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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1999
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 NO. 1-12641
RDO EQUIPMENT CO.
(Exact name of registrant as specified in its charter)
DELAWARE 45-0306084
(State of incorporation) (I.R.S. Employer Identification No.)
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58103
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (701) 297-4288
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___.
The number of shares outstanding of the registrant as of August 31,
1999:
Class A Common Stock 5,731,008
Class B Common Stock 7,450,492
----------
Total 13,181,500
==========
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1
<PAGE>
CAUTIONARY STATEMENT REGARDING
FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
The future results of RDO Equipment Co. (the "Company"), including
results reflected in any forward-looking statement made by or on behalf of the
Company, will be impacted by a number of important factors. The factors
identified below in Item 2 under the subsection entitled "Safe Harbor Statement"
are important factors (but not necessarily all important factors) that could
cause the Company's actual future results to differ materially from those
expressed in any forward-looking statement made by or on behalf of the Company.
Words such as "may," "will," "expect," "believe," "anticipate," "estimate," or
"continue" or comparable terminology are intended to identify forward-looking
statements. Forward-looking statements, by their nature, involve substantial
risks and uncertainties.
PART I - FINANCIAL INFORMATON
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
- --------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 31, July 31,
------------------------ ------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Equipment and truck sales $ 123,793 $ 107,709 $ 252,510 $ 198,810
Parts and service 42,863 38,202 85,253 68,159
Rental 8,486 5,272 16,173 9,148
Financial services 2,069 1,154 3,817 2,165
---------- ---------- ---------- ----------
Total revenues 177,211 152,337 357,753 278,282
Cost of revenues 144,016 121,543 293,827 223,755
---------- ---------- ---------- ----------
Gross profit 33,195 30,794 63,926 54,527
Selling, general and
administrative expenses 23,097 20,043 47,201 37,294
---------- ---------- ---------- ----------
Operating income 10,098 10,751 16,725 17,233
Interest expense (3,834) (3,105) (7,118) (5,560)
Interest income 213 63 398 133
---------- ---------- ---------- ----------
Income before income taxes
and minority interest 6,477 7,709 10,005 11,806
Income tax provision (2,637) (3,137) (4,072) (4,805)
---------- ---------- ---------- ----------
Income before minority interest 3,840 4,572 5,933 7,001
Minority interest 2 (53) 39 (26)
---------- ---------- ---------- ----------
Net income $ 3,842 $ 4,519 $ 5,972 $ 6,975
========== ========== ========== ==========
Net income per share - basic and diluted $ 0.29 $ 0.34 $ 0.45 $ 0.53
========== ========== ========== ==========
Weighted average shares outstanding-basic 13,182 13,182 13,182 13,182
========== ========== ========== ==========
Weighted average shares outstanding-diluted 13,188 13,217 13,185 13,222
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, January 31,
(IN THOUSANDS)(UNAUDITED) 1999 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,462 $ 51
Accounts receivable (less allowance for doubtful accounts) 67,234 59,233
Receivables from affiliates 328 3,197
Inventories 227,499 208,368
Prepaid expenses 1,157 1,588
Deferred income tax benefit 5,030 5,680
---------- ----------
Total current assets 302,710 278,117
Property and equipment, net 61,776 63,702
Other assets:
Goodwill and other, net of accumulated amortization 43,869 36,326
Deposits 1,107 1,075
---------- ----------
Total assets $ 409,462 $ 379,220
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, January 31,
(IN THOUSANDS)(UNAUDITED) 1999 1999
- ----------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan payables $ 203,986 $ 191,030
Notes payable and current maturities of long-term debt:
Banks and others 10,736 13,942
Affiliates 20,696 13,536
Accounts payable 7,770 8,373
Accrued liabilities 13,093 11,649
Customer advance deposits 1,284 2,114
Dividends payable 742 734
---------- ----------
Total current liabilities 258,307 241,378
Long-term debt, net of current maturities:
Banks and others 26,431 24,565
Affiliates 6,984 3,490
Deferred income taxes 7,230 5,210
---------- ----------
Total liabilities 298,952 274,643
Minority interest 1,800 1,839
Stockholders equity:
Preferred stock -- --
Common stocks-
Class A 57 57
Class B 75 75
Additional paid-in-capital 84,471 84,471
Retained earnings 24,107 18,135
---------- ----------
Total stockholders' equity 108,710 102,738
---------- ----------
Total liabilities and stockholders' equity $ 409,462 $ 379,220
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended July 31,
(IN THOUSANDS) (UNAUDITED) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 5,972 $ 6,975
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,755 3,537
Deferred taxes 2,670 430
Minority interest (39) 26
Change in operating assets and liabilities:
Accounts receivable (5,130) (11,300)
Inventories (10,742) (25,501)
Prepaid expenses 440 (674)
Deposits (15) 638
Floor plan payables 10,385 38,132
Accounts payable and accrued liabilities 848 2,210
Customer advance deposits (838) (1,450)
---------- ----------
Net cash provided by operating activities 10,306 13,023
Investing activities:
Net purchases of rental equipment (2,807) (10,835)
Net purchases of property and equipment (1,072) (2,391)
Net assets of acquisitions (1,765) (11,801)
Retained investment and service fee on securitized receivables (1,472) (2,051)
Other, net (1,793) (519)
---------- ----------
Net cash used for investing activities (8,909) (27,597)
Financing activities:
Proceeds from issuance of long-term debt 2,895 10,048
Payments on long-term debt (6,383) (3,641)
Net proceeds of operating lines and short-term notes payable 3,502 8,513
---------- ----------
Net cash provided by financing activities 14 14,920
---------- ----------
Increase in cash 1,411 346
Cash and cash equivalents, beginning of period 51 37
---------- ----------
Cash and cash equivalents, end of period $ 1,462 $ 383
========== ==========
Supplemental disclosures:
Cash payments for interest $ 6,725 $ 5,479
========== ==========
Cash payments for income taxes $ 2,444 $ 3,765
========== ==========
Noncash investing and financing activities:
Increase in assets related to acquisitions of dealerships through
issuance and assumption of debt $ 11,880 $ 13,801
========== ==========
Increase in long-term debt related to refinancing of short-term debt $ 5,000 $ --
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
RDO EQUIPMENT CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PREPARATION:
The condensed consolidated financial statements for the three and six
months ended July 31, 1999 and July 31, 1998 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto, contained in the Company's
Annual Report to Stockholders incorporated by reference in the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1999. The results of
operations for the three and six months ended July 31, 1999 are not necessarily
indicative of the results to be expected for the full year.
2. BUSINESS COMBINATIONS:
The Company made one acquisition during the first two quarters of
fiscal 1999 and three acquisitions during the first two quarters of fiscal 1998.
These acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the assets acquired and liabilities assumed have
been recorded at their estimated fair values as of the dates of acquisition. The
excess purchase price over the fair value of the assets acquired and liabilities
assumed has been recorded as goodwill which is amortized over 30 years.
The following summarizes the net assets acquired, liabilities assumed
and cash purchase price of the acquisitions made during the periods indicated
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Assets acquired $ -- $ 23,535 $ 13,645 $ 25,602
Less: liabilities assumed -- 12,866 11,880 13,801
----------- ----------- ----------- -----------
Cash purchase price $ -- $ 10,669 $ 1,765 $ 11,801
=========== =========== =========== ===========
Number of acquisitions -- 2 1 3
=========== =========== =========== ===========
</TABLE>
Results of operations for the acquisitions made prior to July 31, 1999
have been included in the accompanying condensed consolidated financial
statements since their respective acquisition dates. The following unaudited
consolidated pro forma results of operations for the three and six months ended
July 31, 1999 and 1998, give effect to these acquisitions as if they were
completed at the beginning of fiscal 1999. The unaudited pro forma financial
information does not purport to represent what the Company's results of
operations would actually have been if such transactions in fact had occurred at
such a date or to project the Company's results of future operations (in
thousands, except for per share data):
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 177,211 $ 172,052 $ 357,753 $ 334,207
=========== =========== =========== ===========
Net income $ 3,842 $ 4,753 $ 5,972 $ 7,434
=========== =========== =========== ===========
Weighted average shares outstanding-basic 13,182 13,182 13,182 13,182
=========== =========== =========== ===========
Weighted average shares outstanding-diluted 13,188 13,217 13,185 13,222
=========== =========== =========== ===========
Net income per share - basic and diluted $ 0.29 $ 0.36 $ 0.45 $ 0.56
=========== =========== =========== ===========
</TABLE>
6
<PAGE>
Subsequent to July 31, 1999, the Company purchased two full-service
truck centers located in Long Beach and Riverside, California, and a used truck
outlet in Fontana, California. The acquired business operations include the
sales and service of trucks and related parts and equipment primarily supplied
by Volvo, GMC, Isuzu and Hino. Total assets of these acquired businesses were
approximately $11.6 million. Volvo has approved the transfer to the Company of
its dealerships which had unaudited annual revenues of approximately $20.0
million. Similar dealership transfer approvals are pending with GMC, Isuzu and
Hino for which the combined unaudited annual revenues are approximately $20.0
million. The acquisition will be accounted for under the purchase method of
accounting.
3. INVENTORIES:
All inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method for new equipment, trucks and
parts inventory. The specific identification method is used to determine cost
for used equipment and trucks.
Inventories consisted of the following at (in thousands):
July 31, January 31,
1999 1999
---- ----
New equipment & trucks $162,556 $152,707
Used equipment & trucks 34,848 28,865
Parts and other 30,095 26,796
--------- --------
$227,499 $208,368
========= ========
4. FLOOR PLAN PAYABLES:
Floor plan payables include both interest and noninterest-bearing
financing arrangements for inventory. The terms of certain arrangements may
include an interest-free term followed by a term during which interest is
charged. Floor plan payables consisted of the following at (in thousands):
July 31, January 31,
1999 1999
---- ----
Interest-bearing $164,092 $146,127
Noninterest-bearing 39,894 44,903
--------- --------
$203,986 $191,030
========= ========
7
<PAGE>
5. EARNINGS PER SHARE:
The following summarizes the computation of weighted average shares
outstanding and net income per share for the periods indicated (in thousands,
except per share data):
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income available to common shareholders $ 3,842 $ 4,519 $ 5,972 $ 6,975
========== ========== ========== ==========
Weighted average number
of shares outstanding - basic 13,182 13,182 13,182 13,182
Dilutive effect of stock options outstanding 6 35 3 40
---------- ---------- ---------- ----------
Common and potential common
shares outstanding - diluted 13,188 13,217 13,185 13,222
========== ========== ========== ==========
Basic and dilutive net income per share $ 0.29 $ 0.34 $ 0.45 $ 0.53
========== ========== ========== ==========
</TABLE>
6. SEGMENT INFORMATION:
The Company's operations are classified into five business segments:
construction, agricultural, truck, rental and financial services. The
construction operations include the sale, service and rental of construction
equipment to customers primarily in the construction and utility industries and
to units of government. Agricultural operations include the sale, service and
rental of agricultural equipment primarily to customers in the agricultural
industry. The truck operations include the sale and service of heavy-duty trucks
to customers primarily in the transportation and construction industries and to
units of government. The rental operations provide rental of construction and
agricultural equipment to customers primarily in construction and agricultural
industries. The financial services operations primarily provide financing
arrangements to customers of the Company's other business segments.
Identifiable assets are those used exclusively in the operations of
each business segment or which are allocated when used jointly. Corporate assets
are principally comprised of cash, short-term investments, certain property and
equipment, and deferred income taxes. Financial services includes interest
income and interest expense in revenues and cost of revenues, respectively.
8
<PAGE>
The following tables show the Company's business segments and related
financial information for the three and six months ended July 31, 1999 and 1998
(in thousands):
<TABLE>
<CAPTION>
Financial
Services and
Three Months Ended July 31, Construction Agricultural Truck Rental Corporate Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999:
Revenues from
external customers $ 88,008 $ 31,943 $ 45,228 $ 9,963 $ 2,069 $ 177,211
Interest income 29 70 63 51 -- 213
Interest expense 1,873 681 482 798 -- 3,834
Depreciation and
amortization 715 219 189 1,951 391 3,465
Income (loss) before income
taxes and minority interest 4,733 569 584 (177) 768 6,477
Capital expenditures, net 922 68 318 954 451 2,713
1998:
Revenues from
external customers $ 79,714 $ 41,033 $ 24,550 $ 5,886 $ 1,154 $ 152,337
Interest income 20 26 5 12 -- 63
Interest expense 1,476 783 199 647 -- 3,105
Depreciation and
amortization 622 242 106 920 157 2,047
Income before income
taxes and minority interest 5,408 1,163 405 293 440 7,709
Capital expenditures, net 1,417 286 127 6,441 1,122 9,393
<CAPTION>
Financial
Services and
Three Months Ended July 31, Construction Agricultural Truck Rental Corporate Total
- ----------------------------------------------------------------------------------------------------------------------------
1999:
Revenues from
external customers $ 176,445 $ 72,245 $ 85,489 $ 19,757 $ 3,817 $ 357,753
Interest income 42 167 107 82 -- 398
Interest expense 3,469 1,191 849 1,609 -- 7,118
Depreciation and
amortization 1,389 450 382 3,870 664 6,755
Income (loss) before income
taxes and minority interest 7,387 1,124 923 (803) 1,374 10,005
Identifiable assets 185,380 78,216 60,177 53,039 32,650 409,462
Capital expenditures, net 1,620 (170) 455 1,585 389 3,879
1998:
Revenues from
external customers $ 153,664 $ 85,413 $ 26,917 $ 10,123 $ 2,165 $ 278,282
Interest income 30 72 5 26 -- 133
Interest expense 2,725 1,435 230 1,170 -- 5,560
Depreciation and
amortization 974 474 121 1,773 195 3,537
Income before income
taxes and minority interest 8,098 2,326 526 73 783 11,806
Identifiable assets 188,406 120,522 31,929 39,782 15,022 395,661
Capital expenditures, net 2,088 300 137 9,457 1,244 13,226
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's strategic plan of adding growth through acquisitions to
internal growth resulted in the Company completing the acquisition of a
heavy-duty truck dealership during the first two quarters of fiscal 2000. The
acquired dealership, primarily supplied by Volvo and GMC, has locations in
Dallas and Ft. Worth, Texas. Total assets acquired relating to the acquisition
were approximately $13.6 million with unaudited annual revenues of approximately
$33.0 million. The results of operations of this acquisition are included in the
Company's results of operations only for the periods after the applicable
acquisition date.
Subsequent to July 31, 1999, the Company purchased two full-service
truck centers located in Long Beach and Riverside, California, and a used truck
outlet in Fontana, California. The acquired business operations include the
sales and service of trucks and related parts and equipment primarily supplied
by Volvo, GMC, Isuzu and Hino. Total assets of these acquired businesses were
approximately $11.6 million. Volvo has approved the transfer to the Company of
its dealerships which had unaudited annual revenues of approximately $20.0
million. Similar dealership transfer approvals are pending with GMC, Isuzu and
Hino for which the combined unaudited annual revenues are approximately $20.0
million.
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data:
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE DATA (IN MILLIONS):
Total revenues $ 177.2 $ 152.3 $ 357.8 $ 278.3
Construction 49.7% 52.3% 49.3% 55.2%
Agricultural 18.0% 26.9% 20.2% 30.7%
Truck 25.5% 16.1% 23.9% 9.7%
Rental 5.6% 3.9% 5.5% 3.6%
Financial 1.2% 0.8% 1.1% 0.8%
Construction revenues $ 88.0 $ 79.7 $ 176.5 $ 153.7
Equipment sales 72.0% 76.1% 71.9% 75.9%
Parts and service 26.9% 23.8% 27.1% 24.0%
Rental 1.1% 0.1% 1.0% 0.1%
Agricultural revenues $ 31.9 $ 41.0 $ 72.2 $ 85.4
Equipment sales 66.8% 66.6% 71.0% 71.0%
Parts and service 33.2% 33.2% 29.0% 28.8%
Rental --% 0.2% --% 0.2%
Truck revenues $ 45.2 $ 24.6 $ 85.5 $ 26.9
Wholegoods sales 82.0% 77.7% 81.5% 76.3%
Parts and service 18.0% 22.3% 18.5% 23.7%
Rental revenues $ 10.0 $ 5.9 $ 19.8 $ 10.1
Equipment sales 20.2% 10.4% 23.6% 10.3%
Parts and service 4.4% 2.5% 3.7% 2.1%
Rental 75.4% 87.1% 72.7% 87.6%
STATEMENT OF OPERATIONS DATA (AS A PERCENTAGE OF TOTAL REVENUES):
Revenues
Equipment and truck sales 69.8% 70.7% 70.6% 71.4%
Parts and service 24.2 25.1 23.8 24.5
Rental 4.8 3.5 4.5 3.3
Financial services 1.2 0.7 1.1 0.8
-------- -------- -------- --------
Total revenues 100.0 100.0 100.0 100.0
Gross profit 18.7% 20.2% 17.9% 19.6%
Selling, general and
administrative expenses 13.0 13.2 13.2 13.4
-------- -------- -------- --------
Operating income 5.7 7.0 4.7 6.2
Interest expense, net 2.0 1.9 1.9 2.0
Provision for taxes 1.5 2.1 1.1 1.7
-------- -------- -------- --------
Net income 2.2% 3.0% 1.7% 2.5%
======== ======== ======== ========
</TABLE>
11
<PAGE>
THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THREE MONTHS ENDED JULY 31, 1998
REVENUES
Revenues increased approximately $24.9 million, or 16.3%, from $152.3
million for the second quarter of fiscal 1999 to $177.2 million for the second
quarter of fiscal 2000. Construction operations, including material handling
operations, contributed approximately $8.3 million of this increase, with
revenues increasing 10.4% to $88.0 million. Construction revenues increased
approximately $6.0 million due to the Company's acquisitions and store openings
since the second quarter of fiscal 1999. Truck operations contributed an
increase in revenues of approximately $20.7 million, with revenues increasing
84.5% to $45.2 million. Truck revenues increased approximately $13.8 million due
to the Company's acquisitions since the second quarter of fiscal 1999. Rental
operations contributed an increase in revenues of approximately $4.0 million,
with revenues increasing 66.7% to $10.0 million. Rental revenues increased
approximately $3.2 million due to the Company's acquisitions since the second
quarter of fiscal 1999. Financial services contributed an increase in revenues
of approximately $900,000, with revenues increasing 81.8% to $2.0 million.
Offsetting these revenue increases, agricultural revenues decreased
approximately $9.0 million, with revenues for the second quarter of fiscal 2000
decreasing 22.0% to $32.0 million. The decrease in agricultural revenues was
primarily attributable to the depressed agricultural economy and the Company's
exit from the agricultural irrigation equipment business.
Equipment and truck sales increased approximately $16.1 million, or
15.0%, from $107.7 million for the second quarter of fiscal 1999 to $123.8
million for the second quarter of fiscal 2000. Construction operations
contributed approximately $2.6 million of this increase, with sales increasing
4.3% to $63.3 million. The Company's construction acquisitions and store
openings since the second quarter of fiscal 1999 provided for the increase in
sales for the second quarter of fiscal 2000. Truck operations contributed an
increase of approximately $18.0 million, with sales increasing 94.2% to $37.1
million. Truck acquisitions since the second quarter of fiscal 1999 resulted in
truck sales of $11.4 million in the second quarter of fiscal 2000. Rental
operations contributed an increase of approximately $1.4 million, with sales
increasing from $600,000 to $2.0 million. Rental acquisitions since the second
quarter of fiscal 1999 provided for the increase in sales for the second quarter
of fiscal 2000. Agricultural operations decreased approximately $5.9 million,
with sales decreasing 21.6% to $21.4 million.
Parts and service revenues increased approximately $4.7 million, or
12.3%, from $38.2 million for the second quarter of fiscal 1999 to $42.9 million
for the second quarter of fiscal 2000. Construction operations contributed
approximately $4.7 million of the increase as sales grew 24.7% to $23.7 million.
Of this increase, $2.6 million was due to the Company's acquisitions and store
openings since the second quarter of fiscal 1999. Truck operations contributed
approximately $2.7 million of the increase as sales increased 50.0% to $8.1
million. Truck acquisitions since the second quarter of fiscal 1999 contributed
$2.4 million of this increase in the second quarter of fiscal 2000. Rental
operations contributed approximately $300,000 of the increase as sales grew from
$200,000 to $500,000. Of this increase, $200,000 was due to acquisitions since
the second quarter of fiscal 1999. Parts and service revenues from agricultural
operations decreased 22.1%, or $3.0 million, to $10.6 million.
Rental revenues of $8.5 million were generated in the second quarter of
fiscal 2000 compared to $5.3 million in the second quarter of fiscal 1999, an
increase of $3.2 million, or 60.4%. Construction and rental operations
contributed substantially all of this increase, with $2.4 million of the
increase coming from acquisitions and store openings since the second quarter of
fiscal 1999.
GROSS PROFIT
Gross profit increased approximately $2.4 million, or 7.8%, from $30.8
million for the second
12
<PAGE>
quarter of fiscal 1999 to $33.2 million for the second quarter of fiscal 2000.
Gross profit as a percentage of total revenues for the second quarter of fiscal
2000 and 1999 was 18.7% and 20.2%, respectively. Gross profit is affected by the
contribution of revenues by business segment, by the mix of revenues within each
business segment, and by competition. As truck revenues expand as a percentage
of the total revenues, gross margins tend to decline as a percentage of sales.
Revenues from construction, rental and financial services operations generally
provide the Company with higher gross margins than do agricultural and truck
operations. The Company's highest gross margins are generally derived from its
parts and service, rental and financial services revenues. The Company also
continued to experience margin tightening in construction equipment rental and
agricultural equipment sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses as a percent of
total revenues decreased from 13.2% for the second quarter of fiscal 1999 to
13.0% for the second quarter of fiscal 2000. SG&A expenses increased
approximately $3.1 million, from $20.0 million for the second quarter of fiscal
1999 to $23.1 million for the second quarter of fiscal 2000. Approximately $3.0
million of the increase was due to the operations of the Company's acquisitions
and store openings since the second quarter of fiscal 1999. SG&A expenses are
affected by the contribution of revenues by business segment and by the mix of
revenues within each business segment. As a percentage of revenues, SG&A
expenses are generally higher for construction and financial services operations
than for agricultural, truck and rental operations, and lower for equipment and
truck sales than for parts and service and rental revenues.
INTEREST EXPENSE
Interest expense as a percent of total revenues increased from 2.0% for
the second quarter of fiscal 1999 to 2.1% for the second quarter of fiscal 2000.
Interest expense increased approximately $700,000, or 22.6%, from $3.1 million
for the second quarter of fiscal 1999 to $3.8 million for the second quarter of
fiscal 2000. The higher level of interest expense is primarily due to the
reduction of net working capital (as remaining proceeds from the Company's
initial public offering were expended for acquisitions) and higher rental assets
and truck inventories needed to support the Company's expanded rental and truck
operations. This increase was partially offset by lower interest rates and a
planned reduction in equipment inventories.
INCOME TAXES
The estimated provision for income taxes as a percentage of pretax
income for the second quarter of fiscal 2000 and 1999 was 40.7%.
NET INCOME
The Company reported net income of $3.8 million, or $0.29 per share,
for the second quarter of fiscal 2000, compared to $4.5 million, or $0.34 per
share, for the second quarter of fiscal 1999.
SIX MONTHS ENDED JULY 31, 1999 COMPARED TO SIX MONTHS ENDED JULY 31, 1998
REVENUES
Revenues increased approximately $79.5 million, or 28.6%, from $278.3
million for the first six months of fiscal 1999 to $357.8 million for the first
six months of fiscal 2000. Construction operations, including material handling
operations, contributed approximately $22.8 million of this increase, with
revenues increasing 14.8% to $176.5 million for the first six months of fiscal
2000. Construction revenues increased approximately $12.6 million due to the
Company's acquisitions and store openings
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since the second quarter of fiscal 1999. Truck operations contributed an
increase in revenues of approximately $58.6 million, with revenues increasing
from $26.9 million to $85.5 million. Truck revenues increased approximately
$26.7 million due to the Company's acquisitions since the second quarter of
fiscal 1999. Rental operations contributed and increase in revenues of
approximately $9.7 million, with revenues increasing 96.0% to $19.8 million.
Rental revenues increased approximately $6.9 million due to the company's
acquisitions since the second quarter of fiscal 1999. Financial services
contributed an increase in revenues of approximately $1.6 million , with
revenues increasing 72.7% to $3.8 million. Agricultural revenues decreased
approximately $13.2 million, with revenues for the first six months of fiscal
2000 decreasing 15.5% to $72.2 million. The decrease in agricultural revenues
was primarily attributable to the depressed agricultural economy and the
Company's exit from the agricultural irrigation equipment business.
Equipment and truck sales increased approximately $53.7 million, or
27.0%, from $198.8 million first six months of fiscal 1999 to $252.5 million for
the first six months of fiscal 2000. Construction operations contributed
approximately $10.2 million of this increase, with sales increasing 8.7% to
$126.9 million. Of this increase, $5.8 million was due to the Company's
acquisitions and store openings since the second quarter of fiscal 1999. Truck
operations contributed an increase of approximately $49.1 million, with sales
increasing from $20.5 million to $69.6 million. Truck acquisitions since the
second quarter of fiscal 1999 resulted in truck sales of $22.1 million in the
first six months of fiscal 2000. Rental operations contributed an increase of
approximately $3.7 million, with sales increasing from $1.0 million to $4.7
million. Of this increase, $3.6 million was due to the Company's acquisitions
since the second quarter of fiscal 1999. Agricultural operations decreased
approximately $9.3 million, with sales decreasing 15.4% to $51.3 million.
Parts and service revenues increased approximately $17.1 million, or
25.1%, from $68.2 million for the first six months of fiscal 1999 to $85.3
million for the first six months of fiscal 2000. Construction operations
contributed approximately $10.8 million of the increase as sales grew 29.2% to
$47.8 million. Of this increase, $5.2 million was due to the Company's
acquisitions and store openings since the second quarter of fiscal 1999. Truck
operations contributed approximately $9.5 million of the increase as sales grew
from $6.4 million to $15.9 million. Truck acquisitions since the second quarter
of fiscal 1999 contributed $4.6 million of this increase in the first six months
of fiscal 2000. Rental operations contributed approximately $500,000 of the
increase as sales grew $200,000 to $700,000. Of this increase, $300,000 was due
to acquisitions since the second quarter of fiscal 1999. Parts and service
revenues from agricultural operations decreased 15.0%, or $3.7 million, to $20.9
million.
Rental revenues of $16.2 million were generated in the first six months
of fiscal 2000 compared to $9.1 million in the first six months of fiscal 1999.
Construction and rental operations contributed substantially all of this $7.1
million increase. $4.6 million of the increase in rental revenues for the first
six months of fiscal 2000 was primarily attributable to the Company's
acquisitions and store openings since the second quarter of fiscal 1999.
GROSS PROFIT
Gross profit increased approximately $9.4 million, or 17.3%, from $54.5
million for the first six months of fiscal 1999 to $63.9 million for the first
six months of fiscal 2000. Gross profit as a percentage of total revenues for
the first six months of fiscal 2000 and 1999 was 17.9% and 19.6%, respectively.
Gross profit is affected by the contribution of revenues by business segment, by
the mix of revenues within each business segment, and by competition. As truck
revenues expand as a percentage of the total revenues, gross margins tend to
decline as a percentage of sales. Revenues from construction, rental and
financial services operations generally provide the Company with higher gross
margins than do agricultural and truck operations. The Company's highest gross
margins are generally derived from its parts and service, rental and financial
services revenues. The Company also continued to experience
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margin tightening in construction equipment rental and agricultural equipment
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses as a percent of
total revenues decreased from 13.4% for the first six months of fiscal 1999 to
13.2% for the first six months of fiscal 2000. SG&A expenses increased
approximately $9.9 million, from $37.3 million for the first six months of
fiscal 1999 to $47.2 million for the first six months of fiscal 2000.
Approximately $6.1 million of the increase was due to the operations of the
Company's acquisitions and store openings since the second quarter of fiscal
1999. SG&A expenses are affected by the contribution of revenues by business
segment and by the mix of revenues within each business segment. As a percentage
of revenues, SG&A expenses are generally higher for construction and financial
services operations than for agricultural, truck and rental operations, and
lower for equipment and truck sales than for parts and service and rental
revenues.
INTEREST EXPENSE
Interest expense as a percent of total revenues was constant at 2.0%
for both the first six months of fiscal 1999 and fiscal 2000. Interest expense
increased approximately $1.5 million, or 26.8%, from $5.6 million for the first
six months of fiscal 1999 to $7.1 million for the first six months of fiscal
2000. The higher level of interest expense is primarily due to the reduction of
net working capital (as remaining proceeds from the Company's initial public
offering were expended for acquisitions) and higher rental assets and truck
inventories needed to support the Company's expanded rental and truck
operations. This increase was partially offset by lower interest rates and a
planned reduction in equipment inventories.
INCOME TAXES
The estimated provision for income taxes as a percentage of pretax
income for the first six months of fiscal 2000 and 1999 was 40.7%.
NET INCOME
The Company reported net income of $6.0 million, or $0.45 per share,
for the first six months of fiscal 2000, compared to $7.0 million, or $0.53 per
share, for the first six months of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash primarily for financing its inventories of
equipment, trucks and replacement parts, acquisitions and openings of additional
retail locations, rental equipment and capital expenditures. Historically, the
Company has met these liquidity requirements primarily through cash flow
generated from operating activities, floor plan financing, and borrowings under
credit agreements with Deere & Company (Deere), Deere Credit Services, Inc.
(Deere Credit), Ag Capital Company (Ag Capital), Bank of America, Deutsche
Financial Services Corporation (Deutsche), Associates Commercial Corporation
(Associates), General Motors Acceptance Corporation (GMAC), Volvo Commercial
Finance (Volvo) and commercial banks.
Floor plan financing from Deere, Deere Credit and Bank of America
represents the primary source of financing for equipment inventories,
particularly for equipment supplied by Deere. Floor plan financing of truck
inventories is primarily supplied by Associates, GMAC and Volvo. On- and
off-balance sheet financing of rental equipment is primarily provided by
Deutsche and Deere Credit. Most lenders receive a security interest in the
inventory financed. In addition to floor plan financing supplied by
manufacturers, the Company had unused credit commitments related to floor plan
financing and on- and off-balance sheet financing of rental equipment of
approximately $43.2 million.
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Deere and Deere Credit offer floor plan financing to Deere dealers for
extended periods and with varying interest-free periods, depending on the type
of equipment, to enable dealers to carry representative inventories of equipment
and to encourage the purchase of goods by dealers in advance of seasonal retail
demand. Down payments are not required and interest may not be charged for a
substantial part of the period for which inventories are financed. Occasionally
additional discounts may be available in lieu of interest-free periods. Variable
market rates of interest based on the prime rate are charged on balances
outstanding after any interest-free periods, which are currently six to twelve
months for agricultural equipment and one to five months for construction
equipment. Deere also provides financing to dealers on used equipment accepted
in trade. Deere Credit and Bank of America provide equipment floor plan
financing with variable market rates of interest based on the prime rate and
LIBOR, respectively. Associates, GMAC and Volvo provide truck floor plan
financing with variable market rates of interest based on the prime rate.
Deutsche provides rental equipment financing using variable market rates of
interest based on LIBOR.
The Company has available operating lines of credit totaling $30.0
million with varying maturity dates through January 31, 2000 with variable
interest rates based on LIBOR and the prime rate. The Company had approximately
$11.1 million of unused availability relating to these lines of credit at July
31, 1999.
The Company periodically reviews the terms of its financing with its
lenders, including the interest rate. For the first six months of fiscal 2000
and 1999 the average interest rate under interest-bearing floor plan financing
was approximately 7.05% and 7.67%, respectively. As of July 31, 1999 the Company
had outstanding floor plan payables of approximately $204.0 million, of which
$164.1 million was then interest-bearing. The average interest rates on the
Company's lines of credit during the six months ended July 31, 1999 and 1998
were 7.58% and 8.17%, respectively.
The Company's financing agreements contain various restrictive
covenants which, among other matters, require the Company to maintain minimum
financial ratios, as defined, and place limits on certain activities. The
Company was in compliance with or obtained waiver letters for all debt covenants
at July 31, 1999.
Operating activities provided net cash of approximately $10.3 million
for the first six months of fiscal 2000, compared to $13.0 million for the first
six months of fiscal 1999. The cash generated from operating activities resulted
primarily from net income and increases in floor plan financing. Accounts
payable and accrued liabilities also contributed to the cash generated in the
first six months of fiscal 1999. Partially offsetting the increase in cash from
these operating activities were increases in trade receivables from customers
and increases in the Company's inventories in preparation for seasonal sales
levels for the third fiscal quarter.
Cash used for investing activities during the first six months of
fiscal 2000 was $8.9 million, which was primarily related to acquisitions and
the purchase of equipment for the Company's rental operations. Cash used for
investing activities during the first six months of fiscal 1999 was $27.6
million, which was primarily due to purchases of net assets of acquisitions and
purchases of rental equipment.
During the first six months of fiscal 2000, proceeds from issuance of
long-term debt and increases in operating lines and short-term payables were
approximately $6.4 million. This increase in cash was offset by payments of long
term debt of approximately $6.4 million. Cash provided by financing activities
during the first six months of fiscal 1999 was approximately $14.9 million. The
primary source of cash from financing activities was issuance of long-term debt
and increases in the Company's operating lines primarily to fund purchases of
rental equipment and increased accounts receivable.
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The Company believes cash from operations, available cash and borrowing
capacity will be sufficient to fund its planned internal capital expenditures
for fiscal 2000.
CYCLICALITY
Sales of equipment and trucks, particularly new units, historically
have been cyclical, fluctuating with general economic cycles. During economic
downturns, equipment and truck retailers tend to experience similar periods of
decline and recession as the general economy. The impact of an economic downturn
on retailers is generally less than the impact on manufacturers due to the sale
of parts and service by retailers to maintain used equipment and trucks. The
Company believes that its businesses are influenced by worldwide and local
economic conditions (see "Safe Harbor Statement" below) and that its geographic
and business diversification will generally reduce the overall impact of
economic cycles on the Company's operations.
SEASONALITY
The Company's agricultural operations generally experience a higher
volume of equipment sales in the second and third fiscal quarters due to the
crop growing season. Typically, farmers purchase equipment prior to planting or
harvesting crops. Winter weather conditions in the Midwest limit equipment
purchases during the Company's first and fourth fiscal quarters. This seasonal
effect is diminished during periods of significant and sustained weakness in the
agricultural economy during which farmers purchase less equipment.
The Company's construction operations also generally experience a
higher volume of equipment sales in the second and third fiscal quarters due to
favorable weather patterns. The general slowdown in construction activity at the
end of the calendar year influences the fourth fiscal quarter. Further, winter
weather conditions in the Midwest and parts of the Southwest and South Central
also limit construction activity to some degree, typically resulting in lower
sales and rentals of construction equipment.
Since the Company's truck operations do not generally have any
significant seasonality, the Company's overall seasonality has tended to decline
as truck revenues have become a greater percentage of total revenues. If the
Company acquires businesses in geographical areas other than where it currently
has operations, it may be affected by other seasonal or equipment buying trends.
YEAR 2000 COMPLIANCE
The Company uses both information technology ("IT") and non-IT systems
and assets that will be affected by the date change in the year 2000. Many
existing computer systems and related applications use only two digits to
identify a year in the date field. As the year 2000 approaches, such programs
may be unable to distinguish years beginning with 20 from years beginning with
19. In addition, such programs may not recognize the year 2000 as a leap year
and fail to include February 29 as a date during the year 2000 or incorrectly
include February 29 in years after 2000. As a result, date sensitive systems and
related applications may fail, or may not process data accurately, before,
during or after the year 2000. The Company is in the midst of an ongoing
analysis to evaluate and address the potential for year 2000 issues to impact
its operations and management of its businesses.
The Company's dealership, equipment rental and financial services
operations rely heavily upon third party systems to support critical day-to-day
operations, including sales, inventory, service and parts operations, accounting
functions, submitting warranty claims, ordering equipment, trucks and parts,
reporting financial information, and receiving technical information for service
activities. The Company has received and is relying upon assurances from each of
the providers of these systems that year 2000 compliant versions of the systems
have been developed and have been made available to the Company at
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no additional cost under existing maintenance agreements. The Company has
installed these updates to make all business software applications year 2000
compliant. In addition, all application server hardware is year 2000 compliant.
The Company will continue to evaluate these systems, and will monitor all
hardware and software vendors to identify and implement any future releases of
corrections relating to the year 2000.
The Company has also completed sending surveys to manufacturers and
other suppliers with which it conducts business (such as public utilities and
financial institutions) attempting to verify that products and services provided
by these vendors will be available without interruption during the transition to
the year 2000. Approximately seventy-five percent of these vendors have thus far
responded to the survey, including all major manufacturers and suppliers. About
sixty percent of these responses indicate that the vendor is year 2000
compliant, and the remaining responses indicate that the vendor has a plan to be
compliant by the end of this year. The Company is following up with vendors who
have not yet responded to the survey. In the event third party service providers
do not verify their ability to address year 2000 issues, the Company will
explore alternative sources for such services.
The Company's operations also use a variety of non-IT devices and
systems containing embedded technology that may fail, or may not process data
accurately, before, during or after the year 2000. Due to the nature of its
operations, the Company has minimal exposure to embedded technology. Such
non-critical devices and systems include personal computers, software
applications, phone systems, control systems, security systems and alarms. The
Company has completed approximately ninety percent of its evaluation of these
non-IT devices and systems. The completion of any necessary implementation and
testing is planned for October 31, 1999. As a result of this evaluation, the
Company is identifying non-compliant personal computers and other non-IT
equipment which are being replaced during 1999.
Despite the Company's efforts, there is a risk not all possible
problems associated with year 2000 issues will be corrected. Further, despite
assurances that the Company has received or will receive, there can be no
guarantee that the products, systems and services provided by vendors, or that
the systems of other companies with which the Company does business, will be
year 2000 compliant. In addition to risks associated with manufacturers and
their year 2000 readiness, the Company believes that its largest risks are
associated with utilities (e.g., electrical power, telephones, data
communication lines) which are beyond the control of the Company. Any
non-compliance could result in the reduction or shutdown of the Company's
ability to sell, rent, service and finance equipment, trucks, parts and
ancillary products, which could have a material adverse effect on the Company.
In connection with acquisitions, the Company attempts to determine
beforehand whether a business being acquired is year 2000 compliant. But that
objective is not always possible, and the Company may be unable to verify year
2000 compliance until after an acquisition is completed. Any business systems
inherited through acquisition that are determined to be non-compliant will be
updated or replaced.
All costs associated with evaluating and correcting year 2000 issues
are expensed as incurred. To date, the costs associated with reviewing and
correcting year 2000 issues have not been material. Costs of any new equipment
will be expensed or capitalized over the asset's useful life, consistent with
the Company's financial policies. The Company is evaluating the estimated cost
of its year 2000 remediation program in concert with the review of year 2000
issues. The Company expects the total cost of these expenditures will be less
than $250,000 of which approximately $50,000 will be expensed and $200,000
capitalized.
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SAFE HARBOR STATEMENT
This statement is made under the Private Securities Litigation Reform
Act of 1995. The future results of the Company, including results related to
forward-looking statements in this Report, involve a number of risks and
uncertainties. Important factors that will affect future results of the Company,
including factors that could cause actual results to differ materially from
those indicated by forward-looking statements, include, but may not be limited
to, those set forth under the caption "Certain Important Factors" in Item 1 of
the Company's Form 10-K dated April 23, 1999, in the Company's Form 8-K dated
April 23, 1999, and in other filings with the Securities and Exchange
Commission. These factors, which are subject to change, include: general
economic conditions worldwide and locally; interest rates; housing starts; fuel
prices; the many interrelated factors that affect farmers' confidence, including
farm cash income, farmer debt levels, worldwide demand for agricultural
products, world grain stocks, commodity prices, weather, animal and plant
diseases, crop pests, harvest yields, real estate values and government farm
programs; legislation, primarily legislation relating to agriculture, the
environment, commerce and government spending on infrastructure; climatic
phenomena such as La Nina and El Nino; pricing, product initiatives and other
actions of competitors in the various industries in which the Company competes,
including manufacturers and retailers; the level of new and used inventories in
these industries; the Company's relationships with its suppliers; production
difficulties, including capacity and supply constraints experienced by the
Company's suppliers; practices by the Company's suppliers; practices by the
Company's suppliers; changes in governmental regulations; employee relations;
currency exchange rates; availability, sufficiency and cost of insurance;
securitization transactions and other financing arrangements relating to the
Company's financial services operations, including credit availability and
customer credit risks; dependence upon the Company's suppliers; termination
rights and other provisions which the Company's suppliers have under dealer and
other agreements; risks associated with growth, expansion and acquisitions; the
positions of the Company's suppliers and other manufacturers with respect to
publicly-traded dealers, dealer consolidation and specific acquisition
opportunities; the Company's acquisition strategies and the integration and
successful operation of acquired businesses; capital needs and capital market
conditions; operating and financial systems to manage rapidly growing
operations; dependence upon key personnel; accounting standards; technological
difficulties, especially involving the Company's suppliers and other third
parties, including potential impact of the year 2000 on processing
date-sensitive information, which could cause the Company to be unable to
process customer orders, deliver products or services, or perform other
essential functions; and other risks and uncertainties. The Company's
forward-looking statements are based upon assumptions relating to these factors.
These assumptions are sometimes based upon estimates, data, communications and
other information from suppliers, government agencies and other sources which
are often revised. The Company makes no commitment to revise forward-looking
statements, or to disclose subsequent facts, events or circumstances that may
bear upon forward-looking statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There has been no material change in the information set forth in Item
7A of the Company's Annual Report on Form 10-K for the fiscal year ended January
31, 1999.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibits filed with this report are listed in the Exhibit
Index on page 20.
(b) REPORTS ON FORM 8-K.
None.
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.
RDO EQUIPMENT CO.
(Registrant)
Date: September 3, 1999 By: /s/ Thomas K. Espel
-------------------------------------
Thomas K. Espel
Chief Financial Officer
(principal financial officer)
EXHIBIT INDEX
ITEM NO. ITEM PAGE OF THIS REPORT
- -------- ---- -------------------
10.1 RDO Financial Services Co. credit agreement with 21
Norwest Bank North Dakota, N.A. and Ag Capital
Company
10.2 Promissory note between RDO Financial Services Co. 47
and Ag Capital Company
99.1 News release re: Exploration of strategic
alternatives for the Company's construction
equipment rental business 49
27.1 Financial Data Schedule 50
20
EXHIBIT 10.1
AG CAPITAL COMPANY
CREDIT AGREEMENT
THIS CREDIT AGREEMENT made and entered into as of July 15, 1999 (the
"Effective Date"), by and among RDO FINANCIAL SERVICES CO., a North Dakota
corporation (the "Borrower"), whose address is 1500 Radisson Tower, 201 5th
Street, Fargo, North Dakota 58102, NORWEST BANK NORTH DAKOTA, N.A., a national
banking association whose address is 406 Main Avenue, Fargo, North Dakota 58126,
as a lender hereunder ("Norwest") and AG CAPITAL COMPANY, a Delaware
corporation, whose address is 1500 Radisson Tower, 201 North 5th Street, Fargo,
North Dakota 58102, as a lender hereunder and as agent for all the lenders
hereunder (the "Agent") (Norwest and Agent are sometimes hereunder individually
referred to as a "Lender", and collectively referred to as "Lenders").
RECITALS
1. The Borrower wishes to borrow funds from the Lenders and the Lenders
wish to make loans and advances to the Borrower; and
2. The Borrower and the Lenders mutually desire to set forth the terms
under which the Lenders will extend credit to the Borrower and make such loans
and advances.
NOW, THEREFORE, for and in consideration of the loans and advances to
be made by the Lenders to the Borrower hereunder, the mutual covenants, promises
and agreements contained herein, and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the Borrower and the
Lenders agree as follows:
1. DEFINITIONS
The following terms when used in this Credit Agreement shall, except
where the context otherwise requires, have the following meanings both in the
singular and plural forms thereof:
"ACC" means Ag Capital Company, a Delaware corporation.
"Advance" means any advance by the Lenders made under the Receivable
Commitment.
"Affiliate" means any corporation, association, partnership, joint
venture or other business entity directly or indirectly controlling or
controlled by, or under direct or indirect common control of, the Borrower or
any of its Subsidiaries.
"Agent" means ACC in its capacity as agent hereunder, and any successor
agent appointed pursuant to Section 9.15(j).
"Assignee" has the meaning set forth in Section 9.14.
"Borrower" means RDO Financial Services Company, a North Dakota
corporation.
"Business Day" means any day on which all of the Lenders are open for
the transaction of business of the kind contemplated by this Credit Agreement.
"Change of Control" means the occurrence of any of the following
circumstances:
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(a) any person or two or more persons acting in concert
acquire beneficial ownership (within the meaning of Rule 13d-3 of the
SEC under the Securities Exchange Act of 1934), directly or indirectly,
of securities of the Borrower (or other securities convertible into
such securities) representing 25% or more of the combined voting power
of all securities of the Borrower entitled to vote in the election of
directors; or
(b) during any period, whether commencing before or after the
date hereof, the membership of the Board of Directors of the Borrower
changes for any reason (other than by reason of death, disability, or
scheduled retirement) so that the majority of the Board of Directors is
made up of persons who were not directors at the beginning of such
period.
"Collateral" means all of the assets of the Borrower or any other party
in which the Lenders hold a security interest pursuant to any of the Loan
Documents.
"Credit Agreement" means this Credit Agreement, as originally executed
and as may be amended, modified, supplemented, or restated from time to time by
written agreement between the Borrower and the Lenders.
"Credit and Collection Policy" means the Borrower's policies and
procedures for the origination, servicing, collection and enforcement of its
financial assets.
"Debt" means (i) all items of indebtedness or liability that, in
accordance with GAAP, would be included in determining total liabilities as
shown on the liabilities side of a balance sheet as of the date of which Debt is
to be determined; (ii) indebtedness secured by any mortgage, pledge, lien or
security interest existing on property owned by the Person whose Debt is being
determined, whether or not the indebtedness secured thereby shall have been
assumed; (iii) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's acceptances
issued for the account of such Person, and (iv) guaranties, endorsements (other
than for purposes of collection in the ordinary course of business) and other
contingent obligations in respect of, or to purchase or otherwise acquire,
indebtedness of others.
"Default" means any event which if continued uncured would, with notice
or lapse of time or both, constitute an Event of Default.
"Eligible Receivables" means all Eligible Retail Receivables and all
Eligible Store Receivables.
"Eligible Retail Receivable" has the meaning assigned to that term in
the Receivables Purchase Agreement, as of the date of this Credit Agreement,
with respect to any Receivable (as defined in the Receivables Purchase
Agreement) owned by the Borrower and which is in form and subject to
documentation acceptable to all the Lenders; and
"Eligible Store Receivable" means any loan, retail installment contract
or other indebtedness or equipment lease originated by RDO Equipment Co., a
Delaware corporation ("RDOE"), whether constituting chattel paper, an
instrument, an account or general intangible acquired by the Borrower from RDOE
which (i) satisfies the requirements described in subparagraphs (i), (ii),
(iv)-(vii), (ix)-(xi) and (xix) of the definition of Eligible Receivable in the
Receivables Purchase Agreement, as of the date of this Credit Agreement; (ii) is
not more than 120 days past due on any installment; (ii) is owned by Borrower
free and clear of any lien or encumbrance and which may be pledged by the
Borrower to Lenders as Collateral; and (iv) is in form or subject to
documentation acceptable to all the Lenders.
"Environmental Laws" has the meaning set forth in Section 5.17.
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"Equity Ratio" means the ratio of the total equity of the Borrower and
its Subsidiaries (but excluding the Borrower's corporate parents) to the total
assets of the Borrower and its Subsidiaries (but excluding the Borrower's
corporate parent), as determined on a consolidated basis in accordance with
GAAP.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and as may be further amended from time to time, and the rules and
regulations promulgated thereunder by any governmental agency or authority, as
from time to time in effect.
"Event of Default" means any event of default described in Section 8
hereof.
"GAAP" means the generally accepted accounting principles in the United
States in effect from time to time including, but not limited to, Financial
Accounting Standards Board (FASB) Standards and Interpretations, Accounting
Principles Board (APB) Opinions and Interpretations, and certain other
accounting principles which have substantial authoritative support.
"Hazardous Substance" has the meaning set forth in Section 5.17 hereof.
"Lenders" means Ag Capital Company, a Delaware corporation, and Norwest
Bank North Dakota, N.A., a national banking association, or their respective
successors and assigns.
"LIBOR" for any Business Day during any calendar month means the quoted
rate of interest per annum determined by the British Bankers Association as the
average of interbank offered rates for dollar deposits to be the arithmetic mean
in the London market based on quotations at sixteen (16) major banks (rounded
upward, if necessary, to the nearest 1/100th of 1%).
"Lien" means any lien, security interest, pledge, mortgage, statutory
or tax lien, or other encumbrance of any kind whatsoever (including without
limitation, the lien or retained security title of a conditional vendor),
whether arising under a security instrument or as a matter of law, judicial
process or otherwise or by an agreement of the Borrower to grant any lien or
security interest or to pledge, mortgage or otherwise encumber any of its
assets.
"Loan" means the Receivable Loan.
"Loan Documents" means this Credit Agreement, the Subject Notes and the
Security Agreement, and such other documents as the Lenders may reasonably
require as security for, or otherwise executed in connection with, any loan
hereunder, all as originally executed and as may be amended, modified or
supplemented from time to time by written agreement between the parties thereto.
"Majority Lenders" means Lenders with an aggregate Percentage of at
least 66-2/3%.
"Material Adverse Occurrence" means any occurrence which materially
adversely affects the present or prospective financial condition or operations
of the Borrower, or which impairs, or may impair, in the reasonable judgment of
the Majority Lenders, the ability of the Borrower to perform its obligations
under the Loan Documents.
"Maturity" of the Subject Notes means the earlier of (a) the date on
which the Subject Notes becomes due and payable upon the occurrence of an Event
of Default; or (b) (i) January 15, 2000, unless extended in writing by all the
parties hereto in their sole discretion.
"Non-Eligible Receivable" means any Receivable (as defined in the
Receivables Purchase Agreement, as of the date of this Credit Agreement,) owned
by the Borrower which is not an Eligible Receivable and which is in form or
subject to documentation acceptable to all of the Lenders. A Non-
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Eligible Receivable excludes defaulted receivables, receivables that are past
due for more than 120 days and receivables in bankruptcy or liquidation.
"Percentage" means, as to any Lender, the percentage derived by
dividing such Lender's Receivable Commitment by the sum of all Lenders'
Receivable Commitments.
"Person" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual fiduciary or other capacity.
"Purchase and Contribution Agreement" means that certain Purchase and
Contribution Agreement, dated as of September 24, 1997, between Ag Capital
Company, ACL Company, LLC, Farmers Equipment Rental Inc., and RDO Securitization
Corp., as amended by that certain First Amendment to the Purchase and
Contribution Agreement, dated as of January 30, 1998, as may be further amended
from time to time, and any similar agreement pursuant to which the Borrower may
transfer receivables and other obligations in "true sale" transactions.
"Receivable Borrowing Base" means, at any time, the lesser of (a)
$20,000,000 or (b) the sum of (i) ninety percent (90%) of the Borrower's
Eligible Retail Receivables; (ii) eighty percent (80%) of the Borrower's
Non-Eligible Receivables; plus (iii) eighty-five percent (85%) of all Eligible
Store Receivables all as determined in accordance with GAAP, as set forth on the
most recent Retail Receivable Borrowing Base Certificate required to be
submitted hereunder.
"Receivable Borrowing Base Certificate" means the certificate in the
form attached hereto which sets forth the Receivable Borrowing Base as of the
date indicated thereon.
"Receivable Commitment" means the maximum principal amount each Lender
may in its discretion determine to extend as part of the Advances up to the
amount set forth next to the signature line of each such Lender hereto.
"Receivable Loan" means, at any date, the aggregate amount of all
Advances made by the Lenders pursuant to Section 2 hereof.
"Receivable Note(s)" means, individually or collectively, the
Receivable Note(s), dated July 15, 1999, made by the Borrower payable to the
order of each of the Lenders, the aggregate original principal amount of which
is Twenty Million Dollars ($20,000,000), and the individual original principal
amount of which is the Receivable Commitment of the applicable Lender, together
with all extensions, renewals, modifications, substitutions and changes in form
thereof effected by written agreement between the Borrower and all of the
Lenders.
"Receivables Purchase Agreement" means that certain Receivables
Purchase Agreement dated as of September 24, 1997 among RDO Securitization
Corp., Ag Capital Company, Pooled Accounts Receivable Capital Corporation and
Nesbitt Burns Securities Inc., as amended or replaced from time to time.
"Reference Rate" means for any day the rate of interest indicated as
the "prime rate" in the "Money Rates" section of the Wall Street Journal, for
such day (or if no such rate is published for such day for the earliest
preceding day for which such rate is published). If such rate ceases to be
published, the "Reference Rate" shall mean a comparable rate determined by the
Majority Lenders as indicated in a written notice to the Borrower.
"Regulatory Change" means any change after the date hereof in any (or
the adoption after the date hereof of any new) (a) Federal or state law or
foreign law applying to any of the Lenders (or any such Lender's successors or
assigns); or (b) regulation, interpretation, directive or request (whether or
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not having the force of law) applying or in the reasonable opinion of the
Lenders (or their successors or assigns) applicable to, the Lenders (or their
successors or assigns) of any court or governmental authority charged with the
interpretation or administration of any law referred to in clause (a) of this
definition or of any fiscal, monetary, or other authority having jurisdiction
over the Lenders (or their successors or assigns).
"Security Agreement" means the Security Agreement, dated July 15, 1999,
executed by the Borrower in favor of the Lenders, and such other previously
executed security agreements, as originally executed and as may be amended,
modified or supplemented from time to time by written agreement between the
Borrower and the Lenders.
"Subject Note(s)" means the Receivable Note(s).
"Subsidiary" means any corporation of which more than fifty percent
(50%) of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether,
at the time, stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency) is at
the time, directly or indirectly, owned by the Borrower and/or one or more
Subsidiary or Affiliate.
"Termination Date" means the earlier of (a) January 15, 2000 (unless
extended in writing by the parties hereto in their sole discretion); or (b) the
date upon which the Lenders' willingness to consider making Advances is
terminated pursuant to Section 2.7.
2. THE RECEIVABLE LOAN
2.1. Discretionary Receivable Loans. Subject to the Conditions of
Lending set forth in Section 4 hereof, each Lender may, in its sole
discretion, make Advances to the Borrower up to its Receivable
Commitment from time to time from the date of this Credit Agreement
through the Termination Date; provided, however, that such Lender shall
not consider making any such Advance, if after giving effect to such
Advance, the aggregate outstanding principal amount of all Advances
would exceed the then current Retail Receivable Borrowing Base. Within
the limits set forth above, the Borrower may borrow, repay and request
additional Advances under the Receivable Notes. Each Advance by any
Lender shall be in the Lender's sole discretion, and such Lender need
not show that an adverse change in the Borrower's condition, financial
or otherwise, has occurred, or that the conditions in Section 4 have
not been met, in order to refuse to make any requested Advance.
2.2. The Receivable Note(s). All Advances pursuant to the Receivable
Commitments shall be evidenced by, and the Borrower shall repay such
Advances to each Lender in accordance with, the terms of the Receivable
Note(s).
2.3. Records of Advances and Payments. The aggregate amount of all
unpaid Advances made pursuant to the Receivable Commitments set forth
on the records of the Lenders shall be rebuttable presumptive evidence
of the principal amount owing and unpaid on the Receivable Note(s).
2.4. Payments and Interest on the Receivable Note.
(a) The Borrower agrees to pay interest on the outstanding
principal amount of the Receivable Note(s) from the date hereof until
paid in full at a rate per annum equal to the one month LIBOR plus 250
basis points, determined two (2) Business Days prior to the first
Business Day of the then current calendar week and fixed until the
first Business Day of the following calendar week.
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(b) After the date hereof, interest accrued on the Receivable
Note(s) through the end of each calendar month shall be payable on the
first (1st) day of the following calendar month, commencing August 1,
1999, and at Maturity, when the entire outstanding principal amount and
accrued interest shall be due and payable. Interest accrued after
Maturity shall be payable upon demand.
(c) (Intentionally omitted)
(d) The Borrower shall also be required to immediately pay
such amount of principal outstanding on the Receivable Note(s) as is
necessary to cause the aggregate amount outstanding thereon to not
exceed the amount of the Receivable Borrowing Base set forth on the
most recent Receivable Borrowing Base Certificate dated more than 30
days prior unless such amount outstanding is not greater than the most
recently submitted Receivable Borrowing Base Certificate.
2.5. Manner of Borrowing.
(a) The Borrower shall give the Agent written or telephonic
notice of each requested Advance under the Receivable Commitment by not
later than 12:00 p.m. (Minneapolis time) on the date such Advance is to
be made.
(b) Any request for an Advance under the Receivable Loan shall
be deemed a representation by the Borrower that the amount of the
requested Advance, when added to the Receivable Loan outstanding
amount, would not exceed the Receivable Borrowing Base. If the
Receivable Loan outstanding amount shall at any time exceed the
Receivable Borrowing Base, the Borrower shall immediately prepay
Advances in the amount equal to such excess, without notice or demand
by the Lenders.
(c) Upon receipt of notice of a request for an Advance
described in Section 2.5(a) above, the Agent will promptly notify each
Lender thereof and of the amount of such Lender's Percentage of such
Advance.
(d) Any Lender that elects to make its Percentage of any
requested Advance will make the amount of its Percentage of such
Advance available to the Agent for the account of the Borrower at the
Agent's office by 2:00 p.m. (Minneapolis time) on the date requested
for such Advance. The proceeds of all such requested Advances will then
be made available to the Borrower by the Agent by deposit thereof to an
account designated by the Borrower or as otherwise indicated in the
Borrower's corresponding request; provided, that the initial Advances
hereunder shall be applied to pay the amounts owing by the Borrower to
ACC under that First Amended and Restated Credit Agreement dated as of
October 1, 1998.
(e) (i) Unless the Agent shall have received notice from a
Lender with respect to any Advance, prior to any proposed Advance, that
such Lender will not make available to the Agent as and when required
hereunder for the account of the Borrower the amount of that Lender's
Percentage of such Advance, the Agent may, in its sole discretion and
at its sole risk, assume that each Lender has made such amount
available to the Agent in immediately available funds on the date
required and the Agent may (but shall not be so required to), in
reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent any Lender shall not
have made its full amount available to the Agent in immediately
available funds and the Agent in such circumstances has made available
to the Borrower such amount, the Lender shall, if it has determined in
its discretion to make its Percentage of such Advance, make such amount
so available to the Agent on the next Business Day following the
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date of such Advance make such amount available to the Agent, together
with interest as payable under the Receivable Notes for and determined
as of each day during such period. (ii) If any Lender has determined to
not make its Percentage of such Advance or if such amount is not made
available to the Agent on the next Business Day following the date of
the Advance, the Agent may, at its option (A) notify the Borrower of
such Lender's election not to fund and, upon demand by the Agent, the
Borrower shall pay such amount to the Agent for the Agent's account,
together with interest thereon for each day elapsed since the date of
such Advance, at a rate per annum equal to the interest rate applicable
at the time to the Loans comprising such Advance or (B) treat the
amounts so made available to the Borrower by the Agent in lieu of the
Percentage of such Advance which such Lender declined to make, as the
purchase of a percentage participation in the Receivable Note made
payable to such Lender, in an amount equal to such amount so made
available by the Agent divided by the sum of the principal of such
amount and the other principal amounts outstanding under such
Receivable Note. In such event, the Agent shall enter into a
participation agreement with the Lender who declined to make the
Advance, on terms and conditions satisfactory to such Lender.
(f) No Lender shall be responsible for the determination of
any other Lender to not make its Percentage of any Advance to be made
by such other Lender on any date.
(g) If, other than as expressly provided elsewhere herein, any
Lender shall obtain on account of any part of any Advance made by it,
any payment (whether voluntary, involuntary, through the exercise of
any right of set-off, or otherwise) in excess of its Percentage of such
Advance (or other share contemplated hereunder) of payments on account
of the Advances obtained by all the Lenders, such Lender shall
forthwith (a) notify the Agent of such fact, and (b) purchase from the
other Lenders such participations in the Advances made by them as shall
be necessary to cause such purchasing Lender to share the excess
payment ratably with each of them; provided, however, that if all or
any portion of such excess payment is thereafter recovered from the
purchasing Lender, such purchase shall to that extent be rescinded and
each other Lender shall repay to the purchasing Lender the purchase
price paid therefor, together with an amount equal to such Lender's
percentage (according to the proportion of (i) the amount of such
paying Lender's required repayment to (ii) the total amount so
recovered from the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to this paragraph may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 9.16) with
respect to such participation as fully as if such Lender were the
direct creditor of the borrower in the amount of such participation.
The Agent will keep records (which shall be conclusive and binding in
the absence of manifest error) of participations purchased pursuant to
this paragraph and will in each case notify the Lenders following any
such purchases or repayments.
(h) All Advances and repayments shall be effected so that
after giving effect thereto all Loans shall be pro rata among the
Lenders according to their Percentages.
2.6. Payments. Any other provision of this Credit Agreement to the
contrary notwithstanding, the Borrower shall make all payments of
interest on and principal of the Receivable Note(s) to the Agent for
the ratable account of the Lenders at the Agent's office shown on the
first page hereof (or to such other locations as may from time to time
be specified by the Agent). The Agent will promptly distribute to each
Lender its percentage of such payment in like funds received.
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2.7. Termination. The Lenders' consideration of requests to make
Advances under the Receivable Commitment shall terminate:
(a) Upon receipt by the Lenders of three (3) days' written
notice of termination from the Borrower given at any time when no
amount is outstanding under the Receivable Note;
(b) Immediately and without further action upon the occurrence
of an Event of Default of the nature referred to in Subsection 8.10; or
(c) Immediately when any Event of Default (other than one of
the nature specified in Subsection 8.10) shall have occurred and be
continuing and either (i) the Majority Lenders shall have demanded
payment of the Receivable Note(s) or (ii) the Majority Lenders shall
elect to terminate any such future consideration by giving notice to
Borrower.
3. GENERAL PROVISIONS
3.1. Computation of Interest.
(a) All computations of interest on the outstanding principal
amount of each Subject Note shall be computed on the basis of a year
comprised of 360 days to the extent such interest is computed based on
LIBOR and 360 days to the extent such interest is computed based on the
Reference Rate. Each change in the interest rate payable on each
Subject Note due to a change in the Reference Rate shall take place
simultaneously with the corresponding change in the Reference Rate.
Whenever any payment to be made by or to the Lenders or other holder(s)
of any Subject Note shall otherwise be due on a day which is not a
Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in computing
the fees or interest payable on such next succeeding Business Day.
(b) No provision of this Credit Agreement or any Subject Note
shall require the payment or permit the collection of interest in
excess of the rate permitted by applicable law.
3.2. Default Rate; Late Payment. Notwithstanding anything to the
contrary herein, upon the occurrence and during the continuation of an
Event of Default, the Borrower shall pay interest on the outstanding
principal amount of each of the Subject Notes at a rate per annum equal
to the greater of (i) two percent (2%) in excess of the rate applicable
to the unpaid principal amount of each such Subject Note immediately
before the occurrence of such Event of Default or (ii) two percent (2%)
in excess of the Reference Rate in effect from time to time. In
addition, the Borrower shall be obligated to pay the greater of 1% of
the past due amount or $25.00 with respect to any installment on any
Subject Note paid after the date it is due, to compensate Lenders for
the administrative expenses associated with such past-due payments,
subject to the maximum allowable late payment under North Dakota law.
3.3. Security. The indebtedness, liabilities and other obligations of
the Borrower to the Lenders under each Subject Note and this Credit
Agreement are secured by, inter alia, security interests granted
pursuant to all security interests, liens and mortgages heretofore or
hereafter granted by the Borrower to the Lenders as security for the
obligations to the Lenders.
3.4. [Intentionally omitted]
3.5. Increased Costs. If any Regulatory Change or other change in any
existing law, rule or regulation or in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency shall subject the Lender or one or more of its
sources of financing to increased costs, the Borrower shall pay to the
Lenders within fifteen (15) days of
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demand therefor, Borrower's pro rata share (based on the amount of all
loans outstanding from the Lenders) of any such amount required to
compensate the Lenders or such other Persons for such costs.
3.6. Collateral Allocation. To the extent the Lenders receive proceeds
of any Collateral after the exercise of remedies provided for in
Section 8.2 it shall be applied first to any obligations of the
Borrower relating to or arising under the Receivable Note(s) and Loan,
and then to all the other obligations to the Lenders under the Loan
Documents.
3.7. Loan Agreement Reference. Any reference in any Subject Note to any
Loan Agreement or Credit Agreement shall be deemed to be a reference to
this Credit Agreement, as it may from time to time be amended,
modified, supplemented or restated. Any conflict between the terms of
any Subject Note, and the terms of this Credit Agreement shall be
resolved in favor of the terms of this Credit Agreement.
4. CONDITIONS OF LENDING
4.1. Conditions Precedent. This Credit Agreement and the Lenders'
willingness to consider making Advances hereunder are subject to
receipt, on or prior to the date hereof, by the Lenders of the
following, each to be in form and substance satisfactory to all the
Lenders, unless all the Lenders waive receipt of any of the following
in writing:
(a) This Credit Agreement and the Subject Notes each
appropriately completed and duly executed by the Borrower;
(b) The Security Agreement and corresponding financing
statement(s) appropriately completed and duly executed by the Borrower;
(c) A current UCC financing statement search, federal and
state tax lien search, judgment and bankruptcy search, reflecting
results satisfactory to the Lenders, on the Borrower from the
appropriate filing offices as required by the Lenders;
(d) A Certificate of Good Standing for the Borrower issued by
the Secretary of State in all states where the Borrower is qualified to
do business;
(e) A copy of the Borrower's Bylaws, together with all
amendments, certified by the Secretary of the Borrower to be a true and
correct copy thereof;
(f) A copy of the Articles of Incorporation of the Borrower,
together with all amendments, certified by the Secretary of State of
the state of the Borrower's incorporation to be a true and correct copy
thereof;
(g) A certified copy of the resolutions of the Board of
Directors of the Borrower authorizing or ratifying the transactions
contemplated hereby, and the execution, delivery and performance of the
Loan Documents, and designating the officers authorized to execute the
Loan Documents to which the Borrower is a party and to perform the
obligations of the Borrower thereunder;
(h) A certificate of the Secretary of the Borrower certifying
the names of the officers authorized to execute the Loan Documents,
together with a sample of the true signature of each such officer;
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(i) A favorable opinion of counsel for the Borrower,
satisfactory to the Lenders, as to the matters set forth in Subsections
5.1, 5.2, 5.3, 5.5, 5.7 and 5.9 (delivered not later than 10 days from
the date hereof), and other matters as requested by the Lenders,
satisfactory to the Lenders and their counsel;
(j) Policies or certificates of insurance evidencing insurance
coverage required under this Credit Agreement and any other of the Loan
Documents;
(k) A completed Receivable Borrowing Base Certificate dated as
of the last day of the month most recently ended prior to the date
hereof.
(l) Such other documents, information and actions as any
Lender may reasonably request.
4.2. Conditions Precedent to all Loans and Advances. The Lenders'
consideration of any request to make any Loan or Advance hereunder,
including the initial Loans or Advances, is subject to the satisfaction
of each of the following, unless waived in writing by the Majority
Lenders:
(a) The representations and warranties set forth in Section 5
are true and correct in all material respects on the date hereof and on
the date of any Loan or Advance (as if made on the date of such Loan or
Advance, except to the extent that such representations and warranties
expressly relate solely to an earlier date).
(b) No Default or Event of Default shall have occurred and be
continuing.
(c) No litigation, arbitration or governmental investigation
or proceeding shall be pending, or, to the knowledge of the Borrower,
threatened, against the Borrower or affecting the business or
operations of the Borrower which was not previously disclosed to the
Lenders and which, if determined adversely to the Borrower, would have
a material adverse effect on the operation or financial condition of
the Borrower.
(d) No Default or Event of Default shall result from the
making of any such Loan or Advance.
(e) No Material Adverse Occurrence shall have occurred and be
continuing.
(f) Each request for a Loan or Advance and each acceptance of
the proceeds of such request by the Borrower shall constitute a
representation and warranty by the Borrower that on the date of
acceptance of such proceeds (both immediately before and after giving
effect to such acceptance) the statements made in Section 5 are true
and correct with the same effect as if then made, except to the extent
such statements expressly relate solely to an earlier date.
5. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders as follows:
5.1. Organization, etc. The Borrower is a corporation validly organized
and existing and in good standing under the laws of the State of North
Dakota, has full power and authority to own its property and conduct
its business substantially as presently conducted by it and is duly
qualified and licensed to do business and is in good standing as a
foreign corporation in each other jurisdiction where the nature of its
business makes such qualification or licensing
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necessary. The Borrower has full power and authority to enter into and
perform its obligations under the Loan Documents and to obtain the
loans and Advances hereunder.
5.2. Due Authorization. The execution, delivery and performance by the
Borrower of the Loan Documents have been duly authorized by all
necessary corporate action, do not require any approval or consent of,
or any registration, qualification or filing with, any governmental
agency or authority or any approval or consent of any other Person
(including, without limitation, any stockholder) do not and will not
conflict with, result in any violation of or constitute any default
under, any provision of the Borrower's Articles of Incorporation or
Bylaws, any agreement binding on or applicable to the Borrower or any
of its property, or any law or governmental regulation or court decree
or order, binding upon or applicable to the Borrower or of any of its
property and will not result in the creation or imposition of any Lien
on any of its property pursuant to the provisions of any agreement
binding on or applicable to the Borrower or any of its property except
pursuant to the Loan Documents.
5.3. Validity of the Loan Documents. The Loan Documents to which the
Borrower is a party are the legal, valid and binding obligations of the
Borrower and are enforceable in accordance with their terms, subject
only to bankruptcy, insolvency, reorganization, moratorium or similar
laws, rulings or decisions at the time in effect affecting the
enforceability of rights of creditors generally and to general
equitable principles which may limit the right to obtain equitable
remedies.
5.4. Financial Information. The financial statements of the Borrower
furnished to the Lenders have been and will be prepared in accordance
with GAAP consistently applied by the Borrower and present fairly the
financial condition of the Borrower as of the dates thereof and for the
periods covered thereby. The Borrower is not aware of any contingent
liabilities or obligations which would, upon becoming non-contingent
liabilities or obligations, be a Material Adverse Occurrence. Since the
date of the most recent such statements, neither the condition
(financial or otherwise), the business nor the properties of the
Borrower have been materially and adversely affected in any way.
5.5. Litigation, Other Proceedings. Except as previously disclosed to
and approved of in writing by the Lenders, there is no action, suit or
proceeding at law or equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, pending or, to the knowledge of the Borrower,
threatened, against the Borrower or any of its property, which is
reasonably likely to result in a Material Adverse Occurrence; and the
Borrower is not in default with respect to any final judgment, writ,
injunction, decree, rule or regulation of any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, where such default would be a Material Adverse
Occurrence.
5.6. Title to Assets. Except for Liens permitted by Section 7.2, the
Borrower has good and marketable title to all of its assets, real and
personal.
5.7. Lien Priority. The Liens created by the Security Agreement are
attached and first, perfected Liens on the Collateral.
5.8. Guarantees and Indebtedness. Except as disclosed on financial
statements of the Borrower furnished to the Lenders, the Borrower is
not a party to any material contract of guaranty or suretyship and none
of its assets is subject to any contract of that nature and the
Borrower is not indebted to any other party, except the Lenders under
this Credit Agreement and as permitted under Section 7.3.
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5.9. Margin Stock. No part of any loan or Advance hereunder shall be
used at any time by the Borrower to purchase or carry margin stock
(within the meaning of Regulation G, T, U or X promulgated by the Board
of Governors of the Federal Reserve System) or to extend credit to
others for the purpose of purchasing or carrying any margin stock. The
Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purposes of
purchasing or carrying any such margin stock. No part of the proceeds
of any loan or Advance hereunder will be used by the Borrower for any
purpose which violates, or which is inconsistent with, any regulations
promulgated by the Board of Governors of the Federal Reserve System.
5.10. Taxes. The Borrower has filed all federal, state and other income
tax returns which are required to be filed through the date of this
Credit Agreement and has paid all taxes as shown on said returns, and
all taxes due or payable without returns and all assessments received
to the extent such taxes and assessments have become due. All tax
liabilities of the Borrower are adequately provided for on its books,
including interest and penalties. No income tax liability of a material
nature has been asserted by taxing authorities for taxes in excess of
those already paid. The Borrower has made all required withholding
deposits.
5.11. Accuracy of Information. All factual information furnished by or
on behalf of the Borrower to the Lenders for purposes of or in
connection with this Credit Agreement or any transaction contemplated
by this Credit Agreement is, and all other such factual information
furnished by or on behalf of the Borrower to the Lenders in the future,
will be true and accurate in every material respect on the date as of
which such information is dated or certified. No such information
contains any material misstatement of fact or omits any material fact
or any fact necessary to prevent such information from being
misleading.
5.12. Material Agreements. The Borrower is not a party to any agreement
or instrument or subject to any restriction that materially and
adversely affects its business, property or assets, operations or
condition (financial or otherwise).
5.13. Defaults. The Borrower is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in any: (a) agreement to which such entity is a
party, which default might have a material adverse effect on the
business, properties or assets, operations, or condition (financial or
otherwise) of the Borrower; or (b) instrument evidencing any
indebtedness or under any agreement relating to such indebtedness.
5.14. ERISA. (a) No Reportable Event has occurred and is continuing
with respect to any Plan; (b) the Pension Benefit Guaranty Corporation
or any successor entity has not instituted proceedings to terminate any
Plan; and (c) each Plan of the Borrower has been maintained and funded
in all material respects in accordance with its terms and with ERISA.
All undefined capitalized terms used in this Section shall have the
meanings ascribed to them in ERISA.
5.15. Financial Status. The Borrower is not insolvent (as such term is
defined in Section 101(32) of the United States Bankruptcy Code of
1978, as amended or Minnesota Statutes Section 513.42, as amended or
other relevant state statutes) and will not be rendered insolvent (as
such term is defined in Section 101(32) of the United States Bankruptcy
Code of 1978, as amended or Minnesota Statutes Section 513.42, as
amended or other relevant state statutes) by execution of this Credit
Agreement or any other of the Loan Documents, or consummation of the
transactions contemplated thereby.
5.16. Survival of Representations. All representations and warranties
contained in this Section 5 shall survive the delivery of the Notes and
the making of the Loans and Advances evidenced
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thereby and any investigation at any time made by or on behalf of
Lenders shall not diminish its rights to rely thereon.
5.17. Environmental Matters.
(a) Definitions. As used in this Credit Agreement, the
following terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and the
environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(iii) "Premises" means all premises where the
Borrower conducts its business and has any rights of
possession.
(b) To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or
quantity as to create any liability or obligation for either the
Borrower or the Lenders under common law of any jurisdiction or under
any Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in, on
or under the Premises in such a way as to create any such liability.
(c) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the
Borrower, alleging liability under, violation of, or noncompliance with
any Environmental Law or any license, permit or other authorization
issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(d) To the Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
5.18. Subsidiaries. The Borrower has the Subsidiaries listed on the
financial statements previously delivered to the Lenders. Borrower has
informed the Lenders of any Subsidiaries acquired after the date hereof
as permitted by this Credit Agreement.
6. AFFIRMATIVE COVENANTS
As long as there remains any amount outstanding under the Subject Notes
or if later, until the Termination Date, the Borrower shall, unless waived in
writing by the Majority Lenders:
6.1. Financial Statements and Reports. Furnish to the Lenders, at the
times set forth below, the following financial statements, reports and
information:
(a) As soon as available, but in any event within one hundred
twenty-five (125) days after each fiscal year end, audited financial
statements of RDO Equipment Co. with appropriate detail of the Borrower
prepared on a consolidated basis, certified by certified public
accountants
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satisfactory to the Majority Lenders to have been prepared in
accordance with GAAP consistently applied;
(b) As soon as available, but in any event within ninety (90)
days after each fiscal year end, an annual operating budget and cash
flow forecast for the Borrower and its Subsidiaries for the fiscal year
immediately following such fiscal year end;
(c) As soon as available, but in any event within thirty (30)
days after the last day of each monthly fiscal period (i) unaudited
financial statements of the Borrower and its Subsidiaries consisting of
a balance sheet and the related statements of income, retained earnings
and cash flows prepared on a consolidated basis dated as of the last
Business Day of such monthly fiscal period in form and detail as
reasonably required by the Majority Lenders certified by the chief
financial officer of the Borrower to have been prepared from the
records of the Borrower on the basis of accounting principles
consistently applied by the Borrower; and (ii) a report of all Eligible
Receivable and Non-Eligible Receivables and any other receivables,
whether or not Collateral, outstanding on the last day of such monthly
fiscal period including the extent to which they were past due on such
day (and the extent to which either more than 30, 60, 90 or 120 days
past due), and the Borrower's proposed action plan for all such
Receivables more than 90 days past due;
(d) Within 30 days of each fiscal month a completed Receivable
Borrowing Base Certificate dated as of the last day of such fiscal
month.
(e) Promptly upon obtaining knowledge thereof, notice of the
occurrence of any Default or Event of Default and of the violation by
the Borrower of any law, rule or regulation, the non-compliance with
which could be reasonably expected to be a Material Adverse Occurrence;
(f) To the extent applicable, promptly after the sending or
filing thereof, copies of all regular and periodic financial reports
which the Borrower shall file with the U.S. Securities and Exchange
Commission, or any national securities exchange;
(g) Such other information concerning the business, operations
and condition (financial or otherwise) of the Borrower as any Lender
may reasonably request.
6.2. Maintenance of Corporate Existence. Maintain and preserve its
corporate existence.
6.3. Taxes. Pay and discharge as the same shall become due and payable,
all taxes, assessments and other governmental charges and levies
against or on any of its property, as well as claims of any kind which,
if unpaid, might become a Lien upon any of its properties, unless such
tax, levy, charge assessment or Lien is being contested in good faith
by the Borrower and is supported by an adequate book reserve. The
Borrower shall make all required withholding deposits.
6.4. Notices. As soon as practicable, give notice to the Lenders of:
(a) The commencement of any litigation relating to the
Borrower which might reasonably result in a Material Adverse Occurrence
or relating to the transactions contemplated by this Credit Agreement;
(b) The commencement of any material arbitration or
governmental proceeding or investigation not previously disclosed to
the Lenders which has been instituted or, to the
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knowledge of the Borrower, is threatened against the Borrower or its
property which might reasonably result in a Material Adverse
Occurrence;
(c) Any Reportable Event or "prohibited transaction" or the
imposition of a Withdrawal Liability, within the meaning of ERISA, in
connection with any Plan and, when known, any action taken by the
Internal Revenue Service, Department of Labor or Pension Benefit
Guaranty Corporation with respect thereto, and any adverse development
which occurs in any litigation, arbitration or governmental
investigation or proceeding previously disclosed to the Lenders which
if determined adversely to the Borrower would constitute a Material
Adverse Occurrence; and
(d) Any Default or Event of Default under this Credit
Agreement.
6.5. Compliance with Laws. Carry on its business activities in
substantial compliance with all applicable federal or state laws and
all applicable rules, regulations and orders of all governmental bodies
and offices having power to regulate or supervise its business
activities. The Borrower shall maintain all material rights, liens,
franchises, permits, certificates of compliance or grants of authority
required in the conduct of its business. Without limiting the foregoing
undertakings, the Borrower specifically agrees that it will comply with
all applicable Environmental Laws and obtain and comply with all
permits, licenses and similar approvals required by any Environmental
laws, and will not generate, use, transport, treat, store or dispose of
any Hazardous Substances in such a manner as to create any liability or
obligation under the common law of any jurisdiction or any
Environmental Law.
6.6. Books and Records; Investigation.
(a) Keep books and records reflecting all of its business
affairs and transactions in accordance with GAAP consistently applied
and permit the Lenders, and their representatives, at reasonable times
and intervals, to visit all of its offices, discuss its financial
matters with officers of the Borrower and its independent public
accountants (and by this provision the Borrower authorizes its
independent public accountants to participate in such discussions) and
examine any of its books and other corporate records.
(b) Borrower agrees to permit Norwest Business Credit to
review and analyze the Collateral (at the Borrower's expense) and
acknowledges and agrees that Norwest may, based thereon, and upon ten
(10) Business Days prior notice to the Borrower, thereafter
unilaterally amend the definition of Receivable Borrowing Base.
6.7. Insurance. Procure and maintain insurance with financially sound
and reputable insurers, insurance with respect to the Collateral and
its other property against damage and loss by theft, fire, collision
(in the case of motor vehicles) and such other risks as are required by
the Lenders in an amount equal to the fair market value thereof and, in
any event, in an amount sufficient to avoid the application of any
coinsurance provisions and naming the Agent loss payee. The Borrower
shall also procure and maintain other such insurance including workers
compensation insurance, liability and business interruption insurance,
and other insurance as the Majority Lenders may require and/or that may
be required under any of the Loan Documents, all in such amounts as may
be required by the Majority Lenders. Policies of all such insurance
shall contain an agreement by the insurer to provide the Agent thirty
(30) days prior written notice of cancellation and an agreement that
the Agent's interest shall not be impaired or invalidated by any act or
neglect of the Borrower nor by the occupation of properties owned or
leased by the Borrower or other properties wherein the Collateral is
located for purposes more hazardous than
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those permitted by such policies. The Borrower shall provide evidence
of such insurance and the policies of insurance or copies thereof to
any Lender upon request.
6.8. Maintain Property. Maintain and keep its assets, property and
equipment in good repair, working order and condition and from time to
time make or cause to be made all needed renewals, replacements and
repairs.
6.9. Conduct of Business. Continue to engage primarily in the business
being conducted on the date of this Credit Agreement.
6.10. Year 2000. Borrower has reviewed the areas within its business
and operations which could be adversely affected by, and has developed
or is developing a program to address on a timely basis, the "Year 2000
Problem" (that is, the risk that computer applications used by Borrower
may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December
31, 1999), and has made related appropriate inquiry of material
suppliers and vendors. Based on such review and program, the Borrower
believes that the "Year 2000 Problem" will not have a material adverse
effect on the Borrower. Statements of financial performance and
compliance certificates required to be provided by the Borrower to the
Lenders herein shall: (i) include a statement that the Year 2000
remediation efforts of the Borrower are proceeding as scheduled, and
(ii) indicate whether an auditor, regulator or third party consultant
has issued a management letter or other communication regarding the
Year 2000 program or progress of the Borrower.
6.11. Further Assurances. The Borrower agrees upon reasonable request
by any Lender to execute and deliver such further instruments, deeds
and assurances, including financing statements under the Uniform
Commercial Code of North Dakota and/or any other relevant states, and
to do such further acts as may be necessary or proper to carry out more
effectively the purposes of this Credit Agreement and the Loan
Documents and, without limiting the foregoing, to make subject to the
liens and security interests of the Security Agreement and any other of
the Loan Documents any property agreed to be subjected, or intended to
be subject, or covered by the granting clauses of the Security
Agreement or such other of the Loan Documents.
6.12. ERISA Compliance. Comply in all material respects at all times
with all applicable provisions of ERISA and the regulations and
published interpretations thereunder.
6.13. Credit and Collection Policy. Borrower will maintain, perform and
comply with all material provisions of the Credit and Collection
Policy, will make no change thereto without the prior written consent
of the Lenders and will implement all changes thereto reasonably
proposed by Lenders.
7. NEGATIVE COVENANTS
As long as there remains any amount outstanding under the Subject Notes
or if later, until the Termination Date, the Borrower shall not, unless waived
in writing by the Majority Lenders:
7.1. Consolidation; Merger; Sale of Assets; Acquisitions. Consolidate
with or merge into or with any other entity; or sell (other than sales
of inventory in the ordinary course of business or in connection with
the Purchase and Contribution Agreement), transfer, lease or otherwise
dispose of all or a substantial part of its assets; or acquire a
substantial interest in another Person either through the purchase of
all or substantially all of the assets of that Person or the purchase
of a controlling equity interest in that Person.
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7.2. Liens. Create, incur, assume or suffer to exist any Lien or any of
its property, real or personal, except (a) Liens in favor of the
Lenders pursuant to this Credit Agreement; (b) Liens set forth on
Schedule 7.2; (c) Liens for current taxes and assessments which are not
yet due and payable; (d) sales of assets in connection with the
Purchase and Contribution Agreement; and (e) Liens contemplated under
Section 7.3(d).
7.3. Additional Indebtedness. Create, incur, assume or suffer to exist
any indebtedness except: (a) indebtedness in favor of the Lenders under
this Credit Agreement; (b) current liabilities incurred in the ordinary
course of business; (c) indebtedness existing on the date of this
Credit Agreement and set forth in Schedule 7.3; (d) loans up to
$5,000,000 to fund Borrower's acquisition and holding of RDO
Securitization Corp. and any other special purpose entity related to
the securitization of Borrower's assets, as to which loans Borrower may
grant as collateral only its interests in such special purpose
entities; and (e) unsecured intercompany loans from RDO Equipment Co.
7.4. Guaranties. Assume, guarantee, endorse or otherwise become liable
in connection with the indebtedness of any other person or entity
except endorsements of negotiable instruments for deposit or collection
in the ordinary course of business.
7.5. Change in Ownership or Business. Permit a material change in (a)
the ownership or management of the Borrower as in effect on the date of
this Credit Agreement, or (b) the line of business presently engaged in
by the Borrower.
7.6. Dividends.Declare or pay any dividends, purchase, redeem, retire
or otherwise acquire for value any of its capital stock now or
hereafter outstanding, return any capital to its stockholders as such,
or make any distribution of assets to its stockholders as such without
the prior written approval of all the Lenders, except that provided no
Default or Event of Default has occurred or is occurring under this
Credit Agreement, Borrower may allocate earnings to RDO Equipment Co.
7.7. Investments; Subsidiaries. The Borrower will not purchase or hold
beneficially any stock or other securities or evidences of indebtedness
of, make or permit to exist any loans or advances to, or create or
acquire any Subsidiary or make any investment or acquire any interest
whatsoever in, any other Person, except:
(a) Investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute the full faith and credit obligations of the United States
of America having a maturity of one (1) year or less, commercial paper
issued by a U.S. corporation rated "A-1" or "A-2" by Standard & Poor's
Ratings Services or "P-1" or "P-2" by Moody's Investors Service,
investments in money market mutual funds whose underlying assets are
exclusively investments which would otherwise be permitted investments
under this Section 7.7(a), or repurchase agreements, certificates of
deposit or bankers' acceptances having a maturity of one (1) year or
less issued by members of the Federal Reserve System having deposits in
excess of $500,000,000 (which certificates of deposit or bankers'
acceptances are fully insured by the Federal Deposit Insurance
Corporation);
(b) Travel advances or loans to officers and employees of the
Borrower (not including contracts made in the ordinary course of
business with any such officers or employees) not exceeding at any one
time an aggregate of $25,000;
(c) Advances in the form of progress payments, prepaid rent or
security deposits;
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(d) Existing investments as described in the financial
statements previously delivered to the Lenders and investments
described in Section 7.3(d);
(e) Investments constituting transactions made in the ordinary
course of business of the Borrower, including but not limited to
investments in RDO Securitization Corp.;
(f) Investments in wholly-owned subsidiaries of the Borrower
existing as of the date hereof; and
(g) Investments not otherwise permitted in this Section 7.7
not to exceed $250,000 in the aggregate (on a book value basis) at any
time outstanding.
7.8. Equity Ratio. Not permit its Equity Ratio to be less than .15 to
1.00 for more than five (5) Business Days after the end of each fiscal
month.
8. EVENTS OF DEFAULT AND REMEDIES
8.1. Events of Default. The term "Event of Default" shall mean any of
the following events:
(a) The Borrower shall default in the payment when due, or if
payable on demand, upon demand, of any principal or interest on any of
the Subject Notes; or
(b) The Borrower shall default (other than a default in
payment under subsection (a) above) in the due performance and
observance of any of the covenants contained in any of the Loan
Documents and such default (other than a default of the covenant in
Section 7.8, as to which no notice or additional time shall be required
to constitute an Event of Default) shall continue unremedied for a
period of thirty (30) days after notice from the Majority Lenders to
the Borrower thereof; or
(c) An event has occurred which would, at such time or with
the passage of time, constitute an "event of default" (however legally
styled) under any other loan obligation, lease, bond, debenture,
security agreement, note, or instrument or agreement evidencing Debt
and any applicable grace period specified in such agreement or evidence
of Debt has expired; or
(d) The Borrower shall become insolvent or generally fail to
pay or admit in writing its inability to pay its debts as they become
due; or the Borrower shall apply for, consent to, or acquiesce in the
appointment of a trustee, receiver or other custodian for itself or any
of its property, or make a general assignment for the benefit of its
creditors; or trustee, receiver or other custodian shall otherwise be
appointed for the Borrower or any of its assets; or any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution or liquidation
proceeding shall be commenced by or against the Borrower; or the
Borrower shall take any action to authorize, or in furtherance of, any
of the foregoing; or
(e) Any representation or warranty set forth in this Credit
Agreement or any other Loan Document shall be untrue in any material
respect on the date as of which the facts set forth are stated or
certified; or
(f) The occurrence of any Material Adverse Occurrence; or
(g) A Reportable Event (as defined under ERISA) shall have
occurred; or
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(h) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $500,000 (unless
the payment of such judgment in the amount of such excess is insured),
and the continuance of such judgment, decree or order unsatisfied for
any 30 consecutive day period without a stay of execution.
(i) The occurrence of a Change of Control; or
(j) The Majority Lenders shall in good faith deem themselves
insecure.
8.2. Remedies; Cumulative. If an Event of Default described in Section
8.1 (d) shall occur, the full unpaid balance of each of the Subject
Notes (outstanding balance plus accrued interest) and all other
obligations of the Borrower to the Lenders shall automatically be due
and payable without declaration, notice, presentment, protest or demand
of any kind (all of which are hereby expressly waived). If any other
Event of Default shall occur and be continuing, the Agent shall, at the
request of the Majority Lenders, or may, with the consent of the
Majority Lenders declare the outstanding balance of the each of the
Subject Notes and all other obligations of the Borrower to the Lenders
to be due and payable without further notice, presentment, protest or
demand of any kind (all of which are hereby expressly waived),
whereupon the full unpaid amount of each of the Subject Notes and all
other obligations of the Borrower to the Lenders shall become
immediately due and payable. Upon any Event of Default, the Agent
shall, at the request of, or with the consent of the Majority Lenders
be entitled to exercise any and all rights and remedies available under
any of the Loan Documents or otherwise available at law or in equity to
collect the Subject Notes and all other obligations of the Borrower to
the Lenders, to realize upon or otherwise pursue any and all Collateral
and other security (including without limitation any and all
guarantees) for the loans under this Credit Agreement and to, without
notice to the Borrower, and without further action, apply any and all
monies owing by the Lenders to the Borrower to the payment of the
Subject Notes, and all other obligations of the Borrower hereunder, in
such order as the Majority Lenders elect (subject to Section 3.6).
9. MISCELLANEOUS
9.1. Waivers, Amendments. Except as otherwise specifically provided for
herein, no amendment or waiver of any provision of this Credit
Agreement or any other Loan Document, and no consent with respect to
any departure therefrom by the Borrower, shall be effective unless the
same shall be in writing and signed by the Majority Lenders (or by the
Agent at the written request of the Majority Lenders) and the Borrower,
and then such waiver shall be effective only in the specific instance
and for the specific purpose for which given; provided, however, that
no such waiver, amendment, or consent shall, unless in writing and
signed by all the Lenders, the Borrower and acknowledged by the Agent,
do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed for any payment of
principal, interest, fees or other amounts due to the Lenders (or any
of them) hereunder or under any Loan Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or of any fees or other amounts payable hereunder
or under any Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which shall be required
for the Lenders or any of them to take any action under any Loan
Document;
(e) amend this Section 9.1 or Section 2.5(g); or
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(f) release any Collateral or otherwise amend the Security
Agreement;
and, provided, further, that no amendment, waiver or consent shall,
unless in writing and signed by the Agent in addition to the Majority
Lenders or all the Lenders, as the case may be, affect the rights or
duties of the Agent under this Agreement or any other Loan Document.
9.2. Notices. All communications and notices provided under this Credit
Agreement shall be in writing and addressed or delivered to the
Borrower or the Lenders at their respective addresses shown on the
first page hereof, or to any party at such other address as may be
designated by such party in a written notice to the other parties. Such
notices shall be delivered by any of the following means: (i) mailing
through the United States Postal Service, postage prepaid, by
registered or certified mail, return receipt requested; (ii) delivery
by reputable overnight delivery service including without limitation,
and by way of example only: Federal Express, DHL, Airborne Express and
Express Mail; or (iii) delivery by reputable private personal delivery
service. Notices delivered in accordance with (i) above shall be deemed
delivered the second Business Day after deposit in the mail; notices
delivered in accordance with (ii) above shall be deemed delivered the
first Business Day after delivery to the delivery service; and notices
delivered in accordance with (iii) above shall be deemed delivered the
same Business Day as that specified by the notifying party to the
delivery service.
9.3. Costs and Expenses. The Borrower agrees to pay all expenses for
the preparation of this Credit Agreement, including exhibits, and any
amendments to this Credit Agreement as may from time to time hereafter
be required, and the reasonable attorneys fees and legal expenses of
counsel for the Lenders, from time to time incurred in connection with
the preparation and execution of this Credit Agreement and any document
relevant to this Credit Agreement, any amendments hereto or thereto,
and the consideration of legal questions relevant hereto and thereto.
The Borrower agrees to reimburse Lenders upon demand for, all
out-of-pocket expenses (including reasonable attorneys fees and legal
expenses) in connection with the Lenders' enforcement of the
obligations of the Borrower hereunder or under any Subject Note or any
other of the Loan Documents, whether or not suit is commenced
including, without limitation, attorneys fees, and legal expenses in
connection with any appeal of a lower court's order or judgment. The
obligations of the Borrower under this Section 9.3 shall survive any
termination of this Credit Agreement.
9.4. Interest Limitation. All agreements between the Borrower and the
Lenders are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the
indebtedness evidenced or secured thereby or otherwise, shall the rate
of interest charged or agreed to be paid to the Lenders for the use,
forbearance, loaning or detention of such indebtedness exceed the
maximum permissible interest rate under applicable law ("Maximum
Rate"). If for any reason or in any circumstance whatsoever fulfillment
of any provision of this Credit Agreement and/or the Subject Notes, any
document securing or executed in connection herewith or therewith, or
any other agreement between the Borrower and the Lenders, at any time
shall require or permit the interest rate applied thereunder to exceed
the Maximum Rate, then the interest rate shall automatically be reduced
to the Maximum Rate, and if the Lenders should ever receive interest at
a rate that would exceed the Maximum Rate, the amount of interest
received which would be in excess of the amount receivable after
applying the Maximum Rate to the balance of the outstanding obligation
shall be applied to the reduction of the principal balance of the
outstanding obligation for which the amount was paid and not to the
payment of interest thereunder. This provision shall control every
other provision of any and all agreements between the Borrower and the
Lenders and shall also be binding upon and applicable to any subsequent
holder of any of the Subject Notes.
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9.5. Severability. Any provision of this Credit Agreement or any other
of the Loan Documents executed pursuant hereto which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such portion or unenforceability without
invalidating the remaining provisions of this Credit Agreement or such
Loan Document or affecting the validity or enforceability of such
provisions in any other jurisdiction.
9.6. Cross-References. References in this Credit Agreement or in any
other of the Loan Documents executed pursuant hereto to any Section
are, unless otherwise specified, to such Section of this Credit
Agreement or such Loan Document, as the case may be.
9.7. Headings. The various headings of this Credit Agreement or of any
other of the Loan Documents executed pursuant hereto are inserted for
convenience only and shall not affect the meaning or interpretation of
this Credit Agreement or such Loan Document or any provisions hereof or
thereof.
9.8. Governing Law; Venue; Waiver of Jury Trial. Each of the Loan
Documents shall be deemed to be a contract made under and governed by
the laws of the State of North Dakota (without regard to the laws of
conflict of any jurisdiction) as to all matters, including without
limitation, matters of validity, interpretation, construction, effect,
performance and remedies. The Borrower hereby consents to the personal
jurisdiction of the state and federal courts located in the State of
North Dakota in connection with any controversy related to this Credit
Agreement and any other of the Loan Documents, waives any argument that
venue in such forums is not convenient and agrees that any litigation
instigated by the Borrower against the Lenders in connection herewith
or therewith shall be venued in the federal or state court that has
jurisdiction over matters arising in Fargo, North Dakota. THE BORROWER
AND LENDERS IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENT OR ANY INSTRUMENT OR DOCUMENT DELIVERED THEREUNDER.
9.9. Successors and Assigns. This Credit Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns, except that Borrower may not assign
or transfer its rights hereunder without the prior written consent of
all the Lenders.
9.10. Recitals Incorporated. The recitals to this Credit Agreement are
incorporated into and constitute an integral part of this Credit
Agreement.
9.11. Multiple Counterparts. This Credit Agreement may be executed in
one or more counterparts and by the different parties on separate
counterparts, each of which shall be deemed to be an original and all
of which shall constitute one and the same instrument.
9.12. Indemnity. In addition to the payment of expenses pursuant to
Section 9.3, the Borrower agrees to indemnify, defend and hold harmless
the Lenders, and any of their participants, assignees, parent
corporations, subsidiary corporations, affiliated corporations and
successor corporations, and all present and future officers, directors,
employees, attorneys and agents of the foregoing (the "Indemnitees"),
from and against any of the following (collectively, "Indemnified
Liabilities"):
(a) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the
execution and delivery of the Loan Documents or the making of the
Advances or the Loans;
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(b) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in this Agreement
proves to be incorrect in any respect or as a result of any violation
of the covenant contained in this Agreement; and
(c) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether or
not such Indemnitee shall be designated a party thereto, which may be
imposed on, incurred by or asserted against any such Indemnitee, in any
manner related to or arising out of or in connection with the making of
the Advances or the Loans and the Loan Documents or the use or intended
use of the proceeds of the Advances or the Loans.
If any investigative, judicial or administrative proceeding arising
from any of the foregoing is brought against any Indemnitee, upon such
Indemnitee's request, the Borrower, or counsel designated by the
Borrower and satisfactory to the Indemnitee, will resist and defend
such action, suit or proceeding to the extent and in the manner
directed by the Indemnitee, at the Borrower's sole costs and expense.
Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable
because it violates any law or public policy, the Borrower shall
nevertheless make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The Borrower's obligation under this
Section 9.12 shall survive the termination of this Credit Agreement and
the discharge of the Borrower's other obligations hereunder.
9.13. Prior Agreement Superseded; Complete Agreement. This Credit
Agreement amends, restates, and supersedes that First Amended and
Restated Credit Agreement dated as of October 1, 1998 between the
Borrower and the Agent in its entirety and all obligations, liabilities
and indebtedness of the Borrower incurred or arising thereunder shall
be deemed to have been paid with proceeds of Loans made hereunder.
Furthermore, this Credit Agreement, together with the Loan Documents,
comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or
oral, on the subject matter hereof.
9.14. Assignments; Participants; Waiver of Claims. Each Lender may
sell, assign or grant a participation in the Subject Notes, in whole or
in part and may disclose information relating to the Borrower or
otherwise relevant to this Agreement, to such Persons and their
financing sources ("Assignees"). No Assignee shall be deemed a partner
or agent of such Lender. The Borrower irrevocably agrees that any
claims it may have or may assert against either of the Lenders for
breach of contract (or related tort claims) shall be personal to such
Lender and shall not be asserted by way of direct claim or offset
against any Assignee or irrevocably waives any right it otherwise may
have, now or hereafter, to assert any such claim). The Borrower
acknowledges that the Assignees shall rely on the foregoing waiver and
agreement.
9.15. The Agent.
(a) Each Lender hereby irrevocably (subject to Section
9.15(j)) appoints, designates and authorizes the Agent to take such
action on its behalf under the provisions of this Credit Agreement and
each other Loan Document and to exercise such powers and perform such
duties as are expressly delegated to it by the terms of this Credit
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the
contrary contained elsewhere in this Credit Agreement or in any other
Loan Document, the Agent shall not have any duties or responsibilities,
except those expressly set
22
<PAGE>
forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall
be read into this Credit Agreement or any other Loan Document or
otherwise exist against the Agent. Without limiting the generality of
the foregoing sentence, the use of the term "agent" in this agreement
with reference to the Agent is not intended to connote any fiduciary or
other implied (or express) obligations arising under agency doctrine of
any applicable law. Instead, such term is used merely as a matter of
market custom, and is intended to create or reflect only an
administrative relationship between independent contracting parties.
(b) The Agent may execute any of its duties under this Credit
Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning
all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
(c) None of the Indemnitees of the Agent, nor the Agent shall
(i) be liable for any action taken or omitted to be taken by any of
them under or in connection with this Credit Agreement or any other
Loan Document or the transactions contemplated hereby (except for its
own gross negligence or willful misconduct), or (ii) be responsible in
any manner to any of the Lenders for any recital, statement,
representation or warranty made by the Borrower or any Subsidiary or
Affiliate of the Borrower, or any officer thereof, contained in this
Credit Agreement or in any other Loan Document, or in any certificate,
report, statement or other document referred to or provided for in, or
received by the Agent under or in connection with, this Credit
Agreement or any other Loan Document, or for the value of any
collateral or the validity, effectiveness, genuineness, enforceability
or sufficiency of this Credit Agreement or any other Loan Document, or
for any failure of the Company or any other party to any Loan Document
to perform its obligations hereunder or thereunder. No Indemnitees of
the Agent, nor the Agent shall be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Credit Agreement or
any other Loan Document, or to inspect the properties, books or records
of the Borrower or any of the Borrower's Subsidiaries or Affiliates.
(d) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to
be genuine and correct and to have been signed, sent or made by the
proper Person or Persons, and upon advice and statements of legal
counsel (including counsel to the Borrower), independent accountants
and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Credit
Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Majority Lenders as it deems appropriate
and, if it so requests, it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take
any such action. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Credit Agreement or
any other Loan Document in accordance with a request or consent of the
Majority Lenders and such request and any action taken or failure to
act pursuant thereto shall be binding upon all of the Lenders.
(e) For purposes of determining compliance with the conditions
specified in Sections 5.1 and 5.2, each Lender that has executed this
Agreement shall be deemed to have consented to, approved or accepted or
to be satisfied with each document or other matter either sent by the
Agent to such Lender for consent, approval, acceptance or satisfaction,
or required thereunder to be consented to or approved by or acceptable
or satisfactory to such Lender, unless an officer of
23
<PAGE>
the Agent responsible for the transactions contemplated by the Loan
Documents shall have received notice from such Lender prior to the
initial Advance specifying its objection thereto and either such
objection shall not have been withdrawn by notice to the Agent to that
effect or such Lender shall not have made available to the Agent such
Lender's ratable portion of such Advance.
(f) The Agent shall not be deemed to have knowledge or notice
of the occurrence of any Default or Event of Default, except with
respect to defaults in the payment of principal, interest and fees
required to be paid to the Agent for the account of the Lenders, unless
the Agent shall have received written notice from a Lender or the
Borrower referring to this Credit Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default".
In the event that the Agent receives such a notice, the Agent shall
give notice thereof to the Lenders. The Agent shall take such action
with respect to such Default or Event of Default as shall be requested
by the Majority Lenders in accordance with Section 8.2; provided,
however, that unless and until the Agent shall have received any such
request, the Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best
interest of the Lenders.
(g) Each Lender expressly acknowledges that none of the
Indemnitees of the Agent, nor the Agent has made any representation or
warranty to it that any act by the Agent hereinafter taken, including
any review of the affairs of the Borrower and its Subsidiaries shall be
deemed to constitute any representation or warranty by any such party
to any Lender. Each Lender represents to the Agent that it has,
independently and without reliance upon any Indemnitee of the Agent or
the Agent and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other
condition and creditworthiness of the Borrower and its Subsidiaries,
and all applicable bank regulatory laws relating to the transactions
contemplated thereby, and made its own decision to enter into this
Credit Agreement and extend credit to the Borrower hereunder. Each
Lender also represents that it will, independently and without reliance
upon the Agent and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this
Credit Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other
condition and creditworthiness of the Borrower. Except for notices,
reports and other documents expressly herein required to be furnished
to the Lenders by the Agent, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of the Borrower which
may come into the possession of any Indemnitee of the Agent or the
Agent.
(h) Whether or not the transactions contemplated hereby shall
be consummated, the Lenders shall indemnify upon demand the Indemnitees
of the Agent and the Agent (to the extent not reimbursed by or on
behalf of the Borrower and without limiting the obligation of the
Borrower to do so), ratably from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind whatsoever which may at
any time (including at any time following the repayment of the Loans
and the termination or resignation of the related Agent) be imposed on,
incurred by or asserted against any such Person any way relating to or
arising out of this Agreement or any document contemplated by or
referred to herein or therein or the transactions contemplated hereby
or thereby or any action taken or omitted by any such Person under or
in connection with any of the foregoing; provided, however, that no
Lender shall be liable for the payment to the Indemnitees of the Agent
or the Agent of any portion of such liabilities, obligations, losses,
damages,
24
<PAGE>
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from such Person's gross negligence or willful
misconduct. Without limitations of the foregoing, each Lender shall
reimburse the Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including reasonable fees and costs of
attorneys) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities
under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein to the extent that the Agent is
not reimbursed for such expenses by or on behalf of the Borrower.
Without limiting the generality of the foregoing, if the Internal
Revenue Service or any other governmental authority of the United
States or other jurisdiction asserts a claim that the Agent did not
properly withhold tax from amounts paid to or for the account of any
Lender (because the appropriate form was not delivered, was not
properly executed, or because such Lender failed to notify the Agent of
a change in circumstances which rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason)
such Lender shall indemnify the Agent fully for all amounts paid,
directly or indirectly, by the Agent as tax or otherwise, including
penalties and interest, and including any taxes imposed by any
jurisdiction on the amounts payable to the Agent under this Section,
together with all costs and expenses (including reasonable fees and
costs of attorneys). The obligation of the Lenders in this Section
shall survive the payment of all obligations hereunder and the
resignation or replacement of the Agent.
(i) Subject to the limitations in Sections 7.2 and 7.3 hereof,
ACC and its Affiliates may make loans to, issue letters of credit for
the account of, accept deposits from, acquire equity interests in and
generally engage in any kind of banking, trust, financial advisory,
underwriting or other business with the Borrower and its Subsidiaries
and Affiliates as though ACC were not the Agent hereunder and without
notice to or consent of the Lenders, except as otherwise limited by
this Credit Agreement. The Lenders acknowledge that, pursuant to such
activities, ACC or its Affiliates may receive information regarding the
Borrower or its Affiliates (including information that may be subject
to confidentiality obligations in favor of the Borrower or such
Affiliates) and acknowledge that the Agent shall be under no obligation
to provide such information to them. With respect to its Loans, ACC
shall have the same rights and powers under this Agreement as any other
Lender and may exercise the same as though it were not the Agent, and
the terms "Lender" and "Lenders" shall include ACC in its individual
capacity.
(j) The Agent may, and at the request of the Majority Lenders
shall, resign as Agent upon 30 days' notice to the Lenders. If the
Agent shall resign as Agent under this Agreement, the Majority Lenders
shall appoint from among the Lenders a successor agent for the Lenders.
If no successor agent is appointed prior to the effective date of the
resignation of the Agent, the Agent may appoint, after consulting with
the Lenders and the Borrower, a successor agent from among the Lenders.
Upon the acceptance of its appointment as successor agent hereunder,
such successor agent shall succeed to all the rights, powers and duties
of the retiring Agent and the term "Agent" shall mean such successor
agent and the retiring Agent's appointment, powers and duties as Agent
shall be terminated. After any retiring Agent's resignation hereunder
as Agent, the provisions of this Section 9.15 and Sections 9.3 and 9.12
shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement. If no successor
agent has accepted appointment as Agent by the date which is 30 days
following a retiring Agent's notice of resignation, the retiring
Agent's resignation shall nevertheless thereupon become effective and
the Lenders shall perform all of the duties of the Agent hereunder
until such time, if any, as the Majority Lenders appoint a successor
agent as provided for above.
25
<PAGE>
9.16. Set-off. Subject to Section 2.5(g) hereof, in addition to any
rights and remedies of the Lenders provided by law, if an Event of
Default exists, each Lender is authorized at any time and from time to
time, without prior notice to the Borrower, any such notice being
waived by the Borrower to the fullest extent permitted by law, to set
off and apply any and all Borrower deposits (general or special, time
or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Lender to or for the credit or
the account of the Borrower against any and all Obligations owing to
such Lender, now or hereafter existing, irrespective of whether or not
the Agent or such Lender shall have made demand under this Credit
Agreement or any Loan Document and although such Obligations may be
contingent or unmatured. Each Lender agrees promptly to notify the
Borrower and the Agent after any such set-off and application made by
such Lender; provided, however, that the failure to give such notice
shall not affect the validity of such set-off and application. The
rights of each Lender under this Section 9.16 are in addition to the
other rights and remedies (including other rights of set-off) which the
Lender may have.
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
RDO FINANCIAL SERVICES CO.,
a North Dakota corporation
By: /s/Steven B. Dewald
---------------------------------
Its: Senior Vice President
---------------------------------
AG CAPITAL COMPANY,
a Delaware corporation
Receivable Commitment = $5,000,000 By: /s/Lee Rosin
---------------------------------
Its: President and General Manager
NORWEST BANK NORTH DAKOTA, N.A.
a national banking association
Receivable Commitment = $15,000,000 By: /s/David L. Johnson
---------------------------------
Its: Assistant Vice President
26
EXHIBIT 10.2
ID NO. 2427
SEASONAL NOTE NO. 33730
$5,000,000 RDO FINANCIAL SERVICES CO.
A NORTH DAKOTA CORPORATION
FARGO, NORTH DAKOTA
JULY 16, 1999
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Ag
Capital Company, a Delaware corporation (the "Lender"), at its office in Fargo,
North Dakota, or at such other place as any present or future holder of this
Note may designate from time to time, the principal sum of (i) $5,000,000, or
(ii) the aggregate unpaid principal amount of all advances of credit made by the
Lender to the undersigned pursuant to this Note as shown in the records of any
present or future holder of this Note, whichever is less, plus interest thereon
from the date of each advance in whole or in part included in such amount until
this Note is fully paid. Interest will be computed on the basis of the actual
number of days elapsed and a 360-day year, at a variable rate of LIBOR plus 250
basis points as such LIBOR is defined in that certain Letter Agreement dated
July 16, 1999, by and between the undersigned and the Lender (hereinafter, the
"Credit Agreement") or at such other rate as may be determined pursuant to the
terms of such Credit Agreement. Interest shall be payable on the first day of
each month, beginning August 1, 1999 and at maturity. Principal payments are due
and payable in the amounts and at the times specified in the Credit Agreement.
Payments received fifteen (15) or more calendar days after the scheduled
repayment date are subject to a late payment penalty equal to 1% of the past due
amount but not less than $25.00 per late payment, subject to the maximum amount
allowable by North Dakota law. This Note matures and the outstanding principal
balance of and all unpaid interest on this Note is due and payable on January
15, 2000.
Advances of the principal amount shall be made as set forth in the
Credit Agreement.
Amounts may be advanced and readvanced under this Seasonal Note,
provided the principal balance outstanding shall not exceed the amount first
above written. Nothing contained in this Note or any other agreement or writing
shall limit or impair the right of the holder hereof to demand payment of this
Note at any time if there is a default under the Credit Agreement or any other
agreement between the undersigned and the Lender. The undersigned acknowledge
and understand that this Note is cross-defaulted with Seasonal Loan, Note No.
33720, and it is agreed and acknowledged by the undersigned that a default in
any of the terms and conditions of Seasonal Loan, Note No. 33720, shall
constitute a default under this Note. In the event there is a default by the
undersigned in the terms and conditions of any agreement with the Lender, the
Lender shall be entitled to exercise all remedies allowable by law and to
accelerate all amounts then due and owing under this Note.
The undersigned and each endorser, guarantor and surety of this Note
jointly and severally (i) agree to pay this Note; (ii) guarantee payment of this
Note; (iii) waive demand, presentment, protest, notice of dishonor and notice of
nonpayment of this Note; (iv) consent to any extension or renewal of this Note
without notice; (v) consent to the release of any of them by any present or
future holder of this Note with or without consideration or notice; (vi)
exonerate any present or future holder of this Note from any duty or obligation
to make demand on anyone for payment of any security or delivery of any guaranty
for this Note or to give notice to anyone of nonpayment thereof or to collect or
sell the
July 16, 1999 1 SEASONAL NOTE NO. 33730
<PAGE>
same; (vii) consent to the extension, renewal, exchange, subordination,
surrender or release of any security for this Note by any present or future
holder of this Note with or without consideration or notice; (viii) agree that
no act, omission or thing, except full payment of this Note, which but for this
provision could act as a release or impairment of their liability, shall in any
way release, impair, or affect the liability of any of them; (ix) agree to pay
on demand all costs and expenses of all present and future holders of this Note
in connection with this Note and any security and guaranties for this Note,
including without limitation reasonable attorneys' fees, plus interest on such
amounts at the rate set forth in this Note; and (x) consent to the personal
jurisdiction of the state and federal courts located in the State of North
Dakota in connection with any controversy related in any way to this Note or any
security or guaranty of this Note, waive any argument that venue in such forums
is not convenient, and agree that any litigation initiated by any of them
against the Lender or any other present or future holder of this Note relating
in any way to this Note or any security or guaranty for this Note shall be
venued in either the District Court of North Dakota, or the United States
District Court, District of North Dakota. Interest on any amount under this Note
shall continue to accrue, at the option of any present or future holder of this
Note, until such holder receives final payment of such amount in collected funds
in form and substance acceptable to such holder.
No waiver of any right or remedy under this Note shall be valid unless
in writing executed by the holder of this Note, and any such waiver shall be
effective only in the specific instance and for the specific purpose given. All
rights and remedies of all present and future holders of this Note shall be
cumulative and may be exercised singly, concurrently or successively. The
undersigned, if more than one, shall be jointly and severally liable under this
Note, and the term "undersigned," wherever used in this Note, shall mean the
undersigned or any one or more of them. This Note shall be governed by and
construed in accordance with the laws of the State of North Dakota.
It is not Lender's or Borrower's intention or desire to breach any
applicable usury or maximum finance charge or interest rate law. Therefore, if
any interest rate, penalty, fee or cost provided for herein shall exceed that
which is allowed pursuant to any applicable statue or law, said amount shall be
deemed by the parties hereto to be modified so as to conform to and equal the
maximum amount allowed by said statute or law and any over payment shall be
applied against principal as of the date of such payment.
THE UNDERSIGNED REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE
UNDERSIGNED HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS OF
THIS NOTE. THE UNDERSIGNED ALSO AGREES THAT COMPLIANCE BY ANY PRESENT OR FUTURE
HOLDER OF THIS NOTE WITH THE EXPRESS PROVISIONS OF THIS NOTE SHALL CONSTITUTE
GOOD FAITH AND SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.
RDO FINANCIAL SERVICES CO.,
a North Dakota corporation
By: /s/Steven B. Dewald
--------------------------------
Steven B. Dewald
Its: Senior Vice President
July 16, 1999 2 SEASONAL NOTE NO. 33730
EXHIBIT 99.1
Contact:
Richard J. Moen
701/297-4288
[email protected]
FOR IMMEDIATE RELEASE
RDO EQUIPMENT TO EXPLORE STRATEGIC ALTERNATIVES
FOR ITS CONSTRUCTION EQUIPMENT RENTAL BUSINESS
Fargo, N.D. - (Business Wire) - August 4, 1999 - RDO Equipment Co. (NYSE: RDO)
today announced that it has engaged the investment banking firm of Deutsche Banc
Alex. Brown to explore strategic alternatives for its construction equipment
rental operations including a possible joint venture or sale of its 80%-owned
subsidiary RDO Rental Co.
"We believe that this is an opportune time to assess various alternatives in the
construction equipment rental industry," said Ronald D. Offutt, Chairman and CEO
of RDO Equipment. "The current business environment has produced opportunities
that could increase shareholder value."
"Any net proceeds would be used to strengthen the Company's liquidity position
by immediately reducing interest-bearing debt. We also believe opportunities
exist to acquire truck dealerships, as well as construction and agricultural
equipment dealerships, which would increase earnings per share and generate a
higher return on investment than our existing construction equipment rental
operations."
Offutt concluded by stating that no particular strategic alternative has been
embraced by the Company, and gave no assurance that any transaction would result
from this exploratory process which will take several months to complete.
Since its acquisition by RDO Equipment in February 1997, RDO Rental has grown
from five locations to 12 locations in Arizona, southern California and southern
Nevada. Its revenues for the fiscal year ended January 31, 1999 were
approximately $24 million compared to $578.6 million for RDO Equipment.
Additional information about RDO Rental is available at its website -
www.rdorental.com.
RDO Equipment Co. is one of the leading and fastest growing companies engaged in
the restructuring and consolidation of the equipment and truck retail industries
in the United States. It operates 65 retail stores with operations in 11 states,
specializing in the distribution, sale, service, rental and finance of equipment
and trucks to the agricultural, construction, manufacturing, transportation and
warehousing industries, as well as to public service entities, government
agencies and utilities. Information about the Company, including recent news and
product information, is available at its web site - www.rdoequipment.com.
# # #
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
2ND QUARTER ENDED JULY 31, 1999
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 1,462
<SECURITIES> 0
<RECEIVABLES> 69,669
<ALLOWANCES> 2,107
<INVENTORY> 227,499
<CURRENT-ASSETS> 302,710
<PP&E> 84,934
<DEPRECIATION> 23,158
<TOTAL-ASSETS> 409,462
<CURRENT-LIABILITIES> 258,307
<BONDS> 33,415
0
0
<COMMON> 132
<OTHER-SE> 108,710
<TOTAL-LIABILITY-AND-EQUITY> 409,462
<SALES> 357,753
<TOTAL-REVENUES> 357,753
<CGS> 293,827
<TOTAL-COSTS> 293,827
<OTHER-EXPENSES> 47,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,118
<INCOME-PRETAX> 10,005
<INCOME-TAX> 4,072
<INCOME-CONTINUING> 5,933
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