments, and in the amounts and on the dates set forth in EXHIBIT B-2
with respect to the Taxable Note. All amounts required to be paid by
Borrower hereunder shall be paid in lawful money of the United States of
America in immediately available funds. As security for its obligation to
pay the principal of and premium, if any, and interest on the Notes, Issuer
assigns to Lender all of Issuer's right to receive Loan Payments hereunder,
all of Issuer's rights hereunder and under the other Loan Documents (except
for the right to receive any Additional Payments and any other fees and
expenses to the extent payable to Issuer, any rights of Issuer to
indemnification and rights of notice, inspection and consent) and all of
Issuer's right and interest in and to the Equipment, and Issuer appoints
Lender and any officer or agent of Lender to collect the Loan Payments and
any other payments due to Lender (other than payments described in the
foregoing parenthetical), as Issuer's assignee, hereunder or under any other
Loan Document and to sue in any court for such Loan Payments or other
payments and to exercise all rights hereunder and under the other Loan
Documents with respect to the Equipment and to withdraw or settle any claims,
suits or proceedings pertaining thereto. Loan Payments and other payments
shall be made by Borrower directly to Lender, as Issuer's assignee, and shall
be credited against Issuer's payment obligations hereunder.
SECTION 2.05. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a day that is a Saturday or
Sunday or a day on which banks are generally not open for business in New
York, New York, that payment may be made on the next succeeding day that is
not a Saturday or Sunday or that is a day on which banks are generally open
for
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<PAGE>
business in New York, New York, and such extension of time shall in such case
be included in the computation of interest or the fees hereunder, as the case
may be.
SECTION 2.06. LOAN PAYMENTS TO BE UNCONDITIONAL. The obligations of
Borrower to make the Loan Payments and Additional Payments and to make other
payments hereunder and to perform and observe the covenants and agreements
contained herein shall be absolute and unconditional in all events, without
abatement, diminution, deduction, setoff or defense for any reason, including
any failure of the Equipment to be delivered or installed, any defects,
malfunctions, breakdowns or infirmities in the Equipment or any accident,
condemnation, destruction or unforeseen circumstances. Notwithstanding any
dispute between Borrower and any of Issuer, Lender, any Vendor or any other
person, Borrower shall make all Loan Payments when due and shall not withhold
any Loan Payments pending final resolution of the dispute, nor shall Borrower
assert any right of set-off or counterclaim against its obligation to make
Loan Payments.
SECTION 2.07. PREPAYMENTS.
(a) Borrower may prepay the Tax-Exempt Loan in whole to the extent, if
any, that the Tax-Exempt Note may be prepaid as provided in EXHIBIT B-1 by
paying the applicable Prepayment Amount. Borrower may prepay the Taxable Loan
in whole to the extent, if any, that the Taxable Note may be prepaid as provided
in EXHIBIT B-2 by paying the applicable Prepayment Amount.
(b) Borrower will prepay the Loans in whole or in part at any time as
required by ARTICLE VII by paying the applicable Prepayment Amount.
(c) Borrower will prepay the Loans in full immediately upon demand of
Lender after the occurrence of an Event of Default by paying the applicable
Prepayment Amount.
(d) Borrower will prepay the Tax-Exempt Loan in full immediately upon
demand of Lender after the occurrence of a Determination of Taxability by paying
the applicable Prepayment Amount.
Upon any prepayment in part of either Loan, the prepayment shall be applied
first to interest accrued on that Loan and next to the principal portions of the
Loan Payments for that Loan in the inverse order of maturity. The Notes shall
be subject to prepayment upon the same terms as the Loans, and, upon any
prepayment of a Loan, the related Note shall be deemed to be prepaid to the same
extent that Loan is prepaid.
(e) The Loans shall be prepaid in part with funds remaining in the Escrow
Fund upon termination of the Escrow Agreement as provided in SECTION 2.05 or
2.06 of the Escrow Agreement.
SECTION 2.08. SPECIAL OBLIGATIONS. The Notes shall not constitute a
debt or liability of the State or any public agency or a pledge of the faith
and credit of the State or any political subdivision thereof, including any
member of Issuer, but shall be payable solely from the funds provided
therefor pursuant to this Agreement. The Notes are only special, limited
obligations of Issuer as provided by the Act, and Issuer shall under no
circumstances be obligated to make payments of principal of and premium, if
any, and interest on the Notes or any Acquisition Cost except from Loan
Payments received from Borrower and Note Proceeds.
Neither the faith and credit nor the taxing power of the State or any
political subdivision of the State, including any member of Issuer, is pledged
to the payment of the principal of, or premium, if any, or interest on the
Notes, nor is the State or any political subdivision of the State, including any
member of Issuer, in any manner obligated to make any appropriation for that
purpose. Issuer has no taxing power.
No provision, covenant or agreement contained in this Agreement or any
obligation herein imposed on Issuer, or the breach thereof, shall constitute or
give rise to or impose upon Issuer a pecuniary liability, a charge upon its
general credit or a pledge of its general revenues. In making the agreements,
provisions and covenants set forth in this Agreement, Issuer has not obligated
itself except with respect to the application of the Loan Payments to be paid by
Borrower. No recourse shall be had by Lender or Borrower for any claim based on
this Agreement or the Tax Compliance Agreement against any director, officer,
employee or agent of Issuer alleging personal liability on the part of that
person, unless the claim is based on the willful dishonesty of or intentional
violation of Law by that person.
SECTION 2.09. ADDITIONAL PAYMENTS. Borrower will pay to Issuer, to Lender
or the Escrow Agent, as appropriate, as "Additional Payments" any amounts
incurred by Lender or Issuer after the Closing Date in payment of reasonable
costs and expenses in connection with the performance or enforcement of the
Loan Documents and the financing of the Equipment, including: (a) application,
commitment or financing fees, if any; (b) indemnification payments pursuant
to SECTIONS 5.03 and 5.08; (c) all taxes and assessments of any type or
character charged to Issuer or Lender affecting the amount available to
Issuer from payments to be received hereunder or in any way arising due to
the transactions contemplated hereby (including taxes and assessments
assessed or levied by any pubic agency or governmental authority of
whatsoever character having power to levy taxes or assessments), but
excluding franchise taxes based upon the capital or income of Issuer or
Lender and taxes based upon or measured by the net income of Issuer or
Lender; provided that Borrower shall have the right to protest and contest
any such taxes or assessments and to require Issuer or Lender, at Borrower's
expense, to protest and contest any such taxes or assessments levied upon
them and that Borrower shall have the right to withhold payment of any such
taxes or assessments pending disposition of any such protest or contest
unless that withholding, protest or contest would adversely affect the rights
or interests of Lender or Issuer; (d) the fees and expenses of any
accountants, consultants, attorneys and other experts that may be engaged by
Issuer or Lender to prepare audits, financial statements, reports or opinions
or to provide such other services required under this Agreement, the Escrow
Agreement or the Tax Compliance Agreement, or otherwise in connection with
the Loans or the Notes; (e) insurance premiums required to be paid hereunder;
(f) any rebate payments payable to the United States or other payments
payable pursuant to the Tax Compliance Agreement; (g) all other reasonable,
direct and necessary administrative costs of Lender or Issuer and other
charges required to be paid in order to comply with or to enforce its rights
under, the Loan Documents; (h) any additional funds necessary to pay
Acquisition Costs pursuant to SECTION 5.05 and the Escrow Agreement; and
(i) any other payments required to be made by Borrower under this Agreement
or the Tax Compliance Agreement or the Escrow Agreement. Such Additional
Payments shall be billed to Borrower by Lender or Issuer, as the case may be,
from time to time, together with a statement certifying that the amount so
billed has been paid for one or more of the
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<PAGE>
items described, or that it is then payable for those items. Amounts so
billed shall be due and payable by Borrower within 30 days after receipt of
the bill by Borrower.
SECTION 2.10. INITIAL AND ANNUAL ADMINISTRATIVE FEES. Borrower will
pay to Issuer the Initial Administrative Fee specified in EXHIBIT A on the
Closing Date and will pay to Issuer all Annual Administrative Fees specified
in EXHIBIT A on the dates specified therein. The obligation to pay the
Annual Administrative Fee shall continue until all of Borrower's obligations
under this Agreement have been paid in full.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer
represents, warrants and covenants for the benefit of Lender and Borrower, as
follows:
(a) Issuer is a joint powers agency organized and existing by virtue of
the laws of the State.
(b) Issuer will exercise its best efforts to preserve and keep in full
force and effect its existence as a joint powers agency.
(c) Issuer is authorized to enter into this Agreement, the Escrow
Agreement, the Tax Compliance Agreement and the transactions contemplated hereby
and to perform all of its obligations hereunder.
(d) Issuer has duly authorized the execution and delivery of this
Agreement, the Escrow Agreement and the Tax Compliance Agreement by a resolution
adopted by its Commission, and all requirements have been met and procedures
have occurred in order to ensure the enforceability of this Agreement, the
Escrow Agreement and the Tax Compliance Agreement against Issuer. Issuer has
taken all necessary action and has complied with all provisions of the Act,
including the making of the findings required by the Act, required to make this
Agreement, the Escrow Agreement and the Tax Compliance Agreement the valid and
binding obligation of Issuer.
(e) The authorized Commission member of Issuer executing this Agreement,
the Escrow Agreement, the Tax Compliance Agreement and any related documents has
been duly authorized to execute and deliver this Agreement, the Escrow Agreement
and the Tax Compliance Agreement and the related documents by a resolution of
the Commission of Issuer, or by other appropriate official action.
(f) This Agreement, the Escrow Agreement and the Tax Compliance Agreement
are legal, valid and binding obligations of Issuer, enforceable in accordance
with their respective terms, except to the extent limited by bankruptcy,
reorganization or other Laws of general application relating to the enforcement
of creditors' rights, the application of equitable principles, and to the
limitations on enforcement remedies against public entities in California.
(g) Issuer has assigned to Lender all of Issuer's rights in the Equipment
and this Agreement (except for the right to receive any Additional Payments to
the extent payable to Issuer, any rights of Issuer to indemnification and rights
of notice, inspection and consent), including the assignment of all rights in
the security interest granted to Issuer by Borrower.
(h) Issuer has not and will not pledge, mortgage or assign this Agreement
or its duties and obligations hereunder to any person, firm or corporation,
except as provided under the terms hereof.
(i) None of the execution and delivery of this Agreement, the Escrow
Agreement or the Tax Compliance Agreement, the consummation of the transactions
contemplated hereby or thereby or the fulfillment of or compliance with the
terms and conditions of this Agreement, the Escrow Agreement or the Tax
Compliance Agreement violates any Law, conflicts with or results in a breach of
any of the terms, conditions or provisions of any restriction or any agreement
or instrument to which Issuer is now a party or by which it is bound or
constitutes a default under any of the foregoing or results in the creation or
imposition of any prohibited Lien upon any of the property or assets of Issuer
under the terms of any instrument or agreement.
(j) There is no action, suit, proceeding, claim, inquiry or investigation,
at law or in equity, before or by any court, regulatory agency, public board or
body pending or, to the best of Issuer's knowledge, threatened against or
affecting Issuer, challenging Issuer's authority to enter into this Agreement,
the Escrow Agreement or the Tax Compliance Agreement or any other action wherein
an unfavorable ruling or finding would adversely affect the enforceability of
this Agreement, the Escrow Agreement or the Tax Compliance Agreement or any
other transaction of Issuer which is similar hereto, or the exclusion of the
interest on the Tax-Exempt Note from gross income for federal income tax
purposes under the Code, or would materially and adversely affect any of the
transactions contemplated by this Agreement.
(k) No member, officer or other official of Issuer has any financial
interest whatsoever in Borrower or in the transactions contemplated by this
Agreement.
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower
represents, warrants and covenants for the benefit of Lender and Issuer, as
follows:
(a) Borrower is an organization of the type specified in EXHIBIT A duly
organized, validly existing and in good standing under the laws of the state of
its organization specified in EXHIBIT A, has power to enter into the Loan
Documents that name Borrower as a party and by proper action has duly authorized
the execution and delivery of the Loan Documents that name Borrower as a party.
Borrower is in good standing and is duly licensed or qualified to transact
business in the State and in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary.
(b) Borrower has been fully authorized to execute and deliver the Loan
Documents that name Borrower as a party by a resolution (or other appropriate
official action) of its board of directors (or other appropriate governing body)
and, if required, by a resolution (or other appropriate official action) of its
owners. All requirements have been met and procedures have occurred to ensure
the enforceability of the Loan Documents that name Borrower as a party, and
those Loan Documents have been duly authorized, executed and delivered by
Borrower.
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(c) The person or persons executing the Loan Documents that name Borrower
as a party on behalf of Borrower have been duly authorized to execute and
deliver those Loan Documents by a resolution of Borrower's board of directors
(or other appropriate governing body).
(d) The Loan Documents that name Borrower as a party constitute valid and
legally binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms, except to the extent limited by
bankruptcy, reorganization or other Laws and equitable principles of general
application relating to effecting the enforcement of creditors' rights.
(e) The execution and delivery of the Loan Documents that name Borrower as
a party, the consummation of the transactions contemplated by those Loan
Documents and the fulfillment of the terms and conditions of those Loan
Documents do not and will not violate any Law, conflict with or result in a
breach of any of the terms or conditions of the articles of incorporation or
bylaws (or other appropriate documents regarding Borrower's organization or
governance) of Borrower or of any corporate restriction or of any agreement or
instrument to which Borrower is now a party and do not and will not constitute a
default under any of the foregoing or result in the creation or imposition of
any Lien upon any of the property or assets of Borrower contrary to the terms of
any instrument or agreement.
(f) The authorization, execution, delivery and performance by Borrower of
the Loan Documents that name Borrower as a party do not require submission to,
approval of, or other action by any governmental authority or agency, other than
any action that has been taken and is final and nonappealable.
(g) There is no action, suit, proceeding, claim, inquiry or investigation,
at law or in equity, before or by any court, regulatory agency, public board or
body pending or, to the best of Borrower's knowledge, threatened against or
affecting Borrower, challenging Borrower's authority to enter into the Loan
Documents that name Borrower as a party or any other action wherein an
unfavorable ruling or finding would adversely affect the enforceability of any
Loan Document or any other transaction of Borrower which is similar hereto, or
the exclusion of the interest on the Tax-Exempt Note from gross income for
federal tax purposes under the Code, or would materially and adversely affect
any of the transactions contemplated by this Agreement.
(h) The property at which the Equipment is located is properly zoned for
its current and anticipated use and the use of the Equipment will not violate
any applicable zoning, land use, environmental or similar Law or restriction.
Borrower has all licenses and permits to use the Equipment. Borrower has
obtained all permits, licenses and other authorizations that are required under
Laws relating to emissions, discharges, releases of pollutants, contaminants,
hazardous or toxic materials, or wastes into ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants or hazardous or toxic materials or wastes
("Environmental Laws") at Borrower's facilities or in connection with the
operation of its facilities. Except as previously disclosed to Lender in
writing, Borrower and all activities of Borrower at its facilities comply with
all Environmental Laws and with all terms and conditions of any required
permits, licenses and authorizations applicable to Borrower with respect
thereto. Except as previously disclosed to Lender in writing, Borrower is also
in compliance with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
Environmental Laws or contained in any plan, order, decree, judgment or notice
of which Borrower is aware. Except as previously disclosed to Lender in
writing, Borrower is not aware of, nor has Borrower received notice of, any
events, conditions, circumstances, activities, practices, incidents, actions or
plans that may interfere with or prevent continued compliance with, or which may
give rise to any liability under, any Environmental Laws.
(i) The Equipment is of the type authorized and permitted by the Act.
(j) Borrower intends to operate the Equipment, or cause the Equipment to
be operated, as a "project," within the meaning of the Act, until the date on
which all of the Loan Payments have been fully paid or the applicable Prepayment
Amount has been fully paid.
(k) All audited and unaudited financial statements that Borrower has
heretofore furnished to Lender accurately present the financial condition of
Borrower on the dates thereof and the results of its operations and cash flows
for the periods then ended and were prepared in accordance with generally
accepted accounting principles. Since the date of the most recent financial
statements, there has been no material adverse change in the business,
properties or condition (financial or otherwise) of Borrower.
(l) All financial and other information provided to Lender by or on behalf
of Borrower (whether in verbal or written form) in connection with Borrower's
request for the Loan is true and correct in all material respects and, as to
projections, valuations or pro forma financial statements, present a good faith
opinion as to such projections, valuations and pro forma condition and results,
and Borrower has not made to Lender any untrue statement of a material fact or
omitted to state a material fact necessary to make any statement made to Lender
with respect to this Agreement not misleading.
(m) Borrower has paid or caused to be paid to the proper authorities when
due all federal, state and local taxes required to be withheld by it. Borrower
has filed all federal, state and local tax returns that are required to be
filed, and Borrower has paid or caused to be paid to the respective taxing
authorities all taxes as shown on those returns or on any assessment received by
it to the extent those taxes have become due.
(n) Borrower has or, upon acceptance by Borrower, will have good title to
all Equipment and all proceeds thereof, free and clear of all Liens except for
the security interest granted by this Agreement and any Lien that has been
subordinated to the satisfaction of Lender to the security interest created
pursuant to this Agreement.
(o) Borrower has provided to Lender signed financing statements sufficient
when filed to perfect the security interest granted by this Agreement. When
those financing statements are filed in the offices noted therein, Lender, as
assignee of Issuer, will have a valid and perfected security interest in the
Equipment, subject to no other Liens other than any Lien that has been
subordinated to the satisfaction of Lender to the security interest granted by
this Agreement. None of the Equipment is or will become a fixture on real
estate.
(p) Expenses for work done by officers or employees of Borrower in
connection with the Equipment will be included as an Acquisition Cost, if at
all, only to the extent (i) those persons were specifically employed for such
particular purpose, (ii) the expenses do not exceed the actual cost thereof and
(iii) those expenses are treated or capable of being treated (whether or not so
treated) on the books of Borrower as a capital expenditure in conformity with
generally accepted accounting principles applied on a consistent basis.
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(q) To the best of Borrower's knowledge, no member, officer or other
official of Issuer has any financial interest whatsoever in Borrower or in the
transactions contemplated by this Agreement.
(r) No Event of Default exists.
(s) Borrower assumes full responsibility for the safety and any
consequences of lack of safety with respect to the operation and maintenance of
the Equipment; provided that the foregoing shall in no way absolve Vendor or any
maintenance contractor of any liability with respect to the Equipment.
(t) Any trade names used by Borrower are set forth in EXHIBIT A.
SECTION 3.03. REPRESENTATIONS AND WARRANTIES OF LENDER. Lender
represents and warrants for the benefit of Issuer and Borrower, as follows:
(a) Lender is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation specified in EXHIBIT A,
has power to enter into this Agreement and the Escrow Agreement and by proper
corporate action has duly authorized the execution and delivery of this
Agreement and the Escrow Agreement.
(b) This Agreement and the Escrow Agreement constitute valid and legally
binding obligations of Lender, enforceable against Lender in accordance with
their respective terms, except to the extent limited by bankruptcy,
reorganization or other Laws of general application relating to effecting the
enforcement of creditors' rights.
(c) The execution and delivery of this Agreement and the Escrow Agreement,
the consummation of the transactions contemplated hereby and the fulfillment of
the terms and conditions hereof and thereof do not and will not violate any Law,
conflict with or result in a breach of any of the terms or conditions of the
articles of incorporation or bylaws of Lender or of any corporate restriction or
of any agreement or instrument to which Lender is now a party and do not and
will not constitute a default under any of the foregoing or result in the
creation or imposition of any Lien upon any of the property or assets of Lender
contrary to the terms of any instrument or agreement.
(d) There is no action, suit, proceeding, claim, inquiry or investigation,
at law or in equity, before or by any court, regulatory agency, public board or
body pending or, to the best of Lender's knowledge, threatened against or
affecting Lender, challenging Lender's authority to enter into this Agreement or
the Escrow Agreement or any other action wherein an unfavorable ruling or
finding would adversely affect the enforceability of this Agreement or the
Escrow Agreement or any other transaction of Lender that is similar hereto, or
the exclusion of the interest on the Tax-Exempt Note from gross income for
federal tax purposes under the Code, or would materially and adversely affect
any of the transactions contemplated by this Agreement.
(e) Lender has sufficient knowledge and experience in financial and
business matters, including purchase and ownership of municipal and other
tax-exempt obligations, to be able to evaluate the risks and merits of the
investment in the Notes, and is able to bear the economic risk of that
investment. Lender has made its own inquiry and analysis with respect to
Borrower, Issuer, this Agreement, the Notes and the Loan Payments and the
security therefor, and other material factors affecting the security and
payment of the principal of and premium, if any, and interest on the
Tax-Exempt Note and the Loan Payments.
(f) Lender has either been supplied with or has had access to information,
including financial statements and other financial information, to which a
reasonable investor would attach significance in making investment decisions,
and has had the opportunity to ask questions and receive answers from
knowledgeable individuals concerning Borrower, Issuer, this Agreement, the Notes
and the Loan Payments and the security therefor, so that as a reasonable
investor, it has been able to make its decision to purchase and invest in the
Notes.
(g) Lender acknowledges that the Notes (i) are not being registered or
otherwise qualified for sale under the "Blue Sky" Laws of any state, (ii) will
not be listed on any stock or other securities exchange and (iii) will be issued
in a form that may not be readily marketable.
(h) Lender acknowledges that the Notes have not been registered under the
Securities Act of 1933, as amended, and that such registration is not legally
required. Lender represents to Issuer that it is purchasing the Notes for
investment for its own account and not with a present view toward resale or the
distribution thereof, except for sale to an Affiliate.
ARTICLE IV
TITLE TO EQUIPMENT; SECURITY INTEREST
SECTION 4.01. TITLE TO THE EQUIPMENT. Legal title to the Equipment
shall be in Borrower. Borrower will at all times protect and defend, at its
own cost and expense, its title from and against all Liens of creditors of
Borrower other than the security interest granted by this Agreement and any
Lien that has been subordinated to the satisfaction of Lender to the security
interest granted by this Agreement, and keep all Equipment free and clear of
all such Liens.
SECTION 4.02. SECURITY INTEREST IN EQUIPMENT. This Agreement is
intended to constitute a security agreement within the meaning of the UCC.
As security for Borrower's payment to Lender, as assignee of Issuer, of Loan
Payments and all other amounts payable to Lender under the Loan Documents,
Borrower hereby grants to Issuer, and Issuer hereby assigns to Lender, a
security interest constituting a first lien on the Equipment, all of
Borrower's rights, but none of Borrower's obligations, in, to and under any
contracts with Vendors relating to the Equipment and all proceeds of the
foregoing. Issuer and Borrower agree to execute such additional documents,
including financing statements, assignments, affidavits, notices and similar
instruments, in form satisfactory to Lender, and take such other actions that
Lender deems necessary or appropriate to establish and maintain the security
interest created by this Section. If requested by Lender, Borrower shall
obtain a landlord and/or mortgagee's consent and waiver with respect to the
property where the Equipment is located. If requested by Lender, Borrower
shall conspicuously mark the Equipment with appropriate lettering, labels or
tags, and maintain such markings, so as clearly to disclose Lender's security
interest in the Equipment.
SECTION 4.03. CHANGE IN NAME OR BUSINESS ORGANIZATION TYPE OF BORROWER;
CHANGE IN LOCATION OF BORROWER'S PRINCIPAL PLACE OF BUSINESS. Borrower's
chief executive office is located at its address set forth in EXHIBIT A, and
all of Borrower's records relating to its business and the Equipment are kept
at that location. The Equipment is, or when delivered to Borrower will be,
located
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at the location for the Equipment specified in EXHIBIT A. Borrower will
provide written notice to Lender and Issuer of any change or proposed change
in its name, type or state of its business organization, place of business or
chief executive office or change or proposed change in the location of the
Equipment. That notice shall be provided 30 days in advance of the date that
the change or proposed change is planned to take effect. Borrower does
business, and has done business, only under its own name and the trade names,
if any, set forth on EXHIBIT A.
SECTION 4.04. PERSONAL PROPERTY. The Equipment is, and during the
period this Agreement is in force will remain, personal property and, when
subjected to use by Borrower hereunder, will not be or become fixtures;
provided that, if contrary to the parties' intent the Equipment is or may be
deemed to be a fixture, Borrower shall cause filings to be made with the
applicable government officials or filing offices to create and preserve for
Lender as assignee of Issuer a perfected first priority security interest in
the Equipment.
SECTION 4.05. ASSIGNMENT OF INSURANCE. As additional security for the
payment and performance of Borrower's obligations under the Loan Documents,
Borrower hereby assigns to Lender, as assignee of Issuer, all moneys
(including proceeds of insurance and refunds of unearned premiums) due or to
become due under, and all other rights of Borrower with respect to, all
insurance policies now or at any time hereafter covering the Equipment or any
evidence thereof or any business records or valuable papers pertaining
thereto, and Borrower hereby directs the issuer of any such policy to pay all
such moneys directly to Lender. Borrower hereby assigns to Lender, as
assignee of Issuer, all moneys due or to become due with respect to any
condemnation proceeding affecting the Equipment. At any time, whether before
or after the occurrence of any Event of Default, Lender may (but need not),
in Lender's name or Borrower's name, execute and deliver proof of claim,
receive all such moneys, endorse checks and other instruments representing
payment of such moneys, and adjust, litigate, compromise or release any claim
against the issuer of any such policy or party in any condemnation proceeding.
SECTION 4.06. OCCUPANCY.
(a) Borrower hereby irrevocably grants to Lender the right to enter the
property where the Equipment is located (the "Premises") at any time after the
occurrence and during the continuance of an Event of Default.
(b) Lender may enter the Premises only to hold, sell, store, liquidate,
realize upon or otherwise dispose of the Equipment and for other purposes that
Lender may in good faith deem to be related or incidental purposes.
(c) The right of Lender to occupy the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all obligations of
Borrower and Issuer under the Loan Documents, and (ii) final sale or disposition
of all of the Equipment and delivery of all of the Equipment to its purchasers.
(d) Lender shall not be obligated to pay or account for any rent or other
compensation for the occupancy of the Premises. Borrower will pay, or reimburse
Lender for, all taxes, fees, duties, levies, charges and expenses at any time
incurred by or imposed upon Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Section.
SECTION 4.07. AGREEMENT AS FINANCING STATEMENT. To the extent
permitted by applicable law, a carbon, photographic or other reproduction of
this Agreement or of any financing statements signed by Borrower is
sufficient as a financing statement in any state to perfect the security
interests granted in this Agreement. Pursuant to Section 5451 of the
Government Code of the State of California, pledge of amounts by Issuer for
the payment of principal of and premium, if any, and interest on the Notes
shall constitute a security interest which shall attach to that pledge of
amounts without the need for any physical delivery, recordation, filing or
further act.
ARTICLE V
AFFIRMATIVE COVENANTS OF BORROWER
Borrower will comply with the following requirements, unless Lender
shall otherwise consent in writing:
SECTION 5.01. REPORTING REQUIREMENTS. Borrower is a publicly traded
company ("ENPT") required by the SEC to file financial and other information
of interest to shareholders, including major contracts, changes in by-laws,
articles of incorporation, etc., electronically (on "EDGAR") on the Internet.
Such filings are available for viewing or copying at WWW.SEC.GOV. Provided
that these filings are made on a timely basis, as defined under the filing
provisions of the SEC, both Lender and Issuer will find this method of
reporting acceptable for purposes of this Agreement. In the event that SEC
filings are not timely made, Lender and Issuer reserve the right to request
hard copy financial reports to be sent to them directly:
(a) promptly after a request by Lender for the information, with any and
all reasonably available interim financial and business information required by
Lender;
(b) immediately after the commencement thereof, notice in writing of all
litigation and of all proceedings before any governmental or regulatory agency
affecting Borrower that are not available as a part of SEC filings or public
news releases of the type described in SECTION 3.02 or that seek a monetary
recovery against Borrower in excess of $200,000;
(c) as promptly as practicable (but in any event not later than seven
days) after an officer of Borrower obtains knowledge of the occurrence of any
event that constitutes a Default, notice of that occurrence, together with a
detailed statement by a responsible officer of Borrower of the steps being taken
by Borrower to cure the effect of the Default;
(d) promptly upon knowledge thereof, notice of any uninsured loss or
destruction of or damage in excess of $25,000 to any Equipment or of any
material adverse change in any Equipment;
(e) promptly upon knowledge thereof, notice of the violation by Borrower
of any law, rule or regulation, the violation of which would have a material
adverse effect on the financial or operating condition of Borrower; and
(f) promptly upon knowledge thereof, notice of any material adverse change
in the financial or operating condition of Borrower.
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Promptly after request by Issuer or the California Industrial
Development Financing Advisory Commission for the information, Borrower shall
provide the requesting party with any information requested by the requesting
party regarding number of employees and other matters covered in Borrower's
application to Issuer for issuance of the Notes.
SECTION 5.02. BOOKS AND RECORDS. Borrower will keep accurate books of
record and account for itself pertaining to the Equipment and pertaining to
Borrower's business and financial condition and such other matters as Lender
or Issuer may from time to time request in which true and complete entries
will be made in accordance with generally accepted accounting principles
consistently applied.
SECTION 5.03. COMPLIANCE WITH LAWS; ENVIRONMENTAL INDEMNITY. Borrower
will (a) comply with the requirements of applicable Laws, the noncompliance
with which would materially and adversely affect its business or its
financial condition, (b) comply with all applicable environmental, hazardous
waste or substance, toxic substance and underground storage Laws and obtain
any permits, licenses or similar approvals required by those Laws and (c) use
and keep the Equipment, and require that others use and keep the Equipment,
only for lawful purposes, without violation of any Law. Borrower shall
secure all permits and licenses, if any, necessary for the installation and
operation of the Equipment. Borrower will comply in all respects (including
with respect to the use, maintenance and operation of each item of the
Equipment) with all Laws of the jurisdictions in which its operations
involving any component of Equipment may extend and of any legislative,
executive, administrative or judicial body exercising any power or
jurisdiction over the items of the Equipment or its interest or rights under
this Agreement. Borrower will indemnify, defend and hold Lender and Issuer
and their members, agents, officers, directors, commissioners, attorneys and
Program Participants (as defined in the Joint Powers Agreement) harmless from
and against any claims, loss or damage to which any of them may be subjected
as a result of any past, present or future existence, use, handling, storage,
transportation or disposal of any hazardous waste or substance or toxic
substance by Borrower or on property owned, leased or controlled by Borrower.
This Section shall survive the termination of this Agreement.
SECTION 5.04. PAYMENT OF TAXES AND OTHER CLAIMS. Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including the Equipment) or upon or against the creation,
perfection or continuance of the security interest created pursuant to this
Agreement, prior to the date on which penalties attach thereto, (b) all
federal, state and local taxes required to be withheld by it, and (c) all
lawful claims for labor, materials and supplies which, if unpaid, might by
law become a Lien upon any properties of Borrower; provided, that Borrower
shall not be required to pay any tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings unless the contest would adversely affect the rights
or interests of Issuer or Lender. Borrower will pay, as the same
respectively come due, all taxes and governmental charges of any kind
whatsoever that may at any time be lawfully assessed or levied against or
with respect to the Equipment, as well as all gas, water, steam, electricity,
heat, power, telephone, utility and other charges incurred in the operation,
maintenance, use, occupancy and upkeep of the Equipment.
SECTION 5.05. ACQUISITION OF EQUIPMENT. Borrower will cause each item
of Equipment to be ordered from the Vendor therefor and to be delivered to
and installed at the location for the Equipment specified in EXHIBIT A. Upon
delivery and installation of all of the Equipment, Borrower will provide to
Issuer and Lender a completed and executed copy of the Final Acceptance
Certificate in the form of ATTACHMENT C to EXHIBIT B to the Escrow Agreement.
Borrower will cause each Vendor to be paid the purchase price of the
Equipment furnished by that Vendor in accordance with the applicable Vendor
Agreement. In the event funds in any account in the Escrow Fund are
insufficient to pay the Acquisition Costs to be paid from that account,
Borrower will pay those Acquisition Costs or deposit additional funds equal
to the amount of the insufficiency into that account as required by the
Escrow Agreement.
SECTION 5.06. MAINTENANCE OF EQUIPMENT. Borrower will, at its own
expense, maintain, preserve and keep the Equipment in good repair, working
order and condition, and will from time to time make all repairs and
replacements necessary to keep the Equipment in such condition, and in
compliance with state and federal laws, ordinary wear and tear excepted.
Borrower will maintain the Equipment in a condition suitable for
certification by the manufacturer thereof (if certification is available) and
in conformance with all manufacturer's recommended maintenance requirements.
In the event that any parts or accessories forming part of any item or items
of Equipment become worn out, lost, destroyed, damaged beyond repair or
otherwise rendered unfit for use, Borrower, at its own expense and
expeditiously, will replace or cause the replacement of such parts or
accessories by replacement parts or accessories that are free and clear of
all Liens other than the security interest granted by this Agreement and any
Lien that has been subordinated to the satisfaction of Lender to the security
interest granted by this Agreement with a value and utility at least equal to
that of the parts or accessories being replaced (assuming that the replaced
parts and accessories were otherwise in good working order and repair). All
replacement parts and accessories shall be deemed to be incorporated
immediately into and to constitute an integral portion of the Equipment and,
as such, shall be subject to this Agreement. Neither Lender nor Issuer shall
have any responsibility in any of these matters, or for the making of
improvements or additions to the Equipment.
SECTION 5.07. INSURANCE.
(a) Borrower will, at its own expense, procure and maintain continuously
in effect: (i) public liability insurance for personal injuries, death or damage
to or loss of property arising out of or in any way relating to the Equipment
sufficient to protect Lender and Issuer from liability in all events, with a
coverage limit of not less than $1,000,000 per occurrence or, if a different
coverage minimum with respect to particular Equipment is required by Lender, the
coverage minimum required by Lender, and (ii) all risks property insurance in an
amount equal to the greater of the full replacement cost of the Equipment with
new equipment having substantially similar specifications or the applicable
Prepayment Amount.
(b) If required by State law, Borrower will carry workers' compensation
insurance covering all employees on, in, near or about the Equipment, and upon
request, will furnish to Lender certificates evidencing that coverage.
(c) All insurance policies required by this Article shall be obtained from
and maintained with insurance companies acceptable to Lender, shall contain a
provision that the insurer shall not cancel or make any material adverse change
to coverage thereunder
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without giving written notice to the insured parties at least 30 days before
the cancellation or revision becomes effective and be satisfactory in form,
substance, limits, deductibles and retentions to Lender. No insurance shall
be subject to any self-insurance or co-insurance clause and all deductibles
shall be acceptable to Lender. Insurance as required by this Section shall
name Lender as an additional insured and provide that all insurance, except
the limits of liability, operate as if there were separate policies covering
each insured. Insurance required by this Section shall name Lender as loss
payee without regard to any breach of warranty or other act or omission of
Borrower, shall include a lender's loss payable endorsement for the benefit
of Lender, specifically identifying the Equipment, state all applicable
amounts of insurance, include a waiver of any subrogation rights Borrower's
insurers may have against Lender, and provide that Lender may file proofs of
loss and agree to the adjustment of any claims on behalf of Borrower, should
Borrower fail to promptly do so. Prior to the delivery of Equipment,
Borrower will deposit with Lender evidence satisfactory to Lender of the
insurance required by this Section and, prior to the expiration thereof, will
provide Lender evidence of all renewals or replacements thereof.
SECTION 5.08. INDEMNITY. As among Lender, Borrower and Issuer,
Borrower assumes all risks and liabilities from any cause whatsoever, whether
or not covered by insurance, for loss or damage to any Equipment and for
injury to or death of any person or damage to any property, whether the
injury or death be with respect to agents or employees of Borrower or of
third parties, and whether the property damage be to Borrower's property or
the property of others. Whether or not covered by insurance, Borrower hereby
assumes responsibility for and agrees to reimburse Lender and Issuer for and
will indemnify, defend and hold harmless Lender and Issuer and their members,
agents, officers, directors, commissioners, attorneys and Program
Participants (as defined in the Joint Powers Agreement), at Borrower's
expense from and against all liabilities, obligations, losses, damages,
penalties, claims, actions, costs and expenses (including reasonable
attorneys' fees) of whatsoever kind and nature, imposed on, incurred by or
asserted against any of them that in any way relate to or arise out of this
Agreement, the transactions contemplated hereby and the Equipment, including
(a) the selection, manufacture, purchase, acceptance or rejection of
Equipment or the ownership of the Equipment, (b) the delivery, lease,
possession, maintenance, use, condition, return or operation of the
Equipment, (c) the condition of the Equipment sold or otherwise disposed of
after possession by Borrower, (d) any patent or copyright infringement, (e) the
conduct of Borrower, its officers, employees and agents, (f) a breach of
Borrower of any of its covenants or obligations under any Loan Documents,
(g) any claim, loss, cost or expense involving alleged damage to the
environment relating to the Equipment, including investigation, removal,
cleanup and remedial costs, (h) any untrue statement or alleged untrue
statement of any material fact or omission or alleged omission to state a
material fact necessary to make the statements made, in light of the
circumstances under which they were made, not misleading in connection with
the Loan Documents or the transactions contemplated thereby, or (i) any
violation of any environmental law, rule or regulation or the release of any
hazardous or toxic substance on or near the premises on which the Equipment
is located, (j) the ownership of any item of the Equipment, (k) any act of
negligence of Borrower, its officers, agents, contractors, servants,
employees, licensees or invitees in connection with the Equipment or the Loan
Documents, (l) the recovery of claims under insurance policies on the
Equipment, and (m) any accident in connection with the operation, use,
condition, possession, storage or return of any item of the Equipment, any of
the foregoing of which result in damage to property or the injury to or death
of any person including latent and other defects, whether or not discernable
by Lender, Issuer or Borrower. All amounts payable by Borrower shall be paid
immediately upon demand of Issuer or Lender regardless of whether any dispute
related to those amounts has been resolved. This SECTION 5.08 shall survive
the termination of this Agreement.
SECTION 5.09. PRESERVATION OF EXISTENCE. Borrower will preserve and
maintain its existence as an organization of the type described in EXHIBIT A
and all of its rights, privileges and franchises necessary or desirable in
the normal conduct of its business; and shall conduct its business in an
orderly, efficient and regular manner.
SECTION 5.10. PERFORMANCE BY LENDER. If Borrower at any time fails to
perform or observe any of the covenants or agreements contained in the Loan
Documents, and if the failure continues for ten days after Lender gives
Borrower written notice thereof (or in the case of the agreements contained
in SECTIONS 5.06 and 5.07, immediately upon the occurrence of the failure,
without notice or lapse of time), Lender may, but need not, perform or
observe such covenant or agreement on behalf and in the name, place and stead
of Borrower (or, at Lender's option, in Lender's name) and may, but need not,
take any and all other actions that Lender may reasonably deem necessary to
cure or correct the failure (including the payment of taxes, the satisfaction
of security interests, Liens, the performance of obligations owed to account
debtors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and
the endorsement of instruments); and Borrower shall thereupon pay to Lender
on demand the amount of all moneys expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by Lender
in connection with or as a result of the performance or observance of those
covenants or agreements or the taking of the action by Lender, together with
interest thereon from the date expended or incurred at the lesser of 18% per
annum or the highest rate permitted by law. To facilitate the performance or
observance by Lender of the covenants or agreements of Borrower, Borrower
hereby irrevocably appoints Lender, or the delegate of Lender, acting alone,
as the attorney in fact of Borrower with the right (but not the duty) from
time to time to create, prepare, complete, execute, deliver, endorse or file
in the name and on behalf of Borrower any and all instruments, documents,
assignments, security agreements, financing statements, applications for
insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by Borrower under the Loan Documents.
SECTION 5.11. LIMITATIONS OF LIABILITY. In no event, whether as a
result of breach of contract, warranty, tort (including negligence or strict
liability), indemnity or otherwise, shall Lender, its assignees, if any, or
Issuer be liable for any special, consequential, incidental, punitive or
penal damages including loss of profit or revenue, loss of use of the
Equipment or any associated equipment, service materials or software, damage
to associated equipment, service materials or software, cost of capital, cost
of substitute equipment, service materials or software, facilities, services
or replacement power or down time costs.
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<PAGE>
ARTICLE VI
NEGATIVE COVENANTS OF BORROWER
SECTION 6.01. LIENS. Borrower will not, directly or indirectly,
create, incur, assume or suffer to exist any Lien on or with respect to the
Equipment other than the security interest granted by this Agreement and any
Lien that has been subordinated to the satisfaction of Lender to the security
interest in the Equipment granted by this Agreement. Borrower will promptly,
at its own expense, take any action that may be necessary to discharge or
remove any Lien not permitted by this Section. Borrower will reimburse
Lender for any expenses incurred by Lender to discharge or remove any Lien.
SECTION 6.02. SALE OF ASSETS. Borrower will not sell, lease, assign,
transfer or otherwise dispose of all or a substantial part of its assets or
of any of the Equipment or any interest therein (whether in one transaction
or in a series of transactions), without the prior written consent of Lender.
SECTION 6.03. ACCOUNTING. Borrower will not adopt, permit or consent
to any material change in accounting principles other than as allowed by
generally accepted accounting principles.
SECTION 6.04. TRANSFERS. Borrower will not in any manner transfer any
property without prior or present receipt of full and adequate consideration.
SECTION 6.05. OTHER DEFAULTS. Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon Borrower or any judgment, decree, order
or determination applicable to Borrower.
SECTION 6.06. LOCATION OF EQUIPMENT. Borrower will not relocate all or
any portion of the Equipment unless it has received the prior written consent
of Issuer and Lender. Borrower will not permit any of the Equipment or any
records pertaining to any of the Equipment to be located in any state or area
in which, in the event of that location, a financing statement covering that
Equipment would be required to be, but has not in fact been, filed to perfect
the security interest created pursuant to this Agreement.
SECTION 6.07. MODIFICATIONS AND SUBSTITUTIONS.
(a) Borrower will not make any material alterations, modifications or
additions to the Equipment that cannot be removed without materially damaging
the functional capabilities or economic value of the Equipment. Upon return of
the Equipment to Lender and at the request of Lender, Borrower, at its sole cost
and expense, will remove all alterations, modifications and additions and repair
the Equipment as necessary to return the Equipment to the condition in which it
was furnished, ordinary wear and tear and permitted modifications excepted.
(b) Notwithstanding the provisions of subparagraph (a) of this Section,
Borrower may, with the prior written consent of Lender, substitute for parts,
elements, portions or all of the Equipment, other parts, elements, portions,
equipment or facilities; provided that any substitutions made pursuant to
Borrower's obligations to make repairs under this Agreement shall not require
any prior written consent. Borrower shall provide any documents or assurances
that Lender may reasonably request to maintain or confirm the security interest
assigned to Lender in the Equipment as so modified or substituted.
SECTION 6.08. USE OF THE EQUIPMENT. Borrower will not install, use,
operate or maintain the Equipment improperly, carelessly, in violation of any
applicable law or in a manner contrary to that contemplated by this Agreement.
-11-
<PAGE>
ARTICLE VII
DAMAGE AND DESTRUCTION; USE OF NET PROCEEDS
SECTION 7.01. DAMAGES AND DESTRUCTION; USE OF NET PROCEEDS. Borrower
will provide a complete written report to Lender immediately upon any loss,
theft, damage or destruction of any Equipment or any accident involving any
Equipment. If all or any part of the Equipment is lost, stolen, destroyed or
damaged beyond repair ("Damaged Equipment"), Borrower will as soon as
practicable either (a) replace the same at Borrower's sole cost and expense
with equipment having substantially similar specifications and of equal or
greater value than the Damaged Equipment immediately prior to the time of the
loss occurrence, the replacement equipment to be subject to Lender's
approval, whereupon the replacement equipment shall be substituted in the
Loan Documents to the extent required by appropriate endorsement or
amendment; or (b) pay the applicable Prepayment Amount for the portion of the
Loans attributable to the Damaged Equipment. The portion of the Loans
applicable to the Damaged Equipment shall be principal amount determined by
multiplying the outstanding principal amount of the Loans by a fraction, the
numerator of which is the book value of the Damaged Equipment and the
denominator of which is the book value of all of the Equipment existing at
the time of determination. Borrower shall notify Lender of which course of
action it will take within 15 days after the loss occurrence. If, within
45 days of the loss occurrence, (a) Borrower fails to notify Lender;
(b) Borrower and Lender fail to execute an amendment to this Agreement to
delete the Damaged Equipment and add the replacement equipment or (c) Borrower
fails to pay the applicable Prepayment Amount, then Lender may, at its sole
discretion, declare the applicable Prepayment Amount to be immediately due
and payable, and Borrower is required to pay the same. The Net Proceeds of
insurance with respect to the Damaged Equipment shall be made available by
Lender to be applied to discharge Borrower's obligation under this Article,
and after so applied any excess shall be paid directly to Borrower. The
payment of the Prepayment Amount and the termination of Lender's interest in
the Damaged Equipment is subject to SECTION 2.07. For purposes of this
Article, the term "Net Proceeds" shall mean the amount remaining from the
gross proceeds of any insurance claim or condemnation award after deducting
all expenses (including reasonable attorneys' fees) incurred in the
collection of such claim or award.
ARTICLE VIII
ASSIGNMENT, LEASING AND SELLING
SECTION 8.01. REGISTRATION OF NOTES; TRANSFER AND ASSIGNMENT BY LENDER.
(a) Issuer shall act as note registrar for the registration and transfer
of the Notes, and as such shall keep the Note Register to evidence the
registration, transfer and exchange of Notes at its principal office. The Note
Register may be kept in any form that maintains a record of the registered
owners of the Notes and the registered owners addresses, including copies of the
Notes, assignments thereof or notices of assignments thereof.
(b) The Notes may be transferred, but only upon the Note Register, only if
both Notes are simultaneously assigned to the same transferee and only if
(i) Lender has submitted to Issuer the Notes accompanied by an assignment in
substantially the form attached to each Note duly executed by Lender or Lender's
attorney or legal representative; (ii) Lender has submitted a written request to
Issuer, with a copy to Borrower, to transfer the Notes and the assignment shall
disclose the name, address and tax identification number of the assignee;
(iii) the assignee is a sophisticated investor and Lender has obtained and
provided to Issuer, prior to such transfer and assignment, a sophisticated
investor's letter in the form of EXHIBIT C, and (iv) Issuer has consented in
writing to the transfer (which consent shall be within the sole discretion of
Issuer), except as otherwise provided in the next sentence. Lender shall not
be required to comply with (iii) and (iv) if (x) Lender is transferring that
Note to an Affiliate, (y) Lender has certified to Borrower and Issuer that
the transferee is an Affiliate, and (z) Lender has agreed in writing not to
permit that Affiliate to transfer the Notes without complying with the
requirements of the preceding sentence. Upon any transfer meeting the
requirements of this Section, Issuer shall execute and deliver in exchange
for the Notes new Notes, registered in the name of the transferee, of the
same series, of the same outstanding principal amount, maturing in the same
amounts at the same times and bearing interest at the same rates.
SECTION 8.02. NO SALE, LEASE OR ASSIGNMENT BY BORROWER. This Agreement
and the interest of Borrower in the Equipment may not be sold, leased,
assigned or encumbered by Borrower without the prior written consent of
Lender and Issuer and an opinion of Gilmore & Bell, P.C., or other firm of
nationally recognized bond counsel acceptable to Issuer, Lender and Borrower
that is obtained and provided to Issuer and Lender in a form acceptable to
Issuer and Lender to the effect that the exclusion of the interest on the
Tax-Exempt Note from gross income for federal income tax purposes will not be
affected by such action.
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
SECTION 9.01. EVENTS OF DEFAULT. The following constitute "Events of
Default" under this Agreement:
(a) failure by Borrower to pay to Lender, as assignee of Issuer, when due
any Loan Payment;
(b) failure by Borrower to maintain insurance on the Equipment in
accordance with SECTION 5.07;
(c) failure by Borrower, any guarantor or Issuer to observe and perform
any other covenant, condition or agreement contained in any Loan Document on its
part to be observed or performed for a period of 30 days after written notice is
given to Borrower, any guarantor or Issuer, as the case may be, specifying such
failure and requesting that it be remedied; provided that, if the failure stated
in such notice cannot be corrected within such 30-day period, Lender will not
unreasonably withhold its consent to an extension of such time if corrective
action is instituted by Borrower or Issuer, as the case may be, within the
applicable period and diligently pursued until the default is corrected;
(d) initiation by Issuer of a proceeding under any federal or state
bankruptcy or insolvency law seeking relief under such laws concerning the
indebtedness of Issuer;
(e) Borrower or any guarantor of any obligations under any Loan Document
shall be or become insolvent, or admit in writing its inability to pay its debts
as they mature, or make an assignment for the benefit of creditors; or Borrower
or any guarantor shall
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<PAGE>
apply for or consent to the appointment of any receiver, trustee or similar
officer for it or for all or any substantial part of its property; or such
receiver, trustee or similar officer shall be appointed without the
application or consent of Borrower or any guarantor, as the case may be; or
Borrower or any guarantor shall institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against Borrower or any guarantor; or any judgment, writ, warrant of
attachment or execution or similar process shall be issued or levied against
a substantial part of the property of Borrower or any guarantor;
(f) determination by Lender that any representation or warranty made by
Borrower, Issuer or any guarantor in any Loan Document was untrue in any
material respect when made;
(g) the occurrence of an Event of Taxability;
(h) the occurrence of a default or an event of default under any
instrument, agreement or other document evidencing or relating to any
indebtedness or other monetary obligation of Borrower in an amount greater than
$50,000;
(i) any guarantor of any obligations under any Loan Document shall
repudiate, purport to revoke or fail to perform such guarantor's obligations
under its guaranty; or
(j) any other circumstance, if any, designated in EXHIBIT A to constitute
an "Event of Default."
SECTION 9.02. REMEDIES ON DEFAULT. Whenever any Event of Default has
occurred and is continuing, Lender, as assignee of Issuer, shall have the
right, at its sole option without any further demand or notice, to take any
one or any combination of the following remedial steps insofar as the same
are available to secured parties under Article 9 of the UCC in effect in the
State from time to time and which are otherwise accorded to Lender, as
assignee of Issuer, by applicable law:
(a) by notice to Issuer and Borrower, declare the entire unpaid principal
amounts of the Notes and the Loans then outstanding, all interest accrued and
unpaid thereon and all amounts payable under this Agreement to be forthwith due
and payable, whereupon the same shall become and be forthwith due and payable,
without presentment, notice of dishonor, protest or further notice of any kind,
all of which are hereby expressly waived by Borrower and Issuer;
(b) take possession of the Equipment wherever situated, without any court
order or other process of law and without liability for entering the premises,
and lease, sublease or make other disposition of the Equipment for use over a
term in a commercially reasonable manner, all for the account of Lender,
provided that Borrower shall remain directly liable for the deficiency, if any,
between the rent or other amounts paid by a lessee or sublessee of the Equipment
pursuant to any lease or sublease during the same period of time, after
deducting all costs and expenses, including reasonable attorneys' fees and
expenses, incurred with respect to the recovery, repair and storage of the
Equipment during that period of time;
(c) take possession of the Equipment wherever situated, without any court
order or other process of law and without liability for entering the premises,
and sell the Equipment in a commercially reasonable manner.
(d) proceed by appropriate court action to enforce specific performance by
Issuer or Borrower of the applicable covenants of this Agreement or to recover
for the breach thereof, including the payment of all amounts due from Borrower.
Borrower shall pay or repay to Lender or Issuer all costs of such action or
court action, including reasonable attorneys' fees; and
(e) take whatever action at law or in equity may appear necessary or
desirable to enforce its rights with respect to the Equipment or under the Loan
Documents. Borrower shall pay or repay to Lender or Issuer all costs of that
action, including reasonable attorneys' fees and expenses.
All proceeds from the exercise of remedies shall be applied in the
following manner:
FIRST, to pay all and reasonable costs and expenses associated with
the recovery, repair, storage and sale of the Equipment, including
reasonable attorneys' fees and expenses;
SECOND, to pay (i) Lender the amount of all unpaid Loan Payments, if
any, that are then due and owing, together with interest and late
charges thereon, (ii) Lender the then applicable Prepayment Amounts
(taking into account the payment of past-due Loan Payments as
aforesaid), and (iii) any other amounts due hereunder, including
indemnity payments, taxes, charges, reimbursement of any advances and
other amounts payable to Lender or Issuer hereunder; and
THIRD, to pay the remainder of the proceeds, including purchase moneys
or other amounts paid by a buyer of the Equipment to Borrower.
Notwithstanding any other remedy exercised hereunder, Borrower shall remain
obligated to pay to Lender any unpaid portions of the Prepayment Amounts and any
other amounts due hereunder.
SECTION 9.03. RETURN OF EQUIPMENT. Upon an Event of Default, Borrower
shall within ten days after notice from Lender, at its own cost and expense:
(a) perform any testing and repairs required to place the Equipment in the
condition required by SECTION 5.06; (b) if deinstallation, disassembly or
crating is required, cause the Equipment to be deinstalled, disassembled and
crated by an authorized manufacturer's representative or another service
person satisfactory to Lender; and (c) deliver the Equipment to a location
specified by Lender, freight and insurance prepaid by Borrower. If Borrower
refuses to deliver the Equipment in the manner designated, Lender may enter
upon Borrower's premises where the Equipment is kept and take possession of
the Equipment and charge to Borrower the costs of the taking. Borrower
hereby expressly waives any damages occasioned by the taking.
SECTION 9.04. NO REMEDY EXCLUSIVE. No remedy herein conferred upon or
reserved to Lender or Issuer is intended to be exclusive and every remedy
shall be cumulative and shall be in addition to every other remedy given
under this Agreement or now or hereafter existing at law or in equity. No
delay or omission to exercise any right or power accruing upon any Event of
Default shall impair any right or power or shall be construed to be a waiver
thereof, but any right or power may be exercised from time to time and as
often as may be deemed expedient. In order to entitle Lender or Issuer to
exercise any remedy reserved to it in this Article, it shall not be necessary
to give any notice other than any notice required by this Article. All
remedies herein conferred upon or reserved to Lender or Issuer shall survive
the termination of this Agreement.
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<PAGE>
SECTION 9.05. LATE CHARGE. Any Loan Payment not paid by Borrower on
the due date thereof shall, to the extent permissible by law, bear a late
charge equal to the lesser of five cents per dollar of the delinquent amount
or the lawful maximum, and Borrower shall be obligated to pay the same
immediately upon receipt of Lender's written invoice therefor.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. DISCLAIMER OF WARRANTIES. LENDER AND ISSUER MAKE NO
WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE,
DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
FITNESS FOR USE OF THE EQUIPMENT, OR ANY OTHER WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, WITH RESPECT THERETO. IN NO EVENT SHALL LENDER OR ISSUER
BE LIABLE FOR ANY LOSS OR DAMAGE IN CONNECTION WITH OR ARISING OUT OF THIS
AGREEMENT, THE EQUIPMENT OR THE EXISTENCE, FURNISHING, FUNCTIONING OR
BORROWER'S USE OF ANY ITEM OR PRODUCTS OR SERVICES PROVIDED FOR IN THIS
AGREEMENT.
SECTION 10.02. TAX COMPLIANCE AGREEMENT. Issuer and Borrower will each
comply fully at all times with the Tax Compliance Agreement, and neither
Issuer nor Borrower will take any action, or omit to take any action, which,
if taken or omitted, respectively, would violate the Tax Compliance Agreement.
SECTION 10.03. NOTICES. All notices, certificates, requests, demands
and other communications provided for hereunder or under the Escrow Agreement
or the Tax Compliance Agreement shall be in writing and shall be (a) personally
delivered, (b) sent by first class United States mail, (c) sent by overnight
courier of national reputation, or (d) transmitted by telecopy, in each case
addressed to the party to whom notice is being given at its address as set
forth in EXHIBIT A and, if telecopied, transmitted to that party at its
telecopier number set forth above or, as to each party, at any other address
or telecopier number hereafter designated by that party in a written notice
to the other parties complying as to delivery with this Section. All such
notices, requests, demands and other communications shall be deemed to have
been given on (a) the date received if personally delivered, (b) when
deposited in the mail if delivered by mail, (c) the date sent if sent by
overnight courier, or (d) the date of transmission if delivered by telecopy.
If notice to Borrower of any intended disposition of the Equipment or any
other intended action is required by law in a particular instance, the notice
shall be deemed commercially reasonable if given (in the manner specified in
this Section) at least ten days prior to the date of intended disposition or
other action.
SECTION 10.04. FURTHER ASSURANCE AND CORRECTIVE INSTRUMENTS. Issuer
and Borrower will, from time to time, execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, such further acts,
instruments, conveyances, transfers and assurances, that Lender reasonably
deems necessary or advisable for the implementation, correction, confirmation
or perfection of the Loan Documents and any rights of Lender under the Loan
Documents. Lender shall pay all reasonable expenses of Issuer and Borrower,
including reasonable attorneys' fees and expenses in connection with any
implementation, correction, confirmation or perfection of the Loan Documents.
SECTION 10.05. BINDING EFFECT; TIME OF THE ESSENCE. This Agreement
shall inure to the benefit of and shall be binding upon Lender, Issuer,
Borrower and their respective successors and assigns. Time is of the essence.
SECTION 10.06 SEVERABILITY. In the event any provision of this
Agreement is held invalid or unenforceable by any court of competent
jurisdiction, that holding shall not invalidate or render unenforceable any
other provision hereof.
SECTION 10.07 AMENDMENTS. To the extent permitted by law, the terms of
this Agreement shall not be waived, altered, modified, supplemented or
amended in any manner whatsoever except by written instrument signed by the
parties hereto, and then any waiver, consent, modification or change shall be
effective only in the specific instance and for the specific purpose given.
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<PAGE>
SECTION 10.08 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in several counterparts, each of which shall be an original and all
of which shall constitute one and the same instrument, and any of the parties
hereto may execute this Agreement by signing any counterpart; provided that
if this Agreement, either alone or with other documents, constitutes "chattel
paper" as defined in the applicable Uniform Commercial Code, no security
interests in this Agreement may be created or perfected through the transfer
of possession of any counterpart other than the counterpart identified as
"Counterpart Number One." The preceding sentence and the legend on the cover
page of this Agreement do not, however, prohibit the perfection of any
security interest in this Agreement, or any related security interest, by
filing.
SECTION 10.09 TERM OF LOAN AGREEMENT. This Agreement shall be effective
as of the date shown on the cover page and shall continue in force and effect
until the principal of and premium, if any, and interest on the Notes are
fully paid (or provision for the payment shall have been made in accordance
with SECTION 2.07) together with all sums payable by Borrower under the Loan
Documents.
SECTION 10.10 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State.
SECTION 10.11 ENTIRE AGREEMENT. This Agreement, the Tax Compliance
Agreement, the Escrow Agreement and the exhibits hereto and thereto
constitute the entire agreement among Lender, Issuer, Borrower and Escrow
Agent. There are no understandings, agreements, representations or
warranties, express or implied, not specified herein or in those documents
regarding this Agreement or the Equipment.
SECTION 10.12 USURY. It is the intention of the parties hereto to
comply with any applicable usury laws; accordingly, notwithstanding any
provisions to the contrary in this Agreement, in no event shall this
Agreement require the payment or permit the collection of interest or any
amount in the nature of interest or fees in excess of the maximum permitted
by applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
their respective names by their duly authorized officers, all as of the date
first written above.
LENDER: ASSOCIATES COMMERCIAL CORPORATION
By: _____________________________________
Title: __________________________________
ISSUER: CALIFORNIA STATEWIDE COMMUNITIES
DEVELOPMENT AUTHORITY
By: _____________________________________
Secretary
BORROWER: EN POINTE TECHNOLOGIES, INC.
By: _____________________________________
Chief Financial Officer
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<PAGE>
EXHIBIT A TO LOAN AGREEMENT
SCHEDULE OF EQUIPMENT, ACQUISITION COSTS,
ISSUER FEES, GENERAL INFORMATION AND ADDITIONAL PROVISIONS
DATED AS OF: APRIL 16, 1998
BORROWER: EN POINTE TECHNOLOGIES, INC.
100 N. Sepulveda Blvd, 19th Floor
El Segundo, California 90245
Telephone: (310) 725-5200
Telecopier: (310) 725-5275
ISSUER: CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
1100 K Street, Suite 101
Sacramento, California 95814
Telephone: (916) 327-7654
Telecopier: (916) 441-5507
LENDER: ASSOCIATES COMMERCIAL CORPORATION
300 East Carpenter Freeway
Irving, Texas 75062
Telephone: (972) 652-2767
Telecopier: (972)652-3491
A. SCHEDULE OF EQUIPMENT.
1. The following Equipment is the subject of the Agreement, together
with all replacement parts, additions, repairs, accessions and accessories
incorporated therein or affixed thereto:
<TABLE>
<CAPTION>
DESCRIPTION MANUFACTURER
QUANTITY OF EQUIPMENT OR VENDOR SERIAL NUMBER
-------- ------------ ------------ -------------
<S> <C> <C> <C>
See SCHEDULE 1 attached hereto
</TABLE>
2. The Equipment is or, upon its delivery to Borrower, will be located
at the following addresses:
1040 S. Vintage Avenue, Ontario, California
B. ACQUISITION COSTS. The Acquisition Costs are as follows:
<TABLE>
<CAPTION>
CATEGORY AMOUNT
-------- ------
<S> <C>
Equipment $3,431,500
Issuance Costs 68,500
----------
Total $3,500,000
</TABLE>
C. GENERAL INFORMATION.
Type of Borrower Organization: corporation
State of Borrower's Organization: Delaware
Trade Names of Borrower, if any: none
State of Lender's Incorporation: Delaware
Local Government Participant: San Bernardino County, California
A-1
<PAGE>
D. ISSUER FEES.
Initial Administrative Fee: $70,000 (payable on the Closing Date)
Annual Administrative Fee: $-0-
E. ADDITIONAL PROVISIONS.
The Tax-Exempt Note Proceeds shall not be used to pay any Acquisition
Costs other than set forth on SCHEDULE 1 attached hereto.
A-2
<PAGE>
EXHIBIT B-1 TO LOAN AGREEMENT
FORM OF TAX-EXEMPT NOTE
THIS NOTE MAY BE TRANSFERRED ONLY IN THE MANNER AND ON THE TERMS AND
CONDITIONS AND SUBJECT TO THE RESTRICTIONS STATED IN SECTION 8.01 OF THE
AGREEMENT (AS DEFINED IN THE NOTE).
NO. R-1 $1,000,000
CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
EQUIPMENT PURCHASE PROGRAM NOTE
(EN POINTE TECHNOLOGIES, INC. PROJECT), SERIES 1998-5A
<TABLE>
<CAPTION>
INTEREST RATE FINAL MATURITY DATE ISSUE DATE
------------- ------------------- ----------
<S> <C> <C>
5.25% APRIL 16, 2005 APRIL 16, 1998
</TABLE>
REGISTERED OWNER: ASSOCIATES COMMERCIAL CORPORATION
PRINCIPAL SUM: ONE MILLION DOLLARS
The CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY ("Issuer"), a
joint exercise of powers agency, organized and existing under the laws of the
State of California, for value received, hereby promises to pay to the
Registered Owner named above or registered assigns, but only from the sources
hereinafter described, the Principal Sum shown above on the dates and in the
amounts hereafter provided, unless and except as paid prior thereto, together
with interest thereon on the principal balance hereof from time to time
remaining unpaid, from the date hereof to the date of final maturity or
earlier payment of this Note at the Interest Rate per annum specified above
plus any Gross-Up Interest Payments (as defined and provided for in the
Agreement hereinafter referred to), such interest being payable monthly on
the dates set forth in EXHIBIT 1 hereto until this Note is fully paid.
Interest shall be computed on the basis of a year of 360 days and over
12 months of 30 days each.
The principal amount of this Note shall be paid in monthly installments
on the dates and in the amounts as set forth in EXHIBIT 1 hereto subject to
credit upon such installments all in accordance with the Agreement
(hereinafter defined) and the terms and conditions therein provided.
This Note is the duly authorized Note of Issuer designated "California
Statewide Communities Development Authority Equipment Purchase Note Program
(En Pointe Technologies, Inc. Project), Series 1998-5A" issued under and
pursuant to the California Industrial Development Financing Act, constituting
Title 10 of the Government Code of the State of California, as amended (the
"Act"), and under and pursuant to a Loan Agreement, dated as of April 16,
1998 (the "Agreement"), among Issuer, En Pointe Technologies, Inc.
("Borrower") and Associates Commercial Corporation, and its successor and
assignees ("Lender"). The Note is issued for the purpose of making a loan
(the "Tax-Exempt Loan") to Borrower, to pay, together with other available
funds of Borrower, the cost of acquiring certain Equipment (as defined in the
Agreement) of Borrower, and the cost of issuing the Note.
Borrower has agreed to repay the Tax-Exempt Loan in amounts and at times
fully sufficient to enable Issuer to pay the principal of and interest on
this Note as the same become due. To secure repayment of the Tax-Exempt Loan
and performance of its other obligations under the Agreement, Borrower has
granted to Lender a security interest in the Equipment, all as provided in
and subject to the terms, limitations, conditions and exceptions specified in
the Agreement. Issuer has pledged and assigned the repayments of the
Tax-Exempt Loan and the aforesaid security therefor to Lender to secure
payment of the principal of and the interest on this Note.
This Note is subject to prepayment under the circumstances described in
SECTION 2.07 of the Agreement. This Note may be prepaid pursuant to
SECTION 2.07(a) of the Agreement in whole or in part anytime after April 16,
2001.
THIS NOTE IS A LIMITED OBLIGATION OF ISSUER, PAYABLE SOLELY FROM AMOUNTS
PAYABLE BY BORROWER PURSUANT TO THE LOAN AGREEMENT. THE NOTE IS NOT A LIEN
OR CHARGE UPON THE FUNDS OR PROPERTY OF ISSUER, EXCEPT TO THE EXTENT OF THE
AFOREMENTIONED PLEDGE AND ASSIGNMENT. NEITHER THE STATE OF CALIFORNIA NOR
ISSUER, INCLUDING ANY MEMBER OF ISSUER, SHALL BE OBLIGATED TO PAY THE
PRINCIPAL OF THE NOTE, OR THE INTEREST THEREON, EXCEPT FROM THE LOAN
REPAYMENTS MADE BY BORROWER. NEITHER THE FAITH AND CREDIT NOR THE TAXING
POWER OF THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS
PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR THE INTEREST
ON THIS NOTE, NOR IS THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IN ANY
MANNER OBLIGATED TO MAKE ANY APPROPRIATION FOR PAYMENT. ISSUER HAS NO TAXING
POWER.
This Note is a fully registered Note issued without option of conversion
into a note or notes of any other form of denomination except upon transfer
as stated below. This Note may be transferred only in the manner and on the
terms and conditions and subject to the restrictions stated in SECTION 8.01
of the Agreement.
No recourse shall be had for the payment of the principal of or interest
on this Note, or for any claim based hereon or on the Agreement against any
member, officer, employee or agent past, present or future, of Issuer or of
any successor body as such, either,
B-1-1
<PAGE>
directly or through Issuer under any constitutional provision, statute or
rule of law, or by the enforcement of any assessment, or by any legal or
equitable proceeding or otherwise. Neither the members, officers, employees
or agents of Issuer nor any person executing this Note shall be liable
personally on this Note or be subject to any personal liability or
accountability by reason of the issuance thereof.
It is hereby certified that all acts, conditions and things required to
exist, happen and be performed precedent to and in the issuance of this Note
have existed, have happened and have been performed in due time, form and
manner as required by the Act and the Constitution and laws of the State of
California.
IN WITNESS WHEREOF, the California Statewide Communities Development
Authority has caused this Note to be executed in its name and on its behalf
by the manual or facsimile signature of the Chairman, Vice Chairman or other
officer of Issuer and attested by the manual or facsimile signature of its
Secretary or Assistant Secretary, all as of the Issue Date set forth above.
CALIFORNIA STATEWIDE COMMUNITIES
DEVELOPMENT AUTHORITY
Attest: By: _____________________________________
Title: __________________________________
__________________________________
Secretary
B-1-2
<PAGE>
[FORM OF ASSIGNMENT]
THIS NOTE MAY BE TRANSFERRED ONLY IN THE MANNER AND ON THE TERMS AND
CONDITIONS AND SUBJECT TO THE RESTRICTIONS STATED IN SECTION 8.01 OF THE
AGREEMENT (AS DEFINED IN THE NOTE).
For value received, the undersigned hereby sells, assigns and transfers
unto
________________________________________________________________________________
(please print or type name, address and tax identification number of transferee)
the within Note and all rights thereunder, and does hereby irrevocably
constitute and appoint
________________________________________________________________________________
attorney to transfer the within Note on the books kept for registration thereof,
with full power of substitution in the premises.
Dated: __________________________ Signed: __________________________
In the presence of: __________________________.
Notice: The signature to this assignment must correspond with the name as it
appears upon the face of the within Note in every particular, without
alteration or enlargement or any change whatever. When assignment is made by
a guardian, trustee, executor or administrator, an officer of a corporation,
or anyone in a representative capacity, proof of his authority to act must
accompany the Note.
Signature Guaranteed:
__________________________
<PAGE>
EXHIBIT B-2 TO LOAN AGREEMENT
FORM OF TAXABLE NOTE
THIS NOTE MAY BE TRANSFERRED ONLY IN THE MANNER AND ON THE TERMS AND
CONDITIONS AND SUBJECT TO THE RESTRICTIONS STATED IN SECTION 8.01 OF THE
AGREEMENT (AS DEFINED IN THE NOTE).
NO. R-1 $2,500,000
CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
TAXABLE EQUIPMENT PURCHASE PROGRAM NOTE
(EN POINTE TECHNOLOGIES, INC. PROJECT), SERIES 1998-5B
<TABLE>
<CAPTION>
INTEREST RATE FINAL MATURITY DATE ISSUE DATE
------------- ------------------- ----------
<S> <C> <C>
8.15% APRIL 16, 2005 APRIL 16, 1998
</TABLE>
REGISTERED OWNER: ASSOCIATES COMMERCIAL CORPORATION
PRINCIPAL SUM: TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
The CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY ("Issuer"), a
joint exercise of powers agency, organized and existing under the laws of the
State of California, for value received, hereby promises to pay to the
Registered Owner named above or registered assigns, but only from the sources
hereinafter described, the Principal Sum shown above on the dates and in the
amounts hereafter provided, unless and except as paid prior thereto, together
with interest thereon on the principal balance hereof from time to time
remaining unpaid, from the date hereof to the date of final maturity or
earlier payment of this Note at the Interest Rate per annum specified above,
such interest being payable monthly on the dates set forth in EXHIBIT 1
hereto until this Note is fully paid. Interest shall be computed on the
basis of a year of 360 days and over 12 months of 30 days each.
The principal amount of this Note shall be paid in monthly installments
on the dates and in the amounts as set forth in EXHIBIT 1 hereto subject to
credit upon such installments all in accordance with the Agreement
(hereinafter defined) and the terms and conditions therein provided.
This Note is the duly authorized Note of Issuer designated "California
Statewide Communities Development Authority Taxable Equipment Purchase Note
Program (En Pointe Technologies, Inc. Project), Series 1998-5B" issued under
and pursuant to the California Industrial Development Financing Act,
constituting Title 10 of the Government Code of the State of California, as
amended (the "Act"), and under and pursuant to a Loan Agreement, dated as of
April 16, 1998 (the "Agreement"), among Issuer, En Pointe Technologies, Inc.
("Borrower") and Associates Commercial Corporation, and its successor and
assignees ("Lender"). The Note is issued for the purpose of making a loan
(the "Taxable Loan") to Borrower, to pay, together with other available funds
of Borrower, the cost of acquiring certain Equipment (as defined in the
Agreement) of Borrower, and the cost of issuing the Note.
Borrower has agreed to repay the Taxable Loan in amounts and at times
fully sufficient to enable Issuer to pay the principal of and interest on
this Note as the same become due. To secure repayment of the Taxable Loan
and performance of its other obligations under the Agreement, Borrower has
granted to Lender a security interest in the Equipment, all as provided in
and subject to the terms, limitations, conditions and exceptions specified in
the Agreement. Issuer has pledged and assigned the repayments of the Taxable
Loan and the aforesaid security therefor to Lender to secure payment of the
principal of and the interest on this Note.
This Note is subject to prepayment under the circumstances described in
SECTION 2.07 of the Agreement. This Note may be prepaid pursuant to
SECTION 2.07(a) of the Agreement in whole or in part April 16, 2001.
THIS NOTE IS A LIMITED OBLIGATION OF ISSUER, PAYABLE SOLELY FROM AMOUNTS
PAYABLE BY BORROWER PURSUANT TO THE LOAN AGREEMENT. THE NOTE IS NOT A LIEN
OR CHARGE UPON THE FUNDS OR PROPERTY OF ISSUER, EXCEPT TO THE EXTENT OF THE
AFOREMENTIONED PLEDGE AND ASSIGNMENT. NEITHER THE STATE OF CALIFORNIA NOR
ISSUER, INCLUDING ANY MEMBER OF ISSUER, SHALL BE OBLIGATED TO PAY THE
PRINCIPAL OF THE NOTE, OR THE INTEREST THEREON, EXCEPT FROM THE LOAN
REPAYMENTS MADE BY BORROWER. NEITHER THE FAITH AND CREDIT NOR THE TAXING
POWER OF THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS
PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR THE INTEREST
ON THIS NOTE, NOR IS THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IN ANY
MANNER OBLIGATED TO MAKE ANY APPROPRIATION FOR PAYMENT. ISSUER HAS NO TAXING
POWER.
This Note is a fully registered Note issued without option of conversion
into a note or notes of any other form of denomination except upon transfer
as stated below. This Note may be transferred only in the manner and on the
terms and conditions and subject to the restrictions stated in SECTION 8.01
of the Agreement.
No recourse shall be had for the payment of the principal of or interest
on this Note, or for any claim based hereon or on the Agreement against any
member, officer, employee or agent past, present or future, of Issuer or of
any successor body as such, either, directly or through Issuer under any
constitutional provision, statute or rule of law, or by the enforcement of
any assessment, or by
B-2-1
<PAGE>
any legal or equitable proceeding or otherwise. Neither the members,
officers, employees or agents of Issuer nor any person executing this Note
shall be liable personally on this Note or be subject to any personal
liability or accountability by reason of the issuance thereof.
It is hereby certified that all acts, conditions and things required to
exist, happen and be performed precedent to and in the issuance of this Note
have existed, have happened and have been performed in due time, form and
manner as required by the Act and the Constitution and laws of the State of
California.
IN WITNESS WHEREOF, the California Statewide Communities Development
Authority has caused this Note to be executed in its name and on its behalf
by the manual or facsimile signature of the Chairman, Vice Chairman or other
officer of Issuer and attested by the manual or facsimile signature of its
Secretary or Assistant Secretary, all as of the Issue Date set forth above.
CALIFORNIA STATEWIDE COMMUNITIES
DEVELOPMENT AUTHORITY
Attest: By: _____________________________________
Title: __________________________________
__________________________________
Secretary
B-2-2
<PAGE>
[FORM OF ASSIGNMENT]
THIS NOTE MAY BE TRANSFERRED ONLY IN THE MANNER AND ON THE TERMS AND
CONDITIONS AND SUBJECT TO THE RESTRICTIONS STATED IN SECTION 8.01 OF THE
AGREEMENT (AS DEFINED IN THE NOTE).
For value received, the undersigned hereby sells, assigns and transfers
unto
________________________________________________________________________________
(please print or type name, address and tax identification number of transferee)
the within Note and all rights thereunder, and does hereby irrevocably
constitute and appoint
________________________________________________________________________________
attorney to transfer the within Note on the books kept for registration thereof,
with full power of substitution in the premises.
Dated: __________________________ Signed: __________________________
In the presence of: __________________________.
Notice: The signature to this assignment must correspond with the name as it
appears upon the face of the within Note in every particular, without
alteration or enlargement or any change whatever. When assignment is made by
a guardian, trustee, executor or administrator, an officer of a corporation,
or anyone in a representative capacity, proof of his authority to act must
accompany the Note.
Signature Guaranteed:
__________________________
B-2-3
<PAGE>
EXHIBIT C TO LOAN AGREEMENT
FORM OF INVESTOR'S LETTER OF REPRESENTATION
[Date]
California Statewide Communities Development Authority
1100 K Street
Sacramento, California 95814
En Pointe Technologies, Inc.
100 N. Sepulveda Blvd., 19th Floor
El Segundo, California 90245
Re: Loan Agreement dated as of April 16, 1998, among Associates
Commercial Corporation ("Lender"), California Statewide
Communities Development Authority ("Issuer") and En Pointe
Technologies, Inc. ("Borrower")
Ladies and Gentlemen:
The undersigned, as purchaser of the Notes in the aggregate principal
amount of $3,500,000 issued pursuant to and on the terms set forth in the
Loan Agreement described above (the "Agreement"), hereby represents to you
that:
1. Capitalized terms used herein and not otherwise defined are used
with the meanings given such terms in the Agreement.
2. We have duly authorized, by all necessary action, the purchase of
the Notes and the right to receive the payments of principal of and, premium,
if any, and interest on the Notes pursuant to the terms and provisions of the
Agreement (the "Issuer Payments").
3. We have sufficient knowledge and experience in financial and
business matters, including purchase and ownership of municipal and other
tax-exempt and taxable obligations, to be able to evaluate the risks and
merits of the investment represented by the Notes, the Issuer Payments, the
Loan Payments and the Agreement. We are able to bear the economic risks of
that investment.
4. We understand that the obligations of Issuer to make the Issuer
Payments under the Agreement and the Notes are special, limited obligations
payable solely from amounts paid to Issuer from Borrower pursuant to the
terms of the Agreement and that notwithstanding anything to the contrary
contained in the Agreement, Issuer is not obligated to make the Issuer
Payments, or pay any portion of the purchase price of the Equipment or make
any other payment or advance any moneys or be liable for any other costs or
expenses in connection with the Equipment, the Notes, the Issuer Payments,
the Loan Payments or the Agreement, except from proceeds of the Notes and the
amounts paid to Issuer from Borrower pursuant to the Agreement, and no such
payment shall constitute a charge against the general credit of Issuer. We
further understand that Issuer is not directly or indirectly or contingently
or morally obligated to use any other moneys or assets of Issuer to pay the
Issuer Payments or any portion of the purchase price of the Equipment or for
all or any portion of those other costs or expenses.
5. We acknowledge that we have either been supplied with or have been
given access to information, including financial statements and other
financial information, to which a reasonable investor would attach
significance in making investment decisions, and we have had the opportunity
to ask questions and receive answers from knowledgeable individuals
concerning Borrower, the Notes, the Issuer Payments, the Loan Payments, the
Agreement and the security therefor, so that as a reasonable investor we have
been able to make our decision to purchase the Notes on the terms as set
forth in the Agreement. We acknowledge that we have not relied upon Issuer
for any information in connection with our purchase of the Notes under the
terms of the Agreement, except as set forth in SECTION 3.01 of the Agreement.
6. We have made our own inquiry and analysis with respect to the
Agreement, the Notes, the Issuer Payments, the Loan Payments and the security
therefor, and other material factors affecting the security and payment of
the such payments set forth in the Agreement. We are aware that the business
of Borrower involves certain economic variables and risks that could
adversely affect the security for the payments to be made by Issuer to us
under the terms of the Agreement and the Notes. We have examined drafts in
substantially final form of the basic legal documents relating to the Notes
and the Agreement, including the proposed legal opinions to be delivered by
Borrower's counsel and Gilmore & Bell, P.C., as bond counsel.
7. We understand that the Notes (including the right to receive the
Issuer Payments and Loan Payments under the terms of the Agreement) (a) are
not being registered or otherwise qualified for sale under the "Blue Sky"
laws and regulations of any state, (b) will not be listed in any stock or
other securities exchange, (c) will not carry a rating from any rating
service and (d) will be delivered in a form which may not be readily
marketable.
8. We understand that the Notes (including the right to the Issuer
Payments and Loan Payments under the terms of the Agreement) have not been
registered under the Securities Act of 1933, as amended, and that such
registration is not legally required as of the date hereof. We represent to
you that we are purchasing the Notes for investment for our own account and
not with a present
C-1
<PAGE>
view toward resale or the distribution thereof, in that we do not now intend
to resell or otherwise dispose of the Notes or any part of our interest in
the Notes, except for sale to an Affiliate. Except for a transfer to an
entity that we have certified to Issuer and Borrower is an Affiliate, we
agree not to sell, transfer or otherwise dispose of or permit any Affiliate
to sell, transfer or otherwise dispose of the Notes or all or any part of our
interest in the Notes or the Agreement unless we obtain the prior written
consent of Issuer (given at the sole discretion of Issuer), the transferee
executes a letter of representation in substantially the form of this letter
(it being agreed that any Affiliate shall be deemed to have executed such a
letter) and such sale, transfer or other disposition (whether or not to an
Affiliate) is in compliance with applicable securities laws.
9. We agree to indemnify and hold harmless Issuer with respect to any
claim asserted against Issuer that is based upon our sale, transfer or other
disposition of the Notes or all or any part of our interests in the Notes or
the Agreement in violation of the provisions hereof or of the Agreement,
other than any claim that is based upon the gross negligence or willful
misconduct of Issuer.
10. We have executed and delivered this letter in connection with the
issuance of the Notes and the execution and delivery of the Agreement as an
inducement to Issuer to cause issuance of the Notes and the execution and
delivery of the Agreement to us.
[Alternative paragraph 10 for transferee: We have executed and delivered
this letter in connection with the transfer of this Notes to us and as an
inducement to the Issuer to consent to that transfer.]
Only the addressees hereof may rely upon this letter.
[LENDER OR TRANSFEREE]
By: _____________________________________
Authorized Officer
C-2
<PAGE>
EN POINTE TECHNOLOGIES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
BASIC June 30, June 30,
(in thousands, except per share data) ---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 720 $1,461 $2,068 $3,972
-------- -------- -------- --------
-------- -------- -------- --------
Basis for computation of basic earnings
per common:
Beginning balance of shares outstanding 5,894 5,669 5,779 5,607
Weighted average number of shares
issued during the period 4 24 88 62
-------- -------- -------- --------
Total weighted shares outstanding during period 5,898 5,693 5,867 5,669
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share $ 0.12 $ 0.26 $ 0.35 $ 0.70
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
DILUTED June 30, June 30,
(in thousands, except per share data) ---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 720 $1,461 $2,068 $3,972
-------- -------- -------- --------
-------- -------- -------- --------
Basis for computation of diluted earnings
per common and common equivalent share:
Weighted average number of shares
outstanding during period 5,894 5,669 5,779 5,608
Weighted average (incremental) common
share equivalents after considering the effects
of options and warrants, exercised and
canceled during the period and after assumed
repurchase of treasury shares 32 116 240 224
-------- -------- -------- --------
Total weighted shares 5,926 5,785 6,019 5,832
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share $ 0.12 $ 0.25 $ 0.34 $ 0.68
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,244
<SECURITIES> 3,945
<RECEIVABLES> 89,902
<ALLOWANCES> 1,461
<INVENTORY> 8,867
<CURRENT-ASSETS> 102,997
<PP&E> 18,239
<DEPRECIATION> 3,800
<TOTAL-ASSETS> 122,647
<CURRENT-LIABILITIES> 89,971
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 32,670
<TOTAL-LIABILITY-AND-EQUITY> 122,647
<SALES> 409,303
<TOTAL-REVENUES> 409,303
<CGS> 369,566
<TOTAL-COSTS> 404,857
<OTHER-EXPENSES> (204)
<LOSS-PROVISION> 599
<INTEREST-EXPENSE> 1,145
<INCOME-PRETAX> 3,505
<INCOME-TAX> 1,437
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,068
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
</TABLE>
