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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 APRIL 30, 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 May 31, 1999:
Class A Common Stock 5,731,008
Class B Common Stock 7,450,492
-----------
Total 13,181,500
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<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
Three Months Ended April 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)(UNAUDITED) 1999 1998
- --------------------------------------------------------------------------------
Revenues
Equipment and truck sales $ 128,717 $ 91,101
Parts and service 42,390 29,957
Rental 7,687 3,876
Financial services 1,748 1,011
--------- ---------
Total revenues 180,542 125,945
Cost of revenues 149,811 102,212
--------- ---------
Gross profit 30,731 23,733
Selling, general and administrative expenses 24,104 17,251
--------- ---------
Operating income 6,627 6,482
Interest expense (3,284) (2,455)
Interest income 185 70
--------- ---------
Income before income taxes
and minority interest 3,528 4,097
Income tax provision (1,435) (1,668)
--------- ---------
Income before minority interest 2,093 2,429
Minority interest 37 27
--------- ---------
Net income $ 2,130 $ 2,456
========= =========
Net income per share - basic and diluted $ 0.16 $ 0.19
========= =========
Weighted average shares outstanding - basic 13,182 13,182
========= =========
Weighted average shares outstanding - diluted 13,182 13,227
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, January 31,
(IN THOUSANDS) (UNAUDITED) 1999 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48 $ 51
Accounts receivable (less allowance for doubtful accounts) 69,606 59,233
Receivables from affiliates 1,178 3,197
Inventories 232,707 208,368
Prepaid expenses 1,090 1,588
Deferred income tax benefit 5,280 5,680
-------- --------
Total current assets 309,909 278,117
Property and equipment, net 62,160 63,702
Other assets:
Goodwill and other, net of accumulated amortization 43,031 36,326
Deposits 1,154 1,075
-------- --------
Total assets $416,254 $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>
April 30, January 31,
(IN THOUSANDS) (UNAUDITED) 1999 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan payables $215,277 $191,030
Notes payable and current maturities of long-term debt:
Banks and others 10,848 13,942
Affiliates 17,848 13,536
Accounts payable 12,372 8,373
Accrued liabilities 13,035 11,649
Customer advance deposits 1,784 2,114
Dividends payable 734 734
-------- --------
Total current liabilities 271,898 241,378
Long-term debt, net of current maturities:
Banks and others 28,278 24,565
Affiliates 3,188 3,490
Deferred income taxes 6,220 5,210
-------- --------
Total liabilities 309,584 274,643
Minority interest 1,802 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 20,265 18,135
-------- --------
Total stockholders' equity 104,868 102,738
-------- --------
Total liabilities and stockholders' equity $416,254 $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>
Three Months Ended April 30,
(IN THOUSANDS) (UNAUDITED) 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 2,130 $ 2,456
Adjustments to reconcile net income to net
cash provided by operating activities :
Depreciation and amortization 3,290 1,490
Deferred taxes 1,410 (30)
Minority interest (37) (27)
Change in operating assets and liabilities:
Accounts receivable (8,858) (8,097)
Inventories (15,950) (25,034)
Prepaid expenses 507 (502)
Deposits (62) (50)
Floor plan payables 16,676 24,347
Accounts payable and accrued liabilities 5,891 10,069
Customer advance deposits (339) 203
-------- --------
Net cash provided by operating activities 4,658 4,825
-------- --------
Investing activities:
Net purchases of rental equipment (916) (2,887)
Net purchases of property and equipment (250) (946)
Net assets of acquisitions (1,765) (1,132)
Retained investment and service fee on securitized receivables (647) (1,138)
Other, net (1,412) (161)
-------- --------
Net cash used for investing activities (4,990) (6,264)
-------- --------
Financing activities:
Proceeds from issuance of long-term debt 1,513 3,445
Payments on long-term debt (2,837) (1,721)
Net proceeds (payments) of bank lines and short-term notes payable 1,653 (263)
-------- --------
Net cash provided by financing activities 329 1,461
-------- --------
Increase (decrease) in cash (3) 22
Cash and cash equivalents, beginning of period 51 37
-------- --------
Cash and cash equivalents, end of period $ 48 $ 59
======== ========
Supplemental disclosures:
Cash payments for interest $ 3,456 $ 2,530
======== ========
Cash payments for income taxes $ 12 $ 810
======== ========
Noncash investing and financing activities:
Increase in assets related to acquisitions of dealerships
through issuance and assumption of debt $ 11,880 $ 935
======== ========
</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 months ended
April 30, 1999 and April 30, 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 months ended April 30, 1999 are not necessarily indicative of the
results to be expected for the full year.
2. BUSINESS COMBINATIONS:
The Company made one acquisition during each of the first quarters of
fiscal 2000 and 1999. 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 three month periods
ending April 30 (in thousands):
1999 1998
-------- --------
Assets acquired $ 13,645 $ 2,067
Less: liabilities assumed 11,880 935
-------- --------
Cash purchase price $ 1,765 $ 1,132
======== ========
Number of acquisitions 1 1
======== ========
Results of operations for the acquisitions made prior to April 30, 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 months ended April
30, 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):
Three Months Ended April 30,
----------------------------
1999 1998
--------- ---------
Revenues $ 180,542 $ 163,179
========= =========
Net income $ 2,130 $ 2,776
========= =========
Weighted average shares outstanding - basic 13,182 13,182
========= =========
Weighted average shares outstanding - diluted 13,182 13,227
========= =========
Net income per share - basic and diluted $ .16 $ .21
========= =========
6
<PAGE>
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):
April 30, January 31,
1999 1999
--------- ---------
New equipment & trucks $ 169,173 $ 152,707
Used equipment & trucks 34,466 28,865
Parts and other 29,068 26,796
--------- ---------
$ 232,707 $ 208,368
========= =========
4. FLOOR PLAN PAYABLES:
Floor plan payables are interest and noninterest-bearing financing
arrangements for inventory. The terms of these arrangements generally include a
one to twelve-month interest-free term followed by a term during which interest
is charged. Floor plan payables consist of the following at (in thousands):
April 30, January 31,
1999 1999
--------- ---------
Interest-bearing $ 171,562 $ 146,127
Noninterest-bearing 43,715 44,903
--------- ---------
$ 215,277 $ 191,030
========= =========
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):
Three Months Ended April 30,
1999 1998
Net income available to common shareholders $ 2,130 $ 2,456
======= =======
Weighted average number of shares outstanding - basic 13,182 13,182
Dilutive effect of stock options outstanding -- 45
------- -------
Common and potential common shares outstanding - diluted 13,182 13,227
======= =======
Basic and dilutive net income per share $ 0.16 $ 0.19
======= =======
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
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<PAGE>
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.
The following table shows the Company's business segments and related
financial information for the three months ended April 30 (in thousands):
<TABLE>
<CAPTION>
Financial
Services and
Construction Agricultural Truck Rental Corporate Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999:
Revenues from
external customers $ 88,437 $ 40,302 $ 40,261 $ 9,794 $ 1,748 $ 180,542
Interest income 13 97 43 32 -- 185
Interest expense 1,568 522 382 812 -- 3,284
Depreciation and
amortization 674 231 193 1,919 273 3,290
Income (loss) before income
taxes and minority interest 2,599 595 382 (621) 573 3,528
Identifiable assets 192,697 86,675 52,783 53,453 30,646 416,254
Capital expenditures 698 (238) 137 631 (62) 1,166
1998:
Revenues from
external customers $ 73,950 $ 44,380 $ 2,367 $ 4,237 $ 1,011 $ 125,945
Interest income 10 46 -- 14 -- 70
Interest expense 1,249 652 31 523 -- 2,455
Depreciation and
amortization 352 232 15 853 38 1,490
Income (loss) before income
taxes and minority interest 2,690 1,163 121 (220) 343 4,097
Identifiable assets 189,584 112,449 5,905 33,199 18,475 359,612
Capital expenditures 671 14 10 3,016 122 3,833
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The Company's strategic plan of internal growth along with growth through
acquisitions resulted in the Company completing the acquisition of a heavy truck
dealership during the first quarter of fiscal 2000. The acquired dealership,
primarily supplied by Volvo, 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.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data:
Three Months Ended April 30,
----------------------------
1999 1998
------ ------
REVENUE DATA (IN MILLIONS):
Total revenues $180.5 $125.9
Construction 49.0% 58.7%
Agricultural 22.3% 35.2%
Truck 22.3% 1.9%
Rental 5.4% 3.4%
Financial 1.0% 0.8%
Construction revenues $ 88.4 $ 73.9
Equipment sales 71.9% 75.7%
Parts and service 27.2% 24.3%
Rental 0.9% --%
Agricultural revenues $ 40.3 $ 44.4
Equipment sales 74.3% 75.0%
Parts and service 25.7% 24.7%
Rental --% 0.3%
Truck revenues $ 40.3 $ 2.4
Truck sales 80.8% 61.3%
Parts and service 19.2% 38.7%
Rental revenues $ 9.8 $ 4.2
Equipment sales 27.0% 10.1%
Parts and service 3.0% 1.5%
Rental 70.0% 88.4%
STATEMENT OF OPERATIONS DATA (AS A PERCENTAGE OF TOTAL REVENUES):
Revenues
Equipment and truck sales 71.3% 72.3%
Parts and service 23.4 23.8
Rental 4.3 3.1
Financial services 1.0 0.8
----- -----
Total revenues 100.0 100.0
Gross profit 17.0% 18.8%
Selling, general and administrative expenses 13.3 13.7
----- -----
Operating income 3.7 5.1
Interest expense, net 1.7 1.9
Provision for taxes 0.8 1.3
----- -----
Net income 1.2% 1.9%
===== =====
9
<PAGE>
THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THREE MONTHS ENDED
APRIL 30, 1998
REVENUES
Revenues increased approximately $54.6 million, or 43.4%, from $125.9
million for the first three months of fiscal 1999 to $180.5 million for the
first three months of fiscal 2000. Construction operations contributed
approximately $14.5 million of this increase, with revenues increasing 19.6% to
$88.4 million. Construction revenues increased approximately $6.6 million due to
the Company's acquisitions and store openings since the first quarter of fiscal
1999. Truck operations contributed an increase in revenues of approximately
$37.9 million, with revenues increasing from $2.4 million to $40.3 million.
Substantially all of the increase in truck revenues was due to the Company's
acquisitions since the first quarter of fiscal 1999. Rental operations
contributed an increase in revenues of approximately $5.6 million, with revenues
increasing 133.3% to $9.8 million. Rental revenues increased approximately $4.6
million due to the Company's acquisitions and store openings since the first
quarter of fiscal 1999. Financial services contributed an increase in revenues
of approximately $700,000, with revenues increasing 70.0% to $1.7 million.
Offsetting these revenue increases, agricultural revenues decreased
approximately $4.1 million, with revenues for the first three months of fiscal
2000 decreasing 9.2% to $40.3 million. The decrease in revenues was primarily
attributable to the depressed agricultural economy.
Equipment and truck sales increased approximately $37.6 million, or 41.3%,
from $91.1 million for the first three months of fiscal 1999 to $128.7 million
for the first three months of fiscal 2000. Construction operations contributed
approximately $7.7 million of this increase, with sales increasing 13.8% to
$63.6 million. The Company's construction acquisitions and store openings since
the first quarter of fiscal 1999 resulted in equipment sales of $3.2 million in
the first quarter of fiscal 2000. Truck operations contributed an increase of
approximately $31.0 million, with sales increasing from $1.5 million to $32.5
million. Truck acquisitions since the first quarter of fiscal 1999 resulted in
truck sales of $30.9 million in the first quarter of fiscal 2000. Rental
operations contributed an increase of approximately $2.2 million, with sales
increasing from $400,000 to $2.6 million. This increase was due to acquisitions
and store openings since the first quarter of fiscal 1999. Agricultural
operations decreased approximately $3.3 million, with sales decreasing 9.9% to
$30.0 million. The decrease in equipment sales was primarily attributable to the
depressed agricultural economy.
Parts and service revenues increased approximately $12.4 million, or
41.3%, from $30.0 million for the first three months of fiscal 2000 to $42.4
million for the first three months of fiscal 2000. Construction operations
contributed approximately $6.0 million of the increase as sales grew 33.3% to
$24.0 million. Of this increase, $2.7 million was due to the Company's
acquisitions and store openings since the first quarter of fiscal 1999. Truck
operations contributed approximately $6.8 million of the increase as sales grew
from $900,000 to $7.7 million. This increase was due to acquisitions since the
first quarter of fiscal 1999. Rental operations contributed approximately
$200,000 of the increase as sales grew from $100,000 to $300,000. Of this
increase, $100,000 was due to acquisitions and store openings since the first
quarter of fiscal 1999. Parts and service revenues from agricultural operations
decreased 5.45%, or $600,000, to $10.4 million primarily attributable to adverse
conditions in the agricultural economy.
Rental revenues increased approximately $3.8 million, or 97.4%, from $3.9
million for the first three months of fiscal 1999 to $7.7 million for the first
three months of fiscal 2000. Construction and rental operations contributed
substantially all of this increase. Acquisitions and new store openings since
the first quarter of fiscal 1999 contributed $3.1 million of this increase.
10
<PAGE>
GROSS PROFIT
Gross profit increased approximately $7.0 million, or 29.5%, from $23.7
million for the first three months of fiscal 1999 to $30.7 million for the first
three months of fiscal 2000. Gross profit as a percentage of total revenues for
the first three months of fiscal 2000 and 1999 was 17.0% and 18.8%,
respectively. Gross profit is affected by the contribution of revenues by
business segment and by the mix of revenues within each business segment.
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 derived from its parts and
service, rental and financial services revenues. In addition to revenue mix,
gross profit as a percentage of sales was affected by a more competitive and
price sensitive marketplace affecting the agricultural economy and construction
equipment rental industry.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses as a percentage of
total revenues decreased from 13.7% for the first three months of fiscal 1999 to
13.3% for the first three months of fiscal 2000. SG&A expenses increased
approximately $6.8 million, from $17.3 million for the first three months of
fiscal 1999 to $24.1 million for the first three months of fiscal 2000.
Approximately $5.6 million of the increase was due to the operations of the
Company's acquisitions and store openings since the first quarter of fiscal
1999. As a percentage of revenues, SG&A expenses are 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 increased approximately $800,000, or 32.0%, from $2.5
million for the first three months of fiscal 1999 to $3.3 million for the first
three 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 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 inventories.
INCOME TAXES
The estimated provision for income taxes as a percentage of pretax income
for the first three months of fiscal 2000 and 1999 was 40.7%.
NET INCOME
The Company reported net income of $2.1 million, or $.16 per share, for
the first three months of fiscal 2000, compared to $2.5 million, or $.19 per
share, for the first three 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),
11
<PAGE>
NationsBanc Leasing Corporation (NationsBanc), Deutsche Financial Services
Corporation (Deutsche), Associates Commercial Corporation (Associates), General
Motors Acceptance Corporation (GMAC) and commercial banks. In addition, in
January 1997, the Company completed its initial public offering raising net
proceeds of $68.3 million, which have been used to satisfy the Company's working
capital needs.
Floor plan financing from Deere, Deere Credit and NationsBanc 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 and GMAC. On- and off-balance sheet financing
of rental equipment is primarily provided by Deutsche, Deere Credit and
Associates. All 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 $40.7 million
at April 30, 1999.
Deere offers 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. 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
NationsBanc provide equipment floor plan financing with variable market rates of
interest based on the prime rate and LIBOR, respectively. Associates and GMAC
provide truck floor plan financing with variable market rates of interest based
on the prime rate. Deutsche and Associates provide rental equipment financing
using variable market rates of interest based on LIBOR and the prime rate,
respectively.
The Company has available bank lines of credit totaling $27.5 million with
varying maturity dates through December 1, 1999 with variable interest rates
based on LIBOR and the prime rate. The Company had approximately $10.2 million
of unused availability relating to these lines of credit at April 30, 1999.
The Company periodically reviews the terms of its financing with its
lenders, including the interest rate. For the first three months of fiscal 2000
and 1999 the average interest rate under interest-bearing floor plan financing
was approximately 7.08% and 7.69%, respectively. As of April 30, 1999 the
Company had outstanding floor plan payables of approximately $215.3 million, of
which $171.6 million was then interest-bearing. The average interest rates on
the Company's lines of credit during the three months ended April 30, 1999 and
1998 were 7.61% and 8.25%, respectively.
The Company's financing agreements contain various restrictive covenants
which, among other matters, require the Company to maintain minimum net worth
levels, as defined, and place limits on additional indebtedness. The Company was
in compliance with or obtained waiver letters for all debt covenants at April
30, 1999.
Operating activities provided net cash of approximately $4.7 million for
the first three months of fiscal 2000. The cash generated from operating
activities was primarily from increases in floor plan financing, accounts
payable and accrued liabilities.
Cash used for investing activities during the first three months of fiscal
2000 was $5.0 million, which was primarily related to acquisitions and the
purchase of equipment for the Company's rental operations.
12
<PAGE>
Cash provided by financing activities provided approximately $300,000 for
the first three months of fiscal 2000. The primary source of cash from financing
activities was increases in the Company's operating lines, offset by net
payments of long-term debt.
The Company believes cash from operations, available cash and borrowing
capacity will be sufficient to fund its planned capital expenditures for fiscal
2000.
SEASONALITY
The Company generally experiences a higher volume of equipment sales in
the second and third fiscal quarters of each fiscal year due to the crop growing
season, winter weather conditions in the Midwest and the general slowdown in
construction activity at the end of the calendar year. Typically, farmers
purchase agricultural equipment immediately prior to planting or harvesting
crops, which occurs during the Company's second and third fiscal quarters in the
Midwest. As a result, sales of agricultural equipment generally are lower in the
first and fourth fiscal quarters. Winter weather in the Midwest also limits
construction to some degree and, therefore, also typically results in lower
sales of construction equipment in the first and fourth fiscal quarters. If the
Company acquires operations in geographical areas other than where it currently
has operations, it may be affected by other seasonal or equipment buying trends.
YEAR 2000 READINESS
The Company uses both information technology ("IT") and non-IT systems and
assets which 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, truck and parts,
reporting financial information, and receiving technical information for service
activities. The Company has received and is relying upon assurances from 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 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 fifty percent of these vendors have thus far
responded to the survey, including all major manufacturers and suppliers. About
one-half 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.
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In addition, the Company's operations use a variety of non-IT devices and
systems containing embedded technology which 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 sixty percent of its evaluation of these
non-IT devices and systems. 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.
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; levels of new and used inventories in
these industries; the Company's relationships with its suppliers; production
difficulties, including capacity and supply
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constraints experienced 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.
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 16.
(b) REPORTS ON FORM 8-K.
During the first quarter ended April 30, 1999, the Company
filed a Current Report on Form 8-K dated April 23, 1999 under Item 5
relating to a Cautionary Statement Regarding Future Results,
Forward-Looking Information and Certain Important Factors.
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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: June 10, 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 Credit Agreement between RDO Equipment Co. and 17
Ag Capital Company
10.2 Credit Agreement between RDO Material Handling 46
Co. and Ag Capital Company
10.3 Loan and Security Agreement between RDO Rental 66
Co. and Deutsche Financial Services Corporation, and
First Amendment Thereto
10.4 Bill of Sale between Minnesota Valley Irrigation, Inc. 99
and R.D. Offutt Company
27.1 Financial Data Schedule 103
16
Exhibit 10.1
AG CAPITAL COMPANY
CREDIT AGREEMENT
THIS CREDIT AGREEMENT made and entered into as of June 1, 1999 (the
"Effective Date"), by and between RDO EQUIPMENT CO., a Delaware corporation (the
"Borrower"), whose address is 2829 South University Drive, P.O. Box 7160, Fargo,
North Dakota, 58109-7160, and AG CAPITAL COMPANY, a Delaware corporation (the
"Lender"), whose address is 1500 Radisson Tower, 201 North 5th Street, Fargo,
North Dakota 58102.
RECITALS
A. The Borrower wishes to borrow funds from the Lender and the Lender
wishes to make loans and advances to the Borrower; and
B. The Borrower and the Lender mutually desire to set forth the terms
under which the Lender 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 Lender 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
Lender agree as follows:
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:
1. DEFINITIONS
"Adjusted Funded Debt" means all Indebtedness which by the terms of the
agreement governing or instrument evidencing such Indebtedness including all
Floor Plan Debt has a final maturity of more than (1) year from the date of
creation thereof (or which is renewable or extendible at the option of the
obligor and offering of the lender for a period or periods more than one year
from the date of origin), including all payments in respect thereof that are
required, or that may be required by the obligor with respect thereto, to be
made within (1) one year from the date of any determination of Adjusted Funded
Debt, whether or not included in current liabilities of such Borrower LESS ANY
NON-INTEREST BEARING DEBT OWED TO AN ORIGINAL EQUIPMENT MANUFACTURER OR ITS
AFFILIATE.
"Advance" means any advance by the Lender made under either of the
Seasonal Commitments. (The face amount of any letter of credit issued by the
Lender for the account of the Borrower shall be deemed an Advance hereunder).
"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.
"Assignee" has the meaning set forth in Section 19.14.
"Borrower" means RDO Equipment Co., a Delaware corporation.
"Bridge Loan I" means, at any date, the aggregate amount of all Advances
made by the Lender pursuant to Section 11 hereof.
<PAGE>
"Bridge Note I" means the note No. 32550, dated October 12, 1998, in the
original principal amount of Five Million Dollars ($5,000,000.00) made by the
Borrower payable to the order of the Lender, together with all extensions,
renewals, modifications, substitutions and changes in form thereof effected by
written agreement between the Borrower and the Lender.
"Business Day" means any day on which the Lender is 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:
(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 Lender holds a security interest pursuant to any of the Loan
Documents.
"Coverage Ratio" means Adjusted Funded Debt divided by the rolling four
(4) quarter average EBITDA. One-time non-recurring charges relating to asset
write-downs and severance costs totaling $17.2MM may be added to EBITDA for
purposes of measuring this ratio from the date of this agreement to 10/31/99.
The Borrower will no longer add these one-time charges back to EBITDA for
purposes of measuring this ratio from the period commencing 11/01/99 and beyond.
"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 Lender.
"Current Assets" means, at any date, the aggregate amount of all assets of
the Borrower that are classified as current assets, on a consolidated basis, in
accordance with GAAP.
"Current Liabilities" means, at any time, the aggregate amount of all
liabilities of the Borrower that are classified as current liabilities, on a
consolidated basis, in accordance with GAAP (including taxes and other proper
accruals and the matured portion of any indebtedness).
"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 at 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.
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<PAGE>
"Default" means any event which if continued uncured would, with notice or
lapse of time or both, constitute an Event of Default.
"EBITDA" means Consolidated Earnings Before Interest Taxes Depreciation
and Amortization.
"Environmental Laws" has the meaning set forth in Section 15.17.
"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 18
hereof.
"Fixed Rate" means such rate of interest as may be quoted to Borrower by
Lender at Lender's sole discretion upon request made by Borrower before 11:00
a.m. (central time) at least two Business Days prior to the beginning of the
calendar month specified by Borrower in such request for Interest Rate Periods
as specified by Borrower in such request.
"Fixed Rate Amount" means the amount of any Loan which accrues interest at
a Fixed Rate, which shall be specified in any request by the Borrower to Lender
for a Fixed Rate, and which must be in increments of $100,000, unless otherwise
agreed to by the Lender.
"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, Committee on Accounting
Procedure (CAP) Accounting Research Bulletins, and certain other accounting
principles which have substantial authoritative support.
"Government Yield" means as of any date of determination the yield
(converted as necessary to the equivalent semi-annual compound rate) on U.S.
Treasury securities having a maturity date closest to the weighted average
maturity of the relevant Loan (to the scheduled installment dates), as published
in The Wall Street Journal (or, if not so published, as determined by the Lender
by using the average quotes obtained by the Lender from three primary dealers
that market U.S. Treasury securities in the secondary market). "U.S. Treasury
securities" means actively traded U.S. Treasury bonds, bills and notes and, if
more than one issue of U.S. Treasury securities is scheduled to mature at or
about the time of the end of the weighted average maturity of the Loan, then to
the extent possible the U.S. Treasury security issued most recently prior to the
date of determination will be chosen as the basis of the Government Yield.
"Hazardous Substance" has the meaning set forth in Section 17.17 hereof.
"Interest Differential" means as of the date of any full or partial
prepayment on any Loan, the Government Yield with respect to such Loan measured
on the date the rate at which interest on such Loan is accruing immediately
prior to such prepayment is set, minus the Government Yield with respect to such
Loan as of the date of such prepayment.
"Interest Rate Period" means the period specified by the Lender in
response to a request by the Borrower that any Fixed Rate Amount of any Loan
accrue interest at a Fixed Rate. All Interest Rate Periods shall be months, but
in no event shall end later than the Maturity with respect to the Seasonal Loan,
and the final maturity date for each other Loan.
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<PAGE>
"Issuance Spread" is the amount by which the rate per annum at which
interest accrues on any Loan as of any date such rate is set exceeded the
Government Yield as of such date.
"Lender" means Ag Capital Company, a Delaware corporation, its successors
and assigns.
"Leverage Ratio" means the ratio of Total Liabilities (including Debt)
divided by Tangible Net Worth of the Borrower, as determined on a consolidated
basis, and in accordance with GAAP. One-time non-recurring charges relating to
asset write-downs and severance costs totaling $17.2MM may be added to Tangible
Net Worth for purposes of measuring this ratio commencing with the date of this
agreement to 10/31/99. The Borrower will no longer add these one-time charges
back to Tangible Net Worth for purposes of measuring this ratio from the period
commencing 11/01/99 and beyond.
"LIBOR" for any business day during any calendar month means the quoted
rate of interest per annum determined by the British Banker's Association as the
average of interbank offered rates for dollar deposits 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 any of the Seasonal Loan I, Seasonal Loan II, Term Loan I,
Term Loan II, Term Loan III, Term Loan IV, Term Loan V, Term Loan VI, Term Loan
VII, and Bridge Loan I.
"Loan Documents" means this Credit Agreement and the Subject Notes and
such other documents as the Lender 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.
"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 Lender's reasonable
judgment, the ability of the Borrower to perform its obligations under the Loan
Documents.
"Maturity" with respect to Seasonal Note I and Seasonal Note II means the
earlier of (a) the date on which the respective Seasonal Note becomes due and
payable upon the occurrence of an Event of Default; or (b) the Termination Date.
"Mortgages" means the mortgages dated January 31, 1996 expressly securing
Term Note IV, and other obligations to Lender, and mortgages dated June 16, 1992
expressly securing Term Note I, February 24, 1992 expressly securing Term Note
II and October 14, 1991, expressly securing Term Note III and as provided in
each such mortgage, other obligations to Lender.
"Mortgage Secured Notes and Loans" has the meaning set forth in Section
12.8.
"Person" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual fiduciary or other capacity.
"Premises" has the meaning set forth in Section 15.17 hereof.
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<PAGE>
"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 Lender 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 the Lender (or its successors or assigns); or (b) regulation,
interpretation, directive or request (whether or not having the force of law)
applying or in the reasonable opinion of the Lender (or its successors or
assigns) applicable to, the Lender (or its 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 Lender (or its successors or
assigns).
"Seasonal Commitment" means the Lender's obligation to extend Advances to
the Borrower under Sections 2 and 3, as the context may require.
"Seasonal Loan I" means, at any date, the aggregate amount of all Advances
made by the Lender to the Borrower pursuant to Section 2 hereof.
"Seasonal Note I" means the note No. 33590, dated June 1, 1999, in the
original principal amount of Fifteen Million Dollars ($15,000,000.00) made by
the Borrower payable to the order of the Lender, together with all extensions,
renewals, modifications, substitutions and changes in form thereof effected by
written agreement between the Borrower and the Lender.
"Seasonal Loan II" means, at any date, the aggregate amount of all
Advances made by the Lender to the Borrower pursuant to Section 3 hereof.
"Seasonal Note II" means the note No. 33600, dated June 1, 1999, in the
original principal amount of Five Million Dollars ($5,000,000.00) made by the
Borrower payable to the order of the Lender, together with all extensions,
renewals, modifications, substitutions and changes in form thereof effected by
written agreement between the Borrower and the Lender.
"Security Agreement" means the Security Agreement dated as of October 12,
1998 executed by the Borrower in favor of the Lender, as originally executed and
as may be amended, modified or supplemented from time to time by written
agreement between the Borrower and the Lender, and various other security
agreements previously executed in favor of the Lender by Borrower.
"Subject Note(s)" means the Seasonal Note I, Seasonal Note II, Term Note
I, Term Note II, Term Note III, Term Note IV, Term Note V, Term Note VI, Term
Note VII, and Bridge Note I.
"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.
"Tangible Net Worth" means, at any date, the excess, if any, of the
Borrower's total assets over the Borrower's total liabilities on such date,
excluding from total assets the aggregate amount carried as assets on the books
of the Borrower for goodwill, licenses, patents, trademarks, trade names
treasury stock, unamortized debt discount and expenses, copyrights, franchises,
organization
5
<PAGE>
costs, write-ups in the book value of the assets of the Borrower resulting from
a revaluation thereof, and any other intangible assets, all as determined in
accordance with GAAP.
"Term Loan I" means the loan evidenced by the Term Note I (No. 4550).
"Term Note I" means the note No. 4550, dated June 16, 1992, in the
original principal amount of Eighty Thousand Dollars ($80,000), made by the
Borrower payable to the order of the Lender, together with all extensions,
renewals, modifications, substitutions and changes in form thereof effected by
written agreement between the Borrower and the Lender.
"Term Loan II" means the loan evidenced by the Term Note II (No. 4560).
"Term Note II" means the note No. 4560, dated February 24, 1992, in the
original principal amount of One Hundred Fifty-Eight Thousand Three Hundred
Sixty-Eight and 78/100 Dollars ($158,368.78) made by the Borrower payable to the
order of the Lender, together with all extensions, renewals, modifications,
substitutions and changes in form thereof effected by written agreement between
the Borrower and the Lender.
"Term Loan III" means the loan evidenced by the Term Note III (No. 4910).
"Term Note III" means the note No. 4910, dated October 14, 1991, in the
original principal amount of Three Hundred Fifty Thousand Dollars ($350,000)
made by the Borrower payable to the order of the Lender, together with all
extensions, renewals, modifications, substitutions and changes in form thereof
effected by written agreement between the Borrower and the Lender.
"Term Loan IV" means the loan evidenced by the Term Note IV (No. 20020).
"Term Note IV" means the note No. 20020, dated January 29, 1996 in the
original principal amount of Eight Hundred Ninety-Eight Thousand Two Hundred
Dollars ($898,200) made by the Borrower payable to the order of the Lender,
together with all extensions, renewals, modifications, substitutions and changes
in form thereof effected by written agreement between the Borrower and the
Lender.
"Term Loan V" means the loan evidenced by the Term Note V (No. 24900).
"Term Note V" means the note No. 24900, dated October 18, 1996 in the
original principal amount of Three Hundred Fifty-Five Thousand Dollars
($355,000) made by the Borrower payable to the order of the Lender, together
with all extensions, renewals, modifications, substitutions and changes in form
thereof effected by written agreement between the Borrower and the Lender.
"Term Loan VI" means the loan evidenced by the Term Note VI (No. 27370).
"Term Note VI" means the note No. 27370, dated January 31, 1997 in the
original principal amount of One Million Eight Hundred Fifty-Five Thousand Seven
Hundred and Three Dollars ($1,855,703) made by the Borrower payable to the order
of the Lender, together with all extensions, renewals, modifications,
substitutions and changes in form thereof effected by written agreement between
the Borrower and the Lender.
"Term Loan VII" means the loan evidenced by the Term Note VII (No. 27380).
"Term Note VII" means the note No. 27380, dated January 31, 1997 in the
original principal amount of Two Million Five Hundred Fifty-Nine Thousand
Dollars ($2,559,000) made by the Borrower
6
<PAGE>
payable to the order of the Lender, together with all extensions, renewals,
modifications, substitutions and changes in form thereof effected by written
agreement between the Borrower and the Lender.
"Term Notes" means Term Note I (No. 4550), Term Note II (No. 4560), Term
Note III (No. 4910), Term Note IV (No. 20020), Term Note V (No. 24900), Term
Note VI (No. 27370) and Term Note VII (No. 27380).
"Termination Date" means the earlier of (a) June 1, 2000; or (b) the date
upon which the obligation of the Lender to make Advances is terminated pursuant
to Section 2.7 or Section 3.7 .
"Working Capital" means the Borrower's Current Assets minus its Current
Liabilities (other than deferred income taxes and any current portion of
liabilities otherwise included in the Current Liabilities).
2. THE SEASONAL LOAN I
2.1. Commitment for Seasonal Loan I. Subject to the Conditions of Lending
set forth in Section 14 hereof, the Lender agrees to make Advances under
Seasonal Loan I to the Borrower from time to time from the date of this
Credit Agreement through the Termination Date, provided, however, that the
Lender shall not be obligated to make any such Advance, if after giving
effect to such Advance, the aggregate outstanding principal amount of all
such Advances would exceed Fifteen Million Dollars ($15,000,000). Within
the limits set forth above, the Borrower may borrow, repay and reborrow
amounts under the Seasonal Note I.
2.2. The Seasonal Note I. All Advances shall be evidenced by, and the
Borrower shall repay such Advances to the Lender in accordance with, the
terms of the Seasonal Note I but in no event later than the date of
Maturity; including without limitation the provision of the Seasonal Note
I that the principal amount payable thereunder at any time shall not
exceed the then unpaid principal amount of all Advances under Seasonal
Loan I made by the Lender.
2.3. Records of Advances and Payments. The aggregate amount of all unpaid
Advances under Seasonal Loan I set forth on the records of the Lender
shall be rebuttable presumptive evidence of the principal amount owing and
unpaid on the Seasonal Note I.
2.4. Payments and Interest on the Seasonal Note I.
(a) Except to the extent any part thereof is a Fixed Rate Amount, the
Borrower agrees to pay interest on the outstanding principal amount
of the Seasonal Note I from the date hereof until paid in full at a
per annum rate equal to one-month LIBOR plus 250 basis points,
determined two (2) business days prior to the first business day of
any calendar week and fixed until the first business day of the
following calendar week.
(b) Interest accrued on the Seasonal Note I through Maturity shall be
payable for each month on the first (1st) day of the following
calendar month, commencing July 1, 1999, and at Maturity when the
entire outstanding principal amount shall be due and payable.
Interest accrued after Maturity shall be payable upon demand.
2.5. Manner of Borrowing. The Borrower shall give the Lender written or
telephonic notice of each requested Advance under Seasonal Loan I by not
later than 1:00 p.m. (Minneapolis time) on the date such Advance is to be
made. Each Advance under Seasonal Loan I shall be deposited to an account
designated by the Borrower or as otherwise indicated in the corresponding
request by the Borrower.
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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 Seasonal Note I to the Lender at its office shown
on the first page hereof (or to such other locations as may from time to
time be specified by the Lender).
2.7. Termination. The obligation of the Lender to make Advances under
Seasonal Loan I shall terminate:
(a) Upon receipt by the Lender of three (3) days' written notice of
termination from the Borrower given at any time when no amount is
outstanding under the Seasonal Note I;
(b) Immediately and without further action upon the occurrence of an
Event of Default of the nature referred to in Subsection 18.1(d) or
(c) Immediately when any Event of Default (other than one of the nature
specified in Subsection 18.1(d)) shall have occurred and be
continuing and either (i) the Lender shall have demanded payment of
the Seasonal Note I or (ii) the Lender shall elect by giving notice
to Borrower.
3. THE SEASONAL LOAN II
3.1. Commitment for Seasonal Loan II. Subject to the Conditions of Lending
set forth in Section 14 hereof, the Lender agrees to make Advances under
Seasonal Loan II to the Borrower from time to time from the date of this
Credit Agreement through the Termination Date, provided, however, that the
Lender shall not be obligated to make any such Advance, if after giving
effect to any such Advance, the aggregate outstanding principal amount of
all such Advances would exceed Five Million Dollars ($5,000,000). Within
the limits set forth above, the Borrower may borrow, repay and reborrow
amounts under the Seasonal Note II.
3.2. The Seasonal Note II. All Advances shall be evidenced by, and the
Borrower shall repay such Advances to the Lender in accordance with, the
terms of the Seasonal Note II but in no event later than the date of
Maturity; including without limitation the provision of the Seasonal Note
II that the principal amount payable thereunder at any time shall not
exceed the then unpaid principal amount of all Advances under Seasonal
Loan II made by the Lender.
3.3. Records of Advances and Payments. The aggregate amount of all unpaid
Advances set forth on the records of the Lender shall be rebuttable
presumptive evidence of the principal amount owing and unpaid on the
Seasonal Note II.
3.4. Payments and Interest on the Seasonal Note II.
(a) Except to the extent any part thereof is a Fixed Rate Amount, the
Borrower agrees to pay interest on the outstanding principal amount
of the Seasonal Note I from the date hereof until paid in full at a
per annum rate equal to one-month LIBOR plus 250 basis points,
determined two (2) business days prior to the first business day of
any calendar week and fixed until the first business day of the
following calendar week.
(b) Interest accrued on the Seasonal Note II through Maturity shall be
payable for each month on the first (1st) day of the following
calendar month, commencing July 1, 1999, and at Maturity when the
entire outstanding principal amount shall be due and payable.
Interest accrued after Maturity shall be payable upon demand.
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3.5. Manner of Borrowing. The Borrower shall give the Lender written or
telephonic notice of each requested Advance under Seasonal Loan II by not
later than 1:00 p.m. (Minneapolis time) on the date such Advance is to be
made. Each Advance under Seasonal Loan II shall be deposited to an account
designated by the Borrower or as otherwise indicated in the corresponding
request by the Borrower.
3.6. 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 Seasonal Note II to the Lender at its office shown
on the first page hereof (or to such other locations as may from time to
time be specified by the Lender).
3.7. Termination. The obligation of the Lender to make Advances under
Seasonal Loan II shall terminate:
(a) Upon receipt by the Lender of three (3) days' written notice of
termination from the Borrower given at any time when no amount is
outstanding under the Seasonal Note II;
(b) Immediately and without further action upon the occurrence of an
Event of Default of the nature referred to in Subsection 18.1(d) or
(c) Immediately when any Event of Default (other than one of the nature
specified in Subsection 18.1(d)) shall have occurred and be
continuing and either (i) the Lender shall have demanded payment of
the Seasonal Note II or (ii) the Lender shall elect by giving notice
to Borrower.
4. THE TERM LOAN I
4.1. Term Loan. The Lender has previously made Term Loan I to the
Borrower, of which the principal amount of $5,197.55 is currently
outstanding.
4.2. Term Note I. To evidence the Term Loan I made by the Lender to the
Borrower hereunder, the Borrower has executed and delivered to the Lender
the Term Note I. The Borrower agrees to pay to the Lender amounts
outstanding under the Term Note I in installments as set forth in said
note, with all outstanding principal and accrued interest due and payable
October 1, 1999.
4.3. Payments and Interest on the Term Note I.
(a) Except to the extent any part thereof is a Fixed Rate Amount, the
Borrower agrees to pay interest on the unpaid principal balance of
the Term Note I outstanding from time to time at a rate per annum
equal to the Reference Rate.
(b) After the date hereof, the principal and accrued interest on the
amount outstanding under Term Note I through the end of each
calendar month hereafter shall be payable on the fifteenth (15th)
day following the end of each such calendar month in equal monthly
payments of $1,200 commencing June 15, 1999 and continuing on the
fifteenth (15th) day of each calendar month thereafter until October
1, 1999, when the entire amount of principal and interest shall be
due and payable in full. Lender shall have the right to adjust the
amount of such payments to maintain the original 7 year amortization
to the extent required by changes in the rate at which interest
accrues on Term Note I.
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5. TERM LOAN II
5.1. Term Loan II. The Lender has previously made Term Loan II to the
Borrower, of which the principal amount of $52,115.51 is currently
outstanding.
5.2. Term Note II. To evidence the Term Loan II made by the Lender to the
Borrower hereunder, the Borrower has executed and delivered to the Lender
the Term Note II. The Borrower agrees to pay to the Lender amounts
outstanding under the Term Note II in installments as set forth in said
note, with all outstanding principal and accrued interest due and payable
February 15, 2001.
5.3. Payments and Interest on the Term Note II.
(a) The Borrower agrees to pay interest on the unpaid principal balance
of the Term Note II outstanding from time to time at a fixed rate
equal to 9.90%.
(b) After the date hereof, the principal and accrued interest on the
amount outstanding under Term Note II through the end of each
calendar month hereafter shall be payable on the fifteenth (15th)
day following the end of each such calendar month in equal monthly
payments of $2,045 commencing June 15, 1999 and continuing on the
fifteenth (15th) day of each calendar month thereafter until
February 15, 2001, when the entire amount of principal and interest
shall be due and payable in full.
6. TERM LOAN III
6.1. Term Loan III. The Lender has previously made Term Loan III to the
Borrower, of which the principal amount of $115,814.39 is currently
outstanding.
6.2. Term Note III. To evidence the Term Loan III made by the Lender to
the Borrower hereunder, the Borrower has executed and delivered to the
Lender the Term Note III. The Borrower agrees to pay to the Lender amounts
outstanding under the Term Note III in installments as set forth in said
note, with all outstanding principal and accrued interest due and payable
October 1, 2001.
6.3. Payments and Interest on the Term Note III.
(a) The Borrower agrees to pay interest on the unpaid principal balance
of the Term Note III outstanding from time to time at a fixed rate
equal to 9.70%.
(b) After the date hereof, the principal and accrued interest on the
amount outstanding under Term Note III through the end of each
calendar month hereafter shall be payable on the fifteenth (15th)
day following the end of each such calendar month in equal monthly
payments of $4,567.33 commencing June 15, 1999 and continuing on the
fifteenth (15th) day of each calendar month thereafter until October
1, 2001, when the entire amount of principal and interest shall be
due and payable in full.
7. TERM LOAN IV
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7.1. Term Loan IV. The Lender has previously made Term Loan IV to the
Borrower, of which the principal amount of $796,923.53 is currently
outstanding.
7.2. Term Note IV. To evidence the Term Loan IV made by the Lender to the
Borrower hereunder, the Borrower has executed and delivered to the Lender
the Term Note IV. The Borrower agrees to pay to the Lender amounts
outstanding under the Term Note IV in installments as set forth in said
note, with all outstanding principal and accrued interest due and payable
February 1, 2006.
7.3. Payments and Interest on the Term Note IV.
(a) Except to the extent any part thereof is a Fixed Rate Amount, the
Borrower agrees to pay interest on the unpaid principal balance of
the Term Note IV outstanding from time to time at a rate per annum
equal to the Reference Rate.
(b) After the date hereof, the principal and accrued interest on the
amount outstanding under Term Note IV through the end of each
calendar month hereafter shall be payable on the fifteenth (15th)
day following the end of each such calendar month in equal monthly
payments of $8,370 commencing June 15, 1999 and continuing on the
fifteenth (15th) day of each calendar month thereafter until
February 1, 2006, when the entire amount of principal and interest
shall be due and payable in full. Lender shall have the right to
adjust the amount of such payments to maintain the original 15 year
amortization to the extent required by changes in the rate interest
accrues on Term Note IV.
8. TERM LOAN V
8.1. Term Loan V. The Lender has previously made Term Loan V to the
Borrower, of which the principal amount of $205,000.00 is currently
outstanding.
8.2. Term Note V. To evidence the Term Loan V made by the Lender to the
Borrower hereunder, the Borrower has executed and delivered to the Lender
the Term Note V. The Borrower agrees to pay to the Lender amounts
outstanding under the Term Note V in installments as set forth in said
note, with all outstanding principal and accrued interest due and payable
December 1, 2002.
8.3. Payments and Interest on the Term Note V.
(a) Except to the extent any part thereof is a Fixed Rate Amount, the
Borrower agrees to pay interest on the unpaid principal balance of
the Term Note V outstanding from time to time at a rate per annum
equal to the Reference Rate.
(b) After the date hereof, the principal and accrued interest on the
amount outstanding under Term Note V through the end of each
calendar quarter hereafter shall be payable on the fifteenth (15th)
day following the end of each such calendar quarter in equal
quarterly payments of $15,000 of principal, plus interest accrued
through such period, commencing August 15, 1999 and continuing on
the fifteenth (15th) day following each November, February, May and
August thereafter until December 1, 2002, when the entire amount of
principal and interest shall be due and payable in full.
9. TERM LOAN VI
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9.1. Term Loan VI. The Lender has previously made Term Loan VI to the
Borrower, of which the principal amount of $1,577,378.00 is currently
outstanding.
9.2. Term Note VI. To evidence the loan made by the Lender to the Borrower
hereunder, the Borrower has executed and delivered to the Lender the Term
Note. The Borrower agrees to pay to the Lender amounts outstanding under
the Term Note VI in installments as set forth in said note, with all
outstanding principal and accrued interest due and payable February 1,
2002.
9.3. Payments and Interest on the Term Note VI.
(a) Except to the extent any part thereof is a Fixed Rate Amount, the
Borrower agrees to pay interest on the unpaid principal balance of
the Term Note VI outstanding from time to time at a rate per annum
equal to the Reference Rate.
(b) After the date hereof, the principal and accrued interest on the
amount outstanding under Term Note VI through the end of each
quarterly period ending immediately prior to the following described
payment dates hereafter shall be payable on the fifteenth (15th) day
following the end of each such quarterly period in quarterly
payments of $30,925 of principal, plus interest accrued through such
period, commencing August 15, 1999 and continuing on the fifteenth
(15th) day of each of November, February, May and August thereafter
until February 1, 2002, when the entire amount of principal and
interest shall be due and payable in full.
10. TERM LOAN VII
10.1. Term Loan VII. The Lender has previously made Term Loan VII to the
Borrower, of which the principal amount of $1,407,450.00 is currently
outstanding.
10.2. Term Note VII. To evidence the loan made by the Lender to the
Borrower hereunder, the Borrower has executed and delivered to the Lender
the Term Note. The Borrower agrees to pay to the Lender amounts
outstanding under the Term Note VII in installments as set forth in said
note, with all outstanding principal and accrued interest due and payable
February 1, 2002.
10.3. Payments and Interest on the Term Note VII.
(a) Except to the extent any part thereof is a Fixed Rate Amount, the
Borrower agrees to pay interest on the unpaid principal balance of
the Term Note VII outstanding from time to time at a rate per annum
equal to the Reference Rate.
(b) After the date hereof, the principal and accrued interest on the
amount outstanding under Term Note VII through the end of each
quarterly period ending immediately prior to the following described
payment dates hereafter shall be payable on the fifteenth (15th) day
following the end of each such quarterly period in quarterly
payments of $127,950 of principal, plus interest accrued through
such period, commencing August 15, 1999 and continuing on the
fifteenth (15th) day of each of November, February, May and August
thereafter until February 1, 2002, when the entire amount of
principal and interest shall be due and payable in full.
11. BRIDGE LOAN I
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11.1. Bridge Loan. The Lender has made Bridge Loan I to the Borrower, in
the face amount of $5,000,000.00.
11.2. Bridge Note I. To evidence the Bridge Loan I made by the Lender to
the Borrower hereunder, the Borrower has executed and delivered to the
Lender the Bridge Note I. The Borrower agrees to pay to the Lender amounts
outstanding under the Bridge Note I in installments as set forth in said
note, with all outstanding principal and accrued interest due and payable
June 1, 1999.
11.3. Payments and Interest on the Bridge Note I.
(a) Except to the extent any part thereof is a Fixed Rate Amount, the
Borrower agrees to pay interest on the outstanding principal amount
of the Bridge Note I from the date hereof until paid in full at a
per annum rate equal to one-month LIBOR plus 275 basis points,
determined two (2) business days prior to the first business day of
any calendar week and fixed until the first business day of the
following calendar week.
(b) After the date hereof, the principal and accrued interest on the
amount outstanding under Bridge Note I through the end of each
quarterly period ending immediately prior to the following described
payment dates hereafter shall be payable on the first (1st) day
following the end of such quarterly period in quarterly payments of
$250,000.00 of principal, plus interest accrued through such period,
commencing August 1, 1999 and continuing on the first (1st) day of
each November, February, May and August thereafter until August 1,
2004, when the entire amount of principal and accrued interest shall
be due and payable in full.
12. GENERAL PROVISIONS
12.1. 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,
360 days to the extent such interest is computed based on the
Reference Rate, but charged for the actual number of days elapsed,
and such number of days as is indicated in the confirmation
described in Section 13.2 with respect to any Fixed Rate Amount.
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 Lender 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.
12.2. 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
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percent (2%) in excess of the Reference Rate in effect from time to time.
In addition, the Borrower shall be obligated to pay $25.00 with respect to
any installment on any Subject Note paid after the date it is due, to
compensate Lender for the administrative expenses associated with such
past-due payments, subject to the maximum allowable late payment under
North Dakota law.
12.3. Security. The indebtedness, liabilities and other obligations of the
Borrower to the Lender 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 Lender as security for the obligations to the Lender,
except that the Seasonal Notes I and II and the Letter of Credit Notes I
and II are not secured by any such collateral or agreements,
notwithstanding anything to the contrary therein.
12.4. Voluntary Prepayments. The Borrower may prepay the principal of any
of the Subject Notes, in whole or in part, only so long as (i) any such
prepayment is in a minimum amount of $100,000 or a multiple thereof; (ii)
any such prepayment shall be accompanied by the interest accrued on the
amount prepaid to the date of the prepayment; (iii) any such prepayment
shall be accompanied by the prepayment premium specified in, and computed
in accordance with, the provisions of Section 12.6 set forth below and
(iv) all amounts prepaid shall be applied in accordance with the terms of
such Subject Note.
12.5. Manner of 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 Subject Notes to the Lender at its office
shown on the first page hereof.
12.6. Funding Losses; Prepayment Premiums.
(a) The Borrower hereby agrees that upon demand by the Lender (which
demand shall be accompanied by a statement setting forth the basis
for the calculations of the amount being claimed and the Lender's
calculation of the amount of such demand) the Borrower will
indemnify the Lender against any loss or expense which the Lender
may have sustained or incurred (including, without limitation, any
net loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to
fund or maintain such loans) or which the Lender may be deemed to
have sustained or incurred, as reasonably determined by the Lender,
(i) as a consequence of any failure by the Borrower to make any
payment when due of any amount due hereunder in connection with any
such loans, (ii) due to any failure of the Borrower to borrow or
convert any such Loans accruing interest based on LIBOR or Fixed
Rate Amounts on a date specified therefor in a notice thereof or
(iii) due to any payment or prepayment of any such loans on a date
other than the last day of the applicable Interest Rate Period (if a
Fixed Rate Amount).
(b) If at the time of any prepayment of any Subject Note hereunder, the
Interest Differential is greater than zero, the Borrower shall pay
to the Lender a prepayment premium equal to the present value
(discounted from the previously scheduled payment dates for interest
on the Loan at a rate equal to the Government Yield with respect to
such Loan on the date of prepayment plus the Issuance Spread) of the
product of (a) the Interest Differential, times (b) the amount
prepaid, times (c) a fraction, the numerator of which is the number
of days scheduled to fall between the interest payment dates on the
Loan and the denominator of which is 365. If the portion prepaid
covers several installments, the Lender may, at its option, either
calculate such payment for each installment or calculate such
payment based on the weighted average maturity of the portion
prepaid.
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12.7. 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 Lender
within fifteen (15) days of demand therefor, Borrower's pro rata share
(based on the amount of all loans outstanding from the Lender) of any such
amount required to compensate the Lender or such other Persons for such
costs.
12.8. Collateral Allocation. To the extent the Lender receives proceeds of
any Collateral after the exercise of remedies provided for in Section
18.2: (a) proceeds of accounts and inventory shall be applied first to any
obligations of the Borrower relating to or arising under the Seasonal
Notes and Loans I and II, pro rata in accordance with the principal amount
outstanding thereunder and then to all the other obligations to the Lender
under the Loan Documents; (b) proceeds of each of the Mortgages shall be
applied first to any obligations of the Borrower relating to or arising
under each of the Term Notes and corresponding Term Loans referenced as
expressly secured thereby in the definition of the term "Mortgages" herein
(the "Mortgage Secured Notes and Loans"), and then to all other
obligations to the Lender under the Loan Documents; and (c) proceeds of
all other Collateral shall be applied first to all the obligations of the
Borrower to the Lender under the Loan Documents, other than those relating
to or arising under the Seasonal Notes and Loans or the Mortgage Secured
Notes and Loans, and then to all other obligations to the Lender under the
Loan Documents, pro rata in accordance with the respective principal
amounts thereof.
12.9. 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.
13. FIXED RATE AMOUNTS
13.1. Availability. Any Fixed Rate Amount of any Loan may bear interest at
a Fixed Rate. A Loan may accrue a different Fixed Rate on different Fixed
Rate Amounts simultaneously. A Fixed Rate shall be effective to the extent
the Lender responds to any request therefor by the Borrower prior to the
date such Fixed Rate is to first accrue.
13.2. Confirmation. The Lender shall confirm any Fixed Rate to the
Borrower in writing which shall reference and confirm:
(a) The applicable Subject Note number;
(b) The applicable Fixed Rate Amount;
(c) The applicable Fixed Rate;
(d) The applicable date such Fixed Rate becomes effective;
(e) The number of days which will comprise the year over which such
Fixed Rate is to be computed; and
(f) The date upon which such Fixed Rate expires.
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13.3. Rate After Interest Rate Period. Interest on any Fixed Rate Amount
shall accrue at the rate otherwise provided for hereunder commencing the
date following the last day of the corresponding Interest Rate Period,
which may, if the Borrower has appropriately requested and the Lender has
quoted, be a new Fixed Rate.
14. CONDITIONS OF LENDING
14.1. Conditions Precedent. This Credit Agreement and the Lender's
obligations hereunder are subject to receipt on or prior to the date
hereof, by the Lender of the following, each to be in form and substance
satisfactory to the Lender, unless the Lender waives 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) 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;
(c) 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;
(d) A copy of the Certificate 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;
(e) 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;
(f) 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;
(g) A favorable opinion of counsel for the Borrower, satisfactory to the
Lender, as to the matters set forth in Subsections 16.1, 16.2, 16.3,
16.5, 16.7 and 16.9 (delivered not later than December 1, 1999), and
other matters as requested by the Lender, satisfactory to the Lender
and its counsel;
(h) The Security Agreement and Mortgages duly executed by the Borrower;
(i) Policies or certificates of insurance evidencing insurance coverage
required under this Credit Agreement and any other of the Loan
Documents; and
(j) Such other documents, information and actions as the Lender may
reasonably request.
14.2. Conditions Precedent to all Loans and Advances. The obligation of
the Lender to make any Loan or Advance hereunder, including the initial
Loans and Advances, is subject to the satisfaction of each of the
following, unless waived in writing by the Lender:
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(a) The representations and warranties set forth in Section 15 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
Lender 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 15
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.
15. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
15.1. Organization, etc. The Borrower is a corporation validly organized
and existing and in good standing under the laws of the State of Delaware,
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 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.
15.2. 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.
15.3. 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,
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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.
15.4. Financial Information. The financial statements of the Borrower
furnished to the Lender 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.
15.5. Litigation, Other Proceedings. Except as previously disclosed to and
approved of in writing by the Lender, 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.
15.6. Title to Assets. Except for Liens permitted by Section 17.2, the
Borrower has good and marketable title to all of its assets, real and
personal.
15.7. Lien Priority. The Liens created by the Security Agreement are
attached and first, perfected Liens on the Collateral.
15.8. Guarantees and Indebtedness. Except as disclosed on financial
statements of the Borrower furnished to the Lender, 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 Lender.
15.9. 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.
15.10. 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.
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15.11. Accuracy of Information. All factual information furnished by or on
behalf of the Borrower to the Lender 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 Lender 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.
15.12. 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).
15.13. 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.
15.14. 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.
15.15. 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) 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) by execution of this Credit Agreement or any
other of the Loan Documents, or consummation of the transactions
contemplated thereby.
15.16. Survival of Representations. All representations and warranties
contained in this Section 15 shall survive the delivery of the Notes and
the making of the loans and Advances evidenced thereby and any
investigation at any time made by or on behalf of Lender shall not
diminish its rights to rely thereon.
15.17. 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.
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(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 Lender under common law of any jurisdiction or under any
Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in,
on or under the Premises in such a way as to create any such
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.
15.18. Subsidiaries. The Borrower has the Subsidiaries listed on the
financial statements previously delivered to the Lender.
16. AFFIRMATIVE COVENANTS
As long as there remains any amount outstanding under the Subject Notes or
the Lender has any obligation to make Advances under the Seasonal Commitment,
the Borrower shall, unless waived in writing by the Lender:
16.1. Financial Statements and Reports. Furnish to the Lender, 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 the Borrower, and all corporations and subsidiaries,
directly or indirectly controlled by the Borrower, including without
limitation a balance sheet, and the related statements of income,
retained earnings and cash flows, prepared on a consolidated and
consolidating basis certified by certified public accountants
satisfactory to the Lender to have been prepared in accordance with
GAAP consistently applied;
(b) As soon as available, but in any event within forty-five ( 45) days
after the last day of each quarterly fiscal period unaudited
financial statements of the Borrower consisting of a balance sheet
and the related statements of income, retained earnings and cash
flows prepared on a consolidated and consolidating basis dated as of
the last Business Day of such quarterly fiscal period in form and
detail as reasonably required by the Lender 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;
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(c) As soon as available, but in any event within ninety (90) days
following each fiscal year-end, an operating budget and cash flow
forecast for the fiscal year immediately following such fiscal
year-end.
(d) 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;
(e) 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;
(f) Such other information concerning the business, operations and
condition (financial or otherwise) of the Borrower as the Lender may
reasonably request.
16.2. Maintenance of Corporate Existence. Maintain and preserve its
corporate existence.
16.3. 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.
16.4. Notices. As soon as practicable, give notice to the Lender 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 Lender
which has been instituted or, to the 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
Lender 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.
16.5. 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
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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.
16.6. Books and Records. Keep books and records reflecting all of its
business affairs and transactions in accordance with GAAP consistently
applied and permit the Lender, and its 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.
16.7. 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 Lender 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 Lender 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
Lender may require and/or that may be required under any of the Loan
Documents, all in such amounts as may be required by the Lender. Policies
of all such insurance shall contain an agreement by the insurer to provide
the Lender thirty (30) days prior written notice of cancellation and an
agreement that the Lender'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 those permitted by such
policies. The Borrower shall provide evidence of such insurance and the
policies of insurance or copies thereof to the Lender upon request.
16.8. 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.
16.9. Conduct of Business. Continue to engage primarily in the business
being conducted on the date of this Credit Agreement.
16.10. Coverage Ratio. Maintain as of each fiscal quarter end a Coverage
Ratio not to exceed 5.5 : 1.0 through the period ending 10/31/99. Maintain
as of each fiscal quarter end a Coverage Ratio not to exceed 5.0 : 1.0
beyond 10/31/99.
16.11. Leverage Ratio. Maintain as of each fiscal quarter end a Leverage
Ratio of not to exceed 5.0 : 1.0 through the period ending 10/31/99.
Maintain as of each fiscal quarter end a Leverage Ratio of not to exceed
4.5 : 1.0 beyond 10/31/99.
16.12. Further Assurances. The Borrower agrees upon reasonable request by
the Lender to execute and deliver such further instruments, deeds and
assurances, including financing statements under the Uniform Commercial
Code of Minnesota 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
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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.
16.13. ERISA Compliance. Comply in all material respects at all times with
all applicable provisions of ERISA and the regulations and published
interpretations thereunder.
17. NEGATIVE COVENANTS
As long as there remains any amount outstanding under the Subject Notes or
the Lender has any obligation to make Advances under the Seasonal Loan
Commitment, the Borrower shall not, unless waived in writing by the Lender:
17.1. 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), 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; provided that the foregoing
shall not prohibit any transaction immediately after which:
(a) The Borrower is a surviving entity;
(b) Borrower's Tangible Net Worth is not less than the amount thereof
immediately prior thereto; and
(c) The aggregate price paid by the Borrower in all such transactions in
any consecutive twelve (12) month period is not greater than
$100,000,000;
17.2. 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 Lender;
(b) Liens disclosed to and approved of in writing by the Lender; (c) Liens
for current taxes and assessments which are not yet due and payable; and
(d) purchase money security interests to secure the indebtedness permitted
under Section 17.3 below.
17.3. Additional Indebtedness. Create, incur, assume or suffer to exist
any indebtedness except: (a) indebtedness in favor of the Lender; (b)
current liabilities incurred in the ordinary course of business; (c)
indebtedness existing on the date of this Credit Agreement and disclosed
to and approved of in writing by the Lender; and (d) purchase money
indebtedness incurred in connection with the acquisition of fixed assets
not to exceed $1,000,000 in the aggregate during any fiscal year of the
Borrower.
17.4. 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.
17.5. 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, at any time
any Default or Event of Default has occurred and is continuing.
17.6. Change in Ownership or Business. Permit (a) Change of control, or
(b) change in the line of business presently engaged in by the Borrower.
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17.7. 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 Corporation or "P-1" or "P-2" by Moody's Investor Service,
investments in money market mutual funds whose underlying assets are
exclusively investments which would otherwise be permitted
investments under this Section 17.7(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;
(d) Existing investments as described in the Borrower's financial
statements;
(e) Investments constituting contracts made in the ordinary course of
business of the Borrower;
(f) Investments in wholly-owned subsidiaries of the Borrower existing as
of the date hereof;
(g) Transitions and investments permitted under Section 17.1; and
(h) Investments not otherwise permitted in this Section 17.7 not to
exceed $1,000,000 in the aggregate (on a book value basis) at any
time outstanding.
18. EVENTS OF DEFAULT AND REMEDIES
18.1. 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 shall continue unremedied for a period of thirty (30) days
after notice from the Lender 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
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(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
(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 Lender shall in good faith deem itself insecure.
18.2. Remedies; Cumulative. If an Event of Default described in Section
18.1(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 Lender shall automatically be due and payable without
declaration, notice, presentment, protest or demand of any kind (all of
which are hereby expressly waived) and the obligation of the Lender to
make additional Advances shall automatically terminate. If any other Event
of Default shall occur and be continuing, the Lender may terminate its
obligation to make additional Advances and may declare the outstanding
balance of the each of the Subject Notes and all other obligations of the
Borrower to the Lender 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 Lender shall become
immediately due and payable. Upon any Event of Default, the Lender shall
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
Lender, 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
Lender to the Borrower to the payment of the Subject Notes, and all other
obligations of the Borrower hereunder, in such order as the Lender elects
(subject to Section 12.8).
19. MISCELLANEOUS
19.1. Waivers, Amendments. The provisions of the Loan Documents may from
time to time be amended, modified, or waived, if such amendment,
modification or waiver is in writing and signed
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by the Lender. No failure or delay on the part of the Lender or the
holder(s) of the Subject Notes in exercising any power or right under any
of the Loan Documents shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power or right preclude any other
or further exercise thereof or the exercise of any other power or right.
No notice to or demand on the Borrower in any case shall entitle it to any
notice or demand in similar or other circumstances.
19.2. Notices. All communications and notices provided under this Credit
Agreement shall be in writing and addressed or delivered to the Borrower
or the Lender 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.
19.3. 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 Lender, 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 Lender upon demand for, all out-of-pocket
expenses (including reasonable attorneys fees and legal expenses) in
connection with the Lender's enforcement of the obligations of the
Borrower hereunder or under the 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 19.3
shall survive any termination of this Credit Agreement.
19.4. Interest Limitation. All agreements between the Borrower and the
Lender 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 Lender 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 Lender, 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 Lender 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 Lender and shall also be binding upon and applicable to
any subsequent holder of any of the Subject Notes.
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19.5. 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.
19.6. 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.
19.7. 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.
19.8. 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 Lender 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 LENDER 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.
19.9. Successors and Assigns. This Credit Agreement shall be binding upon
and shall inure to the benefit of the parities hereto and their respective
successors and assigns, except that Borrower may not assign or transfer
its rights hereunder without the prior written consent of Lender.
19.10. Recitals Incorporated. The recitals to this Credit Agreement are
incorporated into and constitute an integral part of this Credit
Agreement.
19.11. 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.
19.12. Indemnity. In addition to the payment of expenses pursuant to
Section 19.3, the Borrower agreed to indemnify, defend and hold harmless
the Lender, and any of its 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 19.12 shall survive the termination of this
Credit Agreement and the discharge of the Borrower's other obligations
hereunder.
19.13. Complete Agreement. 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
19.14. Assignments; Participants; Waiver of Claims. 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 the
Lender. The Borrower irrevocably agrees that any claims it may have or may
assert against the Lender for breach of contract (or related tort claims)
shall be personal to the Lender and shall not be asserted by way of direct
claim or offset against any Assignee or against any Loan sold or assigned
to any Assignee (and the Borrower hereby 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.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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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 EQUIPMENT CO.,
a Delaware Corporation
By: /s/Paul T. Horn
------------------------------
Its: President
------------------------------
By: /s/Allan F. Knoll
------------------------------
Its: Secretary
------------------------------
AG CAPITAL COMPANY,
a Delaware Corporation
By: /s/Lee Rosin
------------------------------
Its: President and General Manager
------------------------------
29
Exhibit 10.2
AG CAPITAL COMPANY
CREDIT AGREEMENT
THIS CREDIT AGREEMENT made and entered into as of June 1, 1999 (the
"Effective Date"), by and between RDO MATERIAL HANDLING CO., a Minnesota
corporation (the "Borrower"), whose address is 2829 S. University Dr., Fargo,
North Dakota 58103, and AG CAPITAL COMPANY, a Delaware corporation (the
"Lender"), whose address is 1500 Radisson Tower, 201 North 5th Street, Fargo,
North Dakota 58102.
RECITALS
1. The Borrower wishes to borrow funds from the Lender and the Lender
wishes to make loans and advances to the Borrower; and
2. The Borrower and the Lender mutually desire to set forth the terms
under which the Lender 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 Lender 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
Lender agree as follows:
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:
1. DEFINITIONS
"Acceptable Accounts Receivable" means any receivable owned by the
Borrower, less than 90 days old, which is in form and subject to documentation
acceptable to Lender.
"Advance" means any advance by the Lender made under either of the
Seasonal Loan Commitments.
"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.
"Assignee" has the meaning set forth in Section 9.14.
"Borrower" means RDO Material Handling Co., a Minnesota corporation.
"Borrowing Base Certificate" means the certificate in the form attached
hereto which sets forth the Borrowing Base as of the date indicated thereon.
"Borrowing Base" means, at any time, the lesser of (a) $7,000,000 or (b)
the sum of (i) eighty five percent (85%) of Acceptable Accounts Receivable; (ii)
ninety percent (90%) of new wholegoods inventory, net of unpaid accounts payable
on such inventories; (iii) sixty five percent (65%) of used wholegoods and parts
inventory, net of unpaid accounts payable on such inventories, all as determined
in accordance with GAAP.
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"Business Day" means any day on which the Lender is 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:
(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 Lender holds 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 Lender.
"Current Assets" means, at any date, the aggregate amount of all assets of
the Borrower that are classified as current assets, on a consolidated basis, in
accordance with GAAP.
"Current Liabilities" means, at any time, the aggregate amount of all
liabilities of the Borrower that are classified as current liabilities, on a
consolidated basis, in accordance with GAAP (including taxes and other proper
accruals and the matured portion of any indebtedness).
"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 at 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.
"Environmental Law" has the meaning set forth in Section 5.17
"Equity Ratio" means the ratio of the total equity (including minority
interests and subordinate debt including notes payable to parent) of the
Borrower to the total assets of the Borrower, as determined on a combined basis,
in accordance with GAAP.
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"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, Committee on Accounting
Procedure (CAP) Accounting Research Bulletins, and certain other accounting
principles which have substantial authoritative support.
"Hazardous Substance" has the meaning set forth in Section 5.17 hereof.
"Lender" means Ag Capital Company, a Delaware corporation, its successors
and assigns.
"LIBOR" for any business day during any calendar month means the quoted
rate of interest per annum determined by the British Banker's Association as the
average of interbank offered rates for dollar deposits 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 Seasonal Loan.
"Loan Documents" means this Credit Agreement, the Seasonal Note, the
Security Agreement, and such other documents as the Lender 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.
"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 Lender's reasonable
judgment, 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) June 1, 2000.
"Person" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual fiduciary or other capacity.
"Premises" has the meaning set forth in Section 5.17 hereof.
"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
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"Reference Rate" shall mean a comparable rate determined by the Lender 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 the Lender (or its successors or assigns); or (b) regulation,
interpretation, directive or request (whether or not having the force of law)
applying or in the reasonable opinion of the Lender (or its successors or
assigns) applicable to, the Lender (or its 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 Lender (or its successors or
assigns).
"Seasonal Commitment" means the Lender's obligation to extend Advances to
the Borrower under Section 2, as the context may require.
"Seasonal Loan" means, at any date, the aggregate amount of all Advances
made by the Lender to the Borrower pursuant to Section 2 hereof.
"Seasonal Note" means the note No. 33610, dated June 1, 1999, in the
original principal amount of Seven Million Dollars ($7,000,000.00) made by the
Borrower payable to the order of the Lender, together with all extensions,
renewals, modifications, substitutions and changes in form thereof effected by
written agreement between the Borrower and the Lender.
"Security Agreement" means the Security Agreements, dated September 1,
1998, executed by the Borrower in favor of the Lender, 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 Lender.
"Subject Note(s)" means the Seasonal Note.
"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) June 1, 2000; or (b) the date
upon which the obligation of the Lender to make Advances is terminated pursuant
to Section 2.7 and Section 3.7.
2. THE SEASONAL LOAN
2.1. Commitment for Seasonal Loan. Subject to the Conditions of Lending
set forth in Section 4 hereof, the Lender agrees to make Advances to the
Borrower from time to time from the date of this Credit Agreement through
the Termination Date, provided, however, that the Lender shall not be
obligated to make any Advance, if after giving effect to such Advance, the
aggregate outstanding principal amount of all Advances would exceed Seven
Million Dollars ($7,000,000.00). Within the limits set forth above, the
Borrower may borrow, repay and reborrow amounts under the Seasonal Note.
2.2. The Seasonal Note. All Advances shall be evidenced by, and the
Borrower shall repay such Advances to the Lender in accordance with, the
terms of the Seasonal Note; including without
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limitation the provision of the Seasonal Note that the principal amount
payable thereunder at any time shall not exceed the then unpaid principal
amount of all Advances made by the Lender.
2.3. Records of Advances and Payments. The aggregate amount of all unpaid
Advances set forth on the records of the Lender shall be rebuttable
presumptive evidence of the principal amount owing and unpaid on the
Seasonal Note.
2.4. Payments and Interest on the Seasonal Note.
(a) Except to the extent any part thereof is a Fixed Rate Amount, the
Borrower agrees to pay interest on the outstanding principal amount
of the Seasonal Note I from the date hereof until paid in full at a
per annum rate equal to one-month LIBOR plus 250 basis points,
determined two (2) business days prior to the first business day of
any calendar week and fixed until the first business day of the
following calendar week.
(b) After the date hereof, interest accrued on the Seasonal Note through
Maturity shall be payable for each calendar month on the first (1st)
day of the following calendar month, commencing July 1, 1999, and at
Maturity, when the entire outstanding principal amount shall be due
and payable. Interest accrued after Maturity shall be payable upon
demand.
2.5. Manner of Borrowing. The Borrower shall give the Lender written or
telephonic notice of each requested Advance by not later than 1:00 p.m.
(Minneapolis time) on the date such Advance is to be made. Each Advance
shall be deposited to an account designated by the Borrower or as
otherwise indicated in the corresponding request by the Borrower.
Any request for an Advance under the Seasonal Loan shall be deemed a
representation by the Borrower that the amount of the requested Advance,
when added to the Seasonal Loan outstanding amount, would not exceed the
Borrowing Base. If the Seasonal Loan outstanding amount shall at any time
exceed the Borrowing Base, the Borrower shall immediately repay Advances
in the amount equal to such excess, without notice or demand by the
Lender.
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 Seasonal Note to the Lender at its office shown on
the first page hereof (or to such other locations as may from time to time
be specified by the Lender).
2.7. Termination. The obligation of the Lender to make Advances shall
terminate:
(a) Upon receipt by the Lender of three (3) days' written notice of
termination from the Borrower given at any time when no amount is
outstanding under the Seasonal Note; or
(b) Immediately and without further action upon the occurrence of an
Event of Default of the nature referred to in Subsection 8.1(d); or
(c) Immediately when any Event of Default (other than one of the nature
specified in Subsection 8.1(d)) shall have occurred and be
continuing and either (i) the Lender shall have demanded payment of
the Seasonal Note or (ii) the Lender shall elect to terminate such
obligation by giving notice to Borrower.
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3. GENERAL PROVISIONS
3.1. Computation of Interest.
(a) All computations of interest on the outstanding principal amount of
the 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 the
Seasonal 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 Lender or other
holder(s) of the Seasonal 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 the 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 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 the 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 $25.00 with respect to any installment on the Subject
Note paid after the date it is due, to compensate Lender 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 Lender under the 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 Lender as security for the obligations to the Lender.
3.4. Manner of 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 Subject Note to the Lender at its office
shown on the first page hereof.
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 Lender
within fifteen (15) days of demand therefor, Borrower's pro rata share
(based on the amount of all loans outstanding from the Lender) of any such
amount required to compensate the Lender or such other Persons for such
costs.
3.6. Collateral Allocation. To the extent the Lender receives proceeds of
any Collateral after the exercise of remedies provided for in Section 8.2:
(a) proceeds of Collateral which is includible in the Borrowing Base
certificate shall be applied first to any obligations of the Borrower
relating to or arising under the Seasonal Note and Loan, and then to all
the other obligations to the Lender under the Loan Documents; (b) proceeds
of all other Collateral, if any, shall be applied to all
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obligations to the Lender under the Loan Documents, pro rata in accordance
with the respective principal amounts thereof.
3.7. Loan Agreement Reference. Any reference in the 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 or
restated. Any conflict between the terms of the 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 Lender's
obligations hereunder are subject to receipt, on or prior to the date
hereof, by the Lender of the following, each to be in form and substance
satisfactory to the Lender, unless the Lender waives 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 Lender, on the Borrower from the appropriate
filing offices as required by the Lender;
(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;
(i) A favorable opinion of counsel for the Borrower, satisfactory to the
Lender, as to the matters set forth in Subsections 5.1, 5.2, 5.3,
5.5, 5.7 and 5.9, and other matters as requested by the Lender,
satisfactory to the Lender and its counsel;
(j) Policies or certificates of insurance evidencing insurance coverage
required under this Credit Agreement and any other of the Loan
Documents;
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(k) A completed 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 the Lender may
reasonably request.
4.2. Conditions Precedent to all Loans and Advances. The obligation of the
Lender to make any Advance hereunder, including the initial Advance, is
subject to the satisfaction of each of the following, unless waived in
writing by the Lender:
(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 Advance (as if made on the date of such 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
Lender 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
Advance.
(e) No Material Adverse Occurrence shall have occurred and be
continuing.
(f) Each request for an 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 Lender 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
Minnesota, 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 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
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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 Lender 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 Lender, 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 Lender, 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 Lender.
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.
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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 Lender 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 Lender 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) 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) 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 Seasonal
Note and the making of the Loans and Advances evidenced thereby and any
investigation at any time made by or on behalf of Lender 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:
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(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 Lender under common law of any jurisdiction or under any
Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in,
on or under the Premises in such a way as to create any such
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 Lender.
6. AFFIRMATIVE COVENANTS
As long as there remains any amount outstanding under the Subject Notes or
the Lender has any obligation to make Advances, the Borrower shall, unless
waived in writing by the Lender:
6.1. Financial Statements and Reports. Furnish to the Lender, 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, annual audited financial
statements of the Borrower, and Subsidiaries prepared on a
consolidated basis, certified by certified public accountants
satisfactory to the Lender to have been prepared in accordance with
GAAP consistently applied;
(b) As soon as available, but in any event within thirty (30) days after
the last day of each monthly fiscal period unaudited financial
statements of the Borrower 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 quarterly fiscal period in form and detail as reasonably
required by the Lender certified by the chief financial officer of
the
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Borrower to have been prepared from the records of the Borrower on
the basis of accounting principles consistently applied by the
Borrower;
(c) As soon as available, but in any event within ninety (90) days
following each fiscal year-end, an operating budget and cash flow
forecast for the fiscal year immediately following such fiscal
year-end.
(d) 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;
(e) 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;
(a) Such other information concerning the business, operations and
condition (financial or otherwise) of the Borrower as the 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 Lender 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 Lender
which has been instituted or, to the 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
Lender 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
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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. Keep books and records reflecting all of its
business affairs and transactions in accordance with GAAP consistently
applied and permit the Lender, and its 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.
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 Lender 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 Lender 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
Lender may require and/or that may be required under any of the Loan
Documents, all in such amounts as may be required by the Lender. Policies
of all such insurance shall contain an agreement by the insurer to provide
the Lender thirty (30) days prior written notice of cancellation and an
agreement that the Lender'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 those permitted by such
policies. The Borrower shall provide evidence of such insurance and the
policies of insurance or copies thereof to the 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. Equity Ratio. Maintain as of each calendar month an Equity to Asset
Ratio of not less than .20:1.0.
6.11. Further Assurances. The Borrower agrees upon reasonable request by
the Lender to execute and deliver such further instruments, deeds and
assurances, including financing statements under the Uniform Commercial
Code of Minnesota 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.
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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.
7. NEGATIVE COVENANTS
As long as there remains any amount outstanding under the Seasonal Notes
or the Lender has any obligation to make Advancesunder the Seasonal Loan
Commitment, the Borrower shall not, unless waived in writing by the Lender:
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), 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.
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 Lender;
(b) Liens disclosed to and approved of in writing by the Lender; (c) Liens
for current taxes and assessments which are not yet due and payable; and
(d) purchase money security interests to secure the indebtedness permitted
under Section 7.3 below.
7.3. Additional Indebtedness. Create, incur, assume or suffer to exist any
indebtedness except: (a) indebtedness in favor of the Lender; (b) current
liabilities incurred in the ordinary course of business; (c) indebtedness
existing on the date of this Credit Agreement and disclosed to and
approved of in writing by the Lender; and (d) purchase money indebtedness
incurred in connection with the acquisition of fixed assets not to exceed
$500,000 in the aggregate during any fiscal year of the Borrower.
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, at any time any
Default or Event of Default has occurred and is continuing.
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
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investments under this Section 7.6(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;
(d) Existing investments as described in the financial statements
previously delivered to the Lender;
(e) Investments constituting transactions made in the ordinary course of
business of the Borrower;
(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 $500,000 in the aggregate (on a book value basis) at any time
outstanding.
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 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 shall continue unremedied for a period of thirty (30) days
after notice from the Lender 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
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(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
(h) The rendering against the Borrower of a final judgment, decree or
order for the payment of money in excess of $250,000 (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 Lender shall in good faith deem itself insecure.
8.2. Remedies; Cumulative. If an Event of Default described in Section
8.1(d) shall occur, the full unpaid balance of the Seasonal Notes
(outstanding balances plus accrued interest) and all other obligations of
the Borrower to the Lender shall automatically be due and payable without
declaration, notice, presentment, protest or demand of any kind (all of
which are hereby expressly waived) and the obligation of the Lender to
make additional Advances shall automatically terminate. If any other Event
of Default shall occur and be continuing, the Lender may terminate its
obligation to make additional Advances and may declare the outstanding
balance of the Seasonal Note and all other obligations of the Borrower to
the Lender 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 the Subject Notes and all other
obligations of the Borrower to the Lender shall become immediately due and
payable. Upon any Event of Default, the Lender shall 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 Lender, 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 Lender to the Borrower
to the payment of the Subject Notes, and all other obligations of the
Borrower hereunder, in such order as the Lender elects (subject to Section
3.6).
9. MISCELLANEOUS
9.1. Waivers, Amendments. The provisions of the Loan Documents may from
time to time be amended, modified, or waived, if such amendment,
modification or waiver is in writing and signed by the Lender. No failure
or delay on the part of the Lender or the holder(s) of the Seasonal Note
in exercising any power or right under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of
any such power or right preclude any other or further exercise thereof or
the exercise of any other power or right. No notice to or demand on the
Borrower in any case shall entitle it to any notice or demand in similar
or other circumstances.
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 Lender 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
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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 Lender, 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 Lender upon demand for, all out-of-pocket
expenses (including reasonable attorneys fees and legal expenses) in
connection with the Lender's enforcement of the obligations of the
Borrower hereunder or under the 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
Lender 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 Lender 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 Seasonal Note, any document securing
or executed in connection herewith or therewith, or any other agreement
between the Borrower and the Lender, 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 Lender 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 Lender and shall also be binding upon and applicable to
any subsequent holder of the Subject Notes.
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.
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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 Lender 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 LENDER 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 parities hereto and their respective
successors and assigns, except that Borrower may not assign or transfer
its rights hereunder without the prior written consent of Lender.
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 Lender, and any of its 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;
(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
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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. Complete Agreement. 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. The 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 the
Lender. The Borrower irrevocably agrees that any claims it may have or may
assert against the Lender for breach of contract (or related tort claims)
shall be personal to the Lender and shall not be asserted by way of direct
claim or offset against any Assignee or against any Loan sold or assigned
to any Assignee and the Assignee hereby 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.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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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 MATERIAL HANDLING CO.,
a Minnesota corporation
By: /s/Paul T. Horn
-------------------------------
Its: President
-------------------------------
By: /s/Allan F. Knoll
-------------------------------
Its: Secretary
-------------------------------
AG CAPITAL COMPANY,
a Delaware Corporation
By: /s/Lee Rosin
-------------------------------
Its: President and General Manager
-------------------------------
20
Exhibit 10.3
$40,000,000.00
LOAN AND SECURITY AGREEMENT
Dated as of April 7, 1997
BETWEEN
RDO RENTAL CO.
AND
DEUTSCHE FINANCIAL SERVICES CORPORATION
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LOAN AND SECURITY AGREEMENT
BETWEEN: DEUTSCHE FINANCIAL SERVICES CORPORATION, a Nevada corporation ("DFS")
AND: RDO Rental Co., a Minnesota corporation ("Borrower").
EFFECTIVE DATE: April 10, 1997
1. RECITALS
Borrower has requested that DFS provide Borrower with a revolving
credit facility and and a credit facility for inventory acquisition purposes.
2. DEFINITIONS
Terms defined in this Agreement shall have initial capital letters.
Those terms are defined below, in this Section 2, and elsewhere in this
Agreement. All financial and accounting terms used herein and not otherwise
defined, shall be defined in accordance with GAAP.
"AAA" shall have the meaning set forth in Section 14.2.
"Accounts" shall have the meaning given to that term in the UCC, and, to
the extent not included therein, shall also mean all accounts, leases, contract
rights, chattel paper, general intangibles, choses in action and instruments,
including any Lien or other security interest that secures or may secure any of
the foregoing, plus all books, invoices, documents and other records in any form
evidencing or relating to any of the foregoing, now owned or hereafter acquired
by Borrower, in each case arising only from Eligible Inventory.
"Affiliates" shall mean: (i) any individual who is an officer or director
of a Person; and (ii) any Person who directly or indirectly controls, is
controlled by, or is under common control or ownership with, another Person. For
the purposes of this definition, the term "control" shall mean the ownership of
or the ability to direct or control 10% or more of the beneficial interest in
the applicable entity.
"Agreement" shall mean this Loan and Security Agreement, and any
amendments hereto.
"Borrowing Base" shall mean, as of any date of determination, an amount
equal to: (a) the Existing Eligible Inventory Availability, plus (b) the
Eligible Inventory Availability; plus (c) the invoice price of all Floorplan
Inventory.
"Borrowing Base Certificate" shall have the meaning set forth in Section
3.3(a).
"Business" shall mean RDO Rental Co.
"Business Day" shall mean any day other than Saturdays, Sundays, legal
holidays designated by Federal law, and any other day on which DFS' office is
closed.
"Collateral" shall mean all items described in Section 6.1.
"Credit Facility" shall have the meaning set forth in Section 3.1.
"Credit Facility Fee" shall have the meaning set forth in Section 3.5.
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"Daily Charge" shall have the meaning set forth in Section 3.5.
"Daily Contract Balance" shall have the meaning set forth in Section 3.5.
"Daily Rate" shall have the meaning set forth in Section 3.5.
"Debt" shall have the meaning set forth in Section 9.3.
"Default" shall have the meaning set forth in Section 10.
"Default Interest Rate" shall have the meaning set forth in Section 3.8.
"DFS Companies" shall have the meaning set forth in Section 14.1.
"Disputes" shall have the meaning set forth in Section 14.1.
"Effective Date" shall mean the date set forth in the heading on page 1 of
this Agreement.
"Electronic Transfers" shall have the meaning set forth in Section
3.5(b)(ii).
"Eligible Inventory" means Borrower's Eligible New Inventory and
Borrower's Eligible Used Inventory as defined below.
"Eligible Inventory Availability" shall mean the aggregate of (i) the
Value of the Existing Eligible Inventory, as set forth in Section 3.3(b), plus
(ii) the Eligible New Inventory Availability, as set forth in Section 3.3(c),
plus (iii) the Eligible Used Inventory Availability, as set forth in Section
3.3(d).
"Eligible New Inventory" shall mean Borrower's finished goods construction
machinery Inventory less than seven (7) years old whose acquisition by Borrower
was not financed by DFS, that is owned by Borrower free and clear of all Liens,
security interests and encumbrances of any third parties, except for the
Permitted Liens, that is not obsolete or unmerchantable, that is in good, new
and salable condition that conforms to the representations and warranties of
Section 8.26 of this Agreement, and which DFS deems, in its sole discretion, to
be acceptable for financing.
"Eligible Used Inventory" shall mean Borrower's finished goods
construction machinery Inventory manufactured more than twelve (12) months prior
to, or showing useage of one hundred (100) hours or more as of, the date of any
Loan or advance by DFS against such Inventory, whose acquisition by Borrower was
not financed by DFS, that is owned by Borrower free and clear of all Liens,
security interests and encumbrances of any third parties, except for the
Permitted Liens, that is not obsolete or unmerchantable, that is in good, new
and salable condition that conforms to the representations and warranties of
Section 8.26 of this Agreement, and which DFS deems, in its sole discretion, to
be acceptable for financing.
"Equipment" shall have the meaning as given to that term in the UCC, and,
to the extent not included therein, shall also mean all equipment, machinery,
trade fixtures, furnishings, furniture, supplies, materials, tools, machine
tools, office equipment, appliances, apparatus, parts and all attachments,
replacements, substitutions, accessions, additions and improvements to any of
the foregoing.
"Existing Elibible Inventory" shall mean Borrower's finished goods
construction machinery Inventory on owned by Borrower as of the date of the
Initial Advance, that is owned by Borrower free and clear of all Liens, security
interests and
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encumbrances of any third parties, except for the Permitted Liens, that is not
obsolete or unmerchantable, that is in good, new and salable condition that
conforms to the representations and warranties of Section 8.26 of this
Agreement, and which DFS deems, in its sole discretion, to be acceptable for
financing.
"Existing Eligible Inventory Availability" shall have the meaning given in
Section 3.3(b).
"FAA" shall have the meaning set forth in Section 14.5.
"Floorplan Inventory" shall mean Inventory the acquisition of which was
financed by DFS for Borrower from vendors approved by DFS in DFS' sole
discretion pursuant to Section 3.2.
"Floorplan Inventory Loan" shall have the meaning set forth in Section
3.2.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"Indebtedness" shall mean any sum for borrowed money owed by Borrower to a
Person and shall include any debt guaranteed by Borrower, any debt as to which
the Borrower has granted or permitted to exist a Lien on any asset even if
non-recourse, letter of credit reimbursement obligations, and capitalized lease
obligations.
"Indemnified Liabilities" shall have the meaning set forth in Section
12.1.
"Indemnitees" shall have the meaning set forth in Section 12.1.
"Initial Advance" shall have the meaning set forth in Section 3.3(b).
"Intangibles" shall have the meaning set forth in Section 9.3.
"Inventory" shall have the meaning given to that term in the UCC, and, to
the extent not included therein, shall also mean all of Borrower's merchandise,
materials, finished goods, work-in-process, component materials, packaging,
shipping materials, parts and other tangible personal property, now owned or
hereafter acquired and held for sale or which contribute to the finished
products or the sale, promotion, storage and shipment thereof, whether located
at facilities owned or leased by Borrower, or in the course of transport to or
from facilities owned or leased by Borrower.
"Landlord Lien Reserve" shall mean an amount equal to two (2) months
aggregate rental payments to all of Borrower's landlords on all of Borrower's
Collateral locations (as set forth in Exhibit 8.17 attached hereto).
"Lien" shall mean any security interest, mortgage, pledge, lien,
hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including, without
limitation, the interest of lessors under capitalized leases and the interest of
a vendor under any conditional sale or other title retention agreement),
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting any of Borrower's Collateral.
"Loan" shall mean any advance made to or for the benefit of Borrower
pursuant to this Agreement, including but not limited to any Floorplan Inventory
Loan and any Revolving Credit Loan.
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"Loan Documents" shall mean all documents executed by Borrower pursuant to
any financial accommodation between Borrower and DFS and all documents entered
into in connection with the transaction herein contemplated. The term "Loan
Documents" includes, but is not limited to, this Agreement, all financing
statements, all pledges, mortgages, deeds of trust, leasehold mortgages,
security agreements, guaranties, assignments, subordination agreements, and any
future or additional documents or writings executed under the terms of this
Agreement or any amendments or modifications hereto.
"Maximum Initial Advance" shall have the meaning given in Section 3.3(b).
"Monthly Inventory Reports" shall have the meaning given in Section
3.11(b).
"Monthly Schedule" shall have the meaning given in Section 3.11(c).
"Obligations" shall mean all liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Borrower
(and/or any of its Subsidiaries and Affiliates) to DFS, whether primary or
secondary, joint or several, direct, contingent, fixed or otherwise, secured or
unsecured, or whether arising under this Agreement, any other Loan Document or
any other agreement now or hereafter executed by Borrower (or any of its
Subsidiaries or Affiliates) and delivered to DFS. Obligations will include,
without limitation, any third party claims against Borrower (or any of its
Subsidiaries or Affiliates) satisfied or acquired by DFS. Obligations will also
include all obligations of Borrower to pay to DFS: (a) any and all sums
reasonably advanced by DFS to preserve or protect the Collateral or the value of
the Collateral or to preserve, protect, or perfect DFS' security interests in
the Collateral; (b) in the event of any proceeding to enforce the collection of
the Obligations after a Default, the reasonable expenses of retaking, holding,
preparing for sale, selling or otherwise disposing of or realizing on the
Collateral, or expenses of any exercise by DFS of its rights, together with
reasonable attorneys' fees, expenses of collection and court costs, as provided
in the Loan Documents; and (c) any other indebtedness or liability of Borrower
to DFS, whether direct or indirect, absolute or contingent, now or hereafter
arising.
"Other Reports" shall have the meaning set forth in Section 3.11(c).
"Permitted Liens" shall mean: (a) Liens for taxes, assessments or other
governmental charges or levies not yet delinquent or which are being contested
in good faith by appropriate action and as to which adequate reserves shall have
been set aside in conformity with GAAP and which are, in addition, satisfactory
to DFS in its reasonable discretion; (b) Liens of mechanics, materialmen,
landlords, warehousemen, carriers and similar Liens arising in the future in the
ordinary course of business for sums not yet delinquent, or being contested in
good faith if a reserve or other appropriate provision in accordance with GAAP
shall have been made therefor and which are, in addition, satisfactory to DFS in
its reasonable discretion; (c) statutory Liens incurred in the ordinary course
of business in connection with workers' compensation, unemployment insurance,
social security, and similar items for sums not yet delinquent or being
contested in good faith, if a reserve or other appropriate provision in
accordance with GAAP shall have been made therefor and which are, in addition,
satisfactory to DFS in its reasonable discretion; (d) lessor's Liens arising
from operating leases entered into in the ordinary course of business; (e) Liens
arising from legal proceedings, so long as such proceedings are being contested
in good faith by appropriate proceedings, appropriate reserves have been
established therefor in accordance with GAAP and which are, in addition,
satisfactory to DFS in its reasonable discretion, and so long as execution is
stayed and bonded on appeal on all judgments resulting from any such
proceedings; and (f) Liens in favor of DFS granted hereunder.
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"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization, and a government or any department or agency thereof.
"Prime Rate" shall mean a fluctuating interest rate per annum equal to the
highest of the prime, base or reference rates of interest announced publicly
from time to time (whether or not charged in each instance) by The Chase
Manhattan Bank and Citibank, N.A. (or any successor thereof) as such bank's
prime, base, or reference rate. Such Prime Rate in effect on the last Business
Day of each calendar month will be the Prime Rate for the following calendar
month. If any of the banks listed above discontinue the practice of announcing
or publishing a prime, base or reference rate during the term of this Agreement,
then DFS may, in its reasonable judgment, designate a comparable bank and/or
publicly announced rate to be thereafter used as a basis for determining Prime
Rate. Borrower acknowledges that any bank listed above may extend credit at
rates of interest less than its announced prime, base or reference rate.
"Rentals" shall have the meaning set forth in Section 9.2.18.
"Subordinated Debt" shall have the meaning set forth in Section 9.3.
"Subsidiaries" shall mean any corporation in which Borrower owns or
controls greater than 50% of the voting securities, or any partnership or joint
venture in which Borrower owns or controls greater than 50% of the aggregate
equitable interest. The term "Subsidiary" means any one of the Subsidiaries. As
of the Effective Date, Borrower has no Subsidiaries.
"Tangible Net Worth" shall have the meaning set forth in Section 9.3.
"Total Credit Limit" shall have the meaning set forth in Section 3.1.
"Total Revolving Credit Credit Limit" shall have the meaning set forth in
Section 3.3.
"UCC" shall mean the Uniform Commercial Code as in effect in the State of
Arizona and any successor statute, together with any regulations thereunder, in
each case as in effect from time to time. References to sections of the UCC
shall be construed to also refer to any successor sections.
"Unmatured Default" shall mean any event which, but for the passage of
time or notice, or both, would be a Default.
"Value" means (a) with respect to Eligible New Inventory, the lesser of
(1) the cost to Borrower of Borrower's Eligible Inventory (exclusive of
discounts, rebates, credits (including, without limitation price protection
credits), incentive payments and all other general intangibles relating to such
Eligible Inventory), as determined in accordance with GAAP, and (2) the Green
Guide quick sale value for Eligible Inventory, and (b) with respect to Eligible
Used Inventory, the Green Guide quick sale value.
"Revolving Credit Loan" shall have the meaning set forth in Section 3.3.
3. CREDIT FACILITY
3.1 Total Credit Facility.
In consideration of Borrower's payment and performance of its
Obligations and subject to the terms and conditions contained in this Agreement,
DFS agrees to provide, and Borrower agrees to accept, an aggregate credit
facility (the "Credit Facility") of up to Forty Million Dollars ($40,000,000.00)
(the "Total
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Credit Limit"). The Credit Facility shall be available in the form
of Floorplan Inventory Loans and Revolving Credit Loans. No Loans need be made
by DFS if Borrower is in Default or if there exists any Unmatured Default. This
is an agreement regarding the extension of credit, and not the provision of
goods or services.
3.2 Floorplan Inventory Loans.
(a) Inventory Floorplan Loan Limit. Subject to the terms of
this Agreement, DFS may provide Loans to Borrower for Floorplan Inventory and
financing approvals for Floorplan Inventory in transit from the seller thereof
(each advance being a "Floorplan Inventory Loan") up to an aggregate unpaid
principal amount at any time not to exceed (i) Forty Million Dollars
($40,000,000.00) less (ii) outstanding Revolving Credit Loans ("Inventory
Floorplan Loan Limit"). DFS may, however, at any time and without notice to
Borrower, elect not to finance any Inventory sold by particular vendors who are
in default of their obligations to DFS. DFS may at any time suspend or terminate
the relationship or approval of any vendor. DFS will use reasonable efforts to
attempt to give Borrower prior notice of such suspension or termination.
(b) Payment Terms. Borrower will immediately pay DFS the
principal indebtedness owed DFS on each item of Inventory financed by DFS on the
earliest occurrence of any of the following events: (a) when such Floorplan
Inventory is lost, stolen or damaged to the extent that such loss, theft or
damage is not adequately insured under an insurance policy which names DFS as
loss payee; (b) when such Floorplan Inventory is sold, transferred, leased,
otherwise disposed of or matured; (c) when otherwise required under the terms of
any financing program agreed to in writing by the parties. If Borrower from time
to time is required to make immediate payment to DFS of any past due obligation
discovered during any Inventory review, or at any other time, Borrower agrees
that acceptance of such payment by DFS shall not be construed to have waived or
amended the terms of its financing program. Any third party discount, rebate,
bonus or credit granted to Borrower for any Inventory will not reduce the debt
Borrower owes DFS until DFS has received payment therefor in cash. Borrower
will: (1) pay DFS even if any Inventory is defective or fails to conform to any
warranties extended by any third party; (2) not assert against DFS any claim or
defense Borrower has against any third party; and (3) indemnify and hold DFS
harmless against all claims and defenses asserted by any buyer of the Inventory
relating to the condition of, or any representations regarding, any of the
Inventory. Borrower waives all rights of offset and counterclaims Borrower may
have against DFS.
3.3 Revolving Credit Loans.
(a) Total Revolving Credit Limit. Subject to the terms of this
Agreement, DFS agrees, for so long as no Default exists, to provide to Borrower,
and Borrower agrees to accept, financing (each advance being a "Revolving Credit
Loan") on the Initial Advance, Eligible New Inventory and Eligible Used
Inventory in the maximum aggregate unpaid principal amount at any time equal to
the lesser of (i) the Borrowing Base and (ii) Forty Million Dollars
($40,000,000.00) less the Landlord Lien Reserve ("Total Revolving Credit
Limit"). A request for a Revolving Credit Loan shall be made, or shall be deemed
to be made, as provided in Section 5.1 hereof.
(b) Initial Advance. DFS agrees to lend to Borrower an amount
not to exceed the lesser of (i) the Value of Existing Eligible Inventory
("Existing Eligible Inventory Availability"), and (ii) the Total Revolving
Credit Limit (the "Maximum Initial Advance"). The actual amount of such advance
is referred to herein as the "Initial Advance". The Eligible New Inventory and
Eligible Used Inventory which supports the Initial Advance will be depreciated
for the purposes of determining Value on an eighty-four (84) month term.
(c) Eligible New Inventory. On receipt of each Borrowing Base
Certificate, DFS will credit Borrower with the lesser of (1) one hundred percent
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(100%) of the Value of Borrower's cost of Eligible New Inventory, net of
accumulated straight-line depreciation based on a sixty (60) month depreciation
schedule, and (2) the Total Revolving Credit Limit (such lesser amount being
called the "Eligible New Inventory Availability").
(d) Eligible Used Inventory. On receipt of each Borrowing Base
Certificate, DFS will credit Borrower with the lesser of (1) one hundred percent
(100%) of the Value of Borrower's Eligible Used Inventory, and (2) Ten Million
Dollars ($10,000,000) (such lesser amount being called the "Eligible Used
Inventory Availability"); provided, however, the age of the Inventory plus the
length of depreciation shall not exceed one hundred twenty (120) months.
3.4 Mandatory Prepayment.
If at any time and for any reason the aggregate amount of
outstanding Loans exceeds the Borrowing Base, Borrower will, immediately upon
demand, repay an amount of the Loans made to it by DFS hereunder equal to such
excess. In addition, Borrower shall immediately pay DFS whatever sums may be
necessary from time to time to remain in compliance with the Total Credit Limit
and the Total Revolving Credit Credit Limit, as such limits may change from time
to time, including, without limitation, as a result of any Collateral no longer
being deemed an Eligible Account or Eligible Inventory, or as a result of any
change in the Value of any Eligible Inventory, or in the amount of any Eligible
Account.
3.5 Interest; Calculation of Charges; Fees.
(a) Floorplan and Revolving Credit Loans.
(i) Interest; Calculation. Borrower will pay DFS finance
charges on the Daily Contract Balance (as defined below) at a rate that is
one-half percentage points (.50%) per annum lower than the Prime Rate. The
finance charges attributable to such rate will: (i) be computed based on a 360
day year; (ii) be calculated with respect to each day by multiplying the Daily
Rate (as defined below) by the Daily Contract Balance; and (iii) accrue from the
date DFS initiates any Electronic Transfer (as defined in Section 3.5(b)(ii)
below) or otherwise advances a Revolving Credit Loan to or for the benefit of
Borrower, until DFS receives full payment of the principal debt Borrower owes
DFS in good funds in accordance with DFS' payment recognition policy and DFS
applies such payment to Borrower's principal debt in accordance with the terms
of this Agreement.
(ii) Method of Transfer. Revolving Credit Loans will be
made by DFS, at Borrower's direction, by paper check, electronic transfer by
Automated Clearing House ("ACH"), Fed Wire Funds Transfer ("Fed Wire") or such
other electronic means as DFS may announce from time to time (ACH, Fed Wire and
such other electronic transfer are collectively referred to as "Electronic
Transfers"). If Borrower does not request a Revolving Credit Loan be made in a
specific method of transfer, DFS may determine from time to time in its sole
discretion what method of transfer to use.
(b) Definitions. The "Daily Rate" is the quotient of the
applicable annual rate provided herein divided by 360. The "Daily Contract
Balance" is the amount of outstanding principal debt which Borrower owes DFS on
all Loans at the end of each day (including the amount of all Electronic
Transfers) after DFS has credited payments which it has received on the Loans.
(c) Fees.
(i) Certain Charges. Borrower will (A) reimburse DFS for
all charges made by banks, including charges for collection of checks and other
items of payment and (B) pay DFS all fees and charges in effect from time to
time for transfers of funds to or from the Borrower. DFS may, from time to time,
announce
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in a newsletter or correspondence to Borrower such fees and charges for
transfers of funds to or from Dealer, including the issuance of Electronic
Transfers.
(ii) Credit Facility Fee. Borrower agrees to pay DFS an
annual credit facility fee, payable in advance, on the execution of this
Agreement, and on each anniversary thereof through the term of this Agreement,
in an amount equal to Ten Thousand Dollars ($10,000.00)(the "Credit Facility
Fee"). Once received by DFS, no Credit Facility Fee shall be refundable by DFS
for any reason.
3.6 Billing Statement.
DFS will send Borrower a monthly billing statement identifying
all charges due on Borrower's account with DFS. The charges specified on each
billing statement will be: (a) due and payable in full immediately on receipt;
and (b) an account stated, absent manifest error. DFS may adjust the billing
statement at any time to conform to applicable law and this Agreement.
3.7 Loan Proceeds.
The parties intend that all indebtedness incurred hereunder
shall be governed exclusively by the terms of this Agreement and the other Loan
Documents, and shall not, unless requested by DFS, be evidenced by notes or
other evidences of indebtedness. Upon any such request, Borrower will
immediately execute and deliver any such note or other evidence reasonably
requested by DFS. Any fees, charges or expenses charged to DFS by any bank for
payments made by DFS at Borrower's request shall be immediately payable by
Borrower. All advances and other obligations of Borrower made hereunder will
constitute a single obligation.
3.8 Default Interest Rate.
If a Default occurs, and unless and until cured, DFS may
without prior demand, raise the rate of interest accruing on the disbursed
unpaid principal balance of any Loan by three percentage points (3%) above the
rate of interest otherwise applicable (the "Default Interest Rate"), whether or
not DFS elects to accelerate the unpaid principal balances as a result of a
Default. DFS will notify Borrower thirty (30) days before imposing the Default
Interest Rate permitted by this Section.
3.9 Interest Rate After Certain Events.
If a judgment is entered against Borrower for sums due under
any of the Obligations, as applicable, the amount of the judgment entered (which
may include principal, interest, reasonable attorneys' fees and costs) shall
bear interest at the judgment rate as permitted under applicable law as of the
date of entry of the judgment. All Obligations of Borrower described in clauses
(a) and (b) of the definition thereof shall bear interest at the Default
Interest Rate.
3.10 Rental Contracts.
Borrower may rent the Inventory financed by DFS or against
which DFS has advanced funds pursuant to the terms of Borrower's rental
contracts ("Rental Contracts"). All of Borrower's Rental Contracts, agreements,
and rental transactions will be in a form satisfactory to DFS and will be in
accordance with all applicable Federal, State and local laws. Borrower will
indemnify DFS against any loss or damage which DFS suffers, whether direct or
indirect, resulting in any way from the Rental Contracts, agreements, or rental
transactions which fail to comply with such laws. All Rental Contracts will be
transferable to DFS. Borrower will indemnify DFS against any claims by its
customers regarding Borrower's obligations under the Rental Contracts. Borrower
will immediately, upon DFS' request, deliver to DFS all Rental Contracts and all
related documents. This assignment is a transfer for security only, and, until
DFS has foreclosed its interest in the Rental Contracts, will not be deemed to
delegate any of Borrower's duties under the Rental Contracts to DFS, nor is it
intended to alter or impair performance by either party to the Rental Contracts.
DFS may, from time to time, verify the accuracy of the Rental Contracts, and
Borrower will immediately, upon
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DFS' request, provide DFS with the following information regarding Rental
Contracts which are in effect on the date of such request: (a) the name, address
and telephone number of each customer who has executed a Rental Contract; (b)
the location of the Inventory; (c) the date of each Rental Contract; (d) the
date when the Inventory is to be returned under each Rental Contract; and, (e)
any other information which DFS may reasonably request. If the rental period
under the Rental Contract is ninety (90) days or longer, Borrower will stamp the
original of such Rental Contract with the following legend:
'FOR VALUE RECEIVED, THIS AGREEMENT HAS BEEN ASSIGNED TO DEUTSCHE
FINANCIAL SERVICES CORPORATION AND THERE ARE NO DEFENSES AGAINST THE
ASSIGNEE.'
Other than to DFS, Borrower will not assign, sell, pledge, convey or by any
other means transfer any Rental Contracts or chattel paper associated with the
DFS Collateral, without DFS' prior written consent. Borrower will not enter into
any Rental Contracts for Inventory financed by DFS or against which DFS has
advanced funds pursuant to which: (i) the original term of the Rental Contract
is greater than three hundred sixty (360) days; (ii) the original term of the
Rental Contract is equal to or greater than the remaining economic life of such
Inventory; (iii) the customer is bound to renew the Rental Contract for the
economic life of such Inventory or is bound to become the owner of such
Inventory; or, (iv) the customer has an option to renew the Rental Contract for
the remaining economic life of such Inventory, or to become the owner of such
Inventory, for nominal consideration, or for consideration which is less than
the unpaid balance owed to DFS for such Inventory. If any such Rental Contracts
are issued, Borrower will take any action which DFS may reasonably require to
perfect and/or protect DFS' security interest in such Rental Contracts and/or
the Inventory subject thereto.
3.11 Reports.
(a) Monthly Inventory Report. In addition to Borrower's other
obligations set forth in this Agreement, Borrower agrees to provide to DFS by
the 10th business day of each month, as of the last day of the immediately prior
month a listing of all Inventory then owned by Borrowerin which DFS has a
security interest.
(b) Monthly Schedule. In addition to Borrower's other
obligations set forth in this Agreement, Borrower agrees to provide to DFS by
the 10th business day of each month, as of the last day of the immediately prior
month an Inventory Schedule (including serial number, year of manufacture, make,
model, Borrower's acquisition date, whether New Inventory or Used Inventory,
acquistion cost, accumulated depreciation to date, monthly depreciation,
depreciation terms, and such other information as DFS may request) ("Monthly
Schedule"). If any payment is required under Section 3.4 hereof (Mandatory
Prepayment), such payment will be forwarded to DFS with the Monthly Schedule.
(c) Other Reports. In addition to Borrower's other obligations
set forth in this Agreement, Borrower agrees to provide DFS within ten (10)
Business Days after each request by DFS any other report or information
requested by DFS (the "Other Reports").
(d) Accuracy of Reports. The Monthly Inventory Reports, the
Monthly Schedule and the Other Reports will be true and correct in all respects.
Borrower acknowledges DFS' reliance on the truthfulness and accuracy of each
Monthly Report, Monthly Schedule and the Other Reports.
3.12 Establishment of Reserves.
Notwithstanding the foregoing provisions of Section 3.3, DFS
shall have the right to establish reserves in such amounts, and with respect to
such
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matters, as DFS shall deem necessary or appropriate, against the amount of
Revolving Credit Loans which Borrower may otherwise request under Section 3.3,
including, without limitation, with respect to (a) price adjustments, damages,
unearned discounts, returned products or other matters for which credit
memoranda are issued in the ordinary course of Borrower's business; (b)
shrinkage, spoilage and obsolescence of Inventory; (c) slow moving Inventory;
(d) other sums chargeable against Borrower as Revolving Credit Loans under any
section of this Agreement; and (e) such other matters, events, conditions or
contingencies as to which DFS, in its credit judgment determines reserves should
be established from time to time hereunder.
3.13 Advancements
If Borrower fails to (a) perform any of the affirmative
covenants contained herein, (b) protect or preserve the Collateral or (c)
protect or preserve the status and priority of the Liens and security interest
of DFS in the Collateral, DFS may make advances to perform those obligations.
DFS will give Borrower fifteen (15) days notice prior to making such
advancement. All sums so advanced will be due and payable upon demand and will
immediately upon advancement become secured by the security interests created by
this Agreement and will be subject to the terms and provisions of this Agreement
and all of the Loan Documents. DFS may add all sums so advanced, plus any
expenses or costs incurred by DFS, including reasonable attorney's fees, as
outstanding Loans as DFS may designate in its sole discretion. The provisions of
this Section will not be construed to prevent the institution of rights and
remedies of DFS upon the occurrence of a Default. Any provisions in this
Agreement to the contrary notwithstanding, the authorizations contained in this
Section will impose no duty or obligation on DFS to perform any action or make
any advancement on behalf of Borrower and are for the sole benefit and
protection of DFS.
4. TERM OF AGREEMENT
4.1 Termination.
Borrower or DFS may terminate this Agreement at any time upon
at least ninety (90) days written notice to the other party. Termination will
not entitle Borrower to a refund of any fee. Any such written notice of
termination delivered by Borrower to DFS shall be irrevocable. It is understood
that Borrower may elect to terminate this Agreement in its entirety only, no
section or lending facility may be terminated singly.
4.2 Effect of Termination.
Any termination of this Agreement by Borrower or DFS will have
the effect of accelerating the maturity of all Obligations not then otherwise
due. Borrower will not be relieved from any Obligations to DFS arising out of
DFS' advances or commitments made before the effective termination date of this
Agreement. DFS will retain all of its rights, interests and remedies hereunder
until Borrower has paid all of Borrower's Obligations to DFS. All waivers set
forth within this Agreement will survive any termination of this Agreement.
5. BORROWING AND REPAYMENT PROCEDURES
5.1. Borrowing Procedures.
(a) Generally. A request for a Revolving Credit Loan shall be
made, or shall be deemed to be made, in the following manner: (i) Borrower may
give DFS written notice of its intention to borrow, in which notice Borrower
shall specify the amount of the proposed borrowing and the proposed borrowing
date; (ii) the becoming due of any amount required to be paid under this
Agreement as interest shall be deemed irrevocably to be a request for a
Revolving Credit Loan on the due date in the amount required to pay such
interest; and (iii) the becoming due of any other Obligations shall be deemed
irrevocably to be a request for a Revolving
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Credit Loan on the due date in the amount then so due.
For purposes of subpart (i) above, Borrower agrees that DFS may rely and act
upon any request for a Revolving Credit Loan from any individual who DFS, absent
gross negligence or willful misconduct, believes to be a representative of
Borrower.
(b) Conditions Precedent to Each Revolving Credit Loan.
Without limiting the applicability of the conditions precedent set forth in
Section 7 below to DFS' obligation to make any Revolving Credit Loan, the
obligation of DFS to make any Revolving Credit Loan shall be subject to the
further conditions precedent that, on the date of each such Revolving Credit
Loan:
(i) The following statements shall be true: (A) the
representations and warranties contained in Section 8 hereof are correct on and
as of the date of such Revolving Credit Loan as though made on and as of such
date, and (B) there exists no Default or Unmatured Default, nor would any
Default or any Unmatured Default result from the making of the Revolving Credit
Loan requested by Borrower;
(ii) Borrower shall have signed and sent to DFS, if DFS so
requests, a request for advance, setting forth in writing the amount of the
Revolving Credit Loan requested; provided, however, that the foregoing condition
precedent shall not prevent DFS, if it so elects, in its sole discretion, from
making a Revolving Credit Loan pursuant to Borrower's non-written request
therefor;
(iii) DFS shall have received a completed Borrowing Base
Certificate, signed by the Borrower, and dated not more than thirty (30) days
prior to the date of Borrower's request for such Revolving Credit Loan; and
(iv) DFS shall have received such other approvals, opinions or
documents as it may reasonably request.
Borrower agrees that the making of a request by Borrower for a Revolving Credit
Loan, shall constitute a certification by Borrower and the Person(s) executing
or giving the same that all representations and warranties of Borrower herein
are true as of the date thereof and that all required conditions to the making
of the Revolving Credit Loan have been met.
5.2 All Loans One Obligation.
All Obligations of Borrower to DFS under this Agreement and
all other agreements between Borrower and DFS shall constitute one obligation to
DFS secured by the security interest granted in this Agreement, and by all other
Liens heretofore, now, or at any time or times hereafter granted by Borrower.
All of the rights of DFS set forth in this Agreement shall apply to any
modification of or supplement to this Agreement, or Exhibits hereto, unless
otherwise agreed in writing.
5.3 Payments of Principal and Interest.
All payments and amounts due hereunder by Borrower shall be
made or be payable without set-off or counterclaim and shall be made to DFS on
the date due at its office(s) responsible for Borrower's account, or at such
other place which DFS may designate to Borrower in writing. Any payments
received after such time shall be deemed received on the next Business Day.
Whenever any payment to be made hereunder shall be stated to be due on a date
other than a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
payment of interest or any fees.
5.4 Collection Days.
All payments and all amounts received hereunder will be
credited by DFS to Borrower's account three (3) days after funds have been
deposited into DFS' general operating account.
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6. SECURITY FOR THE OBLIGATIONS
6.1 Grant of Security Interest.
To secure payment of all of Borrower's current and future
Obligations and to secure Borrower's performance of all of the provisions under
this Agreement, Borrower grants DFS a security interest in all of Borrower's:
(1) new and used inventory and equipment which is financed by DFS for, or
against which DFS has advanced monies to, Borrower, whether now owned or
hereafter acquired and whether or not transferred to Borrower from another
company; and (2) all accounts, contract rights, chattel paper, security
agreements, deposit accounts, reserves, documents, general intangibles and
instruments arising from all such inventory and equipment, and all judgments,
claims, insurance policies and payments owed or made to Borrower thereon; and
(3) all attachments, accessories, accessions, substitutions and replacements to
such inventory and equipment; and (4) all proceeds of all of the foregoing. All
such assets are collectively referred to herein as the "Collateral." All such
terms for which meanings are provided in the Uniform Commercial Code are used
herein with such meanings. All Collateral financed by DFS, and all proceeds
thereof, will be held in trust by Borrower for DFS, with such proceeds being
payable in accordance with this Agreement. Borrower covenants with DFS that DFS
may realize upon all or part of any Collateral in any order it desires and any
realization by any means upon any Collateral will not bar realization upon any
other Collateral. Borrower's liability under this Agreement is direct and
unconditional and will not be affected by the release or nonperfection of any
security interest granted hereunder.
6.2 Future Advances.
DFS' security interests shall secure all current and all
future advances to Borrower made by DFS under the Loan Documents.
6.3 Financing Statements.
Borrower shall execute and deliver to DFS for the benefit of
DFS such financing statements, certificates of title and original documents as
may be required by DFS with respect to DFS' security interests.
6.4 Guaranties.
Borrower shall cause any and all Subsidiaries, whether now
existing or hereafter acquired, to execute and deliver collateralized guaranties
of the Obligations secured by a first priority, perfected security interest in
the assets described therein.
6.5 Further Assurances.
Borrower will execute and deliver to DFS, at such time or
times as DFS may request, all financing statements, security agreements,
assignments, certificates, affidavits, reports, schedules, and other documents
and instruments that DFS may deem necessary to perfect and maintain perfected
DFS' security interests in the Collateral and to fully consummate the
transactions contemplated under all Loan Documents. All filing, recording or
registration fees shall be payable by Borrower.
7. CONDITIONS PRECEDENT
All duties and obligations of DFS under the Loan Documents on the
Effective Date, and at all times during the term of this Agreement, are
specifically subject to the full and continued satisfaction by Borrower of the
conditions precedent set forth below.
7.1 Conditions Precedent.
The following conditions must be satisfied as of the Effective
Date:
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(a) DFS' Counsel. DFS' counsel must approve of all matters pertaining to
(i) title to the Collateral; (ii) the form, substance and due execution of
all Loan Documents; (iii) Borrower's organizational documents; and (iv)
all other legal matters, including the application of any laws relating to
usury.
(b) Material Change. There must not have been any material adverse change,
between April 1, 1997 and the Effective Date, in the condition of
Borrower, the condition of the Business, the value and condition of the
Collateral, the structure of Borrower other than as contemplated herein,
or in the financial information, audits and the like obtained by DFS.
(c) Perfected Liens. DFS shall have a perfected first priority Lien and
security interest in the Collateral, subject only to the Permitted Liens.
(d) Insurance. Borrower shall provide DFS with certificates of insurance
evidencing that Borrower has obtained the insurance as required in Section
9.1.2.
(e) Laws. Borrower and its Subsidiaries shall be in compliance with all
applicable laws and governmental regulations, including, but not limited
to, all Environmental Laws, the failure to comply with which would have a
material adverse effect on Borrower, its Subsidiaries or the Business.
(f) Certificate of Good Standing. A certificate of good standing for
Borrower (or other similar certificate) must be delivered to DFS, from the
appropriate governmental authority of Borrower's state of incorporation
and other jurisdictions in which Borrower does business, dated not earlier
than 30 days prior to the Effective Date.
(g) Opinion of Borrower's Counsel. DFS must receive a written opinion from
counsel for Borrower, dated the Effective Date, and addressed to and for
the benefit of DFS, in form and substance satisfactory to DFS.
(h) UCC Searches. DFS must receive a certificate from a provider of
financing statement searches acceptable to DFS which identifies all
financing statements of public record not more than 5 days before the
Effective Date, that pertain to the Collateral.
(i) Other Documents. Such other documents, certificates, submissions,
insurance policies and other matters as reasonably requested by DFS
relating to the transaction herein contemplated.
(j) President's Certificate. In the form attached hereto as Exhibit 7.1(j)
compliance with all of the terms and conditions in the Loan Documents.
(k) Articles of Incorporation. A certified copy of the Articles of
Incorporation, By-Laws and the resolutions of the directors of Borrower
authorizing the transactions contemplated by this Agreement.
(l) Secretary's Certificate of Resolution and Incumbency. In the form
attached hereto as Exhibit 7.1(l).
(m) Pre-closing Reviews. DFS must complete reviews with satisfactory
results of Borrower's Inventory and Accounts. All costs and expenses for
such pre-closing reviews will be included within the pre-closing expenses.
(n) Payoff Letter. A lien release and payoff letter executed by any and
all lienholders on any of the Collateral, other than with respect to the
Permitted Liens.
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8. REPRESENTATIONS AND WARRANTIES
To induce DFS to enter into this Agreement, Borrower makes the
representations and warranties set forth below, all of which will remain true in
all material respects during the term of this Agreement. Borrower acknowledges
DFS' justifiable right to rely upon the representations and warranties set forth
below.
8.1 Financial Statements.
Borrower warrants and represents to DFS that all financial
statements and information relating to Borrower or any Guarantor which have been
or may hereafter be delivered by Borrower or any Guarantor are true and correct
and have been and will be prepared in accordance with GAAP and, with respect to
such previously delivered statements or information, there has been no material
adverse change in the financial or business condition of Borrower or any
Guarantor since the submission to DFS, either as of the date of delivery, or, if
different, the date specified therein, and Borrower acknowledges DFS' reliance
thereon.
8.2 Non-Existence of Defaults.
Neither Borrower nor any of its Subsidiaries is in default
with respect to any material amount of its existing Indebtedness. The making and
performance of this Agreement and all other Loan Documents, will not
immediately, or with the passage of time, the giving of notice, or both: (a)
violate the provisions of the bylaws or any other corporate document of
Borrower; (b) violate any laws to the best of Borrower's knowledge after
diligent inquiry; (c) result in a material default under any contract,
agreement, or instrument to which Borrower is a party or by which Borrower or
its properties are bound; or (d) result in the creation or imposition of any
security interest in, or Lien or encumbrance upon, any of the Collateral except
the Permitted Liens.
8.3 Litigation.
Set forth on Exhibit 8.3 is a list of all actions, suits,
investigations or proceedings pending or, in the knowledge of Borrower,
threatened against Borrower or any of its Subsidiaries, as of the date hereof in
which there is a reasonable probability of an adverse decision which would
materially and adversely affect Borrower, the Business, or the Collateral.
8.4 Material Adverse Changes.
Borrower does not know of or expect any material adverse
change in the Business, or in Borrower's or any of the Subsidiaries' assets,
liabilities, properties, or condition, financial or otherwise, including changes
in Borrower's financial condition prior to and inclusive offrom the earlier of
(a) the latest proposal or terms sheet or (b) DFS' last audit prior to the
Effective Date.
8.5 Title to Collateral.
Except as set forth on Exhibit 8.5, Borrower has good and
marketable title to all of the Collateral, free and clear of any and all Liens,
claims and encumbrances, other than the Permitted Liens.
8.6 Corporate Status.
Borrower and each of the Subsidiaries is a corporation duly
organized and validly existing, in good standing, with perpetual corporate
existence, under the laws of their respective jurisdictions of formation.
Borrower and its Subsidiaries have the corporate power and authority to own
their properties and to transact the Business in which they are engaged and
presently propose to engage. Borrower and each Subsidiary is duly qualified as a
foreign corporation and in good standing in all states where the nature of their
Business or the ownership or use of their property requires such qualification,
and where failure to so qualify would have a material adverse effect on its
Business, operations or financial condition.
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8.7 Subsidiaries.
Borrower has no subsidiaries.
8.8 Power and Authority.
Borrower has the corporate power to borrow and to execute,
deliver and carry out the terms and provisions of the Loan Documents. Borrower
has taken or caused to be taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement and all other Loan
Documents and the borrowing thereunder.
8.9 Place of Business.
Borrower's chief executive office and the principal place of
business is located at 681 Justin Drive Cottonwood, AZ 86326. Borrower's records
concerning the Collateral are kept at such chief executive office, or will be
kept at such other place that Borrower informs DFS of not less than 30 days in
advance of relocation.
8.10 Enforceability of the Loan Documents.
The Loan Documents executed by Borrower are the valid and
binding obligations of Borrower and are enforceable against Borrower in
accordance with their terms, except as limited by bankruptcy, insolvency, or
other laws of general application relating to the enforcement of creditors'
rights.
8.11 Taxes.
Borrower's federal tax identification number is 86-0848959.
Borrower has: (a) filed all federal, state and local tax returns and other
reports that it is required by law to file, (b) paid or caused to be paid all
taxes, assessments and other governmental charges that are due and payable, the
failure of which to pay would have a material adverse effect on the Business,
except those contested in good faith and in accordance with accepted procedures,
and for which adequate reserves have been established in accordance with GAAP,
and (c) made adequate provision for the payment of such taxes, assessments or
other charges accruing but not yet payable. Borrower has no knowledge of any
deficiency or additional assessment in a material amount in connection with any
taxes, assessments or charges.
8.12 Compliance with Laws.
Borrower, to the best of its knowledge after diligent inquiry,
has complied, and shall cause each Subsidiary to comply, in all material
respects with all applicable laws, including any Environmental Laws and any
zoning laws, the failure to comply with which would have a material adverse
effect on Borrower individually, or Borrower and its Subsidiaries on a
consolidated basis.
8.13 Consents.
Borrower and the Subsidiaries have obtained all material
consents, permits, licenses, approvals or authorization of, or effected the
filing, registration or qualification with, any governmental entity which is
required to be obtained or effected by Borrower and the Subsidiaries in
connection with the Business or the execution and delivery of this Agreement and
the other Loan Documents the failure of which to obtain or effect would have a
material adverse effect on Borrower individually, or on Borrower and its
Subsidiaries on a consolidated basis.
8.14 Purpose.
Borrower will use the advances which DFS makes under the
Credit Facility solely for lawful purposes and as described in Section 3 hereof.
8.15 Condition of the Business.
All material assets used in the conduct of the Business are in
good operating condition and repair and are fully usable in the ordinary course
thereof,
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reasonable wear and tear excepted.
8.16 Capital.
All issued shares and all outstanding shares in the
Subsidiaries as reflected in Borrower's financial statements are validly issued
pursuant to proper authorization of the board of directors of such Subsidiary,
and are fully paid, and non-assessable. There are no outstanding subscriptions,
warrants, options, calls or commitments, obligations or securities convertible
or exchangeable for shares of any stock of Borrower or the Subsidiaries.
Borrower shall give DFS thirty days (30) prior written notice before entering
any agreement to register its equity or debt securities under the Securities Act
of 1933, as amended, or any state securities law. All Borrower's issued shares
and outstanding capital stock are fully paid and non-assessable, and each such
Person's capital structure is as set forth on Exhibit 8.16.
8.17 Location of Collateral.
Exhibit 8.17 describes the locations where any of the
Collateral is located or stored as of the date hereof.
8.18 Real Property.
Borrower does not own or lease any real property, except as
set forth on Exhibit 8.18 attached hereto.
8.19 Solvency.
The Borrower now has capital sufficient to carry on its
respective business and transactions and all business and transactions in which
it is about to engage and is now solvent and able to pay its respective debts as
they mature, and Borrower now owns property having a value, greater than the
amount required to pay Borrower's debts.
8.20 Business Locations; Agent for Process.
Since incorporation, Borrower has had no office, place of
business or agent for service of process located in any state or county other
than as shown Exhibit 8.17.
8.21 Warranties and Representations-Inventory.
For each item of Inventory listed by Borrower on any Borrowing
Base Certificate, Borrower covenants, warrants and represents to DFS that at all
times: (a) Inventory not on rent will be kept only at the locations indicated on
Exhibit 8.17; (b) Borrower now keeps and will keep correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory,
Borrower's cost therefor and the selling price thereof, the daily withdrawals
therefrom and the additions thereto; (c) Inventory is not and will not be stored
with a bailee, repairman, warehouseman or similar party without DFS' prior
written consent, and Borrower will, concurrently with delivery to such party,
cause any such party to issue and deliver to DFS, in form acceptable to DFS,
warehouse receipts, in DFS' name evidencing the storage of such Inventory, and
waivers of warehouseman's liens in favor of DFS; (d) Borrower will pay all
taxes, rents, business taxes, and the like on the premises where the Inventory
is located; and (e) Borrower will not lend, pledge, consign, transfer or secrete
any of the Inventory or use any of the Inventory for any purpose other than
exhibition and sale to buyers in the ordinary course of business, without DFS'
prior written consent.
8.22 Reaffirmation.
Each request for a Loan made by Borrower pursuant to this
Agreement or any of the other Loan Documents shall constitute (a) an automatic
representation and warranty by Borrower to DFS that there does not then exist
any Default or any Unmatured Default, and (b) a reaffirmation as of the date of
said request of all of the representations and warranties of Borrower contained
in this Agreement and the other Loan Documents.
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8.23 Survival of Representations and Warranties.
Borrower covenants, warrants and represents to DFS that all
representations and warranties of Borrower contained in this Agreement shall be
true at the time of Borrower's execution of this Agreement, and shall survive
the execution, delivery and acceptance thereof by DFS and the parties thereto
and the closing of the transactions described therein or related thereto.
9. BORROWER'S COVENANTS
9.1 Affirmative Covenants.
During the term of this Agreement and thereafter for so long
as any Obligations are outstanding and unpaid, Borrower covenants that unless
otherwise consented to by DFS in writing, it shall perform all the acts and
promises required by this Agreement and all the acts and promises set forth
below.
9.1.1 Payment and Performance. Borrower will pay and perform
all Obligations in full when and as due hereunder.
9.1.2 Insurance.
(a) Type of Insurance. Borrower will at all times cause
the Business and the Collateral to be insured by
insurers of reasonable financial soundness and having an
A. M. Best rating of A or better, with such policies,
against such risks and in such amounts as are
appropriate for reasonably prudent businesses in
Borrower's industry and of Borrower's size and financial
strength.
(b) Requirements as to Insurance Policies. The policies
of insurance which Borrower is required to carry shall
comply with the requirements listed below:
(i) Each such policy shall provide that it may not be
canceled or allowed to lapse at the end of a policy
period without at least 30 days' prior written notice to
DFS;
(ii) Each liability and hazard insurance policy shall
name DFS as an additional insured; and
(iii) Each property insurance policy required hereunder
shall contain a standard lender's loss payable clause in
favor of DFS. Such insurance policies shall also contain
lender's loss payable endorsements satisfactory to DFS
providing, among other things, that any loss shall be
payable in accordance with the terms of such policy
notwithstanding any act of Borrower which might
otherwise result in forfeiture of such insurance;
(c) Collection of Claims. Borrower will promptly advise
DFS of any insured casualty and Borrower agrees that DFS
may direct all insurance proceeds therefrom to be paid
directly to DFS to the extent that such loss is not
adequately insured under an insurance policy which names
DFS as a loss payee, and hereby appoints DFS its
attorney-in-fact for such purpose.
(d) Blanket Policies. Any insurance required hereunder
may be supplied by means of a blanket or umbrella
insurance policy.
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(e) Delivery of Policies or Certificates of Insurance.
Borrower shall deliver to DFS certificates of insurance
issued by insurers to evidence that the insurance
maintained by Borrower complies with the requirements
hereunder.
9.1.3 Sale of Inventory. Borrower will sell its Inventory only
in the ordinary course of business, unless written permission to the contrary is
obtained from DFS.
9.1.4 Notice of Litigation and Proceedings. Borrower will give
prompt notice to DFS of: (a) any litigation or proceeding (including fines and
penalties of any public authority) in which it, or any of the Subsidiaries is a
party in which there is a reasonable probability of an adverse decision which
would require it or any of the Subsidiaries to pay money or deliver assets,
whether or not the claim is considered to be covered by insurance; (b) any class
action litigation against it, regardless of size; and (c) the institution of any
other suit or proceeding that might materially and adversely affect its or any
of its Subsidiary's operations, financial condition, property or the Business.
9.1.5 Payment of Indebtedness to Third Persons. Borrower will,
and will cause each Subsidiary to, pay, when due, all Indebtedness and any other
liability due third persons, except when the amount thereof is being contested
in good faith by appropriate proceedings and with adequate reserves therefor
satisfactory to DFS in accordance with GAAP being set aside by Borrower or such
Subsidiary. DFS will use reasonable efforts to attempt to give Borrower notice
before DFS requires Borrower to set aside additional reserves.
9.1.6 Notice of Change of Business Location. Borrower will
notify DFS 30 days in advance of: (a) any change in or discontinuation of the
location of the Collateral, Borrower's principal place of business, or any of
the Subsidiaries' existing offices or places of business, (b) the establishment
of any new places of business relating to the Business, and (c) any change in or
addition to the locations where Borrower's Inventory or records are kept.
9.1.7 Payment of Taxes. Borrower will, and will cause each
Subsidiary to, pay or cause to be paid, when and as due, all taxes, assessments
and charges or levies imposed upon it or on any of its property or that it is
required to withhold and pay over to the taxing authority or that it must pay on
its income, the failure of which to pay would have a material adverse effect on
Borrower individually, or on Borrower and the Subsidiaries on a consolidated
basis, except where contested in good faith by appropriate proceedings with
adequate reserves therefor satisfactory to DFS, in accordance with GAAP, having
been set aside by Borrower or such Subsidiary. DFS will use reasonable efforts
to attempt to give Borrower notice before DFS requires additional reserves.
However, Borrower will and will cause each Subsidiary to, pay or cause to be
paid all such taxes, assessments, charges or levies immediately whenever
foreclosure of any Lien that attaches on the Collateral appears imminent.
9.1.8 Further Assurances. Borrower agrees to, and will cause
each Subsidiary to, execute such other and further documents, including, without
limitation, deeds of trust, promissory notes, security agreements, financing
statements, continuation statements, certificates of title, and the like as may
from time to time in the reasonable opinion of DFS be necessary to perfect,
confirm, establish, re-establish, continue, or complete the security interests,
collateral assignments and Liens in the Collateral, and the purposes and
intentions of this Agreement.
9.1.9 Maintenance of Status. Borrower will take all necessary
steps to (a) preserve its, and each Subsidiary's, existence as a corporation,
(b)
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preserve Borrower's and the Subsidiaries' franchises and permits, and (c)
comply with all present and future material agreements to which Borrower, or any
of the Subsidiaries, is subject, and (d) maintain, and cause each Subsidiary to
maintain, its qualification and good standing in all states in which such
qualification is necessary or in which the failure to be so qualified might have
a material adverse effect on the financial condition or properties of Borrower
or the Business. Borrower will not change the nature of the Business during the
term of this Agreement.
9.1.10 Financial Statements; Reporting Requirements;
Certification as to Events of Defaults. During the term of this Agreement,
Borrower will furnish two copies of the following to DFS:
(a) within 90 days after the end of each fiscal year, annual
financial statements for Borrower and its Subsidiaries as of
the end of such fiscal year, consisting of a consolidated and
consolidating balance sheet, consolidated and consolidating
statement of operations, consolidated and consolidating
statements of cash flows and consolidated and consolidating
statement of stockholder's equity, in comparative form,
together with a narrative description of the financial
condition and results of operations and the liquidity and
capital resources of Borrower and setting forth in comparative
form the corresponding figures for the corresponding period of
the prior fiscal year and the corresponding figures from the
most recent financial projections of Borrower, discussing the
reasons for any significant variations. The statements and
balance sheet will be audited by an independent firm of
certified public accountants selected by Borrower and
acceptable to DFS, and certified by that firm of certified
public accountants to have been prepared in accordance with
GAAP. The certified public accountants will render an
unqualified opinion as to such statements and balance sheets.
DFS will have the absolute and irrevocable right, from time to
time, to discuss the affairs of Borrower directly with the
independent certified public accountant after prior notice to
Borrower and the reasonable opportunity of Borrower to be
present at any such discussions;
(b) by the 30th day of each month, financial statements for
Borrower and its Subsidiaries as of the end of the immediately
preceding month, consisting of consolidated and consolidating
balance sheet and statement of operations prepared by
Borrower;
(c) by the 45th day of each quarter, a certificate of the
President, or Chief Financial Officer, in the form of Exhibit
9.1.10(c) attached hereto, of Borrower stating that such
Person has reviewed the provisions of the Loan Documents and
that a review of the activities of Borrower during such
quarter has been made by or under such Person's supervision
with a view to determining whether Borrower has observed and
performed all of Borrower's obligations under the Loan
Documents, and that, to the best of such Person's knowledge,
information and belief, Borrower has observed and performed
each and every undertaking contained in the Loan Documents and
is not at the time in default in the observance or performance
of any of the terms and conditions thereof or, if Borrower
will be so in default, specifying all of such defaults and
events of which such Person may have knowledge;
(d) promptly upon receipt thereof, copies of all final reports
and final management letters submitted to Borrower or any of
the Borrower's Subsidiaries by independent accountants in
connection with any annual or interim audit of the books of
Borrower or such
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Subsidiaries made by such accountants;
(e) any other statements, reports and other information as DFS
may reasonably request concerning the financial condition or
operations of Borrower and its properties.
9.1.11 Notice of Existence of Default. Borrower will, and will
cause its Subsidiaries to, promptly notify DFS of: (a) the existence of any
known condition or event, which constitutes a Default or an Unmatured Default
and (b) the actual or threatened termination, suspension, lapse or
relinquishment of any material license, authorization, permit or other right
granted Borrower or for Borrower's benefit and used in the Business, or granted
to any of its Subsidiaries or for any such Subsidiaries' benefit, by any
governmental agency material to the Business.
9.1.12 Compliance with Laws. Borrower will, and will cause its
Subsidiaries to, comply in all material respects with all applicable laws,
rules, regulations and orders.
9.1.13 Maintenance of Collateral. Borrower will maintain all
material Collateral and every part thereof in good condition and repair.
Borrower will not permit the value of the Collateral to be materially impaired.
Borrower will defend the Collateral against all claims and legal proceedings by
persons other than DFS. Borrower will not transfer the Collateral from the
premises where now located (other than Inventory sold or rented in the ordinary
course of business), or permit the Collateral to become a fixture or accession
(unless so affixed on the Effective Date) to any goods which are not items of
Collateral, without the prior written approval of DFS. Borrower will not permit
the Collateral to be used in violation of any applicable law, regulations, or
any policy of insurance. As to Collateral consisting of instruments and chattel
paper, Borrower will preserve rights in it against prior parties.
9.1.14 Collateral Records and Statements. Borrower will keep
such accurate and complete books and records pertaining to the Collateral in
such detail and form as DFS reasonably requires, including, but not limited to:
schedules of inventory; original orders; invoices; shipping documents; billing
settlements and receivables; sold receivables; Inventory listing containing
model, serial number (if available) and location. Other reporting will be
available upon request by DFS. The statements will be in the form and will
contain the information as is prescribed by DFS.
9.1.15 Inspection of Collateral. DFS and any third party
appraiser selected by DFS may examine the Collateral at any time, and from time
to time during normal business hours. DFS and any third party appraiser selected
by DFS will have full access to, and the right to: (a) review, inspect and make
abstracts and copies from Borrower's books and records pertaining to the
Collateral, and (b) inspect and examine Inventory and check and test the same as
to quality, quantity, Value and condition, wherever located, at any time during
reasonable business hours, and from time to time. Borrower will assist DFS and
any third party appraiser selected by DFS in so doing.
9.1.16 Acquisition of Stock or Assets; New Subsidiaries.
Borrower will give DFS written notice at least thirty (30) days before Borrower:
(a) acquires all or substantially all the assets of, equity interest or stock
in, another business, or (b) creates any Subsidiaries.
9.2 Negative Covenants.
During the term of this Agreement and thereafter, for so long
as any Obligations are outstanding and unpaid, Borrower covenants that unless
otherwise
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consented to in writing by DFS, Borrower shall not perform or cause or
permit to be performed the following acts:
9.2.1 Change of Name, Etc. Borrower will not change its name,
or begin to trade under any assumed names or trade names without thirty (30)
days prior written notice to DFS. Borrower will not change its manner of
organization, enter into any mergers, consolidations, reorganizations or
recapitalizations without DFS' prior written consent.
9.2.2 Sale or Transfer of Assets. Except in the ordinary
course of business, or except as consented to in writing by DFS, Borrower will
not sell, transfer, lease (including sale-leaseback) or otherwise dispose of all
or any substantial part of their assets. This provision will not apply to any
sale if the proceeds of such sale pay the Obligations in full.
9.2.3 Encumbrance of Assets. Borrower will not mortgage,
pledge, grant or permit to exist a security interest in or Lien upon any of the
Collateral, now owned or hereafter acquired except for the Permitted Liens.
9.2.4 False Certificates or Documents. Borrower has not and
will not furnish DFS with any certificate or other document that contains any
untrue statement of material fact or that omits to state a material fact
necessary to make it not misleading in light of the circumstances under which it
was furnished.
9.2.5 Assignment. Borrower will not assign or attempt to
assign the Loan Documents or any of its interests under the Loan Documents,
except in favor of DFS.
9.2.6 Transactions with Affiliates. Borrower will not enter
into any contracts, leases, sales or other transactions with any Affiliate on
terms less favorable than could be obtained generally by Borrower from a
non-Affiliate.
9.2.7 Loans by Borrower. Borrower will not make any loan to
any Person, except for loans in anticipation of reasonable and normally
reimbursable business expenses and trade credit extended in the ordinary course
of Business.
9.2.8 Fiscal Year. Borrower will not change its fiscal
year-end without sixty (60) days prior written notice to DFS.
9.2.9 This section has been deleted.
9.2.10 Adverse Transactions. Borrower will not enter into any
transaction, or permit any Subsidiary to enter into any transaction, which
materially and adversely affects or may materially and adversely affect the
Collateral or Borrower's ability to repay the Obligations.
9.2.11 Guaranties. Borrower will not guarantee, assume,
endorse or otherwise, in any way, become directly or contingently liable with
respect to the Indebtedness of any Person, except (1) by execution of a
Collateralized Guaranty of the indebtedness owed by RDO Equipment Co. to DFS,
and (2) by endorsement of instruments or items of payment for deposit or
collection.
9.2.12 Bill-and-Hold Sales, Etc. Borrower will not make a sale
to any customer on a bill-and-hold, guaranteed sale, sale and return, sale on
approval or consignment basis, or any sale on a repurchase or return basis.
9.2.13 Margin Securities. Borrower will not own, purchase or
acquire, or permit any Subsidiary to own, purchase or acquire, (or enter, or
permit any Subsidiary to enter, into any contract to purchase or acquire) any
"margin
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security" as defined by any regulation of the Federal Reserve Board as
now in effect or as the same may hereafter be in effect unless, prior to any
such purchase or acquisition or entering into any such contract, DFS shall have
received an opinion of counsel satisfactory to DFS to the effect that such
purchase or acquisition will not cause this Agreement to violate Regulations G
or U or any other regulation of the Federal Reserve Board then in effect.
9.2.14 Tax Consolidation. Borrower will not file or consent to
the filing of any consolidated income tax return with any Person other than
Parent Company.
9.2.15 Stock Redemption. Borrower will not redeem or purchase
any of its outstanding capital stock, warrants in favor of anyone other than
DFS, or stock options or convert or permit such stock, warrants or options to be
converted into cash, nor has or shall Borrower guaranty to any of its
shareholders any minimum stock price or valuation.
10. DEFAULT/REMEDIES
10.1 Events of Default. Borrower will be in default under this
Agreement if any of the following events occurs and is not cured or waived: (a)
immediately for events under subsections (e), (h), (i), (j), (k), (l), (m), (n)
or (o) below; (b) within two (2) business days after receiving written notice by
DFS to borrower for events under subsections (d), (f), (q) or (s) below; or (c)
within thirty (30) days after receiving written notice by DFS to borrower in all
other cases (each, a "Default"):
(a) Borrower breaches any terms, covenants, warranties or
representations contained herein;
(b) RDO Equipment Co., Inc. breaches any terms, covenants (including
financial covenants), warranties or representations contained in any guaranty or
other agreement between RDO Equipment Co., Inc. and DFS;
(c) any representation, statement, report or certificate made or
delivered by Borrower or RDO Equipment Co. to DFS is not accurate when made;
(d) Borrower fails to pay any portion of Borrower's debts to DFS
when due and payable hereunder or under any other agreement between DFS and
Borrower;
(e) Borrower abandons any Collateral;
(f) Borrower or RDO Equipment Co. is or becomes in default of any
material term or in any material amount of any material obligation owed to any
third party;
(g) a money judgment issues against Borrower or RDO Equipment Co.;
(h) an attachment, sale or seizure issues or is executed against any
assets of Borrower or against any assets of RDO Equipment Co.;
(i) Borrower ceases existence as a corporation;
(j) Borrower ceases or suspends business;
(k) Borrower or RDO Equipment Co. makes a general assignment for the
benefit of creditors;
(l) Borrower or RDO Equipment Co. becomes insolvent or voluntarily
or involuntarily becomes subject to the Federal Bankruptcy Code, any state
insolvency law or any similar law;
(m) any receiver is appointed for any of Borrower's or any of RDO
Equipment Co.'s assets;
(n) any guaranty of Borrower's debts to DFS is terminated;
(o) Borrower or RDO Equipment Co. misrepresents Borrower's or RDO
Equipment Co.'s individual or consolidated financial condition or organizational
structure;
(p) any of the Collateral becomes subject to any Lien, claim,
encumbrance or security interest other than a Permitted Lien;
(q) Borrower shall be enjoined, restrained or in any way prevented
by court, governmental or administrative order from conducting all or any
material part of its Business; or any material lease or agreement pursuant to
which Borrower leases, uses or occupies any property shall be canceled or
terminated prior to the
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expiration of its stated term, or any part of the Collateral shall be taken
through condemnation or the value thereof shall be impaired through
condemnation;
(r) RDO Equipment Co. shall cease to own and control, beneficially
and of record, at least fifty-one percent (51%) of the issued and outstanding
capital stock of Borrower;
(s) there shall occur a material adverse change in the financial or
other condition or business prospects of Borrower or RDO Equipment Co.; or
(t) DFS determines in good faith that it is insecure with respect to
any of the Collateral or the payment of any part of Borrower's Obligations.
10.2 Remedies. In the event of a Default, and after the expiration
of any applicable curing periods set forth in Section 10.1 above:
(i) DFS may at any time at DFS' election, upon notice or demand to
Borrower, do any one or more of the following: cease making further Loans and
declare all or any of the Obligations immediately due and payable, together with
all costs and expenses of DFS' collection activity, including, without
limitation, all reasonable attorneys' fees; exercise any or all rights under
applicable law (including, without limitation, the right to possess, transfer
and dispose of the Collateral); and/or cease extending any additional credit to
Borrower.
(ii) Borrower will segregate and keep the Collateral in trust for
DFS, and in good order and repair, and will not sell, rent, lease, consign,
otherwise dispose of or use any Collateral, nor further encumber any Collateral.
(iii) Upon DFS' oral or written demand, Borrower will immediately
deliver the Collateral to DFS, in good order and repair, at a place specified by
DFS, together with all related documents; or DFS may, in DFS' sole discretion
and without notice or demand to Borrower, take immediate possession of the
Collateral together with all related documents.
(iv) DFS may, upon notice, apply the Default Interest Rate.
(v) DFS may, upon notice to Borrower and at any time or times
hereafter enforce payment and collect, by legal proceedings or otherwise,
Accounts which arose from Eligible Inventory ("DFS Pledged Accounts") in the
name of Borrower or DFS; and take control of any cash or non-cash items of
payment or proceeds of DFS Pledged Accounts and of any rejected, returned,
repossessed or stopped in transit goods relating to DFS Pledged Accounts. DFS
may at its sole election and without demand enter, with or without process of
law, any premises where Collateral might be and, without charge or liability to
DFS therefor do one or more of the following: (i) take possession of the
Collateral and use or store it in said premises or remove it to such other place
or places as DFS may deem convenient; (ii) take possession of all or part of
such premises and the Collateral and place a custodian in the exclusive control
thereof until completion of enforcement of DFS' security interest in the
Collateral or until DFS' removal of the Collateral and, (iii) remain on such
premises and use the same, together with Borrower's materials, supplies, books
and records, for the purpose of liquidating or collecting such Collateral and
conducting and preparing for disposition of such Collateral.
(vi) Upon the occurrence of a Default under Sections 10.1 (i), (k),
(l) or (m), all Obligations shall automatically be accelerated and due and
payable and the Default Interest Rate shall automatically apply as of the date
of the first occurrence of such Default, without any prior notice, demand or
action of any type on the part of DFS.
All of DFS' rights and remedies are cumulative. DFS' failure to
exercise any of DFS' rights or remedies hereunder will not waive any of DFS'
rights or remedies as to any past, current or future Default.
11. SALE OF COLLATERAL
Borrower agrees that if DFS conducts a private sale of any
Collateral by requesting bids from 10 or more dealers or distributors in that
type of Collateral, any sale by DFS of such Collateral in bulk or in parcels
within 120 days of: (a) DFS' taking possession and control of such Collateral;
or (b) when DFS is otherwise
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authorized to sell such Collateral; whichever occurs last, to the bidder
submitting the highest cash bid therefor, is a commercially reasonable sale of
such Collateral under the Uniform Commercial Code. Borrower agrees that the
purchase of any Collateral by a vendor, as provided in any agreement between DFS
and the vendor, if any, is a commercially reasonable disposition and private
sale of such Collateral under the Uniform Commercial Code, and no request for
bids shall be required. Borrower further agrees that 7 or more business days
prior written notice will be commercially reasonable notice of any public or
private sale (including any sale to a vendor). Borrower irrevocably waives any
requirement that DFS retain possession and not dispose of any Collateral until
after an arbitration hearing, arbitration award, confirmation, trial or final
judgment. If DFS disposes of any such Collateral other than as herein
contemplated, the commercial reasonableness of such disposition will be
determined in accordance with the laws of the state governing this Agreement.
12. INDEMNIFICATIONS
12.1 General Indemnity.
In addition to the payment of expenses and attorneys' fees, if
applicable, whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to indemnify, pay and hold DFS and the officers,
directors, employees, agents, and affiliates of DFS and such holders
(collectively called the "Indemnitees") harmless from and against, any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel for any of such Indemnitees in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
any of such Indemnitees shall be designated a party thereto), that may be
imposed on, incurred by, or asserted against the Indemnitees, in any manner
relating to or arising out of the Loan Documents, the statements contained in
any commitment letters delivered by DFS, DFS' agreement to make the Loans or any
other payment hereunder, or the use or intended use of the proceeds of any of
the Loans hereunder (the "Indemnified Liabilities"); provided, however, that
Borrower shall have no obligation to an Indemnitee hereunder with respect to
Indemnified Liabilities arising from the gross negligence or willful misconduct
of an Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, Borrower shall contribute the maximum
portion that it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them. The provisions of the undertakings and
indemnification set out in this Section 12.1 shall survive satisfaction and
payment of the Obligations and termination of this Agreement.
13. OTHER TERMS
13.1 Amendment, Changes and Modification.
The Loan Documents may be amended, changed or modified only as
may be agreed upon in writing by Borrower and DFS from time to time.
13.2 Binding Effect.
The Loan Documents will be binding upon the parties, their
successors and assigns, provided, however, that Borrower shall not assign or
attempt to assign this Agreement, any other Loan Document or any of its
interests under the Loan Documents, without the prior written consent of DFS.
13.3 Broker Fee.
Neither party is obligated to pay any premium or other charge,
brokerage fee or commission in connection with the agreements set forth herein.
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Each party will indemnify the other and hold it harmless from any such claim
arising out of such party's acts or those of its representatives.
13.4 Entire Agreement.
The Loan Documents embody the entire agreement of the parties
relating to the Credit Facility. There are no promises, terms, conditions,
obligations or warranties other than those contained in the Loan Documents. The
Loan Documents supersede all prior communications, representations or
agreements, verbal or written, between the parties relating to the Credit
Facility.
13.5 Headings.
The headings to the sections of this Agreement are included
only for the convenience of the parties and will not have the effect of
defining, diminishing or enlarging the rights of the parties or affecting the
construction or interpretation of any portion of this Agreement.
13.6 Incorporation by Reference.
All other Loan Documents are incorporated herein by this
reference and are made a part of this Agreement as if fully set forth herein.
This Agreement, prior to such incorporation, controls in the event of any
conflict with the terms of any other Loan Documents.
13.7 Interpretation.
For the purpose of construing this Agreement, unless the
context otherwise requires, words in the singular will be deemed to include
words in the plural, and vice versa.
13.8 Notices.
Any notice under the Loan Documents, will be in writing. Any
notice to be given or document to be delivered under the Loan Documents will be
deemed to have been duly given upon delivery, if delivered in person or by any
expedited delivery service which provides proof of delivery, upon tested telex
or facsimile transmission, or on the fifth Business Day after mailing, if mailed
by certified mail, return receipt requested, postage prepaid mail, addressed to
DFS or Borrower at the appropriate addresses. DFS will use reasonable efforts to
deliver any notice DFS is required to give to Borrower; provided, however, that
failure by DFS to actually give any such notice will not be deemed to be a
waiver of any rights or remedies of DFS and will not give rise to any claims,
defenses or damages by Borrower. The addresses for notices are those set forth
below or such other addresses as may be hereafter specified by written notice by
the parties:
to DFS: Deutsche Financial Services Corporation
1633 Des Peres Road, Suite 305
St. Louis, Missouri 63131
Attention: Glen W. Clark
Facsimile No.:(314)821-0910
with a copy to: Deutsche Financial Services Corporation
655 Maryville Centre Drive
St. Louis, MO 63141-5832
Attention: General Counsel
Facsimile No.:(314) 523-3228
to Borrower: RDO RENTAL CO.
681 Justin Drive
Cottonwood, AZ 86004
Attention: William R. Hutton
Facsimile No.:(520) 634-0184
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with a copy to: RDO EQUIPMENT CO.
P.O. Box 7160
Fargo, ND 58103
Attention: Allan F. Knoll
Facsimile No.:(701) 239-8750
13.9 No Third Party Beneficiary Rights and Reliance.
No Person not a party to this Agreement will have any benefit
under this Agreement nor have third-party beneficiary rights as a result of any
of the Loan Documents, nor will any party be entitled to rely on any actions or
inactions of DFS or its agents, all of which are done for the sole benefit and
protection of DFS.
13.10 Protection or Preservation of Collateral.
DFS will not have any contractual duty to protect, insure,
collect or realize upon the Collateral or preserve rights in it against prior
parties. DFS will not be responsible or liable for any shortage, discrepancy,
damage, loss or destruction of any part of the Collateral regardless of the
cause.
13.11 Relationship of the Parties.
Neither DFS on the one hand nor Borrower on the other hand
will be deemed a partner, joint venturer or related entity of the other by
reason of the Loan Documents.
13.12 Reversal of Payments.
To the extent that Borrower makes a payment or payments to
DFS, which payment or payments or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party under any bankruptcy law,
state or federal law, common law, or equitable cause, then to the extent of such
payment or proceeds received, the Credit Facility will be revived and continue
in full force and effect, as if such payment or proceeds had not been received
by DFS.
13.13 Severability.
If any provision of this Agreement (either generally, or as to
a specific application to a set of facts) will be held to be invalid, illegal or
unenforceable, such invalidity, illegality or unenforceability will not affect
any other provision of this Agreement (either in its entirety, or as to or the
application of such provision to any other set of facts), but this Agreement
will be construed as if such invalid, illegal or unenforceable provision never
had been included in this Agreement.
13.14 Maximum Interest.
Borrower acknowledges that DFS intends to strictly conform to
the applicable usury laws governing this Agreement. Regardless of any provision
contained herein or in any other document executed or delivered in connection
herewith or therewith, DFS shall never be deemed to have contracted for, charged
or be entitled to receive, collect or apply as interest on this Agreement
(whether termed interest herein or deemed to be interest by judicial
determination or operation of law), any amount in excess of the maximum amount
allowed by applicable law, and, if DFS ever receives, collects or applies as
interest any such excess, such amount which would be excessive interest will be
applied first to the reduction of the unpaid principal balances of advances
under this Agreement, and, second, any remaining excess will be paid to
Borrower. In determining whether or not the interest paid or payable under any
specific contingency exceeds the highest lawful rate, Borrower and DFS shall, to
the maximum extent permitted under applicable law: (a) characterize any
non-principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense or fee rather than as interest; (b)
exclude voluntary pre-payments and the effect thereof; and (c) spread the total
amount of interest throughout the entire term of this
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Agreement so that the interest rate is uniform throughout such term.
13.15 Waivers by DFS.
DFS may at any time or from time to time waive all or any
rights under any of the Loan Documents, but any waiver or indulgence at any time
or from time to time will not constitute, unless specifically so expressed by
DFS in writing, a future waiver by DFS of performance by Borrower.
13.16 Survival.
The grant of security interest herein to secure all
Obligations, and all provisions relating to the Collateral will survive
termination of this Agreement and will remain in full force and effect until all
Obligations have been paid in full and this Agreement has been terminated. The
Agreement to arbitrate all Disputes will survive termination of this Agreement.
13.17 Participations; Assignments.
DFS may, without the consent of Borrower, grant participations
in or assign, at any time and from time to time hereafter, its interest in this
Agreement or any Loan Document, or of any portion thereof.
13.18 Counterparts.
This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument, and
either of the parties hereto may execute this Agreement by signing any such
counterpart.
13.19 Information.
DFS may provide credit references to any third party or may
provide other information that DFS may from time to time possess on Borrower to
any manufacturer or seller of Inventory against which DFS has loaned monies, but
DFS will not supply any financial information on Borrower to any third party.
DFS may obtain from any vendor any credit, financial or other information on
Borrower that any such vendor may from time to time possess.
13.20 Release.
Borrower releases DFS from all claims and causes of action
which Borrower may now or hereafter have for any loss or damage to it claimed to
be caused by or arising from any act or omission to act on the part of DFS, its
officers, agents or employees, except for willful misconduct or gross
negligence.
13.21 Miscellaneous.
Time is of the essence regarding Borrower's performance of its
obligations to DFS notwithstanding any course of dealing or custom on DFS' part
to grant extensions of time. Borrower's liability under this Agreement is direct
and unconditional and will not be affected by the release or nonperfection of
any security interest granted hereunder. DFS will have the right to refrain from
or postpone enforcement of this Agreement or any other Loan Documents without
prejudice and the failure to strictly enforce the Loan Documents will not be
construed as having created a course of dealing between DFS and Borrower
contrary to the specific terms of the Loan Documents or as having modified,
released or waived the same. The express terms of this Agreement and the other
Loan Documents will not be modified by any course of dealing, usage of trade, or
custom of trade which may deviate from the terms hereof. If Borrower fails to
pay any taxes, fees or other obligations which may impair DFS' interest in the
Collateral, or fails to keep the Collateral insured, DFS may, but shall not be
required to, pay such taxes, fees or obligations and pay the cost to insure the
Collateral, and the amounts paid will be: (a) an additional debt owed by
Borrower to DFS, which shall be subject to finance charges as provided herein;
and (b) due and payable immediately in full. Borrower agrees to pay all of DFS'
reasonable attorneys' fees and expenses incurred by DFS in enforcing DFS' rights
hereunder.
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13.22 Waivers by Borrower.
Borrower irrevocably waives notice of: DFS' acceptance of this
Agreement, presentment, demand, protest, nonpayment, nonperformance, and
dishonor. Borrower and DFS irrevocably waive all rights to claim any punitive
and/or exemplary damages. Borrower waives all rights of offset and counter
claims Borrower may have against DFS. Borrower waives all notices of default and
non-payment at maturity of any or all of the Accounts.
13.23 NO ORAL AGREEMENTS.
ORAL AGREEMENTS OR COMMITMENTS TO LEND MONEY, EXTEND CREDIT OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU, (BORROWER(S)) AND US
(CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN
WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. DFS
may, from time to time, announce in writing to Borrower its policies and
procedures regarding its administration of this facility including, without
limit, DFS' fees and/or charges for transfers of funds to or from Borrower,
including Electronic Transfers; any subsequent use by Borrower of this facility
following any such announcement shall constitute Borrower's acceptance of such
revised policies and procedures.
13.24 Supplement.
If Borrower and DFS have heretofore executed other agreements
in connection with all or any part of the Collateral, this Agreement shall
supplement each and every other agreement previously executed by and between
Borrower and DFS, and in that event, this Agreement shall neither be deemed a
novation nor a termination of such previously executed agreement nor shall
execution of this Agreement be deemed a satisfaction of any obligation secured
by such previously executed agreement.
13.25 Use of Counsel and Receipt of Agreement.
Borrower acknowledges that it has received a true and complete
copy of this Agreement. Borrower acknowledges that it has (a) had representation
of counsel during negotiation of this Agreement, and (b) read and understood
this Agreement.
13.26 Facsimiles, Etc.
Notwithstanding anything herein to the contrary: (a) DFS may
rely on any facsimile copy, electronic data transmission or electronic data
storage of any statement, Statement of Transaction, financial statements or
other reports, and (b) such facsimile copy, electronic data transmission or
electronic data storage will be deemed an original, and the best evidence
thereof for all purposes, including, without limitation, under this Agreement or
any other Loan Documents, and for all evidentiary purposes before any
arbitrator, court or other adjudicatory authority.
13.27 Power of Attorney.
Borrower irrevocably appoints DFS (and any Person designated
by it) as Borrower's true and lawful Attorney with full power to at any time, in
the discretion of DFS only in the event of a Default, to: (a) endorse the name
of Borrower upon any of the items of payment of proceeds of the Collateral and
deposit the same in the account of DFS for application to the Obligations; (b)
sign the name of Borrower on any document or instrument that DFS shall deem
necessary or appropriate to perfect and maintain perfected the security
interests in the Collateral under this Agreement; (c) initiate and settle any
insurance claim and endorse Borrower's name on any check, instrument or other
item of payment; (d) endorse the name of Borrower upon financing statements,
instruments, Certificates of Title and Statements of Origin pertaining to the
Collateral; (e) supply omitted information and correct errors in any documents
between DFS and Borrower; and (f) do anything to preserve and protect the
Collateral and DFS' rights and interest
29
<PAGE>
therein. In the event of a Default, Borrower irrevocably appoints DFS (and any
Person designated by it) as Borrower's true and lawful Attorney with full power
to at any time, in the discretion of DFS to: (i) demand payment, enforce payment
and otherwise exercise all of Borrower's rights, and remedies with respect to
the collection of any Accounts; (ii) settle, adjust, compromise, extend or renew
any Accounts; (iii) settle, adjust or compromise any legal proceedings brought
to collect any Accounts; (iv) sell or assign any Accounts upon such terms, for
such amounts and at such time or times as DFS may deem advisable; (v) discharge
and release any Accounts; (vi) prepare, file and sign Borrower's name on any
Proof of Claim in Bankruptcy or similar document against any Account Debtor;
(vii) endorse the name of Borrower upon any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar document or agreement relating
to any Account or goods pertaining thereto; and (viii) take control in any
manner of any item of payments or proceeds and for such purpose to notify the
Postal Authorities to change the address for delivery of mail addressed to
Borrower to such address as DFS may designate. This power of attorney is for
value and coupled with an interest and is irrevocable so long as any Obligations
remain outstanding and by DFS exercising such right, DFS shall not waive any
right against Borrower until the Obligations are paid in full.
14. BINDING ARBITRATION.
14.1 Arbitrable Claims.
Except as otherwise specified below, all actions, disputes,
claims and controversies under common law, statutory law or in equity of any
type or nature whatsoever (including, without limitation, all torts, whether
regarding negligence, breach of fiduciary duty, restraint of trade, fraud,
conversion, duress, interference, wrongful replevin, wrongful sequestration,
fraud in the inducement, usury or any other tort, all contract actions, whether
regarding express or implied terms, such as implied covenants of good faith,
fair dealing, and the commercial reasonableness of any Collateral disposition,
or any other contract claim, all claims of deceptive trade practices or lender
liability, and all claims questioning the reasonableness or lawfulness of any
act), whether arising before or after the date of this Agreement, and whether
directly or indirectly relating to: (a) this Agreement and/or any amendments and
addenda hereto, or the breach, invalidity or termination hereof; (b) any
previous or subsequent agreement between DFS and Borrower; (c) any act committed
by DFS or by any parent company, subsidiary or affiliated company of DFS (the
"DFS Companies"), or by any employee, agent, officer or director of a DFS
Company whether or not arising within the scope and course of employment or
other contractual representation of the DFS Companies provided that such act
arises under a relationship, transaction or dealing between DFS and Borrower;
and/or (d) any other relationship, transaction or dealing between DFS and
Borrower (collectively the "Disputes"), will be subject to and resolved by
binding arbitration.
14.2 Administrative Body.
All arbitration hereunder will be conducted by the American
Arbitration Association ("AAA"). If the AAA is dissolved, disbanded or becomes
subject to any state or federal bankruptcy or insolvency proceeding, the parties
will remain subject to binding arbitration which will be conducted by a mutually
agreeable arbitral forum. The parties agree that all arbitrator(s) selected will
be attorneys with at least five (5) years secured transactions experience. The
arbitrator(s) will decide if any inconsistency exists between the rules of any
applicable arbitral forum and the arbitration provisions contained herein. If
such inconsistency exists, the arbitration provisions contained herein will
control and supersede such rules. The site of all arbitration proceedings will
be in Cottonwood, Arizona or such other location as the parties agree.
14.3 Discovery.
Discovery permitted in any arbitration proceeding commenced
hereunder is limited as follows. No later than thirty (30) days after the filing
30
<PAGE>
of a claim for arbitration, the parties will exchange detailed statements
setting forth the facts supporting the claim(s) and all defenses to be raised
during the arbitration, and a list of all exhibits and witnesses. No later than
twenty-one (21) days prior to the arbitration hearing, the parties will exchange
a final list of all exhibits and all witnesses, including any designation of any
expert witness(es) together with a summary of their testimony; a copy of all
documents and a detailed description of any property to be introduced at the
hearing. Under no circumstances will the use of interrogatories, requests for
admission, requests for the production of documents or the taking of depositions
be permitted. However, in the event of the designation of any expert
witness(es), the following will occur: (a) all information and documents relied
upon by the expert witness(es) will be delivered to the opposing party, (b) the
opposing party will be permitted to depose the expert witness(es), (c) the
opposing party will be permitted to designate rebuttal expert witness(es), and
(d) the arbitration hearing will be continued to the earliest possible date that
enables the foregoing limited discovery to be accomplished.
14.4 Exemplary or Punitive Damages.
The Arbitrator(s) will not have the authority to award
exemplary or punitive damages and each party hereby irrevocably waives any right
to claim any exemplary or punitive damages.
14.5 Confidentiality of Awards.
All arbitration proceedings, including testimony or evidence
at hearings, will be kept confidential, although any award or order rendered by
the arbitrator(s) pursuant to the terms of this Agreement may be entered as a
judgment or order in any state or federal court and may be confirmed within the
federal judicial district which includes the residence of the party against whom
such award or order was entered. This Agreement concerns transactions involving
commerce among the several states. The Federal Arbitration Act, Title 9 U.S.C.
Sections 1 et seq., as amended ("FAA") will govern all arbitration(s) and
confirmation proceedings hereunder.
14.6 Prejudgment and Provisional Remedies.
Nothing herein will be construed to prevent DFS' or Borrower's
use of bankruptcy, receivership, injunction, repossession, replevin, claim and
delivery, sequestration, seizure, attachment, foreclosure, dation and/or any
other prejudgment or provisional action or remedy relating to any Collateral for
any current or future debt owed by either party to the other. Any such action or
remedy will not waive DFS' or Borrower's right to compel arbitration of any
Dispute.
14.7 Attorneys' Fees.
If either Borrower or DFS brings any other action for judicial
relief with respect to any Dispute (other than those set forth in Section 14.6)
the party bringing such action will be liable for and immediately pay all of the
other party's costs and expenses (including attorneys' fees) incurred to stay or
dismiss such action and remove or refer such Dispute to arbitration. If either
Borrower or DFS brings or appeals an action to vacate or modify an arbitration
award and such party does not prevail, such party will pay all costs and
expenses, including attorneys' fees, incurred by the other party in defending
such action. Additionally, if Borrower sues DFS or institutes any arbitration
claim or counterclaim against DFS in which DFS is the prevailing party, Borrower
will pay all costs and expenses (including attorneys' fees) incurred by DFS in
the course of defending such action or proceeding.
14.8 Limitations.
Any arbitration proceeding must be instituted: (a) with
respect to any Dispute for the collection of any debt owed by either party to
the other, within two (2) years
31
<PAGE>
after the date the last payment was received by the instituting party; and (b)
with respect to any other Dispute, within two (2) years after the date the
incident giving rise thereto occurred, whether or not any damage was sustained
or capable of ascertainment or either party knew of such incident. Failure to
institute an arbitration proceeding within such period will constitute an
absolute bar and waiver to the institution of any proceeding, whether
arbitration or a court proceeding, with respect to such Dispute.
14.9 Survival After Termination.
The agreement to arbitrate will survive the termination of
this Agreement.
15. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION.
IF THIS AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY
LEGAL PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. BORROWER AND DFS WAIVE ANY
RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING.
16. GOVERNING LAW.
Borrower acknowledges and agrees that this and all other agreements
between Borrower and DFS have been substantially negotiated, and will be
substantially performed, in the state of Arizona. Accordingly, Borrower agrees
that all Disputes will be governed by, and construed in accordance with, the
laws of such state, except to the extent inconsistent with the provisions of the
FAA which shall control and govern all arbitration proceedings hereunder.
IN WITNESS WHEREOF, the parties have, by their duly authorized
officers, executed this Agreement as of the Effective Date.
THIS AGREEMENT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS
ATTEST: RDO RENTAL CO.
By: /s/Allan F. Knoll By: /s/William R. Hutton
-------------------------------- ----------------------------------
Allan F. Knoll - Secretary Print Name: William R. Hutton
Title: President
--------------------------------
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/Glen W. Clark
----------------------------------
Print Name: Glen W. Clark
Title: Regional Vice President
--------------------------------
32
<PAGE>
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
This First Amendment is made to that certain Loan and Security Agreement
entered into on April 7, 1997 ("Agreement") by and between RDO Rental
Co.("Borrower") and DEUTSCHE FINANCIAL SERVICES CORPORATION ("DFS").
FOR GOOD AND VALUABLE CONSIDERATION RECEIVED, Borrower and DFS agree to
amend the Agreement as follows:
1. The amount of the Total Credit Limit, as defined in the first
sentence of Section 3.1 of the Agreement, Total Credit Facility, is hereby
amended to read Forty Six Million Two Hundred Fifty Thousand Dollars
($46,250,000.00).
2. The first sentence of Section 3.2(a) of the Agreement, Inventory
Floorplan Loan Limit, is hereby deleted in ist entirety and restated to read as
follows:
Subject to the terms of this Agreement, DFS may provide Loans to
Borrower for Floorplan Inventory and financing approvals for
Floorplan Inventory in transit from the seller thereof (each advance
being a "Floorplan Inventory Loan") up to an aggregate unpaid
principal amount at any time not to exceed (i) the Total Credit
Limit less (ii) outstanding Revolving Credit Loans ("Inventory
Floorplan Loan Limit").
3. The first sentence of Section 3.3(a) of the Agreement, Total
Revolving Credit Limit, is hereby deleted in its entirety and restated to read
as follows:
Subject to the terms of this Agreement, DFS agrees, for so long as
no Default exists, to provide to Borrower, and Borrower agrees to
accept, financing (each advance being a "Revolving Credit Loan") on
the Initial Advance, Eligible New Inventory and Eligible Used
Inventory in the maximum aggregate unpaid principal amount at any
time equal to the lesser of (i) the Borrowing Base and (ii) the
Total Credit Limit less the aggregate amount of Inventory Floorplan
Loans ("Total Revolving Credit Limit").
4. All other terms as they appear in the Agreement, to the extent not
inconsistent with the foregoing, are ratified and remain unchanged and in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment to Loan
and Security Agreement as of this 31st day of August, 1998.
RDO RENTAL CO. DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/Allan F. Knoll By: /s/KC MacDonell
-------------------------------- ----------------------------------
Title: Secretary/CFO Title: Vice President
----------------------------- -------------------------------
33
Exhibit 10.4
BILL OF SALE
Minnesota Valley Irrigation, Inc. - R.D. Offutt Company
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
hereby acknowledged, MINNESOTA VALLEY IRRIGATION, INC., a Minnesota corporation
(the "Seller") does hereby sell and convey to R. D. Offutt Company, a Minnesota
corporation, or its assigns, (the "Purchaser") effective November 1, 1998, any
and all of Seller's right, title and interest in and to all personal and real
property described in Exhibit A attached hereto, and all customer and supplier
lists, mailing lists, files, books, accounts receivable schedules, publications,
advertising materials, and other records and data located on the business
premises and used in connection with the operations of Seller conducted on the
business premises as is, where is, and except as set forth in the following
sentence, without warranty, express or implied, of merchantability or fitness
for a particular purpose. Seller represents and warrants that it is the sole
owner of such personal and real property and has full right and power to sell
and transfer such personal and real property.
Purchaser is not assuming any liabilities of the seller not otherwise
described in Exhibit B.
TO HAVE AND TO HOLD all of said personal and real property unto Purchaser,
its successors and assigns, to its own use forever.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale as of the 30 day
of March, 1999.
MINNESOTA VALLEY IRRIGATION, INC.,
A Minnesota Corporation
By: /s/Paul T. Horn
--------------------------------
Name: Paul T. Horn
--------------------------------
Title:
--------------------------------
R.D. OFFUTT COMPANY
A Minnesota Corporation
By: /s/Allan F. Knoll
--------------------------------
Name: Allan F. Knoll
--------------------------------
Title: Secretary
--------------------------------
<PAGE>
Minnesota Valley Irrigation
Exhibit A - Schedule of Personal and Real Property Acquired
Cash $ 281,348
Accounts Receivable 1,143,613
Inventory 3,120,883
Prepaid and Other Expenses 14,131
Equipment (see attached list) 166,754
Vehicles (see attached list) 2,465
Lot - Nelson's Addition - Lot 002, Block 001 5,174
Lot - Nelson's Addition - Lot 003, Block 001 5,174
Land and Building - Sec-08, Twp-134, Range-035.
Pt of NE 1/4 of NW 1/4 Com at Pt on N Li
of SD 40. 32 Rds W of the NE Cor Thereof,
Th S 1 Deg W to a Pt 339.2 Ft at Rt
Angles from the N R of W Li of TH 10; Th Wtly
Parallel 260,869
-----------
Total $ 5,000,412
===========
<PAGE>
Minnesota Valley Irrigation, Inc
Exhibit B - Schedule of Assumed Liabilities
Accounts Payable $ 1,007,529
Notes Payable - RDO Equipment 895,000
Accrued Liabilities 277,259
Contract Payable 100,000
Note Payable - Ag Capital 110,555
Note Payable - RDO Equipment Co. 2,380,000
-----------
$ 4,770,343
===========
<PAGE>
Minnesota Valley Irrigation, Inc.
Asset Purchase
Settlement Sheet
Assets Purchased $ 5,000,412
Liabilities Assumed 4,770,343
-----------
Net Due $ 230,069
===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
1ST QUARTER ENDED APRIL 30, 1999
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 48
<SECURITIES> 0
<RECEIVABLES> 72,629
<ALLOWANCES> 1,845
<INVENTORY> 232,707
<CURRENT-ASSETS> 309,909
<PP&E> 84,528
<DEPRECIATION> 22,368
<TOTAL-ASSETS> 416,254
<CURRENT-LIABILITIES> 271,898
<BONDS> 31,466
0
0
<COMMON> 132
<OTHER-SE> 104,868
<TOTAL-LIABILITY-AND-EQUITY> 416,254
<SALES> 180,542
<TOTAL-REVENUES> 180,542
<CGS> 149,811
<TOTAL-COSTS> 149,811
<OTHER-EXPENSES> 24,104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,284
<INCOME-PRETAX> 3,528
<INCOME-TAX> 1,435
<INCOME-CONTINUING> 2,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,130
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
