SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File No. 0-25506
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
PST VANS, INC.
(Exact name of registrant as specified in this charter)
Utah 87-0411704
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 West 2100 South
Salt Lake City, UT 84119
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: 801-975-2500
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 Registrant's Common Stock, par value
$0.001 per share, as of October 31, 1996, was 4,217,157 shares.
<PAGE>
PST VANS, INC.
INDEX
PART I, FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 1996
(unaudited) and December 31, 1995 1
Condensed Statements of Operations (unaudited) for the
Three and Nine Month periods ended September 30, 1996 and
September 30, 1995 2
Condensed Statements of Cash Flows (unaudited) for the
Nine Month periods ended September 30, 1996 and
September 30, 1995 3
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II, OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 11
*No Information Submitted Under This Caption
<PAGE>
PST VANS, INC.
CONDENSED BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
(unaudited)
CURRENT ASSETS: -------------- ---------------
Cash $ 4,090,011 $ 4,249,981
Receivables, net 16,091,832 16,235,574
Prepaid expenses and other 3,524,134 4,088,996
Inventories and operating
supplies 655,502 642,730
Deposits 1,434,875 985,952
-------------- --------------
Total current assets 25,796,354 26,203,233
-------------- --------------
PROPERTY AND EQUIPMENT, net 61,707,785 73,253,423
GOODWILL, net 8,680,140 8,884,112
OTHER ASSETS, net 314,343 541,362
-------------- --------------
$ 96,498,622 $ 108,882,130
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations $ 1,653,901 $ 1,109,337
Current portion of capitalized lease
obligations 14,178,485 10,736,025
Accounts payable 4,638,771 4,509,834
Current portion of accrued claims payable 4,270,105 3,656,381
Accrued liabilities 2,779,412 3,256,896
-------------- --------------
Total current liabilities 27,520,674 23,268,473
-------------- --------------
LONG-TERM ACCRUED CLAIMS PAYABLE,
net of current portion 1,807,777 2,321,686
LONG-TERM OBLIGATIONS, net of current portion 2,144,516 4,031,690
CAPITALIZED LEASE OBLIGATIONS,
net of current portion 40,187,931 51,655,247
STOCKHOLDERS' EQUITY:
Common stock 4,217 4,209
Additional paid-in capital 49,759,238 49,731,276
Accumulated deficit (24,925,731) (22,130,451)
-------------- --------------
Total stockholders' equity 24,837,724 27,605,034
-------------- --------------
$ 96,498,622 $ 108,882,130
============== ==============
See accompanying notes to condensed financial statements
1
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PST VANS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
REVENUES $ 36,297,413 $ 43,766,499 $110,961,630 $122,029,039
------------ ------------ ------------ ------------
COST AND EXPENSES:
Salaries, wages and benefits 10,820,348 11,464,663 32,860,728 32,872,745
Purchased transportation 7,779,282 11,072,082 24,908,947 30,627,325
Fuel and fuel taxes 5,114,328 5,606,744 15,428,120 15,590,950
Depreciation and amortization 3,263,477 2,591,349 9,950,253 5,510,987
Insurance and claims 1,894,238 3,015,806 7,110,398 6,883,163
Revenue equipment lease expense 1,837,571 2,995,899 6,064,963 9,659,468
Maintenance 2,032,899 2,242,104 5,717,257 6,671,554
General supplies and expense 1,374,371 1,522,159 4,239,349 4,542,031
Taxes and licenses 793,971 987,856 2,549,636 2,533,728
Communications and utilities 831,492 995,043 2,577,582 2,438,180
Amortization of goodwill 67,991 68,000 203,972 203,972
(Gain) Loss on disposition
of assets (329,678) (13,580) (1,585,561) 753
------------ ------------ ------------ ------------
35,480,290 42,548,125 110,025,644 117,534,856
============ ============ ============ ============
OPERATING INCOME 817,123 1,218,374 935,986 4,494,183
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest expense (1,188,172) (1,006,246) (3,845,904) (2,788,242)
Other income (expense) 24,222 (8,484) 114,638 855
------------ ------------ ------------ ------------
(1,163,950) (1,014,730) (3,731,266) (2,787,387)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (346,827) 203,644 (2,795,280) 1,706,796
PROVISION FOR INCOME TAXES - - - (150,315)
------------ ------------ ------------ ------------
NET INCOME (LOSS) (346,827) 203,644 (2,795,280) 1,556,481
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE (0.08) 0.05 (0.66) 0.41
------------ ------------ ------------ ------------
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,212,862 4,218,497 4,210,568 3,788,141
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to condensed financial statements
2
<PAGE>
PST VANS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,795,280) $ 1,556,481
Adjustments to reconcile net income (loss)
to net cash provided by operating activities -
Depreciation and amortization 10,154,225 5,714,959
Provision for losses on accounts
receivable 960,687 507,784
(Gain) Loss on sale of property and
equipment (1,585,561) 753
Increase in receivables (816,945) (4,126,617)
Decrease in deposits (448,923) 2,185,008
Decrease (Increase) in prepaid
and other expenses 564,862 (1,427,660)
Increase in inventories and operating
supplies (12,772) (168,132)
Decrease in other assets, net 227,019 1,783,826
Increase in accounts payable 128,937 345,391
Increase in accrued claims payable 332,506 861,640
Decrease in accrued liabilities (477,484) (907,972)
------------ -----------
Total adjustments 9,026,551 4,768,980
------------ -----------
Net cash flows provided by operating activities 6,231,271 6,325,461
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,149,741) (7,156,970)
Proceeds from sale of property and equipment 4,097,996 1,004,445
------------ -----------
Net cash flows provided by (used in) investing
activities 2,948,255 (6,152,525)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 405,195
Principal payments on long-term obligations (1,342,610) (1,989,975)
Principal payments on capitalized lease
obligations (8,024,856) (4,038,091)
Decrease in advances from factor - (5,336,289)
Purchase of accounts receivable from factor - (9,063,711)
Proceeds from issuance of common stock, net 27,970 21,625,824
------------ -----------
Net cash flows (used in) provided by
financing activities (9,339,496) 1,602,953
------------ -----------
NET INCREASE (DECREASE) IN CASH (159,970) 1,775,889
CASH AT BEGINNING OF PERIOD 4,249,981 765,200
------------ -----------
CASH AT END OF PERIOD $ 4,090,011 $ 2,541,089
============ ===========
See accompanying notes to condensed financial statements
3
<PAGE>
PST VANS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
1996 1995
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for -
Interest $ 3,875,478 $ 2,687,677
Income taxes 85,395 1,573,678
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Equipment acquired through capitalized
leases obligations - 43,037,728
Common stock issued as payment of
long-term debt - 112,905
See accompanying notes to condensed financial statements
4
<PAGE>
PST VANS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1. Financial Information:
The accompanying condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes the
following disclosures are adequate to make the information presented not
misleading. In the opinion of Management , all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. Results of operations for interim periods are not
necessarily indicative of results for a full year. These condensed financial
statements and notes thereto should be read in conjunction with the Company's
financial statements and notes thereto, included in the Company's Form 10-K
for the year ended December 31, 1995.
Note 2. Income Taxes:
Income taxes for the interim periods are based upon the Company's estimated
effective annual tax rates. The Company's effective tax rate (income tax
expense divided by income before provision for income taxes) decreased to zero
for the three and nine months ended September 30, 1996, compared to
approximately 0% and 9% for the three and nine months ended September 30,
1995, respectively, as a result of the Company not recording any benefit on
its pre-tax loss in 1996.
5
<PAGE>
PST VANS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Comparison of the Three Months Ended September 30, 1996 to the Three Months
Ended September 30, 1995
Revenues decreased by 17.1% to $36.3 million for the three months ended
September 30, 1996, compared to $43.8 million for the three months ended
September 30, 1995. The decline in revenues resulted primarily from an 16.6%
decrease in average revenue equipment to 1171 tractors for the three months
ended September 30, 1996 compared to 1404 tractors for the three months ended
September 30, 1995; and a 2.7% decline in rate per total mile for the
three months ended September 30, 1996, compared to the three months ended
September 30, 1995. Revenues were adversely affected in the third quarter of
1996 by higher than normal driver shortages. Management believes the decrease
in rate per loaded mile was a result of an overcapacity of tractors that
affected the industry generally.
Operating costs and expenses were 97.7% of revenues for the three months
ended September 30, 1996, compared to 97.2% of revenues for the three months
ended September 30, 1995.
Salaries, wages and benefits increased to 29.8% of revenues for the three
months ended September 30, 1996, compared to 26.2% of revenues for the three
months ended September 30, 1995. This was due primarily to driver pay changes
that became effective in October, 1995, a small increase in September 1996, and
an increase in the percent of total miles driven by Company drivers compared to
independent contractors during the two periods. Company miles increased to
72.4% of total miles for the three months ended September 30, 1996, compared to
67.4% of total miles for the three months ended September 30, 1995, due to
a higher ratio of company tractors to total tractors.
Purchased transportation decreased to 21.4% of revenues for the three months
ended September 30, 1996, compared to 25.3% for the three months ended
September 30, 1995, as result of a smaller percent of total miles driven by
independent contractors (see previous paragraph) and a reduction in the rate
paid to independent contractors. Independent contractors are under contract
with the Company and are responsible for their own salaries, wages and
benefits, fuel, maintenance and depreciation. Independent contractor costs
are classified as purchased transportation expenses.
Fuel and fuel taxes, net of surcharges, increased to 14.1% of revenues for the
three months ended September 30, 1996, compared to 12.8% of revenues for the
three months ended September 30, 1995, as a result of a higher percentage of
miles driven with Company tractors and an increase in the cost of fuel. In
order to reduce the Company's vulnerability to rapid increases in the price of
fuel, the Company has historically entered into purchase contracts with fuel
suppliers from time to time for a portion of its estimated fuel requirements at
guaranteed prices. The increase in cost of fuel was largely offset by fuel
surcharges to customers and fuel purchase contracts. As these guaranteed price
contracts expire, fuel cost could increase if pump prices remain high.
Management expects the cost of fuel to remain high through the fourth quarter.
6
<PAGE>
The Company has also implemented fuel surcharges to many of its customers, but
anticipates that the purchase contracts and fuel surcharges will help offset
some of the increase in the cost of fuel.
Revenue equipment lease expense decreased to 5.1% of revenues for the three
months ended September 30, 1996, compared to 6.8% of revenues for the three
months ended September 30, 1995, primarily as a result of the Company reducing
the percentage of its tractor fleet financed through operating leases to 22.0%
for the three months ended September 30, 1996, compared to 32.3% for the three
months ended September 30, 1995. The decrease was partially offset by an
increase in trailers financed by operating leases.
Maintenance increased to 5.6% of revenues for the three months ended September
30, 1996, compared to 5.1% of revenues for the three months ended September
30, 1995, as a result of increased tire expense partially offset by reduced
repair costs. Management believes the increased tire cost for the three months
ended September 30, 1996, was a result of a larger portion of the fleet
requiring tires during the quarter as a result of the normal wear cycle.
Lower repair costs are a result of a newer tractor fleet. The average age of
Company owned tractors decreased to 1.5 years during the three months ended Sep-
tember 30, 1996, compared to 1.6 years for the three months ended September
30, 1995.
Insurance and claims decreased to 5.2% of revenues for the three months ended
September 30, 1996, from 6.9% of revenues for the three months ended September
30, 1995, as a result of a decrease in the number of incidents for the three
months ended September 30, 1996. The Company recently reduced its deductible
which will increase the premium, but in Management 's opinion will reduce
overall costs.
General supplies and expenses increased to 3.8% of revenues for the three
months ended September 30, 1996, compared to 3.4% of revenues for the three
months ended September 30, 1995, as a result of increased costs associated with
outside consultants. An outside consulting firm was brought in to review
various process at the Company, including Insurance & Claims, Driver Retention,
and Budgeting. Many of their suggestions have been implemented in the Company.
Taxes and licenses decreased to 2.2% of revenues for the three months ended
September 30, 1996, compared to 2.3% of revenues for the three months ended
September 30, 1995, as a result of better licensing procedures offsetting an
increase in the percent of company equipment to total equipment.
Communications and utilities held even at 2.3% of revenues for the three
months ended September 30, 1996, compared to 2.3% of revenues for the three
months ended September 30, 1995. The Company uses the "Highway Master" on
board communication systems in its fleet of tractors. The Company began
installation of "Highway Master" systems in June, 1994. In April 1995, all of
the tractors were equipped with the on-board system. The costs associated with
the use of the on-board system have been higher than anticipated. The Company
has taken various steps in the past to try to reduce the ongoing costs of using
the on-board communication system. The use of the "Highway Master" system
generally enhances the Company's ability to track loads, service customers and
communicate with and monitor drivers.
The Company recognized a gain of $329,678, or .9% of revenues for the three
months ended September 30, 1996, compared to a gain of $13,580 for the three
months ended September 30, 1995, as a result of the Company selling 209 of its
older trailers in the third quarter of 1996.
7
<PAGE>
Depreciation and amortization increased to 9.0% of revenues for the three
months ended September 30, 1996, compared to 5.9% of revenues for the three
months ended September 30, 1995, as a result of the majority of the Company's
new revenue equipment being financed with capital leases and the increased cost
of upgraded equipment.
Interest expense increased to 3.3% of revenues for the three months ended
September 30, 1996, compared to 2.3% of revenues for the three months ended
September 30, as a result of the majority of the Company's new revenue
equipment being financed with capitalized leases and the increased cost of
upgraded equipment.
As a consequence of the items discussed above, the Company incurred a loss
before provision for income taxes for the three months ended September 30,
1996, of $346,827 compared to income before provision for income taxes of
$203,644 for the three months ended September 30, 1995.
Comparison of the Nine Months Ended September 30, 1996, to the Nine Months
Ended September 30, 1995
Revenues decreased by 9.1% to $111.0 million for the nine months ended
September 30, 1996, compared to $122.0 million for the nine months ended
September 30, 1995. The decrease in revenues was a result of a 3.6% decrease in
the number of tractors to 1257 for the nine months ended September 30, 1996,
compared to 1304 for the nine months ended September 30, 1995, a decrease in
average rates of 1.2% and a decrease in the average miles per tractor of 4.5%
between the two periods. Management believes the decrease in average revenue
per total mile and decrease in average miles per tractor was a result of
slower than anticipated economic conditions in the first nine months of 1996.
Additionally, a shortage of qualified drivers increased the average unseated
tractors in the nine months ended September 30, 1996, compared to the nine
months ended September 30, 1995. The driver shortage problem has improved
through the end of the third quarter. However, if a shortage of qualified
drivers continues to plague the industry, we may experience future shortages.
Operating costs and expenses were 99.2% of revenues for the nine months ended
September 30, 1996, compared to 96.3% of revenues for the nine months ended
September 30, 1995. Operating costs and expenses were adversely affected by
the 1.2% reduction in earnings per total mile and the 4.5% decrease in
utilization as measured by total miles per truck for the nine months ended
September 30, 1996, as well as the factors discussed below.
Salaries, wages and benefits increased to 29.6% of revenues for the nine
months ended September 30, 1996, compared to 26.9% for the nine months ended
September 30, due primarily from driver pay changes in October and
September 1996 and an increase in the percent of total miles driven by Company
drivers compared to independent contractors during the two periods. Company
miles increased to 70.9% of total miles for the nine months ended September 30,
1996, compared to 68.0% of total miles for the nine months ended September 30,
due to a higher rate of Company tractors to total tractors.
Purchased transportation decreased to 22.4% of revenue for the nine months
ended September 30, 1996, compared to 25.1% for the nine months ended September
30, 1995, as a result of a smaller percent of total miles driven by
independent contractors and a reduction in the rate paid to independent
contractors. Independent contractors are under contract with the Company and
are responsible for their own salaries, wages and benefits, fuel, maintenance
and depreciation. Independent contractor costs are classified as purchased
transportation expenses.
8
<PAGE>
Fuel and fuel taxes, net of fuel surcharges, increased to 13.9% of revenues for
the nine months ended September 30, 1996, compared to 12.8% of revenues for the
nine months ended September 30, 1995, as a result of a higher percentage of
miles driven with Company tractors and an increase in fuel costs partially
offset with fuel surcharges billed to customers and fuel purchase contracts.
Management expects the cost of fuel to remain high through the remainder of the
year.
Revenue equipment lease expense decreased to 5.5% of revenue for the nine
months ended September 30, 1996, compared to 7.9% of revenues for the nine
months ended September 30, 1995, primarily as a result of the Company reducing
the percentage of its tractor fleet financed through operating leases to 25.0%
for the nine months ended September 30, 1996, compared to 38.6% for the nine
months ended September 30, 1995.
Maintenance decreased to 5.2% of revenues for the nine months ended September
30, 1996, compared to 5.5% of revenues for the nine months ended September 30,
1995, as a result of reduced maintenance cost associated with a newer tractor
fleet. The average age of Company owned tractors decreased to 1.3 years during
the nine months ended September 30, 1996, compared to 1.7 years for the nine
months ended September 30, 1995.
Insurance and claims increased to 6.4% of revenues for the nine months ended
September 30, 1996, from 5.6% of revenues for the nine months ended September
30, as a result of an increase in the amount of average loss per accident
during the nine months ended September 30, 1996, and the volume of small losses
compared to the nine months ended September 30, 1995. On October 1, 1995,
Management increased the training requirements of new drivers and has changed
the driver pay to attract more experienced drivers which Management believes
are less accident-prone. Management continues to review accidents to determine
what actions may be taken to reduce future claims costs.
General supplies and maintenance increased to 3.8% of revenue for the nine
months ended June 30, 1996, compared to 3.7% of revenues for the nine months
ended September 30, as a result of increased use of outside consultants.
Taxes and licenses increased to 2.3% of revenues for the nine months ended
September 30, 1996, compared to 2.1% of revenues for the nine months ended
September 30, 1995, primarily as a result of an increase in the percentage of
company equipment to total equipment.
Communications and utilities increased to 2.3% of revenues for the nine months
ended September 30, 1996 compared to 2.0% of revenues for the nine months
ended September 30, 1995, primarily as a result of the Company utilizing
"Highway Master" on board communication system in a larger portion of its
fleet of tractors. The Company began installation of "Highway Master" systems
in June 1994. In April 1995, all of the tractors were equipped with the
on-board system. The costs associated with the use of the on-board system have
been higher than anticipated. The Company has taken various steps, however,
that it believes will help reduce the ongoing costs of using the on-board
communication system during the remainder of 1996. The use of "Highway
Master" system generally enhances the Company's ability to track loads,
service customers and communicate with drivers and monitor drivers.
9
<PAGE>
The Company recognized a gain of $1,585,561, or 1.4% of revenues for the nine
months ended September 30, 1996, compared to a loss of $753 for the nine
months ended September 30, 1995, as a result of the Company selling its older
trailers during the first nine months of 1996.
Depreciation and amortization increased to 9.0% of revenues for the nine
months ended September 30, 1996, compared to 4.5% of revenues for the nine
months ended September 30, 1995, as a result of the majority of the Company's
new revenue equipment being financed with capital leases.
Interest expense increased to 3.5% of revenues for the nine months ended
September 30, 1996, compared to 2.3% of revenues for the nine months ended
September 30, as a result of the majority of the Company's new revenue
equipment being financed with capital leases. This increase in interest
expense was partially offset by a .8% of revenue decrease in interest expense
compared to the nine months ended September 30, 1995, as a result of the Company
ceasing to discount its accounts receivable to a factor following its initial
public offering of its common stock in March 1995.
As a consequence of the items discussed above, the Company incurred a loss
before provision for income taxes for the nine months ended September 30, 1996
of $2,795,280, compared to income before provision for income taxes of
$1,556,481 for the nine months ended September 30, 1995.
The Company's effective tax rate ( income tax expense divided by income before
income taxes) decreased to zero for the nine months ended September 30, 1996,
compared to 9% for the nine months ended September 30, 1995, as a result of
the Company not recording any benefit on its pretax loss.
Liquidity and Capital Resources
The Company's sources of liquidity have been funds provided by operations,
leases on revenue equipment and revolving lines of credit.
The Company has a credit facility with the Bank of New York for issuance of
letters of credit up to $8.7 million. As of September 30, 1996, the Company
had used $8.7 million of this facility, principally for letters of credit in
favor of the Company's insurance carrier. As outstanding letters of credit
issued under this credit facility are not renewed, the maximum commitment
available under this credit facility will be reduced by the amount of the
letters of credit that are not renewed. In May, the Company obtained an
additional $8.0 million working capital line of credit which expired on May
12, 1996. Extensions on this $8.0 million line credit were obtained through
August 12, 1996, at which time the $8.0 million line of credit expired.
Effective August 6, 1996, the Company obtained a $7.0 million line of credit.
The Company anticipates that use of the line will be primarily for insurance
related letters of credit as well as providing any short term cash
requirements. As of September 30, 1996, the Company has utilized $3.2 million
of the new $7.0 million line of credit for insurance related letters of
credit. The credit facility in place with the Bank of New York on September
30, 1996, has loan covenants which obligate the Company to maintain a requir-
ed level of profitability and cash flow. The Bank of New York has amended
these covenants for periods through and including December 31, 1996.
The Company is currently in compliance with the Bank of New York covenants.
The Company may be required to seek additional amendments or waivers in the
10
<PAGE>
future based on actual operating results. The new $7.0 million line of credit
has no loan covenants, but is secured by accounts receivable.
Net cash provided by operating activities totaled approximately $6.2 million
for the nine months ended September 30, 1996. Net cash provided by investing
activities (primarily selling of equipment) amounted to $2.9 million for the
nine months ended September 30, 1996. Payments on debt and capitalized lease
obligations was $9.3 million for the nine months ended September 30, 1996.
The Company expects capital expenditures for the remainder of 1996, to be
approximately $0.5 million primarily for a computer system and software
replacement and upgrade. For the first nine months of 1996, the Company
acquired $1.1 million of new fixed assets, primarily furniture and fixtures and
leasehold improvements. Future expansion of the fleet will be made as future
economic conditions dictate.
Management believes that commitments available under the Company's lines of
credit will be sufficient to meet the Company's capital requirements through
1996. The Company's business is capital intensive and will require the
Company to seek additional debt and possibly equity capital to enable the
Company to maintain a modern fleet. Whether such capital will be available on
favorable terms, or at all, will depend on the Company's future operating
results, prevailing economic and industry conditions and other factors over
which the Company has little or no control.
Fuel is one of the Company's most substantial operating expenses. In order to
reduce the Company's vulnerability to rapid increased in the price of fuel,
the Company enters into purchase contracts with fuel suppliers from time to
time for a portion of its estimated fuel requirements at guaranteed prices.
As of September 30, 1996, the Company had entered into various agreements with
fuel suppliers to purchase approximately 40% of its estimated fuel needs
through fourth quarter 1996 and 18% of its fuel needs through June 1997 at a
guaranteed price. Although this arrangement helps reduce the Company's
vulnerability to rapid increases in the price of fuel, the Company will not
benefit from a decrease in the price of fuel to the extent of its commitment to
purchase fuel under these contracts.
Seasonality
In the trucking industry, revenues generally show a seasonal pattern as
customers reduce shipments during and after the winter holiday season and its
attendant weather variations. Operating expenses also tend to be higher
during the cold weather months, primarily due to poorer fuel economy and
increased maintenance costs.
Inflation
Inflation can be expected to have an impact on the Company's operations. The
effect of inflation has been minimal over the past three years.
This quarterly report on Form 10-Q may be deemed to contain certain forward-
looking statements. These statements are subject to known and unknown risks
and uncertainties, including decreased demand for freight, slower than
anticipated economic conditions, shortages of drivers and such other risks as
are identified and discussed herein and in the Company's filings with the
Securities and Exchange Commission. These known and unknown risks and
uncertainties could cause the Company's actual results in future periods to be
materially different from any future performance suggested herein.
11
<PAGE>
PART II, OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 - Loan and Security Agreement
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
None
12
<PAGE>
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 thereto duly authorized.
PST VANS, INC.
Date: November 14, 1996 By: \s\ Kenneth R. Norton
--------------------------
. . . . . . . . . . . . . . . . . . . . . . . . . .Kenneth R. Norton
. . . . . . . . . . . . . . . . . . . . . . . . . .Chief Executive Officer
By: \s\ Steven Orme
--------------------------
. . . . . . . . . . . . . . . . . . . . . . . . . .Steven Orme
. . . . . . . . . . . . . . . . . . . . . . . . . .Controller/Treasurer
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (NORTHWEST)
as Lender
and
PST VANS, INC.
as Borrower
Dated: August 6, 1996
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . 1
SECTION 2. CREDIT FACILITIES . . . . . . . . . . . . . . . . 6
2.1 Revolving Loans . . . . . . . . . . . . . . . . . . . 6
2.2 Letter of Credit Accommodations . . . . . . . . . . . 6
2.3 Availability Reserves . . . . . . . . . . . . . . . . 8
SECTION 3. INTEREST AND FEES . . . . . . . . . . . . . . . . 8
3.1 Interest. . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Closing Fee . . . . . . . . . . . . . . . . . . . . . 9
3.3 Facility Fee. . . . . . . . . . . . . . . . . . . . . 9
3.5 Unused Line Fee . . . . . . . . . . . . . . . . . . . 9
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . 9
4.1 Conditions Precedent to Initial Loans and Letter of
Credit Accommodations. . . . . . . . . . . . . . . . 9
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations . . . . . . . . . . . . . . . . . . . 10
SECTION 5. GRANT OF SECURITY INTEREST. . . . . . . . . . . . 10
SECTION 6. COLLECTION AND ADMINISTRATION . . . . . . . . . . 11
6.1 Borrower's Loan Account . . . . . . . . . . . . . . . 11
6.2 Statements. . . . . . . . . . . . . . . . . . . . . . 11
6.3 Collection of Accounts. . . . . . . . . . . . . . . . 12
6.4 Payments. . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Authorization to Make Loans . . . . . . . . . . . . . 13
6.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . 13
SECTION 7. COLLATERAL REPORTING AND COVENANTS. . . . . . . . 13
7.1 Collateral Reporting. . . . . . . . . . . . . . . . . 13
7.2 Accounts Covenants. . . . . . . . . . . . . . . . . . 14
7.3 [Deleted.]. . . . . . . . . . . . . . . . . . . . . . 15
7.4 [Deleted.] . . . . . . . . . . . . . . . . . . . . . 15
7.5 Power of Attorney . . . . . . . . . . . . . . . . . . 15
7.6 Right to Cure . . . . . . . . . . . . . . . . . . . . 15
7.7 Access to Premises. . . . . . . . . . . . . . . . . . 16
SECTION 8. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 16
8.1 Corporate Existence, Power and Authority; Subsidiaries 16
8.2 Financial Statements; No Material Adverse Change. . . 16
8.3 Chief Executive Office; Collateral Locations. . . . . 17
8.4 Priority of Liens; Title to Properties. . . . . . . . 17
8.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . 17
8.6 Litigation. . . . . . . . . . . . . . . . . . . . . . 17
8.7 Compliance with Other Agreements and Applicable Laws. 17
8.8 Accuracy and Completeness of Information. . . . . . . 18
8.9 Survival of Warranties; Cumulative. . . . . . . . . . 18
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS. . . . . . . . 18
9.1 Maintenance of Existence. . . . . . . . . . . . . . . 18
9.2 New Collateral Locations. . . . . . . . . . . . . . . 18
9.3 Compliance with Laws, Regulations, Etc. . . . . . . . 18
9.4 Payment of Taxes and Claims . . . . . . . . . . . . . 18
9.5 Insurance . . . . . . . . . . . . . . . . . . . . . . 19
9.6 Financial Statements and Other Information. . . . . . 19
<PAGE>
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc 20
9.8 Encumbrances. . . . . . . . . . . . . . . . . . . . . 20
9.9 [Deleted.]. . . . . . . . . . . . . . . . . . . . . . 20
9.10 Loans, Investments, Guarantees, Etc. . . . . . . . . 20
9.11 Dividends and Redemptions. . . . . . . . . . . . . . 21
9.12 Transactions with Affiliates . . . . . . . . . . . . 21
9.13 [Deleted.] . . . . . . . . . . . . . . . . . . . . . 21
9.14 [Deleted.] . . . . . . . . . . . . . . . . . . . . . 21
9.15 Costs and Expenses . . . . . . . . . . . . . . . . . 21
9.16 Further Assurances . . . . . . . . . . . . . . . . . 22
SECTION 10. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . 22
10.1 Events of Default. . . . . . . . . . . . . . . . . . 22
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW . . . . . . . . . . 24
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver. . . . . . . . . . . . . . . . . . 24
11.2 Waiver of Notices. . . . . . . . . . . . . . . . . . 26
11.3 Amendments and Waivers . . . . . . . . . . . . . . . 26
11.4 Waiver of Counterclaims. . . . . . . . . . . . . . . 26
11.5 Indemnification. . . . . . . . . . . . . . . . . . . 26
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS. . . . . . . . . 26
12.1 Term . . . . . . . . . . . . . . . . . . . . . . . . 26
12.2 Notices. . . . . . . . . . . . . . . . . . . . . . . 27
12.3 Partial Invalidity . . . . . . . . . . . . . . . . . 28
12.4 Successors . . . . . . . . . . . . . . . . . . . . . 28
12.5 Entire Agreement . . . . . . . . . . . . . . . . . . 28
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 8.4 Existing Liens
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated August 6, 1996 is entered
into by and between Congress Financial Corporation (Northwest), an
Oregon corporation ("Lender") and PST Vans, Inc., a Utah corporation
("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make
loans and provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9
of the Uniform Commercial Code as adopted in the state of Oregon shall
have the meanings given therein unless otherwise defined in this
Agreement. All references to the plural herein shall also mean the
singular and to the singular shall also mean the plural. All
references to Borrower and Lender pursuant to the definitions set
forth in the recitals hereto, or to any other person herein, shall
include their respective successors and assigns. The words "hereof,"
"herein," "hereunder," "this Agreement" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole
and not any particular provision of this Agreement and as this
Agreement now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced. An Event of
Default shall exist or continue or be continuing until such Event of
Default is cured or waived in accordance with Section 11.3. Any
accounting term used herein unless otherwise defined in this Agreement
shall have the meanings customarily given to such term in accordance
with GAAP. For purposes of this Agreement, the following terms shall
have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of
Borrower to payment for goods sold or leased or for services rendered,
which are not evidenced by instruments or chattel paper, and whether
or not earned by performance.
1.2 [Deleted.]
1.3 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish
and revise in good faith reducing the amount of Revolving Loans and
Letter of Credit Accommodations which would otherwise be available to
Borrower under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as
<PAGE>
determined by Lender in good faith, do or may affect either (i) the
Collateral or any other property which is security for the Obligations
or its value, (ii) the assets, business or prospects of Borrower or
any Obligor or (iii) the security interests and other rights of Lender
in the Collateral (including the enforceability, perfection and
priority thereof) or (b) to reflect Lender's good faith belief that
any collateral report or financial information furnished by or on
behalf of Borrower or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect or (c) in
respect of any state of facts which Lender determines in good faith
constitutes an Event of Default or may, with notice or passage of time
or both, constitute an Event of Default.
1.4 "Blocked Accounts" shall have the meaning set forth in
Section 6.3 hereof.
1.5 "Collateral" shall have the meaning set forth in Section 5
hereof.
1.6 "Eligible Accounts" shall mean Accounts created by Borrower
which are and continue to be acceptable to Lender based on the
criteria set forth below. In general, Accounts shall be Eligible
Accounts if:
(a) such Accounts arise from the actual and bona fide sale
and delivery of goods by Borrower or rendition of services by Borrower
in the ordinary course of its business which transactions are
completed in accordance with the terms and provisions contained in any
documents related thereto. With respect to Accounts arising from the
carriage of goods, the delivery of the goods shall have been
completed;
(b) such Accounts are not unpaid more than ninety (90) days
after the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions
contained in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other similar
terms under which payment by the account debtor may be conditional or
contingent;
(e) the chief executive office of the account debtor with
respect to such Accounts is located in the United States of America,
or, at Lender's option, if either: (i) the account debtor has
delivered to Borrower an irrevocable letter of credit issued or
confirmed by a bank satisfactory to Lender, sufficient to cover such
Account, in form and substance satisfactory to Lender and, if required
by Lender, the original of such letter of credit has been delivered to
Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or (ii)
such Account is subject to credit insurance payable to Lender issued
by an insurer and on terms and in an amount acceptable to Lender, or
(iii) such Account is otherwise acceptable in all respects to Lender
(subject to such lending formula with respect thereto as Lender may
determine);
<PAGE>
(f) such Accounts do not consist of progress billings, bill
and hold invoices or retainage invoices, except as to bill and hold
invoices, if Lender shall have received an agreement in writing from
the account debtor, in form and substance satisfactory to Lender,
confirming the unconditional obligation of the account debtor to take
the goods related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has
not asserted a counterclaim, defense or dispute and does not have, and
does not engage in transactions which may give rise to, any right of
setoff against such Accounts;
(h) there are no facts, events or occurrences which would
impair the validity, enforceability or collectability of such Accounts
or reduce the amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid
and perfected security interest of Lender and any goods giving rise
thereto are not, and were not at the time of the sale thereof, subject
to any liens except those permitted in this Agreement;
(j) neither the account debtor nor any officer or employee
of the account debtor with respect to such Accounts is an officer,
employee or agent of or affiliated with Borrower directly or
indirectly by virtue of family membership, ownership, control,
management or otherwise;
(k) the account debtors with respect to such Accounts are
not any foreign government, the United States of America, any State,
political subdivision, department, agency or instrumentality thereof,
unless, if the account debtor is the United States of America, any
State, political subdivision, department, agency or instrumentality
thereof, upon Lender's request, the Federal Assignment of Claims Act
of 1940, as amended, or any similar State or local law, if applicable,
has been complied with in a manner satisfactory to Lender;
(l) there are no proceedings or actions which are
threatened or pending against the account debtors with respect to such
Accounts which might result in any material adverse change in any such
account debtor's financial condition;
(m) such Accounts of a single account debtor or its
affiliates do not constitute more than twenty-five percent (25%) of
all otherwise Eligible Accounts (but the portion of the Accounts not
in excess of such percentage may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than ninety (90) days after the date of the
original invoice for them which constitute more than fifty percent
(50%) of the total Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect
to such account debtors as determined by Lender from time to time (but
the portion of the Accounts not in excess of such credit limit may
still be deemed Eligible Accounts); and
(p) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender.
<PAGE>
General criteria for Eligible Accounts may be established and revised
from time to time by Lender in good faith. Any Accounts which are not
Eligible Accounts shall nevertheless be part of the Collateral.
1.7 [Deleted.]
1.8 "Equipment" shall mean all of Borrower's now owned and
hereafter acquired equipment, machinery, computers and computer
hardware and software (whether owned or licensed), vehicles, tools,
furniture, fixtures, all attachments, accessions and property now or
hereafter affixed thereto or used in connection therewith, and
substitutions and replacements thereof, wherever located.
1.9 "Event of Default" shall mean the occurrence or existence
of any event or condition described in Section 10.1 hereof.
1.10 "Excess Availability" shall mean the amount, as determined
by Lender equal to: (a) the lesser of (i) the amount of the Revolving
Loans available to Borrower as of such time based on the applicable
lending formulas multiplied by the Net Amount of Eligible Accounts and
the Value of Eligible Inventory, as determined by Lender, and subject
to the sublimits and Availability Reserves from time to time
established by Lender hereunder and (ii) the Maximum Credit, minus (b)
the sum of: (i) the amount of all then outstanding and unpaid
Obligations, plus (ii) the aggregate amount of all trade payables of
Borrower which are more than thirty (30) days past due as of such
time, plus (iii) the amount of all then outstanding book overdrafts.
1.11 "Financing Agreements" shall mean, collectively, this
Agreement and all notes, guarantees, security agreements and other
agreements, documents and instruments now or at any time hereafter
executed and/or delivered by Borrower or any Obligor in connection
with this Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced.
1.12 "GAAP" shall mean generally accepted accounting principles
in the United States of America as in effect from time to time as set
forth in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and
the statements and pronouncements of the Financial Accounting
Standards Boards which are applicable to the circumstances as of the
date of determination consistently applied, except that, for purposes
of Sections 9.13 and 9.14 hereof, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent
with those used in the preparation of the audited financial statements
delivered to Lender prior to the date hereof.
1.13 "Information Certificate" shall mean the Information
Certificate of Borrower constituting Exhibit A hereto containing
material information with respect to Borrower, its business and assets
provided by or on behalf of Borrower to Lender in connection with the
preparation of this Agreement and the other Financing Agreements and
the financing arrangements provided for herein.
1.14 "Inventory" shall mean all of Borrower's now owned and
hereafter existing or acquired raw materials, work in process,
finished goods and all other inventory of whatsoever kind or nature,
wherever located.
<PAGE>
1.15 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time
to time either (a) issued or opened by Lender for the account of
Borrower or any Obligor or (b) with respect to which Lender has agreed
to indemnify the issuer or guaranteed to the issuer the performance by
Borrower of its obligations to such issuer.
1.16 "Loans" shall mean the Revolving Loans.
1.17 "Maximum Credit" shall mean the amount of $7,000,000.
1.18 "Net Amount of Eligible Accounts" shall mean the gross
amount of Eligible Accounts less (a) sales, excise or similar taxes
included in the amount thereof and (b) returns, discounts, claims,
credits and allowances of any nature at any time issued, owing,
granted, outstanding, available or claimed with respect thereto.
1.19 "Obligations" shall mean any and all Revolving Loans,
Letter of Credit Accommodations and all other obligations, liabilities
and indebtedness of every kind, nature and description owing by
Borrower to Lender and/or its affiliates, including principal,
interest, charges, fees, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise,
whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after
the initial or any renewal term of this Agreement or after the
commencement of any case with respect to Borrower under the United
States Bankruptcy Code or any similar statute (including, without
limitation, the payment of interest and other amounts which would
accrue and become due but for the commencement of such case), whether
direct or indirect, absolute or contingent, joint or several, due or
not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.20 "Obligor" shall mean any guarantor, endorser, acceptor,
surety or other person liable on or with respect to the Obligations or
who is the owner of any property which is security for the
Obligations, other than Borrower.
1.21 "Payment Account" shall have the meaning set forth in
Section 6.3 hereof.
1.22 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without
limitation, any corporation which elects subchapter S status under the
Internal Revenue Code of 1986, as amended), business trust,
unincorporated association, joint stock corporation, limited liability
company, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.23 "Prime Rate" shall mean the rate from time to time publicly
announced by CoreStates Bank, N.A., or its successors, at its office
in Philadelphia, Pennsylvania, as its prime rate, whether or not such
announced rate is the best rate available at such bank.
1.24 "Records" shall mean all of Borrower's present and future
books of account of every kind or nature, purchase and sale
agreements, invoices, ledger cards, bills of lading and other shipping
evidence, statements, correspondence, memoranda, credit files and
other data relating to the Collateral or any account debtor, together
<PAGE>
with the tapes, disks, diskettes and other data and software storage
media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to
the foregoing maintained with or by any other person).
1.25 "Revolving Loans" shall mean the loans now or hereafter
made by Lender to or for the benefit of Borrower on a revolving basis
(involving advances, repayments and readvances) as set forth in
Section 2.1 hereof.
1.26 [Deleted.]
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to
time in amounts requested by Borrower up to the amount equal to the
sum of:
(i) Eighty percent (80%) of the Net Amount of
Eligible Accounts, less
(ii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon
not less than five (5) days prior notice to Borrower, reduce the
lending formula with respect to Eligible Accounts to the extent that
Lender determines in good faith that: (A) the dilution with respect to
the Accounts for any period (based on the ratio of (1) the aggregate
amount of reductions in Accounts other than as a result of payments in
cash to (2) the aggregate amount of total sales) has increased in any
material respect or may be reasonably anticipated to increase in any
material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined.In determining
whether to reduce the lending formula(s), Lender may consider events,
conditions, contingencies or risks which are also considered in
determining Eligible Accounts or in establishing Availability
Reserves.
(c) Except in Lender's discretion, the aggregate amount of
the Loans and the Letter of Credit Accommodations outstanding at any
time shall not exceed the Maximum Credit. In the event that the
outstanding amount of any component of the Loans, or the aggregate
amount of the outstanding Loans and Letter of Credit Accommodations,
exceed the amounts available under the lending formulas, the sublimits
for Letter of Credit Accommodations set forth in Section 2.2(c) or the
Maximum Credit, as applicable, such event shall not limit, waive or
otherwise affect any rights of Lender in that circumstance or on any
future occasions and Borrower shall, upon demand by Lender, which may
be made at any time or from time to time, immediately repay to Lender
the entire amount of any such excess(es) for which payment is
demanded.
<PAGE>
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or
arrange for Letter of Credit Accommodations for the account of
Borrower containing terms and conditions acceptable to Lender and the
issuer thereof. Any payments made by Lender to any issuer thereof
and/or related parties in connection with the Letter of Credit
Accommodations shall constitute additional Revolving Loans to Borrower
pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by
any bank or issuer in connection with the Letter of Credit
Accommodations, Borrower shall pay to Lender a letter of credit fee at
a rate equal to one and one-half (1.5%) percent per annum on the daily
outstanding balance of the Letter of Credit Accommodations for the
immediately preceding month (or part thereof), payable in arrears as
of the first day of each succeeding month. Such letter of credit fee
shall be calculated on the basis of a three hundred sixty (360) day
year and actual days elapsed and the obligation of Borrower to pay
such fee shall survive the termination or non-renewal of this
Agreement.
(c) No Letter of Credit Accommodations shall be available
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower (subject to
the Maximum Credit and any Availability Reserves) are equal to or
greater than an amount equal to one hundred (100%) percent of the face
amount thereof and all other commitments and obligations made or
incurred by Lender with respect thereto. Effective on the issuance of
each Letter of Credit Accommodation, the amount of Revolving Loans
which might otherwise be available to Borrower shall be reduced by
such amount.
(d) Except in Lender's discretion, (i) the amount of all
outstanding Letter of Credit Accommodations and all other commitments
and obligations made or incurred by Lender in connection therewith,
shall not at any time exceed $5,000,000. At any time an Event of
Default exists or has occurred and is continuing, upon Lender's
request, Borrower will either furnish cash collateral to secure the
reimbursement obligations to the issuer in connection with any Letter
of Credit Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the Revolving
Loans otherwise available to Borrower shall not be reduced as provided
in Section 2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from
and against any and all losses, claims, damages, liabilities, costs
and expenses which Lender may suffer or incur in connection with any
Letter of Credit Accommodations and any documents, drafts or
acceptances relating thereto, including, but not limited to, any
losses, claims, damages, liabilities, costs and expenses due to any
action taken by any issuer or correspondent with respect to any Letter
of Credit Accommodation. Borrower assumes all risks with respect to
the acts or omissions of the drawer under or beneficiary of any Letter
of Credit Accommodation and for such purposes the drawer or
beneficiary shall be deemed Borrower's agent. Borrower assumes all
risks for, and agrees to pay, all foreign, Federal, State and local
taxes, duties and levies relating to any goods subject to any Letter
<PAGE>
of Credit Accommodations or any documents, drafts or acceptances
thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether
caused by Borrower, by any issuer or correspondent or otherwise with
respect to or relating to any Letter of Credit Accommodation. The
provisions of this Section 2.2(e) shall survive the payment of
Obligations and the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed
to grant Borrower any right or authority to pledge the credit of
Lender in any manner. Lender shall have no liability of any kind with
respect to any Letter of Credit Accommodation provided by an issuer
other than Lender unless Lender has duly executed and delivered to
such issuer the application or a guarantee or indemnification in
writing with respect to such Letter of Credit Accommodation. Borrower
shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any
Letter of Credit Accommodation or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be
inconsistent with any instructions of Borrower. Lender shall have the
sole and exclusive right and authority to, and Borrower shall not: (i)
at any time an Event of Default exists or has occurred and is
continuing, (A) approve or resolve any questions of non-compliance of
documents, (B) give any instructions as to acceptance or rejection of
any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and
(ii) at all times, (A) grant any extensions of the maturity of, time
of payment for, or time of presentation of, any drafts, acceptances,
or documents, and (B) agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any
letters of credit included in the Collateral. Lender may take such
actions either in its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other
agreement in favor of any issuer or correspondent relating to any
Letter of Credit Accommodation, shall be deemed to have been granted
or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application
for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter
of Credit Accommodation, shall be deemed to have been undertaken by
Borrower to Lender and to apply in all respects to Borrower.
2.3 Availability Reserves. All Revolving Loans otherwise
available to Borrower pursuant to the lending formulas and subject to
the Maximum Credit and other applicable limits hereunder shall be
subject to Lender's continuing right to establish and revise
Availability Reserves.
<PAGE>
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the
outstanding principal amount of the non-contingent Obligations at the
rate of one percent (1.0%) per annum in excess of the Prime Rate,
except that Borrower shall pay to Lender interest, at Lender's option,
without notice, at the rate of four percent (4.0%) per annum in excess
of the Prime Rate: (i) on the non-contingent Obligations for the
period from and after the date of termination or non-renewal hereof,
or the date of the occurrence of an Event of Default, and for so long
as such Event of Default is continuing as determined by Lender and
until such time as Lender has received full and final payment of all
such Obligations (notwithstanding entry of any judgment against
Borrower) and (ii) on the Revolving Loans at any time outstanding in
excess of the amounts available to Borrower under Section 2 (whether
or not such excess(es), arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of
Default); provided, however, that in the event the excess under
clause (ii) results from Lender's reduction of lending formulas,
establishment of a credit limit under Section 1.6(o) or establishment
of Availability Reserves, the higher rate of interest provided above
shall not be effective with respect to such excess for a period of
30 days after the action which creates the excess. All interest
accruing hereunder on and after the occurrence of any of the events
referred to in Sections 3.1(a)(i) or 3.1(a)(ii) above shall be payable
on demand.
(b) Interest shall be payable by Borrower to Lender monthly
in arrears not later than the first day of each calendar month and
shall be calculated on the basis of a three hundred sixty (360) day
year and actual days elapsed. The interest rate shall increase or
decrease by an amount equal to each increase or decrease in the Prime
Rate effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last
day of the month in which any such change occurs. In no event shall
charges constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or
regulation, and if any part or provision of this Agreement is in
contravention of any such law or regulation, such part or provision
shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee
the amount of $52,500, which shall be fully earned as of and payable
on the date hereof.
3.3 Facility Fee. Borrower shall pay to Lender annually a
facility fee in an amount equal to $17,500 while this Agreement is in
effect and for so long thereafter as any of the Obligations are
outstanding, which fee shall be fully earned as of and payable in
advance on each anniversary of the date hereof.
3.4 Audit Fee. Borrower shall pay to Lender an audit fee of
$2,000 for each of Lender's periodic field examinations of the
Collateral and the Borrower's operations, which examinations Lender
expects to perform quarterly.
<PAGE>
3.5 Unused Line Fee. Borrower shall pay to Lender monthly an
unused line fee at a rate equal to one-quarter percent (.25%) per
annum calculated upon the amount by which $5,600,000 exceeds the
average daily principal balance of the outstanding Revolving Loans and
Letter of Credit Accommodations during the immediately preceding month
(or part thereof) while this Agreement is in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall
be payable on the first day of each month in arrears.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to
Lender making the initial Loans and providing the initial Letter of
Credit Accommodations hereunder:
(a) Lender shall have received evidence, in form and
substance satisfactory to Lender, that Lender has valid perfected and
first priority security interests in and liens upon the Collateral and
any other property which is intended to be security for the
Obligations or the liability of any Obligor in respect thereof,
subject only to the security interests and liens permitted herein or
in the other Financing Agreements;
(b) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements
shall be satisfactory in form and substance to Lender, and Lender
shall have received all information and copies of all documents,
including, without limitation, records of requisite corporate action
and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to
be certified by appropriate corporate officers or governmental
authorities;
(c) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since the date of Lender's
latest field examination and no change or event shall have occurred
which would impair the ability of Borrower or any Obligor to perform
its obligations hereunder or under any of the other Financing
Agreements to which it is a party or of Lender to enforce the
Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the
Records and such other information with respect to the Collateral as
Lender may require to determine the amount of Revolving Loans
available to Borrower, the results of which shall be satisfactory to
Lender, not more than three (3) business days prior to the date
hereof;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and
other agreements from third persons which Lender may deem necessary or
desirable in order to permit, protect and perfect its security
interests in and liens upon the Collateral or to effectuate the
provisions or purposes of this Agreement and the other Financing
Agreements, including, without limitation, acknowledgements by
lessors, mortgagees and warehousemen of Lender's security interests in
the Collateral, waivers by such persons of any security interests,
<PAGE>
liens or other claims by such persons to the Collateral and agreements
permitting Lender access to, and the right to remain on, the premises
to exercise its rights and remedies and otherwise deal with the
Collateral;
(f) Lender shall have received evidence of insurance and
loss payee endorsements required hereunder and under the other
Financing Agreements, in form and substance satisfactory to Lender,
and certificates of insurance policies and/or endorsements naming
Lender as loss payee;
(g) the Excess Availability as determined by Lender, as of
the date hereof, shall be not less than $1,000,000 after giving effect
to the initial Loans made or to be made and Letter of Credit
Accommodations issued or to be issued in connection with the initial
transactions hereunder;
(h) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower
with respect to the Financing Agreements and such other matters as
Lender may request; and
(i) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and
delivered to Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition
precedent to Lender making Loans and/or providing Letter of Credit
Accommodations to Borrower, including the initial Loans and Letter of
Credit Accommodations and any future Loans and Letter of Credit
Accommodations:
(a) all representations and warranties contained herein and
in the other Financing Agreements shall be true and correct in all
material respects with the same effect as though such representations
and warranties had been made on and as of the date of the making of
each such Loan or providing each such Letter of Credit Accommodation
and after giving effect thereto; and
(b) no Event of Default and no event or condition which,
with notice or passage of time or both, would constitute an Event of
Default, shall exist or have occurred and be continuing on and as of
the date of the making of such Loan or providing each such Letter of
Credit Accommodation and after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower
hereby grants to Lender a continuing security interest in, a lien
upon, and a right of set off against, and hereby assigns to Lender as
security, the following property and interests in property, whether
now owned or hereafter acquired or existing, and wherever located
(collectively, the "Collateral"):
5.1 Accounts;
<PAGE>
5.2 all present and future chattel paper, instruments, letters
of credit, bankers' acceptances, and guaranties, and all general
intangibles relating to the foregoing or to Accounts (including, but
not limited to, tax and duty refunds, trademarks, service marks, trade
names, applications for the foregoing, goodwill, customer lists,
licenses, whether as licensor or licensee, choses in action and other
claims);
5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or
hereafter held or received by or in transit to Lender or its
affiliates or at any other depository or other institution from or for
the account of Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all present and future
liens, security interests, rights, remedies, title and interest in, to
and in respect of Accounts and other Collateral, including, without
limitation, (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other
insurance related to the Collateral, (b) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, and (c)
deposits by and property of account debtors or other persons securing
the obligations of account debtors;
5.4 [Deleted.]
5.5 [Deleted.]
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form,
including, without limitation, insurance proceeds and all claims
against third parties for loss or damage to or destruction of any or
all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more
loan account(s) on its books in which shall be recorded (a) all Loans,
Letter of Credit Accommodations and other Obligations and the
Collateral, (b) all payments made by or on behalf of Borrower and (c)
all other appropriate debits and credits as provided in this
Agreement, including, without limitation, fees, charges, costs,
expenses and interest. All entries in the loan account(s) shall be
made in accordance with Lender's customary practices as in effect from
time to time.
6.2 Statements. Lender shall render to Borrower each month a
statement setting forth the balance in the Borrower's loan account(s)
maintained by Lender for Borrower pursuant to the provisions of this
Agreement, including principal, interest, fees, costs and expenses.
Each such statement shall be subject to subsequent adjustment by
Lender but shall, absent manifest errors or omissions, be considered
correct and deemed accepted by Borrower and conclusively binding upon
Borrower as an account stated except to the extent that Lender
receives a written notice from Borrower of any specific exceptions of
Borrower thereto within thirty (30) days after the date such statement
has been mailed by Lender. Until such time as Lender shall have
<PAGE>
rendered to Borrower a written statement as provided above, the
balance in Borrower's loan account(s) shall be presumptive evidence of
the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either
case, "Blocked Accounts"), as Lender may specify, with such banks as
are acceptable to Lender into which Borrower shall promptly deposit
and direct its account debtors to directly remit all payments on
Accounts and all payments constituting proceeds of other Collateral in
the identical form in which such payments are made, whether by cash,
check or other manner. The banks at which the Blocked Accounts are
established shall enter into an agreement, in form and substance
satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the
depository bank has no lien upon, or right to setoff against, the
Blocked Accounts, the items received for deposit therein, or the funds
from time to time on deposit therein and that the depository bank will
wire, or otherwise transfer, in immediately available funds, on a
daily basis, all funds received or deposited into the Blocked Accounts
to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that
all payments made to such Blocked Accounts or other funds received and
collected by Lender, whether on the Accounts or as proceeds of other
Collateral or otherwise shall be the property of Lender.
(b) For purposes of calculating interest on the
Obligations, such payments or other funds received will be applied
(conditional upon final collection) to the Obligations one (1)
business day following the date of receipt of immediately available
funds by Lender in the Payment Account. If and when Borrower is
permitted to and does deliver remittances directly to Lender rather
than deposit them into a Blocked Account, such remittances will be
applied (conditional upon final collection) for purposes of
calculating interest two (2) business days following date of receipt.
For purposes of calculating the amount of the Revolving Loans
available to Borrower such payments will be applied (conditional upon
final collection) to the Obligations on the business day of receipt by
Lender in the Payment Account, if such payments are received within
sufficient time (in accordance with Lender's usual and customary
practices as in effect from time to time) to credit Borrower's loan
account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee
for Lender, receive, as the property of Lender, any monies, checks,
notes, drafts or any other payment relating to and/or proceeds of
Accounts or other Collateral which come into their possession or under
their control and immediately upon receipt thereof, shall deposit or
cause the same to be deposited in the Blocked Accounts, or remit the
same or cause the same to be remitted, in kind, to Lender. In no
event shall the same be commingled with Borrower's own funds or the
funds of any other Person. Borrower agrees to reimburse Lender on
demand for any amounts owed or paid to any bank at which a Blocked
Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or Person. The
<PAGE>
obligation of Borrower to reimburse Lender for such amounts pursuant
to this Section 6.3 shall survive the termination or non-renewal of
this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment
Account as provided in Section 6.3 or such other place as Lender may
designate from time to time. Lender may apply payments received or
collected from Borrower or for the account of Borrower (including,
without limitation, the monetary proceeds of collections or of
realization upon any Collateral) to such of the Obligations, whether
or not then due, in such order and manner as Lender determines. At
Lender's option, all principal, interest, fees, costs, expenses and
other charges provided for in this Agreement or the other Financing
Agreements may be charged directly to the loan account(s) of Borrower.
Borrower shall make all payments to Lender on the Obligations free and
clear of, and without deduction or withholding for or on account of,
any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind.
If after receipt of any payment of, or proceeds of Collateral applied
to the payment of, any of the Obligations, Lender is required to
surrender or return such payment or proceeds to any Person for any
reason, then the Obligations intended to be satisfied by such payment
or proceeds shall be reinstated and continue and this Agreement shall
continue in full force and effect as if such payment or proceeds had
not been received by Lender. Borrower shall be liable to pay to
Lender, and does hereby indemnify and hold Lender harmless for, the
amount of any payments or proceeds surrendered or returned. This
Section 6.4 shall remain effective notwithstanding any contrary action
which may be taken by Lender in reliance upon such payment or
proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make
the Loans and provide the Letter of Credit Accommodations based upon
telephonic or other instructions received from anyone purporting to be
an officer of Borrower or other authorized person or, at the
discretion of Lender, if such Loans are necessary to satisfy any
Obligations. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested
advance is to be made or Letter of Credit Accommodations established
(which day shall be a business day) and the amount of the requested
Loan. Requests received after 11:00 a.m. Pacific time on any day
shall be deemed to have been made as of the opening of business on the
immediately following business day. All Loans and Letter of Credit
Accommodations under this Agreement shall be conclusively presumed to
have been made to, and at the request of and for the benefit of,
Borrower when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the instructions of
Borrower or in accordance with the terms and conditions of this
Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of
the Loans provided by Lender to Borrower hereunder only for:
(a) payments to each of the persons listed in the disbursement
direction letter furnished by Borrower to Lender on or about the date
hereof and (b) costs, expenses and fees in connection with the
preparation, negotiation, execution and delivery of this Agreement and
the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the
<PAGE>
provisions hereof shall be used by Borrower only for general
operating, working capital and other proper corporate purposes of
Borrower not otherwise prohibited by the terms hereof. None of the
proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to
purchase or carry any margin security or for any other purpose which
might cause any of the Loans to be considered a "purpose credit"
within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with
the following documents in a form satisfactory to Lender: (a) on a
regular basis as required by Lender, a schedule of Accounts; (b) on a
monthly basis or more frequently as Lender may request, agings of
accounts payable, (c) upon Lender's request, (i) copies of customer
statements and credit memos, remittance advices and reports, and
copies of deposit slips and bank statements, and (ii) copies of
shipping and delivery documents;(d) agings of accounts receivable on a
monthly basis or more frequently as Lender may request; and (e) such
other reports as to the Collateral as Lender shall request from time
to time. If any of Borrower's records or reports of the Collateral
are prepared or maintained by an accounting service, contractor,
shipper or other agent, Borrower hereby irrevocably authorizes such
service, contractor, shipper or agent to deliver such records,
reports, and related documents to Lender and to follow Lender's
instructions with respect to further services at any time that an
Event of Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any
material delay in Borrower's performance of any of its obligations to
any account debtor or the assertion of any claims, offsets, defenses
or counterclaims by any account debtor, or any disputes with account
debtors, or any settlement, adjustment or compromise thereof, (ii) all
material adverse information relating to the financial condition of
any account debtor and (iii) any event or circumstance which, to
Borrower's knowledge, would cause Lender to consider any then existing
Accounts as no longer constituting Eligible Accounts. No credit,
discount, allowance or extension or agreement for any of the foregoing
shall be granted to any account debtor without Lender's consent,
except in the ordinary course of Borrower's business in accordance
with practices and policies previously disclosed in writing to Lender.
So long as no Event of Default exists or has occurred and is
continuing, Borrower shall settle, adjust or compromise any claim,
offset, counterclaim or dispute with any account debtor. At any time
that an Event of Default exists or has occurred and is continuing,
Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with
account debtors or grant any credits, discounts or allowances.
(b) [Deleted.]
<PAGE>
(c) With respect to each Account: (i) the amounts shown on
any invoice delivered to Lender or schedule thereof delivered to
Lender shall be true and complete, (ii) no payments shall be made
thereon except payments immediately delivered to Lender pursuant to
the terms of this Agreement, (iii) no credit, discount, allowance or
extension or agreement for any of the foregoing shall be granted to
any account debtor except as reported to Lender in accordance with
this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business
in accordance with practices and policies previously disclosed to
Lender, (iv) there shall be no setoffs, deductions, contras, defenses,
counterclaims or disputes existing or asserted with respect thereto
except as reported to Lender in accordance with the terms of this
Agreement, (v) none of the transactions giving rise thereto will
violate any applicable State or Federal laws or regulations, all
documentation relating thereto will be legally sufficient under such
laws and regulations and all such documentation will be legally
enforceable in accordance with its terms.
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the
validity, amount or any other matter relating to any Account or other
Collateral, by mail, telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to
Lender, with appropriate endorsement and assignment, with full
recourse to Borrower, all chattel paper and instruments which Borrower
now owns or may at any time acquire immediately upon Borrower's
receipt thereof, except as Lender may otherwise agree.
(f) Lender may, at any time or times that an Event of
Default exists or has occurred and is continuing, (i) notify any or
all account debtors that the Accounts have been assigned to Lender and
that Lender has a security interest therein and Lender may direct any
or all accounts debtors to make payment of Accounts directly to
Lender, (ii) extend the time of payment of, compromise, settle or
adjust for cash, credit, return of merchandise or otherwise, and upon
any terms or conditions, any and all Accounts or other obligations
included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for
payment thereof without affecting any of the Obligations, (iii)
demand, collect or enforce payment of any Accounts or such other
obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor
for the negligence of its agents or attorneys with respect thereto
(but Lender shall be liable for their gross negligence or wilful
misconduct as determined pursuant to a final non-appealable order of a
court of competent jurisdiction), and (iv) take whatever other action
Lender may deem necessary or desirable for the protection of its
interests. At any time that an Event of Default exists or has
occurred and is continuing, at Lender's request, all invoices and
statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are
payable directly and only to Lender and Borrower shall deliver to
Lender such originals of documents evidencing the sale and delivery of
goods or the performance of services giving rise to any Accounts as
Lender may require.
7.3 [Deleted.]
<PAGE>
7.4 [Deleted.]
7.5 Power of Attorney. Borrower hereby irrevocably designates
and appoints Lender (and all persons designated by Lender) as
Borrower's true and lawful attorney-in-fact, and authorizes Lender, in
Borrower's or Lender's name, to: (a) at any time an Event of Default
or event which with notice or passage of time or both would constitute
an Event of Default exists or has occurred and is continuing (i)
demand payment on Accounts or proceeds of other Collateral, (ii)
enforce payment of Accounts by legal proceedings or otherwise, (iii)
exercise all of Borrower's rights and remedies to collect any Account
or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems
advisable, (v) settle, adjust, compromise, extend or renew an Account,
(vi) discharge and release any Account, (vii) prepare, file and sign
Borrower's name on any proof of claim in bankruptcy or other similar
document against an account debtor, (viii) notify the post office
authorities to change the address for delivery of Borrower's mail to
an address designated by Lender, and open and dispose of all mail
addressed to Borrower, and (ix) do all acts and things which are
necessary, in Lender's determination, to fulfill Borrower's
obligations under this Agreement and the other Financing Agreements
and (b) at any time to (i) take control in any manner of any item of
payment or proceeds thereof, (ii) have access to any lockbox or postal
box into which Borrower's mail is deposited, (iii) endorse Borrower's
name upon any items of payment or proceeds thereof and deposit the
same in the Lender's account for application to the Obligations, (iv)
endorse Borrower's name upon any chattel paper, document, instrument,
invoice, or similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral, (v) sign
Borrower's name on any verification of Accounts and notices thereof to
account debtors and (vi) execute in Borrower's name and file any UCC
financing statements or amendments thereto. Borrower hereby releases
Lender and its officers, employees and designees from any liabilities
arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a
result of Lender's own gross negligence or wilful misconduct as
determined pursuant to a final non-appealable order of a court of
competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any
default by Borrower under any agreement with a third party or pay or
bond on appeal any judgment entered against Borrower, (b) discharge
taxes, liens, security interests or other encumbrances at any time
levied on or existing with respect to the Collateral and (c) pay any
amount, incur any expense or perform any act which, in Lender's
judgment, is necessary or appropriate to preserve, protect, insure or
maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge
Borrower's account therefor, such amounts to be repayable by Borrower
on demand. Lender shall be under no obligation to effect such cure,
payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrower. Any payment made or
other action taken by Lender under this Section shall be without
prejudice to any right to assert an Event of Default hereunder and to
proceed accordingly.
<PAGE>
7.7 Access to Premises. From time to time as requested by
Lender, at the cost and expense of Borrower, (a) Lender or its
designee shall have complete access to all of Borrower's premises
during normal business hours and after notice to Borrower, or at any
time and without notice to Borrower if an Event of Default exists or
has occurred and is continuing, for the purposes of inspecting,
verifying and auditing the Collateral and all of Borrower's books and
records, including, without limitation, the Records, and (b) Borrower
shall promptly furnish to Lender such copies of such books and records
or extracts therefrom as Lender may request, and (c) Lender or its
designee shall have the right to use during normal business hours such
of Borrower's personnel, equipment, supplies and premises as may be
reasonably necessary for the foregoing and if an Event of Default
exists or has occurred and is continuing for the collection of
Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following
(which shall survive the execution and delivery of this Agreement),
the truth and accuracy of which are a continuing condition of the
making of Loans and providing Letter of Credit Accommodations by
Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries.
Borrower is a corporation duly organized and in good standing under
the laws of its state of incorporation and is duly qualified as a
foreign corporation and in good standing in all states or other
jurisdictions where the nature and extent of the business transacted
by it or the ownership of assets makes such qualification necessary,
except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial
condition, results of operation or business or the rights of Lender in
or to any of the Collateral. The execution, delivery and performance
of this Agreement, the other Financing Agreements and the transactions
contemplated hereunder and thereunder are all within Borrower's
corporate powers, have been duly authorized and are not in
contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any
indenture, agreement or undertaking to which Borrower is a party or by
which Borrower or its property are bound. This Agreement and the
other Financing Agreements constitute legal, valid and binding
obligations of Borrower enforceable in accordance with their
respective terms. Borrower does not have any subsidiaries except as
set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All
audited financial statements relating to Borrower which have been or
may hereafter be delivered by Borrower to Lender have been prepared in
accordance with GAAP and all financial statements relating to Borrower
which have been or may be delivered by Borrower to Lender (whether
audited or unaudited) fairly present the financial condition and the
results of operation of Borrower as at the dates and for the periods
set forth therein. Except as disclosed in any interim financial
statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets,
liabilities, properties and condition, financial or otherwise, of
<PAGE>
Borrower, since the date of the most recent audited financial
statements furnished by Borrower to Lender prior to the date of this
Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief
executive office of Borrower and Borrower's Records concerning
Accounts are located only at the address set forth below and its only
other places of business and the only other locations of Collateral,
if any, are the addresses set forth in the Information Certificate,
subject to the right of Borrower to establish new locations in
accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by
Borrower and sets forth the owners and/or operators thereof and to the
best of Borrower's knowledge, the holders of any mortgages on such
locations.
8.4 Priority of Liens; Title to Properties. The security
interests and liens granted to Lender under this Agreement and the
other Financing Agreements constitute valid and perfected first
priority liens and security interests in and upon the Collateral
subject only to the subordinate liens indicated on Schedule 8.4 hereto
and the other liens permitted under Section 9.8 hereof. Borrower has
good and marketable title to all of its properties and assets subject
to no liens, mortgages, pledges, security interests, encumbrances or
charges of any kind, except those granted to Lender and such others as
are specifically listed on Schedule 8.4 hereto or permitted under
Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in
a timely manner all tax returns, reports and declarations which are
required to be filed by it (without requests for extension except as
previously disclosed in writing to Lender). All information in such
tax returns, reports and declarations is complete and accurate in all
material respects. Borrower has paid or caused to be paid all taxes
due and payable or claimed due and payable in any assessment received
by it, except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for the payment
of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not
disputed.
8.6 Litigation. Except as set forth on the Information
Certificate, there is no present investigation by any governmental
agency pending, or to the best of Borrower's knowledge threatened,
against or affecting Borrower, its assets or business and there is no
action, suit, proceeding or claim by any Person pending, or to the
best of Borrower's knowledge threatened, against Borrower or its
assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against
Borrower would result in any material adverse change in the assets,
business or prospects of Borrower or would impair the ability of
Borrower to perform its obligations hereunder or under any of the
other Financing Agreements to which it is a party or of Lender to
enforce any Obligations or realize upon any Collateral.
<PAGE>
8.7 Compliance with Other Agreements and Applicable Laws.
Borrower is not in default in any material respect under, or in
violation in any material respect of any of the terms of, any
agreement, contract, instrument, lease or other commitment to which it
is a party or by which it or any of its assets are bound and which
default or violation could have a material adverse effect upon the
Collateral or Borrower's business or financial condition. Borrower is
in compliance in all material respects with all applicable provisions
of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
8.8 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in
connection with this Agreement or any of the other Financing
Agreements or any transaction contemplated hereby or thereby,
including, without limitation, all information on the Information
Certificate is true and correct in all material respects on the date
as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not
misleading. No event or circumstance has occurred which has had or
could reasonably be expected to have a material adverse affect on the
business, assets or prospects of Borrower, which has not been fully
and accurately disclosed to Lender in writing.
8.9 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing
Agreements shall survive the execution and delivery of this Agreement
and shall be deemed to have been made again to Lender on the date of
each additional borrowing or other credit accommodation hereunder and
shall be conclusively presumed to have been relied on by Lender
regardless of any investigation made or information possessed by
Lender. The representations and warranties set forth herein shall be
cumulative and in addition to any other representations or warranties
which Borrower shall now or hereafter give, or cause to be given, to
Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times
preserve, renew and keep in full force and effect its corporate
existence and rights and franchises with respect thereto and maintain
in full force and effect all permits, licenses, trademarks, trade
names, approvals, authorizations, leases and contracts necessary to
carry on the business as presently or proposed to be conducted.
Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set
forth the new name and Borrower shall deliver to Lender a copy of the
amendment to the Certificate of Incorporation of Borrower providing
for the name change certified by the Secretary of State of the
jurisdiction of incorporation of Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new
location within the continental United States provided Borrower (a)
gives Lender thirty (30) days prior written notice of the intended
opening of any such new location and (b) executes and delivers, or
causes to be executed and delivered, to Lender such agreements, docu-
ments, and instruments as Lender may deem reasonably necessary or
desirable to protect its interests in the Collateral at such location,
<PAGE>
including, without limitation, UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Borrower shall, at
all times, comply in all material respects with all laws, rules,
regulations, licenses, permits, approvals and orders of any Federal,
State or local governmental authority applicable to it.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental
charges upon or against it or its properties or assets, except for
taxes the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its
books. Borrower shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein
and Borrower agrees to indemnify and hold Lender harmless with respect
to the foregoing, and to repay to Lender on demand the amount thereof,
and until paid by Borrower such amount shall be added and deemed part
of the Loans, provided, that, nothing contained herein shall be
construed to require Borrower to pay any income or franchise taxes
attributable to the income of Lender from any amounts charged or paid
hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this
Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds
and in the amounts customarily insured against or carried by
corporations of established reputation engaged in the same or similar
businesses and similarly situated. Said policies of insurance shall
be satisfactory to Lender as to form, amount and insurer. Borrower
shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrower
fails to do so, Lender is authorized, but not required, to obtain such
insurance at the expense of Borrower. All policies shall provide for
at least thirty (30) days prior written notice to Lender of any
cancellation or reduction of coverage and that Lender may act as
attorney for Borrower in obtaining, and at any time an Event of
Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower shall cause Lender to
be named as a loss payee and an additional insured (but without any
liability for any premiums) under such insurance policies and Borrower
shall obtain non-contributory lender's loss payable endorsements to
all insurance policies in form and substance satisfactory to Lender.
Such lender's loss payable endorsements shall specify that the
proceeds of such insurance shall be payable to Lender as its interests
may appear and further specify that Lender shall be paid regardless of
any act or omission by Borrower or any of its affiliates. At its
option, Lender may apply any insurance proceeds received by Lender at
any time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order and
in such manner as Lender may determine or hold such proceeds as cash
collateral for the Obligations.
<PAGE>
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which
true and complete entries shall be made of all dealings or
transactions of or in relation to the Collateral and the business of
Borrower and its subsidiaries (if any) in accordance with GAAP and
Borrower shall furnish or cause to be furnished to Lender: (i) within
twenty (20) days after the end of each fiscal month, monthly unaudited
consolidated financial statements, and, if Borrower has any
subsidiaries, unaudited consolidating financial statements (including
in each case balance sheets, statements of income and loss and
statements of shareholders' equity), all in reasonable detail, fairly
presenting the financial position and the results of the operations of
Borrower and its subsidiaries as of the end of and through such fiscal
month and (ii) within ninety (90) days after the end of each fiscal
year, audited consolidated financial statements and, if Borrower has
any subsidiaries, audited consolidating financial statements of
Borrower and its subsidiaries (including in each case balance sheets,
statements of income and loss, statements of cash flow and statements
of shareholders' equity), and the accompanying notes thereto, all in
reasonable detail, fairly presenting the financial position and the
results of the operations of Borrower and its subsidiaries as of the
end of and for such fiscal year, together with the opinion of
independent certified public accountants, which accountants shall be
an independent accounting firm selected by Borrower and reasonably
acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of
operations and financial condition of Borrower and its subsidiaries as
of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit,
proceeding or claim relating to the Collateral or any other property
which is security for the Obligations or which would result in any
material adverse change in Borrower's business, properties, assets,
goodwill or condition, financial or otherwise and (ii) the occurrence
of any Event of Default or event which, with the passage of time or
giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all
reports which Borrower sends to its stockholders generally and copies
of all reports and registration statements which Borrower files with
the Securities and Exchange Commission, any national securities
exchange or the National Association of Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other information
respecting the Collateral and the business of Borrower, as Lender may,
from time to time, reasonably request. Lender is hereby authorized to
deliver a copy of any financial statement or any other information
relating to the business of Borrower to any court or other government
agency or to any participant or assignee or prospective participant or
assignee. Borrower hereby irrevocably authorizes and directs all
accountants or auditors to deliver to Lender, at Borrower's expense,
copies of the financial statements of Borrower and any reports or
management letters prepared by such accountants or auditors on behalf
of Borrower and to disclose to Lender such information as they may
have regarding the business of Borrower. Any documents, schedules,
<PAGE>
invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, except as otherwise designated by Borrower to
Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Borrower shall not, directly or indirectly, (a) merge into or with or
consolidate with any other Person or permit any other Person to merge
into or with or consolidate with it, or (b) sell, assign, lease,
transfer, abandon or otherwise dispose of any stock or indebtedness to
any other Person or any of its assets to any other Person (except for
(i) sales of Inventory in the ordinary course of business and (ii) the
disposition of worn-out or obsolete Equipment or Equipment no longer
used in the business of Borrower , or (c) form or acquire any
subsidiaries, or (d) wind up, liquidate or dissolve or (e) agree to do
any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or
suffer to exist any security interest, mortgage, pledge, lien, charge
or other encumbrance of any nature whatsoever on any of the
Collateral, except: (a) liens and security interests of Lender; and
(b) the security interests and liens set forth on Schedule 8.4 hereto.
9.9 [Deleted.]
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not,
directly or indirectly, make any loans or advance money or property to
any person, or invest in (by capital contribution, dividend or
otherwise) or purchase or repurchase the stock or indebtedness or all
or a substantial part of the assets or property of any person, or
guarantee, assume, endorse, or otherwise become responsible for
(directly or indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except:
(a) the endorsement of instruments for collection or deposit in the
ordinary course of business; (b) investments in: (i) short-term
direct obligations of the United States Government, (ii) negotiable
certificates of deposit issued by any bank satisfactory to Lender,
payable to the order of the Borrower or to bearer and delivered to
Lender, and (iii) commercial paper rated A1 or P1; provided, that, as
to any of the foregoing, unless waived in writing by Lender, Borrower
shall take such actions as are deemed necessary by Lender to perfect
the security interest of Lender in such investments and (c) the
guarantees set forth in the Information Certificate.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of
class of capital stock of Borrower now or hereafter outstanding, or
set aside or otherwise deposit or invest any sums for such purpose, or
redeem, retire, defease, purchase or otherwise acquire any shares of
any class of capital stock (or set aside or otherwise deposit or
invest any sums for such purpose) for any consideration other than
common stock or apply or set apart any sum, or make any other
distribution (by reduction of capital or otherwise) in respect of any
such shares or agree to do any of the foregoing.
9.12 Transactions with Affiliates. Borrower shall not enter
into any transaction for the purchase, sale or exchange of property or
the rendering of any service to or by any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of
<PAGE>
Borrower's business and upon fair and reasonable terms no less
favorable to the Borrower than Borrower would obtain in a comparable
arm's length transaction with an unaffiliated person.
9.13 [Deleted.]
9.14 [Deleted.]
9.15 Costs and Expenses. Borrower shall pay to Lender on demand
all costs, expenses, filing fees and taxes paid or payable in
connection with the preparation, negotiation, execution, delivery,
recording, administration, collection, liquidation, enforcement and
defense of the Obligations, Lender's rights in the Collateral, this
Agreement, the other Financing Agreements and all other documents
related hereto or thereto, including any amendments, supplements or
consents which may hereafter be contemplated (whether or not executed)
or entered into in respect hereof and thereof, including, but not
limited to: (a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing taxes
and fees, documentary taxes, intangibles taxes and mortgage recording
taxes and fees, if applicable); (b) all title insurance and other
insurance premiums, appraisal fees and search fees; (c) costs and
expenses of remitting loan proceeds, collecting checks and other items
of payment, and establishing and maintaining the Blocked Accounts,
together with Lender's customary charges and fees with respect
thereto; (d) charges, fees or expenses charged by any bank or issuer
in connection with the Letter of Credit Accommodations; (e) costs and
expenses of preserving and protecting the Collateral; (f) costs and
expenses paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of Lender,
selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Lender
arising out of the transactions contemplated hereby and thereby
(including, without limitation, preparations for and consultations
concerning any such matters); (g) for activities preceding the funding
of the initial loans under this Agreement and after the occurrence of
an Event of Default or an event or condition which, with notice or
passage of time, or both, would constitute an Event of Default, all
out-of-pocket expenses and costs from time to time incurred by Lender
during the course of field examinations of the Collateral and
Borrower's operations, plus a per idem charge at the rate of $600 per
person per day for Lender's examiners in the field and office; (h) the
fees and disbursements of counsel (including legal assistants) to
Lender in connection with any of the foregoing.
9.16 Further Assurances. At the request of Lender at any time
and from time to time, Borrower shall, at its expense, duly execute
and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such
further acts as may be necessary or proper to evidence, perfect,
maintain and enforce the security interests and the priority thereof
in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements.
Lender may at any time and from time to time request a certificate
from an officer of Borrower representing that all conditions precedent
to the making of Loans and providing Letter of Credit Accommodations
contained herein are satisfied. In the event of such request by
Lender, Lender may, at its option, cease to make any further Loans or
provide any further Letter of Credit Accommodations until Lender has
received such certificate and, in addition, Lender has determined that
<PAGE>
such conditions are satisfied. Where permitted by law, Borrower
hereby authorizes Lender to execute and file one or more UCC financing
statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one
or more of the following events are referred to herein individually as
an "Event of Default," and collectively as "Events of Default":
(a) Borrower fails to pay when due any of the Obligations
or fails to perform any of the terms, covenants, conditions or
provisions contained in this Agreement or any of the other Financing
Agreements;
(b) any representation, warranty or statement of fact made
by Borrower to Lender in this Agreement, the other Financing
Agreements or any other agreement, schedule, confirmatory assignment
or otherwise shall when made or deemed made be false or misleading in
any material respect;
(c) any Obligor revokes, terminates or fails to perform any
of the terms, covenants, conditions or provisions of any guarantee,
endorsement or other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered
against Borrower or any Obligor in excess of $100,000 in any one case
or in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time
not be effectively stayed, or any judgment other than for the payment
of money, or injunction, attachment, garnishment or execution is
rendered against Borrower or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general
partner of an Obligor which is a partnership) dies or Borrower or any
Obligor, which is a partnership or corporation, dissolves or suspends
or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however
defined or evidenced), makes an assignment for the benefit of
creditors, makes or sends notice of a bulk transfer or calls a meeting
of its creditors or principal creditors;
(g) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or
hereafter in effect (whether at law or in equity) is filed against
Borrower or any Obligor or all or any part of its properties and such
petition or application is not dismissed within thirty (30) days after
the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or
indicates its consent to, acquiescence in or approval of, any such
action or proceeding or the relief requested is granted sooner;
<PAGE>
(h) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or
hereafter in effect (whether at a law or equity) is filed by Borrower
or any Obligor or for all or any part of its property; or
(i) any default by Borrower or any Obligor under any
agreement, document or instrument relating to any indebtedness for
borrowed money owing to any person other than Lender, or any
capitalized lease obligations, contingent indebtedness in connection
with any guarantee, letter of credit, indemnity or similar type of
instrument in favor of any person other than Lender, in any case in an
amount in excess of $100,000, which default continues for more than
the applicable cure period, if any, with respect thereto, or any
default by Borrower or any Obligor under any material contract, lease,
license or other obligation to any person other than Lender, which
default continues for more than the applicable cure period, if any,
with respect thereto;
(j) any change in the controlling ownership of Borrower;
(k) the indictment or threatened indictment of Borrower or
any Obligor under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any
Obligor, pursuant to which statute or proceedings the penalties or
remedies sought or available include forfeiture of any of the property
of Borrower or such Obligor;
(l) there shall be a material adverse change in the
business, assets or prospects of Borrower or any Obligor after the
date hereof; or
(m) there shall be an event of default under any of the
other Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred
and is continuing, Lender shall have all rights and remedies provided
in this Agreement, the other Financing Agreements, the Uniform
Commercial Code and other applicable law, all of which rights and
remedies may be exercised without notice to or consent by Borrower or
any Obligor, except as such notice or consent is expressly provided
for hereunder or required by applicable law. All rights, remedies and
powers granted to Lender hereunder, under any of the other Financing
Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more
occasions, and shall include, without limitation, the right to apply
to a court of equity for an injunction to restrain a breach or
threatened breach by Borrower of this Agreement or any of the other
Financing Agreements. Lender may, at any time or times, proceed
directly against Borrower or any Obligor to collect the Obligations
without prior recourse to the Collateral.
<PAGE>
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its
discretion and without limitation, (i) accelerate the payment of all
Obligations and demand immediate payment thereof to Lender (provided,
that, upon the occurrence of any Event of Default described in
Sections 10.1(g) and 10.1(h), all Obligations shall automatically
become immediately due and payable), (ii) with or without judicial
process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession
of the Collateral or complete processing, manufacturing and repair of
all or any portion of the Collateral, (iii) require Borrower, at
Borrower's expense, to assemble and make available to Lender any part
or all of the Collateral at any place and time designated by Lender,
(iv) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (v) remove any or all of the Collateral from
any premises on or in which the same may be located for the purpose of
effecting the sale, foreclosure or other disposition thereof or for
any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without
limitation, entering into contracts with respect thereto, public or
private sales at any exchange, broker's board, at any office of Lender
or elsewhere) at such prices or terms as Lender may deem reasonable,
for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any
such public sale, all of the foregoing being free from any right or
equity of redemption of Borrower, which right or equity of redemption
is hereby expressly waived and released by Borrower and/or (vii)
terminate this Agreement. If any of the Collateral is sold or leased
by Lender upon credit terms or for future delivery, the Obligations
shall not be reduced as a result thereof until payment therefor is
finally collected by Lender. If notice of disposition of Collateral
is required by law, five (5) days prior notice by Lender to Borrower
designating the time and place of any public sale or the time after
which any private sale or other intended disposition of Collateral is
to be made, shall be deemed to be reasonable notice thereof and
Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral
by way of prejudgment remedy, Borrower waives the posting of any bond
which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral
actually received by Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of the Obligations, in whole
or in part and in such order as Lender may elect, whether or not then
due. Borrower shall remain liable to Lender for the payment of any
deficiency with interest at the highest rate provided for herein and
all costs and expenses of collection or enforcement, including
attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of
an Event of Default or an event which with notice or passage of time
or both would constitute an Event of Default, Lender may, at its
option, without notice, (i) cease making Loans or arranging for Letter
of Credit Accommodations or reduce the lending formulas or amounts of
Revolving Loans and Letter of Credit Accommodations available to
Borrower and/or (ii) terminate any provision of this Agreement
providing for any future Loans or Letter of Credit Accommodations to
be made by Lender to Borrower.
<PAGE>
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury
Trial Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising
out of the relationship between the parties hereto, whether in
contract, tort, equity or otherwise, shall be governed by the internal
laws of the State of Oregon (without giving effect to principles of
conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to
the non-exclusive jurisdiction of the Circuit Court of the State of
Oregon for Multnomah County and the United States District Court for
the District of Oregon and waive any objection based on venue or forum
non conveniens with respect to any action instituted therein arising
under this Agreement or any of the other Financing Agreements or in
any way connected with or related or incidental to the dealings of the
parties hereto in respect of this Agreement or any of the other
Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with
respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring any
action or proceeding against Borrower or its property in the courts of
any other jurisdiction which Lender deems necessary or appropriate in
order to realize on the Collateral or to otherwise enforce its rights
against Borrower or its property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be
made by certified mail (return receipt requested) directed to its
address set forth on the signature pages hereof and service so made
shall be deemed to be completed five (5) days after the same shall
have been so deposited in the U.S. mails, or, at Lender's option, by
service upon Borrower in any other manner provided under the rules of
any such courts. Within thirty (30) days after such service, Borrower
shall appear in answer to such process, failing which Borrower shall
be deemed in default and judgment may be entered by Lender against
Borrower for the amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i)
ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS
OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF
THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR
THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND
THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
<PAGE>
(e) Lender shall not have any liability to Borrower
(whether in tort, contract, equity or otherwise) for losses suffered
by Borrower in connection with, arising out of, or in any way related
to the transactions or relationships contemplated by this Agreement,
or any act, omission or event occurring in connection herewith, unless
it is determined by a final and non-appealable judgment or court order
binding on Lender, that the losses were the result of acts or
omissions constituting gross negligence or willful misconduct. In any
such litigation, Lender shall be entitled to the benefit of the
rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of
this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives
demand, presentment, protest and notice of protest and notice of
dishonor with respect to any and all instruments and commercial paper,
included in or evidencing any of the Obligations or the Collateral,
and any and all other demands and notices of any kind or nature
whatsoever with respect to the Obligations, the Collateral and this
Agreement, except such as are expressly provided for herein. No
notice to or demand on Borrower which Lender may elect to give shall
entitle Borrower to any other or further notice or demand in the same,
similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any
provision hereof shall be amended, modified, waived or discharged
orally or by course of conduct, but only by a written agreement signed
by an authorized officer of Lender. Lender shall not, by any act,
delay, omission or otherwise be deemed to have expressly or impliedly
waived any of its rights, powers and/or remedies unless such waiver
shall be in writing and signed by an authorized officer of Lender.
Any such waiver shall be enforceable only to the extent specifically
set forth therein. A waiver by Lender of any right, power and/or
remedy on any one occasion shall not be construed as a bar to or
waiver of any such right, power and/or remedy which Lender would
otherwise have on any future occasion, whether similar in kind or
otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any
nature (other then compulsory counterclaims) in any action or
proceeding with respect to this Agreement, the Obligations, the
Collateral or any matter arising therefrom or relating hereto or
thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender,
and its directors, agents, employees and counsel, harmless from and
against any and all losses, claims, damages, liabilities, costs or
expenses imposed on, incurred by or asserted against any of them in
connection with any litigation, investigation, claim or proceeding
commenced or threatened related to the negotiation, preparation,
execution, delivery, enforcement, performance or administration of
this Agreement, any other Financing Agreements, or any undertaking or
proceeding related to any of the transactions contemplated hereby or
any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court
costs, and the fees and expenses of counsel. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this
Section may be unenforceable because it violates any law or public
<PAGE>
policy, Borrower shall pay the maximum portion which it is permitted
to pay under applicable law to Lender in satisfaction of indemnified
matters under this Section. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this
Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and
shall continue in full force and effect for a term ending on the date
two (2) years from the date hereof (the "Renewal Date"), and from year
to year thereafter, unless sooner terminated pursuant to the terms
hereof. Lender or Borrower may terminate this Agreement and the other
Financing Agreements effective on the Renewal Date or on the
anniversary of the Renewal Date in any year by giving to the other
party at least sixty (60) days prior written notice; provided, that,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-renewal
of the Financing Agreements, Borrower shall pay to Lender, in full,
all outstanding and unpaid Obligations and shall furnish cash
collateral to Lender in such amounts as Lender determines are
reasonably necessary to secure Lender from loss, cost, damage or
expense, including attorneys' fees and legal expenses, in connection
with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Lender
has not yet received final and indefeasible payment. Such cash
collateral shall be remitted by wire transfer in Federal funds to such
bank account of Lender as Lender may, in its discretion, designate in
writing to Borrower for such purpose. Interest shall be due until and
including the next business day, if the amounts so paid by Borrower to
the bank account designated by Lender are received in such bank
account later than 12:00 noon, Pacific time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective
duties, obligations and covenants under this Agreement or the other
Financing Agreements until all Obligations have been fully and finally
discharged and paid, and Lender's continuing security interest in the
Collateral and the rights and remedies of Lender hereunder, under the
other Financing Agreements and applicable law, shall remain in effect
until all such Obligations have been fully and finally discharged and
paid.
(c) If for any reason this Agreement is terminated prior to
the end of the then current term or renewal term of this Agreement, in
view of the impracticality and extreme difficulty of ascertaining
actual damages and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits as a result thereof,
Borrower agrees to pay to Lender, upon the effective date of such
termination, an early termination fee in the amount set forth below if
such termination is effective in the period indicated:
<PAGE>
Amount Period
(i) 3% of Maximum Credit from the date hereof to
and including the first
anniversary hereof
(ii) 1% of Maximum Credit any time after the first
anniversary hereof
provided, however, that if this Agreement is terminated and the
Obligations satisfied in full after the first anniversary hereof from
proceeds of new financing provided to Borrower by CoreStates Bank,
N.A., no early termination fee shall be payable. Such early
termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower
agrees that it is reasonable under the circumstances currently
existing. The early termination fee provided for in this Section 12.1
shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall
be in writing and (a) made to Lender at its address set forth below
and to Borrower at its chief executive office set forth below, or to
such other address as either party may designate by written notice to
the other in accordance with this provision, and (b) deemed to have
been given or made: if delivered in person, immediately upon delivery;
if by telex, telegram or facsimile transmission, immediately upon
sending and upon confirmation of receipt; if by nationally recognized
overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified
mail, return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is
held to be invalid or unenforceable, such invalidity or
unenforceability shall not invalidate this Agreement as a whole, but
this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable and the
rights and obligations of the parties shall be construed and enforced
only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements
and any other document referred to herein or therein shall be binding
upon and inure to the benefit of and be enforceable by Lender,
Borrower and their respective successors and assigns, except that
Borrower may not assign its rights under this Agreement, the other
Financing Agreements and any other document referred to herein or
therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its
obligations under this Agreement and the other Financing Agreements
and further may assign, or sell participations in, all or any part of
the Loans, the Letter of Credit Accommodations or any other interest
herein to another financial institution or other person, in which
event the assignee or participant shall have, to the extent of such
assignment or participation, the same rights and benefits as it would
have if it were the Lender hereunder, except as otherwise provided by
the terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments or
documents delivered or to be delivered in connection herewith or
<PAGE>
therewith represent the entire agreement and understanding concerning
the subject matter hereof and thereof between the parties hereto, and
supersede all other prior agreements, understandings, negotiations and
discussions, representations, warranties, commitments, proposals,
offers and contracts concerning the subject matter hereof, whether
oral or written.
IN WITNESS WHEREOF, Lender and Borrower have caused these
presents to be duly executed as of the day and year first above
written.
LENDER
CONGRESS FINANCIAL CORPORATION
(NORTHWEST)
By:_____________________________
Title:___________________________
Address:
101 SW Main Street, Suite 725
Portland, OR 97204
BORROWER
PST VANS, INC.
By:_____________________________
Kenneth R. Norton
Title: Chief Executive Officer
Chief Executive Office:
1901 W. 2100 South
Salt Lake City, UT 84126
7267\62\138791
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PST VANS,
INC. SEPTEMBER 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,090,011
<SECURITIES> 0
<RECEIVABLES> 17,216,624
<ALLOWANCES> 1,124,896
<INVENTORY> 655,502
<CURRENT-ASSETS> 25,796,354
<PP&E> 81,944,255
<DEPRECIATION> 20,236,471
<TOTAL-ASSETS> 96,498,622
<CURRENT-LIABILITIES> 27,520,674
<BONDS> 0
0
0
<COMMON> 4,217
<OTHER-SE> 24,833,507
<TOTAL-LIABILITY-AND-EQUITY> 96,498,622
<SALES> 0
<TOTAL-REVENUES> 110,961,630
<CGS> 0
<TOTAL-COSTS> 110,025,644
<OTHER-EXPENSES> (114,638)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,845,904
<INCOME-PRETAX> (2,795,280)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,795,280)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,795,280)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> (.66)
</TABLE>
