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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended April 30, 1997
Commission File Number 0-26230
WESTERN POWER & EQUIPMENT CORP.
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(Exact name of registrant as specified in its charter)
DELAWARE 91-1688446
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(State or other jurisdiction of (I.R.S. Employer I.D.
incorporation or organization) number)
4601 NE 77th Avenue, Suite 200, Vancouver, WA 98662
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no.: 360-253-2346
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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 and 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Title of Class Number of shares
Common Stock Outstanding
(par value $.001 per share) 3,533,462
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WESTERN POWER & EQUIPMENT CORP.
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Balance Sheet
April 30, 1997 (Unaudited) and July 31, 1996........ 1
Consolidated Statement of Operations
Three months ended April 30, 1997 (Unaudited)
and April 30, 1996 (Unaudited)...................... 2
Consolidated Statement of Operations
Nine months ended April 30, 1997 (Unaudited)
and April 30, 1996 (Unaudited)...................... 3
Consolidated Statement of Cash Flows
Nine months ended April 30, 1997 (Unaudited)
and April 30, 1996 (Unaudited)...................... 4
Notes to Consolidated Financial Statements............ 5 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Operating Results.... 6 - 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................ N/A
Item 2. Changes in Securities........................ N/A
Item 3. Defaults Upon Senior Securities.............. N/A
Item 4. Submission of Matters to a Vote of Security
Holders...................................... N/A
Item 5. Other Information............................ N/A
Item 6. Exhibits and Reports on Form 8-K............. 11
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ITEM 1.
WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
April 30, July 31,
1997 1996
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 358 $ 2,721
Accounts receivable, less allowance for
doubtful accounts of $656 and $519............... 11,736 6,506
Inventories........................................ 72,891 65,689
Prepaid expenses................................... 120 43
Deferred income taxes.............................. 556 556
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Total current assets........................... 85,661 75,515
Property, plant and equipment, net................. 7,598 7,031
Intangibles and other assets....................... 2,910 2,744
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Total assets................................... $96,169 $85,290
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under floor plan financing.............. $51,217 $54,364
Short-term borrowings.............................. 4,612 963
Accounts payable................................... 11,085 2,414
Accrued payroll and vacation....................... 678 793
Other accrued liabilities.......................... 2,150 1,384
Income taxes payable............................... (482) 37
Capital lease obligations.......................... 105 46
Covenant Not to Compete............................ 96 -
Payable to parent.................................. 94 188
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Total current liabilities...................... 69,555 60,189
Covenant Not to Compete................................. 75 -
Deferred income taxes................................... 384 383
Capital lease obligations............................... 1,784 1,656
Long-term borrowings.................................... 1,268 1,268
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Total liabilities.............................. 73,066 63,496
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Commitments and contingencies
Stockholders' equity:
Preferred stock-10,000,000 shares authorized;
none issued and outstanding...................... - -
Common stock-$.001 par value; 20,000,000
shares authorized; 3,533,462 issued and
outstanding...................................... 4 4
Additional paid-in capital......................... 16,047 16,047
Retained earnings.................................. 7,052 5,743
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Total stockholders' equity..................... 23,103 21,794
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Total liabilities and stockholders'
equity....................................... $96,169 $85,290
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See accompanying notes to financial statements.
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See accompanying notes to financial statements.
WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three Months Ended
April 30,
1997 1996
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Net sales.............................................. $42,043 $26,136
Cost of goods sold..................................... 37,444 22,854
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Gross profit........................................... 4,599 3,282
Selling, general and administrative expenses........... 2,974 2,099
Other (income) expense:
Interest expense................................... 894 440
Other (income) expense............................. (41) (103)
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Income before taxes.................................... 772 846
Income tax provision................................... 313 321
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Net income............................................. $ 459 $ 525
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Earnings per common share.............................. $ 0.13 $ 0.15
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Weighted average common shares......................... 3,638 3,533
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See accompanying notes to financial statements.
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WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Nine Months Ended
April 30,
1997 1996
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Net sales.............................................. $108,244 $75,061
Cost of goods sold..................................... 96,279 66,347
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Gross profit........................................... 11,965 8,714
Selling, general and administrative expenses........... 7,609 5,620
Other (income) expense:
Interest expense................................... 2,572 1,182
Other (income) expense............................. (374) (279)
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Income before taxes.................................... 2,158 2,191
Income tax provision................................... 848 825
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Net income............................................. $ 1,310 $ 1,366
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Earnings per common share.............................. $ 0.36 $ 0.38
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Weighted average common shares......................... 3,611 3,565
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See accompanying notes to financial statements.
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WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Nine Months Ended
April 30,
1997 1996
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Cash flows from operating activities:
Net income........................................ $ 1,310 $ 1,366
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation.................................. 803 591
Amortization.................................. 4 49
(Gain) Loss on sale of fixed assets........... (17) -
Changes in assets and liabilities:
Accounts receivable....................... (5,231) 810
Inventories............................... (7,203) (10,450)
Floor plan financing...................... (3,147) 8,050
Prepaid expenses.......................... (76) (79)
Accounts payable.......................... 8,667 442
Accrued payroll and vacation.............. (115) (23)
Other accrued liabilities................. 766 535
Income taxes payable...................... (519) (135)
Other assets.............................. 14 (106)
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Net cash provided by (used in) operating
activities....................................... (4,744) 1,050
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Cash flow from investing activities:
Purchase of fixed assets.......................... (1,081) (538)
Purchase of intangibles........................... (8) 2,078
Proceeds on sale of fixed assets.................. 21 (603)
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Net cash provided by (used in)
investing activities............................ (1,068) 937
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Cash flows from financing activities:
Principal payments on capital leases.............. (105) (53)
Short-term borrowings (repayments)................ 3,648 (4,091)
Borrowings from (repayments to) parent............ (94) 22
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Net cash provided by financing activities......... 3,449 (4,122)
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Decrease in cash and cash equivalents.................. (2,363) (2,135)
Cash & cash equivalents at beginning of period......... 2,721 4,065
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Cash and cash equivalents at end of period............. $ 358 $1,930
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.......................................... $2,572 $1,182
Income taxes...................................... 832 961
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the quarter ended October 31, 1996, the Company incurred a capital lease
obligation of $293 for computer equipment and software. During the quarter ended
January 31, 1997, the Company incurred a total obligation of $200 for noncompete
agreements executed as part of the acquisition of the operating assets of
Sahlberg Equipment, Inc.
See accompanying notes to financial statements.
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Western Power & Equipment Corp.
Notes to Consolidated Financial Statements
(Dollars in thousands)
1. BASIS OF PRESENTATION
The financial information included in this report has been prepared in
conformity with the accounting principles and practices reflected in the
financial statements for the preceding year included in the annual report on
Form 10-K for the year ended July 31, 1996 filed with the Securities and
Exchange Commission. All adjustments are of a normal recurring nature and are,
in the opinion of management, necessary for a fair statement of the results for
the interim periods. This report should be read in conjunction with the
Company's financial statements included in the annual report on Form 10-K for
the year ended July 31, 1996 filed with the Securities and Exchange Commission.
2. INVENTORIES
Inventories consist of the following:
April 30, July 31,
1997 1996
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Equipment:
New equipment $56,680 $53,279
Used equipment 8,097 6,090
Parts 8,114 6,320
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$72,891 $65,689
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3. FISCAL 1997 EVENTS
On January 17, 1997 the Company acquired the operating assets of Sahlberg
Equipment, Inc.("Sahlberg"), a four-store Northwest distributor of noncompeting
lines of equipment with facilities in Kent, Washington, Portland, Oregon,
Spokane, Washington and Anchorage, Alaska. The purchase price for the assets of
Sahlberg was an aggregate of approximately $5,290, consisting of $3,844 for
equipment inventory, $797 for parts inventories, $625 for fixed assets, and $24
for work-in-process.
The majority of the purchase price was financed through a loan agreement with
Case Credit Corporation ("Case Credit"). Under the loan agreement, the Company
obtained two term loans from Case Credit in the amounts of $3,844 for equipment
inventory (the "Equipment Note") and $1,422 for parts inventories and fixed
assets (the "Parts Note"), respectively. Both term loans bear interest at 9.25%
which is payable monthly in arrears. The Equipment Note is payable in a single
balloon payment on January 17, 1998, provided, however, that in the event the
Company sells any of the items of inventory securing the note prior to January
17, 1998, the principal portion of the note represented by such sold equipment
becomes due and payable at that time. The Parts Note
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is payable in twelve equal monthly installments of principal and interest
beginning February 21, 1997. Both notes are cross-collateralized and secured by
all the assets acquired in the Sahlberg acquisition as well as certain accounts
receivable of the Company. Simultaneous with the closing of the Sahlberg
acquisition, the Company entered into sublease agreements for each of the four
facilities (all subleases are net leases with payment of insurance, property
taxes and maintenance costs by the Company).
On June 5, 1997, the Company obtained a $75 million inventory flooring and
operating line of credit through Deutsche Financial Services. The Company
expects to use this borrowing facility to lower flooring related interest
expense by financing the purchase of equipment from Case and its other vendors
with amounts advanced under this line of credit, to take advantage of cash
purchase discounts from its suppliers, to provide operating capital for further
growth, and to refinance some its acquisition related debt at a lower interest
rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.
Certain matters discussed herein contain forward-looking statements that are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected, such as projected sales levels, expense
reductions, reduced interest expense, and increased inventory turnover, one or
more of which may not be realized.
GENERAL
Effective November 1, 1992, the Company completed the acquisition of seven
stores located in Washington and Oregon which sell and service equipment used in
the construction industry. The Company's strategic plan was, and continues to
be, that of expanding the operations and improving profitability at each of its
existing retail outlets. In furtherance of such strategic plan, subsequent to
1992 the Company opened three additional outlets in Washington and Oregon.
Effective September 10, 1994, the Company also purchased from Case Corporation
(Case) two additional retail construction equipment distribution outlets located
in Sparks, Nevada and Fremont, California. The Fremont operation was relocated
to neighboring Hayward, California in December 1994. In March and August 1995
the Company opened distribution outlets in Santa Rosa and Salinas, California,
respectively. In February 1996, the Company announced the opening of a
distribution outlet in Elko, Nevada. Also in February 1996, the Company
completed the acquisition of the Sacramento, California outlet from Case. The
opening of a Stockton, California outlet was completed in March 1996. In June
1996 the Company completed the acquisition of GCS, Inc., a California
distributor of highway maintenance equipment with offices in Sacramento and
Fullerton. In January 1997, the Company completed the acquisition of the
operating assets of Sahlberg Equipment Inc., a four-store Pacific Northwest
distributor of construction equipment, bringing the total number of distribution
outlets owned and operated by the Company to 23.
RESULTS OF OPERATIONS
THE THREE AND NINE MONTHS ENDED APRIL 30, 1997 COMPARED TO THE THREE AND NINE
MONTHS ENDED APRIL 30, 1996.
Revenues for the three month period ended April 30, 1997 increased $15,907,000
or approximately 61% over the three month period ended April 30, 1996, due
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mainly to the contribution of the stores acquired or opened in the last year in
Sacramento, Fullerton, Stockton, and Redding, California, Elko, Nevada, Kent and
Spokane, Washington, Anchorage, Alaska, and Portland, Oregon, which accounted
for $10,786,000 (68%) of this increase in sales. Same store revenues increased
$5,121,000 or 22% for the three month period ended April 30, 1997, as compared
to the prior year period. The increase in same store revenues resulted from
higher sales across all departments. In the three month period ended April 30,
1997, new equipment revenues increased $10,897,000, used equipment revenues
increased $1,084,000, parts revenues increased $2,991,000, rental revenues
increased $317,000, and service revenues increased $618,000 over the quarter
ended April 30, 1996.
Revenues for the nine month period ended April 30, 1997 increased $33,183,000 or
approximately 44% over the nine month period ended April 30, 1996. The increase
was due primarily to the contribution of the stores acquired or opened in the
last year, accounting for $23,644,000 (71%) of the increase in sales. Same
store revenues increased $9,205,000 or 12% for the nine month period ended April
30, 1997, as compared to the nine month period ended April 30, 1996. For the
nine month period ended April 30, 1997, sales in all departments were up
compared to the same period in the prior year.
The Company's gross profit margin of 10.9% for the three month period ended
April 30, 1997 was down from the prior year comparative period margin of 12.6%.
The decrease in gross profit margins was partly the result of a decrease in
higher margin rental revenue as a percentage of sales, and also lower margins on
new equipment sales. For the nine month period ended April 30, 1997, the
Company's gross margin was 11.1%, a slight decrease from the 11.6% for the nine
month period ended April 30, 1996 due to the same factors indicated above.
For the three month period ended April 30, 1997, selling, general, and
administrative ("SG&A") expenses, as a percentage of sales, were down from 8.0%
to 7.1% of sales. SG&A expenses for the nine month period ended April 30, 1997
were 7.0% of sales compared to 7.5% of sales for the prior year nine month
period, reflecting management's recent efforts to streamline operations and
efficiently integrate newly opened and acquired operations. Executive management
is still fine-tuning the Company's organizational model and believes further
reduction in SG&A expenses as a percentage of sales can be achieved.
Interest expense for the three months ended April 30, 1997 of $894,000 was up
significantly (103%) from the $440,000 in the prior year comparative period.
This increase is the result of a build up in inventory levels to support the
increased number of facilities operated by the Company and the Company's higher
equipment sales level, including an increase in equipment dedicated to the
rental fleet of $3,178,000 in the three months ended April 30, 1997 compared
with the same period a year ago. Interest expense increased 118% for the nine
month period ended April 30, 1997 to $2,572,000 compared to $1,182,000 for the
nine month period ended April 30, 1996, due mainly to the increased inventory
carried by the Company. Management expects that interest expense will decrease
relative to sales as the company continues to rationalize its inventory levels
and realizes the benefits of its newly acquired financing facility through
Deutsche Financial Services.
The effective tax rate for the three months ended April 30, 1997 was
approximately 41%, which is slightly higher than the 38% effective tax rate for
the prior year comparative period due in part to higher Delaware franchise
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taxes. The Company anticipates the effective tax rate to remain at a similar
level for the foreseeable future.
Although sales were well ahead of the prior year comparative period, the
decrease in gross margins along with the increase in operating and interest
expenses offset the sales increase, resulting in net income for the quarter
ended April 30, 1997 of $0.13 per share as compared to $0.15 in the prior year
comparable quarter. For the nine month period ended April 30, 1997, earnings per
share were $0.36, a slight decrease from the $0.38 earnings per share for the
nine month period ended April 30, 1996 due to the previously mentioned expense
increases and reduced gross margins. Management expects its efforts to
streamline expenses, increase inventory turns, and increase revenues to result
in more net income as a percentaage of sales in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of internal liquidity has been its profitable
operations since its inception in November 1992. As more fully described below,
the Company's primary sources of external liquidity were contributions to the
Company by its parent, American United Global, Inc. ("AUGI"), and equipment
inventory floor plan financing arrangements provided to the Company by the
manufacturers of the products the Company sells and Seattle-First National Bank
("Seafirst Bank"). In addition, in fiscal 1995, the Company completed an
initial public offering of 1,495,000 shares of common stock at $6.50 per share,
generating net proceeds of $7,801,000. The net proceeds of the offering were
utilized to repay amounts due to AUGI and to Case, the acquisition and opening
of additional outlets, as well as to reduce floor plan debt.
Under inventory floor planning arrangements, the manufacturers of products sold
by the Company provide interest free credit terms on new equipment purchases for
periods ranging from one to twelve months, after which interest commences to
accrue monthly at rates ranging from two to three percent over the prime rate of
interest. Principal payments are typically made under these agreements at
scheduled intervals and/or as the equipment is rented, with the balance due at
the earlier of a specified date or sale of the equipment. At April 30, 1997,
the Company was indebted under manufacturer provided floor planning arrangements
in the aggregate amount of $34,460,000.
In order to take advantage of the cash discounts offered by Case, and to provide
financing beyond the term of applicable manufacturer provided floor plan
financing or as alternatives to manufacturer provided floor plan financing
arrangements, the Company has entered into a separate secured floor planning
line of credit with Seafirst Bank. The Seafirst line of credit was entered into
in June 1994 and provides a $17,500,000 line of credit which can be used to
finance new and used equipment, or equipment to be held for rental purposes. On
April 30, 1997, approximately $16,757,000 was outstanding under such line of
credit, the principal of which bears interest at .125 percent over Seafirst
Bank's prime rate and is subject to annual review and renewal on June 1, 1997.
As of June 1, 1997, the Seafirst line of credit was extended for 30 days pending
ongoing renewal negotiations. On June 5, 1997, the Company obtained a $75
million inventory flooring and operating line on credit through Deutsche
Financial Services (DFS). The DFS credit facility is a three-year, floating rate
facility based on prime with rates between 0.50% under prime to 1.00% over prime
depending on the amount of total borrowing under the facility. Amounts are
advanced against the Company's assets, including accounts receivable (85%
advance rate), parts (advance rate of 50% of cost), new equipment (100% of book
value advance rate), rental fleet (advance rate of 100% of net book value), and
used equipment (advance rate of 93% of net book value). The Company expects to
use this borrowing facility to lower flooring related interest expense by using
advances under such line to finance inventory purchases in lieu of financing
provided by suppliers and/or Seafirst, to take advantage of cash purchase
discounts from its suppliers, to
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provide operating capital for further growth, and to refinance some its
acquisition related debt at a lower interest rate.
Amounts owing under the floor plan financing agreements are generally secured by
inventory purchases financed by these lenders, as well as all proceeds from the
sale and rental of such inventory, including related accounts receivable.
Amounts owing under the DFS credit facility are secured by the Company's
accounts receivable and parts and equipment inventory.
On October 19, 1995, the Company entered into a purchase and sale agreement with
an unrelated party for the Auburn, Washington facility, subject to the execution
of a lease. Under the terms of this agreement, which closed on December 1,
1995, the Company sold the property and is leasing it back from the purchaser.
In accordance with Statement of Financial Accounting Standards No. 13 (SFAS 13),
the building portion of the lease is being accounted for as a capital lease
while the land portion of the lease qualifies for treatment as an operating
lease.
Effective February 17, 1996, the Company acquired substantially all of the
operating assets used by Case in connection with its business of servicing and
distributing Case construction equipment at a facility located in Sacramento,
California (the "Sacramento Operation"). The acquisition was consummated for
approximately $630,000 in cash, $3,090,000 in installment notes payable to Case
and the assumption of $3,965,000 in inventory floor plan debt with Case and its
affiliates. The acquisition has been accounted for as a purchase.
The real property and improvements used in connection with the Sacramento
Operation, and upon which the Sacramento Operation is located, were sold by Case
for $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"). MRR is a
Delaware limited liability company, the owners of which are Messrs. C. Dean
McLain, the President and a director of the Company, and Robert M. Rubin, the
Chairman and a director of the Company. Simultaneous with its acquisition of
the Sacramento Operation real property and improvements, MRR leased such real
property and improvements to the Company under the terms of a 20 year Commercial
Lease Agreement dated as of March 1, 1996. In accordance with SFAS 13, the
building portion of the lease is being accounted for as a capital lease, while
the land portion of the lease qualifies for treatment as an operating lease.
On October 10, 1995, using proceeds from the Company's initial public offering,
the Company retired the $2,175,000 real estate note given to Case for the
purchase of the Sparks, Nevada real estate in September 1994. In March 1996,
the Company consummated an agreement with an institutional lender for a
conventional mortgage on the property in the amount of $1,330,000, secured by
the Sparks, Nevada real estate. The agreement calls for principal and interest
payments over a seven year term using a fifteen year amortization period. The
note cannot be prepaid during the first two years of its term.
On June 11, 1996, the Company acquired the operating assets of GCS, Inc.
("GCS"), a California-based, closely-held distributor of heavy equipment
primarily marketed to municipal and state government agencies responsible for
street and highway maintenance. The Company operates the GCS business from an
existing location in Fullerton, California and from the Company's existing
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facility in Sacramento, California. The purchase price for the GCS assets was
$1,655,000. This transaction was accounted for as a purchase.
On January 17, 1997, the Company acquired the operating assets of Sahlberg
Equipment, Inc., a four-store Pacific Northwest distributor of construction
equipment, for $5,289,616. The purchase price consisted of $3,844,152 in
equipment inventory, $796,914 in parts inventory. $625,326 in fixed assets, and
$23,224 in work-in-process. The majority of the purchase was financed by the
proceeds of two term loans from Case Credit Corporation carrying interest rates
of 9.25 percent. The acquisition has been accounted for as a purchase.
During the nine months ended April 30, 1997, cash and cash equivalents decreased
by $2,363,000, primarily due to an increase in inventory. The decrease was
partially offset by an increase in other short-term borrowing. The Company had
positive cash flow from operating activities of $920,000 during the quarter
ended April 30, 1997, chiefly a result of the increase in other short-term
borrowing. Purchases of fixed assets during the quarter were related mainly to
the opening of new distribution outlets and the Sahlberg acquisition.
The Company's cash and cash equivalents of $358,000 as of April 30, 1997 along
with the new credit facility with DFS and the previously available credit
facilities are considered sufficient to support current or higher levels of
operations for at least the next twelve months.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS. DFS Loan Agreement (Exhibits omitted)
B. REPORTS ON FORM 8-K. NONE
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN POWER & EQUIPMENT CORP.
June 10, 1997
By: /s/ Mark J. Wright
-------------------------------------
Mark J. Wright
Vice President of Finance and
Chief Financial Officer
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INDEX OF EXHIBITS
EXHIBIT 1 LOAN AND SECURITY
AGREEMENT
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$75,000,000.00
LOAN AND SECURITY AGREEMENT
Dated as of June 5,1997
BETWEEN
WESTERN POWER & EQUIPMENT CORP.,
a Delaware corporation,
AND
WESTERN POWER & EQUIPMENT CORP.,
an Oregon corporation,
AND
DEUTSCHE FINANCIAL SERVICES CORPORATION
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LOAN AND SECURITY AGREEMENT
BETWEEN: DEUTSCHE FINANCIAL SERVICES CORPORATION, a Nevada corporation ("DFS")
AND: WESTERN POWER & EQUIPMENT CORP., a Delaware corporation, ("BORROWER")
AND: WESTERN POWER & EQUIPMENT CORP., an Oregon corporation ("BORROWER").
EFFECTIVE DATE: June 5, 1997
RECITALS
Borrower has requested that DFS provide Borrower with a revolving
credit facility and a credit facility for inventory acquisition purposes.
1. JOINT AND SEVERAL LIABILITY
Each Borrower shall be jointly and severally liable with the other
Borrower for the Obligations of each other Borrower hereunder, each Borrower
shall be obligated and responsible for the performance of each other Borrower
hereunder and a Default by any Borrower shall be a Default by the other
Borrower. Each Borrower waives: (a) any right of contribution from the other
Borrower until all of the Indebtedness has been paid in full; (b) any right to
require DFS to institute any action or suit to exhaust DFS' rights and remedies
against any Collateral or any Borrower before proceeding against such Borrower;
and (c) any obligation of DFS to marshall any assets in favor of any Borrower.
2. DEFINITIONS
Terms defined in this Agreement shall have initial capital letters.
Those terms are defined below, in this SECTION 2, and elsewhere in this
Agreement. All financial and accounting terms used herein and not otherwise
defined, shall be defined in accordance with GAAP.
"AAA" shall have the meaning set forth in SECTION 15.2.
"ACCOUNT DEBTOR" shall mean any Person who is or who may become obligated
to Borrower under, with respect to, or on account of an Account, general
intangible or other Collateral.
"ACCOUNTS" shall have the meaning given to that term in the UCC, and, to
the extent not included therein, shall also mean all accounts, leases, contract
rights, chattel paper, general intangibles, choses in action and instruments,
including any Lien or other security interest that secures or may secure any of
the foregoing, plus all books, invoices, documents and other records in any form
evidencing or relating to any of the foregoing, now owned or hereafter acquired
by Borrower, in each case arising only from Eligible Inventory.
"AFFILIATES" shall mean: (i) any individual who is an officer or director
of a Person; and (ii) any Person who directly or indirectly controls, is
controlled by, or is under common control or ownership with, another Person.
For the purposes of this definition, the term "control" shall mean the ownership
of or the ability to direct or control 10% or more of the beneficial interest in
the applicable entity.
"AGREEMENT" shall mean this Loan and Security Agreement, and any amendments
hereto.
"AVERAGE DAILY BALANCE" shall have the meaning set forth in SECTION 3.5.
"BORROWING BASE" shall mean, as of any date of determination, an amount
equal to the sum of: (a) the Eligible Account Availability; plus (b) the
Eligible Inventory Availability; plus (c) Eligible Parts Availability; plus (d)
the invoice price of all Floorplan Inventory.
BORROWING BASE CERTIFICATE" shall have the meaning set forth in SECTION
3.3(A).
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"BUSINESS" shall mean the sale, lease, rental and repair of construction
equipment. .
"BUSINESS DAY" shall mean any day other than Saturdays, Sundays, legal
holidays designated by Federal law, and any other day on which DFS' office is
closed.
"CAPITAL EXPENDITURE" shall mean any amount debited to the fixed asset
account on the consolidated balance sheet of Borrower and the Subsidiaries in
respect of (a) the acquisition (including, without limitation, acquisition by
entry into a capitalized lease), construction, improvement, replacement or
betterment of land, buildings, machinery, equipment or of any other fixed assets
or leaseholds, and (b) to the extent related to and not included in CLAUSE (A),
materials, contract labor and direct labor (excluding expenditures properly
chargeable to repairs or maintenance in accordance with GAAP).
"COLLATERAL" shall mean all items described in SECTION 6.1.
"COST" shall mean the original acquisition price of whole goods Inventory
plus applicable freight, reasonable capitalized costs, and costs of serialized
attachments connected to Inventory.
"CREDIT FACILITY" shall have the meaning set forth in SECTION 3.1.
"CLOSING FEE" shall have the meaning set forth in SECTION 3.5.
"DAILY CHARGE" shall have the meaning set forth in SECTION 3.5.
"DAILY CONTRACT BALANCE" shall have the meaning set forth in SECTION 3.5.
"DAILY RATE" shall have the meaning set forth in SECTION 3.5.
"DEBT" shall have the meaning set forth in SECTION 9.3.
"DEFAULT" shall have the meaning set forth in SECTION 11.
"DEFAULT INTEREST RATE" shall have the meaning set forth in SECTION 3.8.
"DFS COMPANIES" shall have the meaning set forth in SECTION 15.1.
"DISPUTES" shall have the meaning set forth in SECTION 15.1.
"EFFECTIVE DATE" shall mean the date set forth in the heading on page 1 of
this Agreement.
"ELECTRONIC TRANSFERS" shall have the meaning set forth in SECTION
3.5(B)(II).
"ELIGIBLE ACCOUNTS" shall mean all Accounts that are not Ineligible
Accounts.
"ELIGIBLE ACCOUNT AVAILABILITY" shall have the meaning set forth in SECTION
3.3(A).
"ELIGIBLE EXISTING RENTAL INVENTORY" shall mean Eligible New Rental
Inventory and Eligible Used Rental Inventory after such Eligible New Rental
Inventory and Eligible Used Rental Inventory have been in the Borrowing Base
more than twelve (12) months.
"ELIGIBLE INVENTORY" means Borrower's: (i) Eligible New Inventory, (ii)
Eligible New Rental Inventory, (iii) Eligible Used Rental Inventory, (iv)
Eligible Existing Rental Inventory, and (v) Eligible Used Inventory as defined
herein.
"ELIGIBLE INVENTORY AVAILABILITY" shall mean the aggregate of: (i) the
Value of Eligible New Inventory, plus (ii) the Eligible Rental Inventory
Availability, plus (iii) the Eligible Used Inventory Availability.
"ELIGIBLE NEW INVENTORY" shall mean Borrower's new whole goods and unused
whole goods Inventory, showing usage of two hundred fifty (250) hours or less,
and new and unused serialized attachments, held for sale but not rental or lease
that is owned by
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Borrower free and clear of all Liens, security interests and encumbrances of any
third parties, except for the Permitted Liens, that is not obsolete or
unmerchantable, that is in good, new and salable condition that conforms to the
representations and warranties of SECTION 8.22 of this Agreement, and which DFS
deems, in its sole discretion, to be acceptable for financing. No eligible new
inventory shall be so classified for longer than 18 months.
"ELIGIBLE PARTS INVENTORY" shall mean all Parts owned by Borrower free and
clear of all Liens, security interests and encumbrances of any third parties,
except for the Permitted Liens, that are in good, new and salable condition and
that do conform to the representations and warranties of SECTION 8.22 of this
Agreement and that are not Ineligible Parts.
"ELIGIBLE PARTS AVAILABILITY" shall have the meaning set forth in SECTION
3.3(G).
"ELIGIBLE NEW RENTAL INVENTORY" shall mean Borrower's whole goods Inventory
held for rental or lease showing usage of less than two hundred fifty (250)
hours as of, the date of any Loan or advance by DFS against such Inventory that
is owned by Borrower free and clear of all Liens, security interests and
encumbrances of any third parties, except for the Permitted Liens, that is not
obsolete or unmerchantable, that is in good, new and salable condition that
conforms to the representations and warranties of SECTION 8.22 of this
Agreement, and which DFS deems, in its sole discretion, to be acceptable for
financing; provided, however, that Inventory will only be Eligible New Rental
Inventory for twelve (12) months and thereafter may be Eligible Existing Rental
Inventory.
"ELIGIBLE USED INVENTORY" shall mean Borrower's whole goods Inventory held
for sale, but not rental or lease showing usage of more than two hundred fifty
(250) hours as of the date of any Loan or advance by DFS against such Inventory
that is owned by Borrower free and clear of all Liens, security interests and
encumbrances of any third parties, except for the Permitted Liens, that is not
obsolete or unmerchantable, that is in good, new and salable condition that
conforms to the representations and warranties of SECTION 8.22 of this
Agreement, and which DFS deems, in its sole discretion, to be acceptable for
financing; provided, however, that Inventory will only be Eligible Used
Inventory for twelve (12) months.
"ELIGIBLE USED RENTAL INVENTORY" shall mean Borrower's whole goods
Inventory held for rental or lease showing usage of more than two hundred fifty
(250) hours as of the date of any Loan or advance by DFS against such Inventory
that is owned by Borrower free and clear of all Liens, security interests and
encumbrances of any third parties, except for the Permitted Liens, that is not
obsolete or unmerchantable, that is in good, new and salable condition that
conforms to the representations and warranties of SECTION 8.22 of this
Agreement, and which DFS deems, in its sole discretion, to be acceptable for
financing; provided, however, that Inventory will only be Eligible Used
Inventory for twelve (12) months.
"EQUIPMENT" shall have the meaning as given to that term in the UCC, and,
to the extent not included therein, shall also mean all equipment, machinery,
trade fixtures, furnishings, furniture, supplies, materials, tools, machine
tools, office equipment, appliances, apparatus, parts and all attachments,
replacements, substitutions, accessions, additions and improvements to any of
the foregoing.
"EXCESS ADVANCES" shall have the meaning given in SECTION 5.2.
"FAA" shall have the meaning set forth in SECTION 15.5.
"FLOORPLAN INVENTORY" shall mean Inventory the acquisition of which was
financed by DFS for Borrower from vendors approved by DFS in DFS' sole
discretion pursuant to SECTION 3.2
"FLOORPLAN INVENTORY LOAN" shall have the meaning set forth in SECTION 3.2.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"GUARANTOR" shall mean a guarantor of any of the Obligations.
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"INDEBTEDNESS" shall mean any sum for borrowed money owed by Borrower or
any Subsidiary to a Person and shall include any debt guaranteed by Borrower or
any Subsidiary, any debt as to which the Borrower has granted or permitted to
exist a Lien on any asset even if non-recourse, letter of credit reimbursement
obligations, and capitalized lease obligations.
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in SECTION 13.
"INDEMNITEES" shall have the meaning set forth in SECTION 13.
"INELIGIBLE ACCOUNTS" shall mean: (a) Accounts created from the sale of
goods and services on non-standard terms and/or that allow for payment to be
made more than thirty (30) days from date of sale; (b) Accounts unpaid more than
ninety (90) days from date of invoice; (c) all Accounts of any Account Debtor if
fifty percent (50%) or more of the outstanding balance of such Accounts are
unpaid more than ninety (90) days from the date of invoice; (d) Accounts for
which the Account Debtor is an officer, director, shareholder, partner, member,
owner, employee, agent, parent, Subsidiary, or Affiliate of, or is related to,
Borrower or has common shareholders, officers, directors, owners, partners or
members with Borrower; (e) consignment sales; (f) Accounts for which the payment
is or may be conditional; (g) Accounts for which the Account Debtor is not a
commercial or institutional entity or is not a resident of the United States or
Canada; (h) Accounts with respect to which any warranty or representation
provided in SECTION 8.19 is not true and correct; (i) Accounts which represent
goods used for demonstration purposes or loaned by Borrower to another party;
(j) Accounts which are progress payment, barter, or contra accounts; and (k) any
and all other Accounts which DFS deems to be ineligible.
"INELIGIBLE PARTS" shall means Parts: (a) against which any balance is owed
thereon to any manufacturer or supplier thereof; (b) that are included in any
work-in-process; (c) which are Obsolete Parts; (d) not owned by Borrower free
and clear of all Liens, security interests and encumbrances of any third
parties, except for the Permitted Liens, that are not in good, new and salable
condition or that do not conform to the representations and warranties of
SECTION 8.22 of this Agreement; or (e) which DFS deems to be ineligible.
"INTANGIBLES" shall have the meaning set forth in SECTION 9.3.
"INVENTORY" shall have the meaning given to that term in the UCC, and, to
the extent not included therein, shall also mean all of Borrower's merchandise,
materials, whole goods, finished goods, work-in-process, component materials,
packaging, shipping materials, parts and other tangible personal property, now
owned or hereafter acquired and held for sale or which contribute to the
finished products or the sale, promotion, storage and shipment thereof, whether
located at facilities owned or leased by Borrower, or in the course of transport
to or from facilities owned or leased by Borrower.
"LIEN" shall mean any security interest, mortgage, pledge, lien,
hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including, without
limitation, the interest of lessors under capitalized leases and the interest of
a vendor under any conditional sale or other title retention agreement),
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting any of Borrower's property.
"LOAN" shall mean any advance made to or for the benefit of Borrower
pursuant to this Agreement, including but not limited to any Floorplan Inventory
Loan and any Revolving Credit Loan.
"LOAN DOCUMENTS" shall mean all documents executed by Borrower pursuant to
any financial accommodation between Borrower and DFS and all documents entered
into in connection with the transaction herein contemplated. The term "Loan
Documents" includes, but is not limited to, this Agreement, all financing
statements, all pledges, mortgages, deeds of trust, leasehold mortgages,
security agreements, guaranties, assignments, subordination agreements, and any
future or additional documents or writings executed under the terms of this
Agreement or any amendments or modifications hereto.
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"MONTHLY REPORTS" shall have the meaning given in SECTION 3.11(B).
"OBLIGATIONS" shall mean all liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Borrower
(and/or any of its Subsidiaries and Affiliates) to DFS, whether primary or
secondary, joint or several, direct, contingent, fixed or otherwise, secured or
unsecured, or whether arising under this Agreement, any other Loan Document or
any other agreement now or hereafter executed by Borrower (or any of its
Subsidiaries or Affiliates) and delivered to DFS. Obligations will include,
without limitation, any third party claims against Borrower (or any of its
Subsidiaries or Affiliates) satisfied or acquired by DFS. Obligations will also
include all obligations of Borrower to pay to DFS: (a) any and all sums
reasonably advanced by DFS to preserve or protect the Collateral or the value of
the Collateral or to preserve, protect, or perfect DFS' security interests in
the Collateral; (b) in the event of any proceeding to enforce the collection of
the Obligations after a Default, the reasonable expenses of retaking, holding,
preparing for sale, selling or otherwise disposing of or realizing on the
Collateral, or expenses of any exercise by DFS of its rights, together with
reasonable attorneys' fees, expenses of collection and court costs, as provided
in the Loan Documents; and (c) any other indebtedness or liability of Borrower
to DFS, whether direct or indirect, absolute or contingent, now or hereafter
arising.
"OBSOLETE PARTS" shall mean all Parts which have been in stock for more
then twelve (12) months.
"OTHER REPORTS" shall have the meaning set forth in SECTION 3.11(C).
"PARTS" shall mean all service and repair parts.
"PERMITTED LIENS" shall mean: (a) Liens for taxes, assessments or other
governmental charges or levies not yet delinquent or which are being contested
in good faith by appropriate action and as to which adequate reserves shall have
been set aside in conformity with GAAP and which are, in addition, satisfactory
to DFS in its reasonable discretion; (b) Liens of mechanics, materialmen,
landlords, warehousemen, carriers and similar Liens arising in the future in the
ordinary course of business for sums not yet delinquent, or being contested in
good faith if a reserve or other appropriate provision in accordance with GAAP
shall have been made therefor and which are, in addition, satisfactory to DFS in
its reasonable discretion; (c) statutory Liens incurred in the ordinary course
of business in connection with workers' compensation, unemployment insurance,
social security, and similar items for sums not yet delinquent or being
contested in good faith, if a reserve or other appropriate provision in
accordance with GAAP shall have been made therefor and which are, in addition,
satisfactory to DFS in its reasonable discretion; (d) lessor's Liens arising
from operating leases entered into in the ordinary course of business; (e) Liens
arising from legal proceedings, so long as such proceedings are being contested
in good faith by appropriate proceedings, appropriate reserves have been
established therefor in accordance with GAAP and which are, in addition,
satisfactory to DFS in its reasonable discretion, and so long as execution is
stayed and bonded on appeal on all judgments resulting from any such
proceedings; (f) Liens, acceptable to DFS, in favor of other of Borrower's
secured parties, to the extent DFS has received an intercreditor/subordination
agreement in form and substance acceptable to DFS, in DFS' sole discretion, from
such other secured party; and (g) Liens in favor of DFS granted hereunder.
"PERSON" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization, and a government or any department or agency thereof.
"PRIME RATE" shall mean a fluctuating interest rate per annum equal to the
highest of the prime, base or reference rates of interest announced publicly
from time to time (whether or not charged in each instance) by The Chase
Manhattan Bank (or any successor thereof) as such bank's prime, base, or
reference rate. Such Prime Rate will change and take effect on the day when
such change is announced. If The Chase Manhattan Bank discontinues the practice
of announcing or publishing a prime, base or reference rate during the term of
this Agreement, then DFS may, in its reasonable judgment, designate a comparable
bank and/or publicly announced rate to be
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thereafter used as a basis for determining Prime Rate. Borrower acknowledges
that The Chase Manhattan Bank may extend credit at rates of interest less than
its announced prime, base or reference rate.
"PROCEEDS" means everything received upon the sale, lease, rental,
transfer to a third party or other disposition of Collateral.
"REVOLVING CREDIT LOAN" shall have the meaning set forth in SECTION 3.3.
"SUBORDINATED DEBT" shall have the meaning set forth in SECTION 9.3.
"SUBSIDIARIES" shall mean any corporation other than Borrower in which a
Person owns or controls greater than 50% of the voting securities, or any
partnership or joint venture in which a Person owns or controls greater than 50%
of the aggregate equitable interest. The term "Subsidiary" means any one of the
Subsidiaries.
"TANGIBLE NET WORTH" shall have the meaning set forth in SECTION 9.3.
"TOTAL CREDIT LIMIT" shall have the meaning set forth in SECTION 3.1.
"TOTAL REVOLVING CREDIT LIMIT" shall have the meaning set forth in SECTION
3.3.
"UCC" shall mean the Uniform Commercial Code as in effect in the States of
Oregon, Washington, Nevada, California and Alaska, and any successor statutes,
together with any regulations thereunder, in each case as in effect from time to
time. References to sections of the UCC shall be construed to also refer to any
successor sections.
"UNMATURED DEFAULT" shall mean any event which, but for the passage of time
or notice, or both, would be a Default.
"USED INVENTORY" shall mean whole goods Inventory and serialized
attachments held for sale, but not for rental or lease, showing more than two
hundred fifty (250) hours of usage.
"VALUE" shall mean:
(a) with respect to Eligible New Inventory, the lesser of (1) Borrower's
Cost and (2) Cost, net of accumulated depreciation; (exclusive of
discounts, rebates, credits, incentive payments and all other general
intangibles relating to such Eligible Inventory) ((1) and (2)
collectively "Net Book Value") for the first six (6) months in the
Borrowing Base; thereafter, for the next twelve (12) months, said
Value of the Eligible New Inventory shall be reduced each month by
1/12th; and after eighteen (18) months in the Borrowing Base, said
Value of the Eligible New Inventory shall be zero (0), unless such
Inventory becomes Eligible Existing Rental Inventory or Eligible Used
Inventory;
(b) with respect to Eligible New Rental Inventory, the lesser of (1)
Borrower's Cost and (2) Cost, net of accumulated depreciation;
(c) with respect to Eligible Used Rental Inventory, the lesser of (1)
Borrower's Cost and (2) Cost, net of accumulated depreciation;
provided, however, that no more than One Million Dollars
($1,000,000.00) of Eligible Used Rental Inventory may be added to the
Borrowing Base during any calendar year, and any additional Used
Rental Inventory will be deemed to have a zero (0) Value unless added
to the Eligible Existing Rental Inventory;
(d) with respect to Eligible Existing Rental Inventory, for the first year
of this agreement one hundred percent (100%) of Net Book Value and
thereafter the lesser of (1) Net Book Value and (2) the percent of Net
Book Value that represents orderly liquidation value based on an
annual appraisal;
(e) with respect to Eligible Used Inventory, during the first year of this
agreement ninety-three (93%) of Net Book Value and thereafter the
lesser of (1) Net Book Value and (2) the percent of Net Book Value
that represents orderly liquidation value based on an annual
appraisal;
(f) with respect to Eligible Parts, the lesser of (1) original acquisition
cost, and (2) original acquisition cost, net of accumulated
depreciation.
3. CREDIT FACILITY
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3.1 TOTAL CREDIT FACILITY.
In consideration of Borrower's payment and performance of its
Obligations and subject to the terms and conditions contained in this Agreement,
DFS agrees to provide, and Borrower agrees to accept, an aggregate credit
facility (the "CREDIT FACILITY") of up to Seventy-Five Million Dollars
($75,000,000.00) (the "TOTAL CREDIT LIMIT". The Credit Facility shall be
available in the form of Floorplan Inventory Loans and Revolving Credit Loans.
No Loans need be made by DFS if Borrower is in Default or if there exists any
Unmatured Default. This is an agreement regarding the extension of credit, and
not the provision of goods or services.
3.2 FLOORPLAN LOANS.
(a) INVENTORY FLOORPLAN LOAN LIMIT. Subject to the terms of
this Agreement, DFS may provide Loans to Borrower for Floorplan Inventory and
financing approvals for Floorplan Inventory in transit from the seller thereof
(each advance being a "FLOORPLAN INVENTORY LOAN") up to an aggregate unpaid
principal amount at any time not to exceed (i) Seventy-Five Million Dollars
($75,000,000.00) less (ii) outstanding Revolving Credit Loans ("INVENTORY
FLOORPLAN LOAN LIMIT"). DFS may, however, at any time and without notice to
Borrower, elect not to finance any Inventory sold by particular vendors who are
in default of their obligations to DFS. DFS may at any time suspend or
terminate the relationship or approval of any vendor. DFS will use reasonable
efforts to attempt to give Borrower prior notice of such suspension or
termination.
(b) PAYMENT TERMS. Borrower will immediately pay DFS the
principal indebtedness owed DFS on each item of Inventory financed by DFS on the
earliest occurrence of any of the following events: (a) when such Floorplan
Inventory is lost, stolen or damaged to the extent that such loss, theft or
damage is not adequately insured under an insurance policy which names DFS as
loss payee; (b) when such Floorplan Inventory is sold, transferred to a third
party, leased, otherwise disposed of or matured; (c) when otherwise required
under the terms of any financing program agreed to in writing by the parties.
If Borrower from time to time is required to make immediate payment to DFS of
any past due obligation discovered during any Inventory review, or at any other
time, Borrower agrees that acceptance of such payment by DFS shall not be
construed to have waived or amended the terms of its financing program. Any
third party discount, rebate, bonus or credit granted to Borrower for any
Inventory will not reduce the debt Borrower owes DFS until DFS has received
payment therefor in cash. Borrower will: (1) pay DFS even if any Inventory is
defective or fails to conform to any warranties extended by any third party; (2)
not assert against DFS any claim or defense Borrower has against any third
party; and (3) indemnify and hold DFS harmless against all claims and defenses
asserted by any buyer of the Inventory relating to the condition of, or any
representations regarding, any of the Inventory. Borrower waives all rights of
offset and counterclaims Borrower may have against DFS.
3.3 REVOLVING CREDIT LOANS.
Subject to the terms of this Agreement, DFS agrees, for so long
as no Default exists, to provide to Borrower, and Borrower agrees to accept,
working capital financing (each advance being a "REVOLVING CREDIT LOAN") on
Eligible Accounts, Eligible New Inventory, Eligible New Rental Inventory,
Eligible Used Rental Inventory, Eligible Existing Rental Inventory, Eligible
Used Inventory and Eligible Parts in the maximum aggregate unpaid principal
amount at any time equal to the lesser of (i) the Borrowing Base less the
outstanding Floorplan Loans and (ii) Seventy Five Million Dollars
($75,000,000.00) less the outstanding Floorplan Loans ("TOTAL REVOLVING CREDIT
LIMIT"). A request for a Revolving Credit Loan shall be made, or shall be
deemed to be made, as provided in SECTION 5.1 hereof.
(a) ELIGIBLE ACCOUNTS. On receipt of each Borrowing Base
Certificate initially in the form set forth on EXHIBIT 3.3, and, thereafter, in
such form as DFS may require from time to time, together with such supporting
information as DFS may require from time to time (the "BORROWING BASE
CERTIFICATE"), DFS will credit Borrower with eighty-five percent (85%) of the
net amount of the Eligible Accounts which are listed in such Borrowing Base
Certificate ("ELIGIBLE ACCOUNT AVAILABILITY"). For purposes hereof, the net
amount of Eligible Accounts at any time shall be the face amount of such
Eligible Accounts LESS any and all returns, discounts (which may, at DFS'
option, be calculated on shortest terms), credits, rebates, allowances, or
excise taxes of any nature at any time issued, owing, claimed
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by Account Debtors, granted, outstanding, or payable in connection with such
Accounts at such time.
(b) ELIGIBLE NEW INVENTORY. On receipt of each Borrowing Base
Certificate, DFS will credit Borrower with one hundred percent (100%) of the
Value of Borrower's Eligible New Inventory listed in such Borrowing Base
certificate ("Eligible New Inventory Availability").
(c) ELIGIBLE RENTAL INVENTORY.
(i) ELIGIBLE NEW RENTAL INVENTORY. On receipt of each
Borrowing Base Certificate, DFS will credit Borrower
with one hundred percent (100%) of the Value of
Borrower's Eligible New Rental Inventory listed in such
Borrowing Base certificate.
(ii) ELIGIBLE USED RENTAL INVENTORY. On receipt of each
Borrowing Base Certificate, DFS will credit Borrower
with one hundred percent (100%) of the Value of
Borrower's Eligible Used Rental Inventory listed in
such Borrowing Base certificate.
(iii) ELIGIBLE EXISTING RENTAL INVENTORY. On receipt of each
Borrowing Base Certificate, DFS will credit Borrower
with one hundred percent (100%) of Value of Borrower's
Eligible Existing Rental Inventory listed in such
Borrowing Base certificate.
The aggregate Value of Eligible New Rental Inventory, Eligible
Used Rental Inventory and Eligible Existing Rental Inventory is
referred to as the "ELIGIBLE RENTAL INVENTORY AVAILABILITY."
(d) ELIGIBLE USED INVENTORY. On receipt of each Borrowing Base
Certificate, DFS will credit Borrower with the lesser of (1) one hundred percent
(100%) of the Value of Borrower's Eligible Used Inventory, and (2) Twelve
Million Five Hundred Thousand Dollars ($12,500,000) (such lesser amount being
called the "ELIGIBLE USED INVENTORY AVAILABILITY").
(e) ELIGIBLE PARTS. On receipt of each Borrowing Base Certificate,
DFS will credit Borrower with the lesser of (a) fifty percent (50%) of the Value
of Eligible Parts, and (b) Three Million Five Hundred Thousand Dollars
($3,500,000.00) (such lesser amount being called the "ELIGIBLE PARTS
AVAILABILITY").
3.4 MANDATORY PREPAYMENT.
If at any time and for any reason the aggregate amount of
outstanding Loans exceeds the Borrowing Base, Borrower will, immediately upon
demand, repay an amount of the Loans made to it by DFS hereunder equal to such
excess. In addition, Borrower shall immediately pay DFS whatever sums may be
necessary from time to time to remain in compliance with the Total Credit Limit
and the Total Revolving Credit Limit, as such limits may change from time to
time, including, without limitation, as a result of any Collateral no longer
being deemed an Eligible Account or Eligible Inventory, or as a result of any
change in the Value of any Eligible Inventory, or in the amount of any Eligible
Account.
3.5 INTEREST; CALCULATION OF CHARGES; FEES.
(a) INTEREST; CALCULATION. Borrower will pay DFS interest on the
Daily Contract Balance (as defined below) as follows:
(i) FIRST RATE: if the Average Daily Balance for any calendar
month is Ten Million Dollars ($10,000,000.00) or less, interest for
such month will be at a rate that is the lesser of (i) one percentage
point (1.00%) per annum HIGHER than the daily Prime Rate in effect
from time to time and (ii) the highest rate from time to time
permitted by applicable law (and amounts received from Borrower in
excess of such highest rate from time to time permitted by applicable
law will be considered reductions to principal to the extent of such
excess);
(ii) SECOND RATE: if the Average Daily Balance for any
calendar month is between Ten Million Dollars and One Cent
($10,000,000.01) and Twenty-Five Million Dollars ($25,000,000.00),
interest for such month will be at a rate that is the lesser of (i)
the Prime Rate in effect from time to
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time and (ii) the highest rate from time to time permitted by
applicable law (and amounts received from Borrower in excess of such
highest rate from time to time permitted by applicable law will be
considered reductions to principal to the extent of such excess;
(iii) THIRD RATE: if the Average Daily Balance for any
calendar month is between Twenty-five Million Dollars One Cent
($25,000,000.01) and Forty Million Dollars ($40,000,000.00), interest
for such month will be at a rate that is the lesser of (i) one quarter
of one percentage point (.25%) LOWER THAN the Prime Rate in effect
from time to time and (ii) the highest rate from time to time
permitted by applicable law (and amounts received from Borrower in
excess of such highest rate from time to time permitted by applicable
law will be considered reductions to principal to the extent of such
excess;
(iv) FOURTH RATE: if the Average Daily Balance for any
calendar month is more than Forty Million Dollars ($40,000,000.00),
interest for such month will be at a rate that is the lesser of (i)
one-half of one percentage point (.50%) LOWER THAN the Prime Rate in
effect from time to time and (ii) the highest rate from time to time
permitted by applicable law (and amounts received from Borrower in
excess of such highest rate from time to time permitted by applicable
law will be considered reductions to principal to the extent of such
excess.
(v) REDUCTION IN RATE: If the Average Daily Balance for the
last six (6) months of the first year of this Agreement is more than
Forty Million Dollars ($40,000,000.00), DFS will refund to Borrower an
amount equal to the difference between (1) the interest actually paid
by Borrower during the first year of this Agreement, and (ii) the
amount of interest Borrower would have paid during such first year at
a rate equal to one-half of one percentage point (.50%) lower than the
Prime Rate per annum.
The finance charges attributable to such rate will: (i) be computed based on a
365 day year; (ii) be calculated with respect to each day by multiplying the
Daily Rate (as defined below) by the Daily Contract Balance; and (iii) accrue
from the date DFS initiates any Electronic Transfer (as defined in SECTION
3.5(b)(ii) below) or otherwise advances a Revolving Credit Loan to or for the
benefit of Borrower, until DFS receives full payment of the principal debt
Borrower owes DFS in good funds.
(b) METHOD OF TRANSFER. Revolving Credit Loans will be made by DFS
if received before noon St. Louis time by same day Fed Funds Wire Transfer ("Fed
Wire"), or if received after such time, by Automated Clearing House ("ACH") (ACH
and Fed Wire are collectively referred to as "ELECTRONIC TRANSFERS").
(c) DEFINITIONS. The "DAILY CHARGE" is the product of the Daily Rate
multiplied by the Average Daily Balance. The "DAILY RATE" is the quotient of
the applicable annual rate provided herein or in any statement of transaction
divided by 365. The "DAILY CONTRACT BALANCE" is the amount of outstanding
principal debt which Borrower owes DFS on the Revolving Credit Loans at the end
of each day (including the amount of all Electronic Transfers) after DFS has
credited payments which it has received on the Revolving Credit Loans. The
"AVERAGE DAILY BALANCE" is the quotient of: (i) the sum of the outstanding
principal debt owed DFS on each day of a billing period for each item of
Inventory identified on a statement of transaction, divided by (ii) the actual
number of days in such billing period.
(d) FEES.
(i) CERTAIN CHARGES. Borrower will (A) reimburse DFS for all
charges made by banks, including charges for collection of checks and other
items of payment and (B) pay DFS a fee of Twenty Dollars ($20) for Fed Wires
and One Dollar ($1) for ACH transfers of funds to the Borrower.
(ii) CLOSING FEE. Borrower agrees to pay DFS a closing fee,
payable on or before the Effective Date, in an amount equal to Twenty Thousand
Dollars ($20,000.00) ("Closing Fee"). Once received by DFS, the Closing Fee
shall not be refundable by DFS for any reason.
(iii) APPRAISAL COSTS. Borrower agrees to reimburse DFS of a
third party appraiser to value the Inventory and Parts for the actual cost (a)
prior to the
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Effective Date, for the full amount thereof up to a maximum of Twenty-Five
Thousand Dollars ($25,000.00) and (b) in an amount not to exceed Twenty Thousand
Dollars ($20,000.00) annually thereafter.
(iv) REVIEW FEES. Borrower agrees to pay DFS an administration
and review fee of Two Thousand Five Hundred Dollars ($2,500.00) per review, not
to exceed Ten Thousand Dollars ($10,000.00) per year, in connection with DFS'
administration of this facility and the reviews, inspections or examinations
made by DFS as described in SECTION 9.1.15 HEREOF. Such fee shall be payable
monthly in arrears and due pursuant to the applicable monthly billing statement.
Borrower agrees that such fee is not interest but rather reimburses DFS for its
out-of-pocket and allocated overhead expenses incurred in conducting such
audits, reviews and examinations.
3.6 BILLING STATEMENT.
DFS will send Borrower a monthly billing statement identifying
all charges due on Borrower's account with DFS. The charges specified on each
billing statement will be: (a) due and payable in full immediately on receipt;
and (b) an account stated, absent manifest error. DFS may adjust the billing
statement at any time to conform to applicable law and this Agreement.
3.7 LOAN PROCEEDS.
The parties intend that all indebtedness incurred hereunder shall
be governed exclusively by the terms of this Agreement and the other Loan
Documents, and shall not, unless requested by DFS, be evidenced by notes or
other evidences of indebtedness. Upon any such request, Borrower will
immediately execute and deliver any such note or other evidence reasonably
requested by DFS. Any fees, charges or expenses charged to DFS by any bank for
payments made by DFS at Borrower's request shall be immediately payable by
Borrower. All advances and other obligations of Borrower made hereunder will
constitute a single obligation.
3.8 DEFAULT INTEREST RATE.
If a Default occurs, and unless and until cured, DFS may without
prior demand, raise the rate of interest accruing on the disbursed unpaid
principal balance of any Loan by two percentage points (2%) above the rate of
interest otherwise applicable (the "DEFAULT INTEREST RATE"), whether or not DFS
elects to accelerate the unpaid principal balances as a result of a Default.
DFS will use reasonable efforts to attempt to notify Borrower before imposing
the Default Interest Rate permitted by this Section.
3.9 INTEREST RATE AFTER CERTAIN EVENTS.
If a judgment is entered against Borrower for sums due under any
of the Obligations, as applicable, the amount of the judgment entered (which may
include principal, interest, reasonable attorneys' fees and costs) shall bear
interest at the judgment rate as permitted under applicable law as of the date
of entry of the judgment. All Obligations of Borrower described in clauses (a)
and (b) of the definition thereof shall bear interest at the Default Interest
Rate.
3.10 VERIFICATION RIGHTS OF DFS.
DFS may, without notice to Borrower and at any time or times
hereafter verify the validity, amount or any other matter relating to any
Account by mail, telephone or other means, in the name of Borrower or DFS.
3.11 REPORTS.
(a) MONTHLY REPORTS. Borrower agrees to provide to DFS by the
15th day of each month, or more frequently if requested by DFS, in each case as
of the last day of the immediately prior month, each of the following: (i)
Inventory aging report; (ii) aging of Accounts; (iii) a statement of the current
Inventory status, showing the net book value thereof; and (iv) a listing of
Borrower's accounts payable (the "MONTHLY REPORTS").
(b) BORROWING REPORTS. WITH EACH BORROWING REQUEST, BORROWER
AGREES TO PROVIDE DFS WITH (i) TOTAL SALES AND (ii) COLLECTIONS ON ACCOUNTS, IN
EACH CASE SINCE THE LAST MONTHLY REPORT.
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(c) OTHER REPORTS. Borrower agrees to provide DFS within five
(5) Business Days after each request by DFS any other report or information
reasonably requested by DFS (the "OTHER REPORTS").
(d) ACCURACY OF REPORTS. The Monthly Reports, Borrowing Reports
and the Other Reports will be true and correct in all respects. Borrower
acknowledges DFS' reliance on the truthfulness and accuracy of each Monthly
Report, Borrowing Reports and the Other Reports.
3.12 ESTABLISHMENT OF RESERVES.
Notwithstanding the foregoing provisions of SECTION 3.3, DFS
shall have the right to establish reserves against the value of any or all
Collateral in such amounts, and with respect to such matters, as DFS shall deem
necessary or appropriate, against the amount of Revolving Credit Loans which
Borrower may otherwise request under SECTION 3.3, including, without limitation,
with respect to (a) price adjustments, damages, unearned discounts, returned
products or other matters for which credit memoranda are issued in the ordinary
course of Borrower's business; (b) shrinkage, spoilage and obsolescence of
Inventory; (c) slow moving Inventory; (d) other sums chargeable against Borrower
as Revolving Credit Loans under any section of this Agreement; and (e) such
other matters, events, conditions or contingencies as to which DFS, in its sole
credit judgment determines reserves should be established from time to time
hereunder.
3.13 CAPITAL ADEQUACY.
(a) In the event that DFS shall have determined that the
adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof or compliance by
DFS with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or governmental authority, does
or shall have the effect of reducing the rate of return on DFS' capital as a
consequence of its obligations hereunder to a level below that which DFS could
have achieved but for such adoption, change or compliance (taking into
consideration DFS' policies with respect to capital adequacy) by an amount
deemed by DFS, in its sole discretion, to be material, then from time to time,
after submission by DFS to Borrower of a written demand therefor, Borrower shall
pay to DFS such additional rate of interest as required as a result of the
change in capital adequacy; provided, however that in such event Borrower may
terminate this Agreement upon at least ninety (90) days prior written notice to
DFS without any pre-payment penalty or payment of any audit or appraisal fees
(unless such audit or appraisal has begun) or payment of other fees.
(b) A certificate of DFS claiming entitlement to payment as set
forth in SECTION 3.13(a) above shall be conclusive in the absence of manifest
error. Such certificate shall set forth the nature of the occurrence giving
rise to such payment, the additional amount or amounts to be paid to DFS, and
the method by which such amounts were determined. In determining such amount,
DFS may use any reasonable averaging and attribution method.
3.14 COLLECTIONS.
Borrower will, as long as any Loans remain outstanding, deposit
all collections on Accounts received directly by Borrower into, an account or
accounts designated by DFS ("Blocked Account"); provided, however, that if a
Default under Section 11(c),(e),(f),(g),(j),(k) or (l) or breach of a Financial
Covenant occurs, DFS may convert the Blocked Account to a lockbox collection of
the Accounts ("Lockbox") and notify all obligors in Borrower's name to remit to
such Lockbox. All funds in such accounts immediately shall become the property
of DFS and Borrower shall obtain the agreement of such banks to waive any offset
rights against the funds so deposited. Until delivery to such account(s),
Borrower will keep such remittances separate and apart from Borrower's own funds
so that they are capable of identification as the property of DFS and will be
held in trust for DFS. DFS may upon Default notify any Account Debtor of the
assignment of Accounts and collect the same. All proceeds received or collected
by DFS with respect to Accounts, and reserves and other property of Borrower in
possession of DFS at any time or times hereafter, may be held by DFS without
interest to Borrower until all Obligations are paid in full or applied by DFS on
account of the Obligations. DFS may release to Borrower such portions of such
reserves and proceeds as DFS may determine.
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3.15 ADVANCEMENTS.
If Borrower fails to (a) perform any of the affirmative covenants
contained herein, (b) protect or preserve the Collateral or (c) protect or
preserve the status and priority of the Liens and security interest of DFS in
the Collateral, DFS may make advances to perform those obligations. DFS will
use reasonable efforts to give Borrower notice prior to making such advancement.
All sums so advanced will be due and payable upon demand and will immediately
upon advancement become secured by the security interests created by this
Agreement and will be subject to the terms and provisions of this Agreement and
all of the Loan Documents. DFS may add all sums so advanced, plus any expenses
or costs incurred by DFS, including reasonable attorney's fees, as outstanding
Loans as DFS may designate in its sole discretion. The provisions of this
Section will not be construed to prevent the institution of rights and remedies
of DFS upon the occurrence of a Default. Any provisions in this Agreement to
the contrary notwithstanding, the authorizations contained in this Section will
impose no duty or obligation on DFS to perform any action or make any
advancement on behalf of Borrower and are for the sole benefit and protection of
DFS.
3.16 CONTINUING REQUIREMENTS - ACCOUNTS.
Borrower will: (a) if from time to time required by DFS,
immediately upon their creation, deliver to DFS reprints of all invoices,
delivery evidences and other such documents relating to each Account; (b) not
permit or agree to any extension in excess of sixty (60) days, compromise or
settle or make any change to any Account except in the ordinary course of
business; (c) affix appropriate endorsements or assignments upon all such items
of payment and proceeds so that the same may be properly deposited by DFS to
DFS' account; (d) immediately notify DFS in writing which Accounts may be deemed
Ineligible Accounts; and (e) mark all chattel paper and instruments now owned or
hereafter acquired by it to show that the same are subject to DFS' security
interest and immediately thereafter deliver such chattel paper and instruments
to DFS with appropriate endorsements and assignments to DFS.
4. TERM OF AGREEMENT
4.1 TERMINATION.
This Agreement will continue in full force and effect and be
non-cancellable for three (3) years from the Effective Date (except that it may
be terminated by DFS in the exercise of its rights and remedies upon Default by
Borrower) and shall be subject to one-year renewal periods thereafter if both
DFS and Borrower agree to renew this Agreement; provided however, that Borrower
may terminate this Agreement prior to such date upon: (a) at least 90 days
written notice to DFS; (b) payment to DFS of all Obligations; and (c) an amount
as follows:
Date of Percent of Total
Termination Credit Facility
----------- -----------------
On or prior to the first One quarter
anniversary of the of one percent (.25%)
Effective Date
After the first anniversary Sixteen one-hundredths
of the Effective Date through percent (.16%)
the second anniversary of the
Effective Date
After the second anniversary Eight one-hundredths
of the Effective Date through the percent (.08%)
third anniversary of the Effective date
This sum will also be paid by Borrower if this Agreement is terminated on
account of Borrower's Default. Termination on any date other than the
anniversary date will not entitle Borrower to a refund of any fee. DFS shall be
entitled to payment of all fees upon Default by Borrower which would have been
payable during the original term of this Agreement, or any extension thereof,
but for such early termination (provided, however, that if DFS is paid in full
audit and appraisal fees will be waived for audits and appraisal not then
begun). These accelerated fees represent
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liquidated damages are not a penalty. Any such written notice of termination
delivered by Borrower and to DFS shall be irrevocable. It is understood that
Borrower may elect to terminate this Agreement in its entirety only, no section
or lending facility may be terminated singly.
4.1.1 RIGHT OF FIRST REFUSAL. Despite anything to the contrary
provided in Subsection 4.1, if Borrower serves notice on DFS of its
intention to terminate this Agreement, DFS will have the right to extend
the term of this Agreement to the end of the original term or the next
succeeding renewal term or terms, whichever period is longer, by notifying
Borrower, within thirty (30) days of its receipt of any such notice of
termination, of DFS's willingness to meet the following quantifiable
provisions of any alternative financing which has been offered to Borrower
(such information to be provided to DFS upon request): (i) interest rate,
(ii) advance rate, (iii) eligible Collateral, and (iv) amortization of
Borrower's Obligations. Upon Borrower's receipt of DFS's notification of
its willingness to meet the above terms of any alternative financing, this
Agreement will continue in full force and effect except as to any of the
above terms which will be amended as required pursuant to this Subsection.
If DFS chooses not to exercise its rights hereunder, Borrower will remain
liable to pay DFS the sums set forth in Subsection 4.1.
4.2 EFFECT OF TERMINATION.
Borrower will not be relieved from any Obligations to DFS arising
out of DFS' advances or commitments made before the effective termination date
of this Agreement. DFS will retain all of its rights, interests and remedies
hereunder until Borrower has paid all of Borrower's Obligations to DFS. All
waivers set forth within this Agreement will survive any termination of this
Agreement.
5. BORROWING AND REPAYMENT PROCEDURES
5.1. BORROWING PROCEDURES.
(a) GENERALLY. A request for a Revolving Credit Loan shall be made,
or shall be deemed to be made, in the following manner: (i) Borrower may give
DFS written notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date;
(ii) the becoming due of any amount required to be paid under this Agreement as
interest shall be deemed irrevocably to be a request for a Revolving Credit Loan
on the due date in the amount required to pay such interest; and (iii) the
becoming due of any other Obligations shall be deemed irrevocably to be a
request for a Revolving Credit Loan on the due date in the amount then so due.
For purposes of subpart (i) above, Borrower agrees that DFS may rely and act
upon any request for a Revolving Credit Loan from any individual who DFS, absent
gross negligence or willful misconduct, believes to be a representative of
Borrower.
(b) CONDITIONS PRECEDENT TO EACH REVOLVING CREDIT LOAN. Without
limiting the applicability of the conditions precedent set forth in SECTION 7
below to DFS' obligation to make any Revolving Credit Loan, the obligation of
DFS to make any Revolving Credit Loan shall be subject to the further conditions
precedent that, on the date of each such Revolving Credit Loan:
(i) The following statements shall be true: (A) the representations
and warranties contained in SECTION 8 hereof are materially correct (except that
the representations and warranties contained in SECTION 8.5, Title to
Collateral, SECTION 8.7, Subsidiaries, SECTION 8.9, Place of Business, SECTION
8.17, Location of Collateral, SECTION 8.20, Solvency, and SECTION 8.23,
Reaffirmation shall be absolutely true and correct) on and as of the date of
such Revolving Credit Loan as though made on and as of such date, and (B) there
exists no Default or Unmatured Default, nor would any Default or any Unmatured
Default result from the making of the Revolving Credit Loan requested by
Borrower;
(ii) Borrower shall have signed and sent to DFS, if DFS so requests, a
request for advance, setting forth in writing the amount of the Revolving Credit
Loan requested; PROVIDED, HOWEVER, that the foregoing condition precedent shall
not
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prevent DFS, if it so elects, in its sole discretion, from making a Revolving
Credit Loan pursuant to Borrower's non-written request therefor;
(iii) DFS shall have received a completed Borrowing Base Certificate,
signed by the Borrower, and dated not more than five (5) days prior to the date
of Borrower's request for such Revolving Credit Loan; and
(iv) DFS shall have received such other approvals, opinions or
documents as it may reasonably request.
Borrower agrees that the making of a request by Borrower for a Revolving Credit
Loan, shall constitute a certification by Borrower and the Person(s) executing
or giving the same that all representations and warranties of Borrower herein
(other than under Sections 7.1(c), 8.5, 8.7, 8.9, 8.17, 8.20, and 8.23 which
shall be absolutely true and correct) are materially true as of the date thereof
and that all required material conditions to the making of the Revolving Credit
Loan have been met.
5.2 ALL LOANS ONE OBLIGATION.
All Obligations of Borrower to DFS under this Agreement and all
other agreements between Borrower and DFS shall constitute one obligation to DFS
secured by the security interest granted in this Agreement, and by all other
Liens heretofore, now, or at any time or times hereafter granted by Borrower.
All of the rights of DFS set forth in this Agreement shall apply to any
modification of or supplement to this Agreement, or Exhibits hereto, unless
otherwise agreed in writing.
5.3 PAYMENTS OF PRINCIPAL AND INTEREST.
All payments and amounts due hereunder by Borrower shall be made
or be payable without set-off or counterclaim and shall be made to DFS on the
date due at its office(s) responsible for Borrower's account, or at such other
place which DFS may designate to Borrower in writing. Whenever any payment to
be made hereunder shall be stated to be due on a date other than a Business Day,
such payment may be made on the next succeeding Business Day, and such extension
of time shall be included in the computation of payment of interest or any fees.
5.4 COLLECTION DAYS.
All payments and all amounts received hereunder will be credited
by DFS to Borrower's account (a) on the day good funds are received by Fed Wire
transfer or ACH and (b) one (1) Business Day after receipt of paper check by
DFS.
6. SECURITY FOR THE OBLIGATIONS
6.1 GRANT OF SECURITY INTEREST.
To secure payment of all of Borrower's current and future
Obligations and to secure Borrower's performance of all of the provisions under
this Agreement and the other Loan Documents, Borrower grants DFS a security
interest in all of Borrower's inventory, equipment, fixtures, accounts, contract
rights, chattel paper, security agreements, instruments, deposit accounts,
reserves, documents and general intangibles; and all judgments, claims,
insurance policies, and payments owed or made to Borrower thereon; all whether
now owned or hereafter acquired, all attachments, accessories, accessions,
returns, repossessions, exchanges, substitutions and replacements thereto, and
all proceeds thereof. All such assets are collectively referred to herein as
the "COLLATERAL." All such terms for which meanings are provided in the Uniform
Commercial Code are used herein with such meanings. All Collateral financed by
DFS or against which DFS has loaned monies, and all proceeds thereof, will be
held in trust by Borrower for DFS, with such proceeds being payable in
accordance with this Agreement. Borrower covenants with DFS that DFS may
realize upon all or part of any Collateral in any order it desires and any
realization by any means upon any Collateral will not bar realization upon any
other Collateral. Borrower's liability under this Agreement is direct and
unconditional and will not be affected by the release or nonperfection of any
security interest granted hereunder.
6.2 FUTURE ADVANCES.
DFS' security interests shall secure all current and all future
advances to Borrower made by DFS under the Loan Documents.
6.3 FINANCING STATEMENTS.
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Borrower shall execute and deliver to DFS for the benefit of DFS
such financing statements, certificates of title and original documents as may
be required by DFS with respect to DFS' security interests.
6.4 FURTHER ASSURANCES.
Borrower will execute and deliver to DFS, at such time or times
as DFS may request, all financing statements, security agreements, assignments,
certificates, affidavits, reports, schedules, and other documents and
instruments that DFS may deem necessary to perfect and maintain perfected DFS'
security interests in the Collateral and to fully consummate the transactions
contemplated under all Loan Documents. All reasonable filing, recording or
registration fees shall be payable by Borrower.
7. CONDITIONS PRECEDENT
All duties and obligations of DFS under the Loan Documents on the Effective
Date, and at all times during the term of this Agreement, are specifically
subject to the full satisfaction (and, as to Section 7.1 (c), the full and
continued satisfaction) by Borrower of the conditions precedent set forth below.
7.1 CONDITIONS PRECEDENT.
The following conditions must be satisfied as of the date DFS
makes its first advance of funds to or for the benifit of Borrower ("First
Funding Date"):
(a) DFS' COUNSEL. DFS' counsel must approve of all matters pertaining to
(i) title to the Collateral; (ii) the form, substance and due execution of
all Loan Documents; (iii) Borrower's organizational documents; and (iv) all
other legal matters, including the application of any laws relating to
usury.
(b) MATERIAL CHANGE. There must not have been any material adverse
change, between April 1, 1997 and the First Funding Date, in the condition
of Borrower, the condition of the Business, the value and condition of the
Collateral, the structure of Borrower other than as contemplated herein, or
in the financial information, audits and the like obtained by DFS.
(c) PERFECTED LIENS. DFS shall have a perfected first priority Lien and
security interest in (i) the Inventory included in each Borrowing Base
Certificate, (ii) all Proceeds of such Inventory and all Accounts , subject
only to the Permitted Liens.
(d) INSURANCE. Borrower shall provide DFS with certificates of insurance
evidencing that Borrower has obtained the insurance as required in SECTION
9.1.2.
(e) LAWS. Borrower and its Subsidiaries shall be in compliance with all
applicable laws and governmental regulations, including, but not limited
to, all Environmental Laws, the failure to comply with which would have a
material adverse effect on Borrower, its Subsidiaries or the Business.
(f) CERTIFICATE OF GOOD STANDING. A certificate of good standing for
Borrower (or other similar certificate) must be delivered to DFS, from the
appropriate governmental authority of Borrower's state of incorporation and
other jurisdictions in which Borrower does business, dated not earlier than
30 days prior to the Effective Date.
(g) OPINION OF BORROWER'S COUNSEL. DFS must receive a written opinion
from counsel for Borrower, as of the First Funding Date, and addressed to
and for the benefit of DFS, in form and substance satisfactory to DFS.
(h) UCC SEARCHES. DFS must receive a certificate from a provider of
financing statement searches acceptable to DFS which identifies all
financing statements of public record not more than 5 Business Days before
the First Funding Date, that pertain to the Collateral.
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(i) OTHER DOCUMENTS. Such other documents, certificates, submissions,
insurance policies and other matters as reasonably requested by DFS
relating to the transaction herein contemplated.
(j) PRESIDENT'S CERTIFICATE. In the form attached hereto as EXHIBIT
7.1(j) compliance with all of the terms and conditions in the Loan
Documents.
(k) ARTICLES OF INCORPORATION. A certified copy of the Articles of
Incorporation, By-Laws and the resolutions of the directors of Borrower
authorizing the transactions contemplated by this Agreement.
(l) SECRETARY'S CERTIFICATE OF RESOLUTION AND INCUMBENCY. In the form
attached hereto as EXHIBIT 7.1(l).
(m) PRE-CLOSING EXPENSES. Borrower shall pay to DFS all fees and expenses
required under this Agreement that are due on or before the Effective Date.
(n) PRE-CLOSING REVIEWS. DFS must complete reviews with satisfactory
results of Borrower's Inventory and Accounts.
(o) PAYOFF LETTER. A lien release and payoff letter executed by any and
all lienholders on any of the Collateral, other than with respect to the
Permitted Liens.
8. REPRESENTATIONS AND WARRANTIES
To induce DFS to enter into this Agreement, Borrower makes the
representations and warranties set forth below, all of which will remain true in
all material respects during the term of this Agreement. Borrower acknowledges
DFS' justifiable right to rely upon the representations and warranties set forth
below.
8.1 FINANCIAL STATEMENTS.
Borrower's audited consolidated financial statements as of
January 31, 1997 and Borrower's unaudited consolidated financial statement as of
(not applicable), copies of which have been previously submitted to DFS, have
been prepared in conformity with GAAP and present fairly the financial condition
of Borrower and its consolidated Subsidiaries as at such dates and the results
of their operations for the periods then ended. Borrower warrants and
represents to DFS that all financial statements and information relating to
Borrower or any Guarantor which have been or may hereafter be delivered by
Borrower or any Guarantor are true and correct and have been and will be
prepared in accordance with GAAP and, with respect to such previously delivered
statements or information, there has been no material adverse change in the
financial or business condition of Borrower or any Guarantor since the
submission to DFS, either as of the date of delivery, or, if different, the date
specified therein, and Borrower acknowledges DFS' reliance thereon.
8.2 NON-EXISTENCE OF DEFAULTS.
Neither Borrower nor any of its Subsidiaries is in default with
respect to any material amount of its existing Indebtedness. The making and
performance of this Agreement and all other Loan Documents, will not
immediately, or with the passage of time, the giving of notice, or both: (a)
violate the provisions of the bylaws or any other corporate document of
Borrower; (b) violate any laws to the best of Borrower's knowledge after
diligent inquiry; (c) result in a material default under any contract,
agreement, or instrument to which Borrower is a party or by which Borrower or
its properties are bound; or (d) result in the creation or imposition of any
security interest in, or Lien or encumbrance upon, any of the Collateral except
the Permitted Liens.
8.3 LITIGATION.
Set forth on EXHIBIT 8.3 is a list of all actions, suits,
investigations or proceedings pending or, in the knowledge of Borrower,
threatened against Borrower or any of its Subsidiaries, as of the date hereof in
which there is a reasonable probability of an adverse decision which would
materially and adversely affect Borrower, the Business, or the Collateral.
8.4 MATERIAL ADVERSE CHANGES.
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Borrower does not know of or expect any material adverse change
in the Business, or in Borrower's or any of the Subsidiaries' assets,
liabilities, properties, or condition, financial or otherwise, including changes
in Borrower's financial condition prior to and inclusive of the earlier of (a)
the latest proposal or terms sheet or (b) DFS' last audit prior to the Effective
Date.
8.5 TITLE TO COLLATERAL.
Except as set forth on EXHIBIT 8.5, Borrower has good and
marketable title to all of the Collateral, free and clear of any and all Liens,
claims and encumbrances, other than the Permitted Liens.
8.6 CORPORATE STATUS.
Borrower and each of the Subsidiaries is a corporation duly
organized and validly existing, in good standing, with perpetual corporate
existence, under the laws of their respective jurisdictions of formation.
Borrower and its Subsidiaries have the corporate power and authority to own
their properties and to transact the Business in which they are engaged and
presently propose to engage. Borrower and each Subsidiary is duly qualified as
a foreign corporation and in good standing in all states where the nature of
their Business or the ownership or use of their property requires such
qualification, and where failure to so qualify would have a material adverse
effect on its Business, operations or financial condition.
8.7 SUBSIDIARIES.
EXHIBIT 8.7 hereto lists the Subsidiaries as of the Effective
Date.
8.8 POWER AND AUTHORITY.
Borrower has the corporate power to borrow and to execute,
deliver and carry out the terms and provisions of the Loan Documents. Borrower
has taken or caused to be taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement and all other Loan
Documents and the borrowing thereunder.
8.9 PLACE OF BUSINESS.
Borrower's chief executive office and the principal place of
business is located at 4601 NE 77th Avenue, Suite 200, Vancouver, WA 98662.
Borrower's records concerning the Collateral are kept at such chief executive
office, or will be kept at such other place that Borrower informs DFS of not
less than 30 days in advance of relocation.
8.10 ENFORCEABILITY OF THE LOAN DOCUMENTS.
The Loan Documents executed by Borrower are the valid and binding
obligations of Borrower and are enforceable against Borrower in accordance with
their terms, except as limited by bankruptcy, insolvency, or other laws of
general application relating to the enforcement of creditors' rights.
8.11 TAXES.
Borrower's federal tax identification number is 93-1096982.
Borrower has: (a) filed all federal, state and local tax returns and other
reports that it is required by law to file, (b) paid or caused to be paid all
taxes, assessments and other governmental charges that are due and payable, the
failure of which to pay would have a material adverse effect on the Business,
except those contested in good faith and in accordance with accepted procedures,
and for which adequate reserves have been established in accordance with GAAP,
and (c) made adequate provision for the payment of such taxes, assessments or
other charges accruing but not yet payable. Borrower has no knowledge of any
deficiency or additional assessment in a material amount in connection with any
taxes, assessments or charges.
8.12 COMPLIANCE WITH LAWS.
Borrower, to the best of its knowledge after diligent inquiry,
has complied, and shall cause each Subsidiary to comply, in all material
respects with all applicable laws, including any Environmental Laws and any
zoning laws, the failure to comply with which would have a material adverse
effect on Borrower individually, or Borrower and its Subsidiaries on a
consolidated basis.
8.13 CONSENTS.
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Borrower and the Subsidiaries have obtained all material
consents, permits, licenses, approvals or authorization of, or effected the
filing, registration or qualification with, any governmental entity which is
required to be obtained or effected by Borrower and the Subsidiaries in
connection with the Business or the execution and delivery of this Agreement and
the other Loan Documents the failure of which to obtain or effect would have a
material adverse effect on Borrower individually, or on Borrower and its
Subsidiaries on a consolidated basis.
8.14 PURPOSE.
Borrower will use the advances which DFS makes under the Credit
Facility solely for lawful purposes and as described in SECTION 3 hereof.
8.15 CONDITION OF THE BUSINESS.
All material assets used in the conduct of the Business are in
good operating condition and repair and are fully usable in the ordinary course
thereof, reasonable wear and tear excepted.
8.16 CAPITAL.
All issued shares and all outstanding shares in the Subsidiaries
as reflected in Borrower's financial statements are validly issued pursuant to
proper authorization of the board of directors of such Subsidiary, and are fully
paid, and non-assessable. All Borrower's and Subsidiary's issued shares and
outstanding capital stock are fully paid and non-assessable.
8.17 LOCATION OF COLLATERAL.
EXHIBIT 8.17 describes the locations where any of the Collateral
is located or stored as of the date hereof.
8.18 REAL PROPERTY.
Neither Borrower nor any Subsidiary own or lease any real
property, except as set forth on EXHIBIT 8.18 attached hereto.
8.19 WARRANTIES AND REPRESENTATIONS-ACCOUNTS.
For each Account listed by Borrower on any Borrowing Base
Certificate, Borrower warrants and represents to DFS that at all times: (a)
such Account is genuine; (b) such Account is not evidenced by a judgment or
promissory note or similar instrument or agreement; (c) to the best of
Borrower's knowledge, it represents a bona fide transaction completed in
accordance with the terms of the invoices and purchase orders relating thereto;
(d) to the best of Borrower's knowledge, the goods sold or services rendered
which resulted in the creation of such Account have been delivered or rendered
to and not rejected by the Account Debtor; (e) the amounts shown on the
Borrowing Base Certificate, Borrower's books and records and all invoices and
statements delivered to DFS with respect thereto are owing to Borrower and are
not contingent; (f) during all times when any Loans are outstanding, no payments
have been or will be made thereon except payments deposited into the Blocked
Account or Lockbox; (g) to the best of Borrower's knowledge, there are no
offsets, counterclaims or disputes existing or asserted with respect thereto and
Borrower has not made any agreement with the Account Debtor for any deduction or
discount of the sum payable thereunder except regular discounts allowed by
Borrower in the ordinary course of its business for prompt payment; (h) to the
best of Borrower's knowledge, there are no facts or events which in any way
impair the validity or enforceability thereof or reduce the amount payable
thereunder from the amount shown on the Borrowing Base Certificate, Borrower's
books and records and the invoices and statements delivered to DFS with respect
thereto; (i) to the best of Borrower's knowledge, all persons acting on behalf
of the Account Debtor thereon have the authority to bind the Account Debtor; (j)
the Accounts arising from goods sold or transferred giving rise thereto are not
subject to any Lien, claim, encumbrance or security interest which is superior
to that of DFS; (k) such Account is subject to DFS' perfected, first priority
security interest and no other Lien other than a Permitted Lien; and (l) there
are no proceedings or actions known to Borrower which are threatened or pending
against the Account Debtor thereon which might result in any material adverse
change in such Account Debtor's financial condition.
8.20 SOLVENCY.
The Borrower and each of the Subsidiaries now has capital
sufficient to carry on its respective business and transactions
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and all business and transactions in which it is about to engage and is now
solvent and able to pay its respective debts as they mature, and Borrower and
each of the Subsidiaries now owns property having a value, greater than the
amount required to pay Borrower's or such Subsidiary's debts.
8.21 BUSINESS LOCATIONS; AGENT FOR PROCESS.
Borrower has no office or place of business located in any state
or county other than as shown EXHIBIT 8.17.
8.22 WARRANTIES AND REPRESENTATIONS-INVENTORY & PARTS.
For each item of Inventory and Parts listed by Borrower on any
Borrowing Base Certificate, Borrower covenants, warrants and represents to DFS
that at all times: (a) except for rental Inventory and Inventory on exhibition
and/or demonstration to buyers or lessees in the ordinary course of business,
all Inventory and Parts will be kept only at the locations indicated on EXHIBIT
8.17; (b) Borrower now keeps and will keep correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory and
Parts, Borrower's cost therefor and the selling price thereof, the daily
withdrawals therefrom and the additions thereto; (c) Parts and Inventory not on
rent are not and will not be stored with a bailee, repairman, warehouseman or
similar party without DFS' prior written consent, and Borrower will,
concurrently with delivery to such party, cause any such party to issue and
deliver to DFS, in form acceptable to DFS, warehouse receipts, in DFS' name
evidencing the storage of such Inventory and parts, and waivers of
warehouseman's liens in favor of DFS; (d) Borrower will pay all taxes, rents,
business taxes, and the like on the premises where the Inventory and Parts are
located; and (e) Borrower will not lend, demonstrate, pledge, consign, transfer
or secrete any of the Inventory or Parts or use any of the Inventory or Parts
for any purpose other than exhibition and/or demonstration for sale to buyers or
rental to lessees in the ordinary course of business, without DFS' prior written
consent.
8.23 REAFFIRMATION.
Each request for a Loan made by Borrower pursuant to this
Agreement or any of the other Loan Documents shall constitute (a) an automatic
representation and warranty by Borrower to DFS that there does not then exist
any Default or any Unmatured Default, and (b) a reaffirmation as of the date of
said request of all of the representations and warranties of Borrower contained
in this Agreement and the other Loan Documents.
8.24 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Borrower covenants, warrants and represents to DFS that all
representations and warranties of Borrower contained in this Agreement or any of
the other Loan Documents shall be materially true at the time of Borrower's
execution of this Agreement and the other Loan Documents, and shall survive the
execution, delivery and acceptance thereof by DFS and the parties thereto and
the closing of the transactions described therein or related thereto.
9. BORROWER'S COVENANTS
9.1 AFFIRMATIVE COVENANTS.
During the term of this Agreement and thereafter for so long as
any Obligations are outstanding and unpaid, Borrower covenants that unless
otherwise consented to by DFS in writing, it shall perform all the acts and
promises required by this Agreement and all the acts and promises set forth
below.
9.1.1 PAYMENT AND PERFORMANCE. Borrower will pay and perform
all Obligations in full when and as due hereunder.
9.1.2 INSURANCE.
(a) TYPE OF INSURANCE. Borrower will at all times
cause the Business and the Collateral to be insured by
insurers of reasonable financial soundness and having
an A. M. Best rating of A or better, with such
policies, against such risks and in such amounts as are
appropriate for reasonably prudent businesses in
Borrower's industry and of Borrower's size and
financial strength.
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(b) REQUIREMENTS AS TO INSURANCE POLICIES. The
policies of insurance which Borrower is required to
carry shall comply with the requirements listed below:
(i) Each such policy shall provide that it may not be
canceled or allowed to lapse at the end of a policy
period without at least 30 days' prior written notice
to DFS;
(ii) Each liability and hazard insurance policy shall
name DFS as an additional insured; and
(iii) Each property insurance policy required
hereunder shall contain a standard lender's loss
payable clause in favor of DFS. Such insurance
policies shall also contain lender's loss payable
endorsements satisfactory to DFS providing, among other
things, that any loss shall be payable in accordance
with the terms of such policy notwithstanding any act
of Borrower which might otherwise result in forfeiture
of such insurance;
(c) COLLECTION OF CLAIMS. Borrower will promptly
advise DFS of any insured casualty and Borrower agrees
that DFS may direct all insurance proceeds therefrom to
be paid directly to DFS to the extent that such loss is
not adequately insured under an insurance policy which
names DFS as a loss payee, and hereby appoints DFS its
attorney-in-fact for such purpose.
(d) BLANKET POLICIES. Any insurance required
hereunder may be supplied by means of a blanket or
umbrella insurance policy.
(e) DELIVERY OF POLICIES OR CERTIFICATES OF INSURANCE.
Borrower shall deliver to DFS certificates of insurance
issued by insurers to evidence that the insurance
maintained by Borrower complies with the requirements
hereunder.
9.1.3 COLLECTION OF RECEIVABLES; SALE OF INVENTORY. Borrower
will collect its Accounts and sell its Inventory only in the ordinary course of
business, unless written permission to the contrary is obtained from DFS.
9.1.4 NOTICE OF LITIGATION AND PROCEEDINGS. Borrower will give
prompt notice to DFS of: (a) any litigation or proceeding (including fines and
penalties of any public authority) in which it, or any of the Subsidiaries is a
party in which there is a reasonable probability of an adverse decision which
would require it or any of the Subsidiaries to pay money or deliver assets,
whether or not the claim is considered to be covered by insurance; (b) any class
action litigation against it, regardless of size; and (c) the institution of any
other suit or proceeding that might materially and adversely affect its or any
of its Subsidiary's operations, financial condition, property or the Business.
9.1.5 PAYMENT OF INDEBTEDNESS TO THIRD PERSONS. Borrower will,
and will cause each Subsidiary to, pay, within 30 days after due date, all
Indebtedness and any other liability due third persons, except when the amount
thereof is being contested in good faith by appropriate proceedings and with
adequate reserves therefor in accordance with GAAP being set aside by Borrower
or such Subsidiary.
9.1.6 NOTICE OF CHANGE OF BUSINESS LOCATION. Borrower will
notify DFS 10 days in advance of: (a) any change in or discontinuation of the
location of the Collateral, Borrower's principal place of business, or any of
the Subsidiaries' existing offices or places of business, (b) the establishment
of any new places of business relating to the Business, and (c) any change in or
addition to the locations where Borrower's Inventory or records are kept.
9.1.7 PAYMENT OF TAXES. Borrower will, and will cause each
Subsidiary to, pay or cause to be paid, when and as due, all taxes, assessments
and charges or levies imposed upon it or on any of its property or that it is
required to withhold and pay over to the taxing authority or that it must pay on
its income, the failure
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of which to pay would have a material adverse effect on Borrower individually,
or on Borrower and the Subsidiaries on a consolidated basis, except where
contested in good faith by appropriate proceedings with adequate reserves
therefor in accordance with GAAP, having been set aside by Borrower or such
Subsidiary. However, Borrower will and will cause each Subsidiary to, pay or
cause to be paid all such taxes, assessments, charges or levies immediately
whenever foreclosure of any Lien that attaches on the Collateral appears
imminent.
9.1.8 FURTHER ASSURANCES. Borrower agrees to, and will cause
each Subsidiary to, execute such other and further documents, including, without
limitation, deeds of trust, promissory notes, security agreements, financing
statements, continuation statements, certificates of title, and the like as may
from time to time in the reasonable opinion of DFS be necessary to perfect,
confirm, establish, re-establish, continue, or complete the security interests,
collateral assignments and Liens in the Collateral, and the purposes and
intentions of this Agreement.
9.1.9 MAINTENANCE OF STATUS. Borrower will take all necessary
steps to (a) preserve its, and each Subsidiary's, existence as a corporation,
(b) preserve Borrower's and the Subsidiaries' franchises and permits, and (c)
comply with all present and future material agreements to which Borrower, or any
of the Subsidiaries, is subject, and (d) maintain, and cause each Subsidiary to
maintain, its qualification and good standing in all states in which such
qualification is necessary or in which the failure to be so qualified might have
a material adverse effect on the financial condition or properties of Borrower
or the Business. Borrower will not change the nature of the Business during the
term of this Agreement.
9.1.10 FINANCIAL STATEMENTS; REPORTING REQUIREMENTS;
CERTIFICATION AS TO EVENTS OF DEFAULTS. During the term of this Agreement,
Borrower will furnish to DFS:
(a) within 105 days after the end of each fiscal year, annual
financial statements for Borrower and its Subsidiaries as of the
end of such fiscal year, consisting of a consolidated and
consolidating balance sheet, consolidated and consolidating
statement of operations, consolidated and consolidating
statements of cash flows and consolidated and consolidating
statement of stockholder's equity, in comparative form, together
with a narrative description of the financial condition and
results of operations and the liquidity and capital resources of
Borrower and setting forth in comparative form the corresponding
figures for the corresponding period of the prior fiscal year and
the corresponding figures from the most recent financial
projections of Borrower, discussing the reasons for any
significant variations. The statements and balance sheet will be
audited by an independent firm of certified public accountants
selected by Borrower and reasonably acceptable to DFS, and
certified by that firm of certified public accountants to have
been prepared in accordance with GAAP. The certified public
accountants will render an unqualified opinion as to such
statements and balance sheets.
(b) by the 50th day of each quarter, a certificate of the
President, or Chief Financial Officer, in the form of EXHIBIT
9.1.10(C) attached hereto, of Borrower stating that such Person
has reviewed the provisions of the Loan Documents and that a
review of the activities of Borrower during such quarter has been
made by or under such Person's supervision with a view to
determining whether Borrower has observed and performed all of
Borrower's obligations under the Loan Documents, and that, to the
best of such Person's knowledge, information and belief, Borrower
has observed and performed each and every undertaking contained
in the Loan Documents and is not at the time in default in the
observance or performance of any of the terms and conditions
thereof or, if Borrower will be so in default, specifying all of
such defaults and events of which such Person may have knowledge;
(c) by the end of each fiscal year, an annual budget and income
statement with cash flow projections for the following fiscal
year;
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(d) promptly upon receipt thereof, copies of all final reports
and final management letters submitted to Borrower or any of the
Borrower's Subsidiaries by independent accountants in connection
with any annual or interim audit of the books of Borrower or such
Subsidiaries made by such accountants;
(e) copies of any and all reports, filings and other
documentation delivered to the Securities and Exchange Commission
by or on behalf of Borrower promptly after the delivery thereof,
if applicable; and
(f) any other statements, reports and other information as DFS
may reasonably request concerning the financial condition or
operations of Borrower and its properties.
9.1.11 NOTICE OF EXISTENCE OF DEFAULT. Borrower will, and will
cause its Subsidiaries to, promptly notify DFS of: (a) the existence of any
known condition or event, which constitutes a Default or an Unmatured Default
and (b) the actual or threatened termination, suspension, lapse or
relinquishment of any material license, authorization, permit or other right
granted Borrower or for Borrower's benefit and used in the Business, or granted
to any of its Subsidiaries or for any such Subsidiaries' benefit, by any
governmental agency material to the Business.
9.1.12 COMPLIANCE WITH LAWS. Borrower will, and will cause its
Subsidiaries to, comply in all material respects with all applicable laws,
rules, regulations and orders.
9.1.13 MAINTENANCE OF COLLATERAL. Borrower will maintain all
material Collateral and every part thereof in good condition and repair.
Borrower will not permit the value of the Collateral to be materially impaired.
Borrower will defend the Collateral against all claims and legal proceedings by
persons other than DFS. Borrower will not transfer the Collateral from the
premises where now located (other than Inventory sold in the ordinary course of
business and other Collateral transferred in the ordinary course of business),
or permit the Collateral to become a fixture or accession (unless so affixed on
the Effective Date) to any goods which are not items of Collateral, without the
prior written approval of DFS. Borrower will not knowingly permit the
Collateral to be used in violation of any applicable law, regulations, or any
policy of insurance. As to Collateral consisting of instruments and chattel
paper, Borrower will preserve rights in it against prior parties.
9.1.14 COLLATERAL RECORDS AND STATEMENTS. Borrower will keep
such accurate and complete books and records pertaining to the Collateral in
such detail and form as DFS reasonably requires, including, but not limited to:
schedules of inventory; original orders; invoices; shipping documents; billing
settlements and receivables; sold receivables; Inventory listing containing
model, serial number (if available) and location. Other reporting will be
available upon request by DFS, including, but not be limited to, listings of
accounts payable in such form as the DFS' reasonably requires. The statements
will be in the form and will contain the information as is prescribed by DFS.
9.1.15 INSPECTION OF COLLATERAL. DFS and any third party
appraiser selected by DFS may examine the Collateral at any time, and from time
to time during normal business hours. DFS and any third party appraiser
selected by DFS will have full access to, and the right to: (a) review, inspect
and make abstracts and copies from Borrower's books and records pertaining to
the Collateral, and (b) inspect and examine Inventory and check and test the
same as to quality, quantity, value and condition, wherever located, at any time
during reasonable business hours, and from time to time. Borrower will assist
DFS and any third party appraiser selected by DFS in so doing.
9.1.16 LANDLORD'S AGREEMENTS. Borrower will cooperate with DFS
to obtain, on the Effective Date, landlord waivers and agreements in a form
acceptable to DFS with respect to leased real property and with respect to any
future leases, prior to entering into them.
9.2 NEGATIVE COVENANTS.
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During the term of this Agreement and thereafter, for so long as
any Obligations are outstanding and unpaid, Borrower covenants that unless
otherwise consented to in writing by DFS, Borrower shall not perform or cause or
permit to be performed the following acts:
9.2.1 CHANGE OF NAME, ETC. Borrower and the Subsidiaries will
not change their name, or begin to trade under any assumed names or trade names
without ten (10) days prior written notice to DFS. Borrower will not, and will
not permit any Subsidiary to, change its manner of organization, enter into any
mergers, consolidations, reorganizations or recapitalizations without DFS' prior
written consent other than as contemplated herein.
9.2.2 SALE OR TRANSFER OF ASSETS. Except in the ordinary course
of business, or except as consented to in writing by DFS, Borrower and the
Subsidiaries will not sell, transfer, lease (including sale-leaseback) or
otherwise dispose of all or any substantial part of the Collateral. This
provision will not apply to any sale if the proceeds of such sale pay the
Obligations in full.
9.2.3 ENCUMBRANCE OF ASSETS. Borrower will not, and will not
permit a Subsidiary to, mortgage, pledge, grant or permit to exist a security
interest in or Lien upon any of the Collateral, now owned or hereafter acquired
except for the Permitted Liens.
9.2.4 ACQUISITION OF STOCK OR ASSETS; NEW SUBSIDIARIES.
Borrower and the Subsidiaries will not, without DFS' prior written consent,
acquire, or enter into any agreement, commitment letter or letter of intent to
acquire, all or substantially all the assets of, equity interest or stock in,
(a) more than one (1) business per calendar year, or (b) under which the
purchase price is Fifteen Million Dollars ($15,000,000) or more, nor will the
Borrower hereafter create any new Subsidiaries.
9.2.5 FALSE CERTIFICATES OR DOCUMENTS. Borrower has not and
will not, and will not permit any Subsidiary to, furnish DFS with any
certificate or other document that contains any untrue statement of material
fact or that omits to state a material fact necessary to make it not misleading
in light of the circumstances under which it was furnished.
9.2.6 ASSIGNMENT. Borrower will not assign or attempt to assign
the Loan Documents or any of its interests under the Loan Documents, except in
favor of DFS.
9.2.7 TRANSACTIONS WITH AFFILIATES. Borrower will not enter
into any contracts, leases, sales or other transactions with any Affiliate on
terms less favorable than could be obtained generally by Borrower from a
non-Affiliate.
9.2.8 LOANS BY BORROWER. Borrower will not, and will not permit
any Subsidiary to, make any loan to any Person, except for loans in anticipation
of reasonable and normally reimbursable business expenses, payroll and
commission advances and trade credit extended in the ordinary course of
Business.
9.2.9 FISCAL YEAR. Borrower will give sixty (60) days prior
written notice to DFS of any change in its fiscal year-end.
9.2.10 TOTAL INDEBTEDNESS. Borrower shall not create, incur,
assume, or suffer to exist, or permit any Subsidiary to create, incur or suffer
to exist, any Indebtedness, except:
(a) the Obligations;
(b) Subordinated Debt;
(c) Indebtedness of any Subsidiary to Borrower;
(d) Accounts payable to trade creditors and current operating
expenses (other than for money borrowed) incurred in the ordinary
course of business which are aged not more than thirty (30) days
past due, unless actively contested in good faith and by
appropriate and lawful proceedings and for which adequate
reserves have been established in accordance with GAAP; and
(e) Indebtedness solely in connection with a Permitted Lien.
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(f) Unsecured debt
9.2.11 ADVERSE TRANSACTIONS. Borrower will not enter into any
transaction, or permit any Subsidiary to enter into any transaction, which
materially and adversely affects or may materially and adversely affect the
Collateral or Borrower's ability to repay the Obligations or permit or agree to
any material extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Account, including any of
the terms relating thereto, other than discounts and allowances in the ordinary
course of business, all of which shall be reflected in the Borrowing Base
Certificate submitted to DFS pursuant to SECTION 3.3 of this Agreement.
9.2.12 GUARANTIES. Borrower will not guarantee, assume, endorse
or otherwise, in any way, become directly or contingently liable with respect to
the Indebtedness of any Person, except by endorsement of instruments or items of
payment for deposit or collection.
9.2.13 BILL-AND-HOLD SALES, ETC. Borrower will not include on
any Borrowing Base certificate any Accounts which arise from any sale to any
customer on a bill-and-hold, guaranteed sale, sale and return, sale on approval
or consignment basis, or any sale on a repurchase or return basis without DFS'
prior written consent.
9.2.14 MARGIN SECURITIES. Borrower will not own, purchase or
acquire, or permit any Subsidiary to own, purchase or acquire, (or enter, or
permit any Subsidiary to enter, into any contract to purchase or acquire) any
"margin security" as defined by any regulation of the Federal Reserve Board as
now in effect or as the same may hereafter be in effect unless, prior to any
such purchase or acquisition or entering into any such contract, DFS shall have
received an opinion of counsel satisfactory to DFS to the effect that such
purchase or acquisition will not cause this Agreement to violate Regulations G
or U or any other regulation of the Federal Reserve Board then in effect.
9.3 FINANCIAL COVENANTS.
9.3.1 AMOUNTS. Borrower agrees that it will at all times
maintain the following:
(a) a Tangible Net Worth plus Subordinated Debt in the combined amount
of not less than Eighteen Million Dollars ($18,000,000.00); and
(b) a ratio of Debt minus Subordinated Debt to Tangible Net Worth plus
Subordinated Debt of not more than Five and One-half to One (5.5:1.0);
For purposes of this section: (i) "TANGIBLE NET WORTH" means the book
value of Borrower's assets less liabilities (including as liabilities
all reserves for contingencies and other potential liabilities),
excluding from such assets all Intangibles; (ii) "INTANGIBLES" means
and includes general intangibles (as that term is defined in the
Uniform Commercial Code); accounts receivable and advances due from
officers, directors, member, owner, employees, stockholders and
affiliates; leasehold improvements net of depreciation; licenses; good
will; prepaid expenses; escrow deposits; covenants not to compete; the
excess of cost over book value of acquired assets; franchise fees;
organizational costs; finance reserves held for recourse obligations;
capitalized research and development costs; and such other similar
items as DFS may from time to time determine in DFS' sole discretion;
(iii) "DEBT" means all of Borrower's liabilities and indebtedness for
borrowed money of any kind and nature whatsoever other than
Subordinated Debt (as defined below), whether direct or indirect,
absolute or contingent, and including obligations under capitalized
leases, guaranties or with respect to which Borrower has pledged
assets to secure performance, whether or not direct recourse liability
has been assumed by Borrower; and (iv) "SUBORDINATED DEBT" means all
of Borrower's Debt which is subordinated to the payment of Borrower's
liabilities to DFS by an agreement in form and substance satisfactory
to DFS. The foregoing terms will be
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determined in accordance with GAAP consistently applied, and, if
applicable, on a consolidated basis ("FINANCIAL COVENANTS").
9.3.2 COVENANT COMPLIANCE CERTIFICATE. The President or Chief
Financial Officer of Borrower will certify to DFS by the 45th day after the end
of each quarter, 90th day after the end of each fiscal year end or more often if
requested by DFS, that Borrower is in compliance with the Financial Covenants as
set forth in a form acceptable to DFS in its sole discretion.
10. RENTAL CONTRACTS
Borrower may rent the Inventory financed by DFS or against which DFS
has advanced funds pursuant to the terms of Borrower's rental contracts ("Rental
Contracts"). Such Inventory will thereafter be subject to the rates and terms
of DFS' financing program in effect for goods which are rented, as reflected
herein or in any statement of transaction for such Inventory. All of Borrower's
Rental Contracts, agreements, and rental transactions will be in a form
reasonably satisfactory to DFS and will be in accordance with all applicable
Federal, State and local laws. Borrower will indemnify DFS against any loss or
damage which DFS suffers, whether direct or indirect, resulting in any way from
the Rental Contracts, agreements, or rental transactions which fail to comply
with such laws. All Rental Contracts will be transferable to DFS. Borrower
will indemnify DFS against any claims by its customers regarding Borrower's
obligations under the Rental Contracts. Borrower will immediately, upon DFS'
request, deliver to DFS all Rental Contracts and all related documents. This
assignment is a transfer for security only, and, until DFS has foreclosed its
interest in the Rental Contracts, will not be deemed to delegate any of
Borrower's duties under the Rental Contracts to DFS, nor is it intended to alter
or impair performance by either party to the Rental Contracts. DFS may, from
time to time, verify the accuracy of the Rental Contracts, and Borrower will
immediately, upon DFS' request, provide DFS with the following information
regarding Rental Contracts which are in effect on the date of such request: (a)
the name, address and telephone number of each customer who has executed a
Rental Contract; (b) the location of the Inventory; (c) the date of each Rental
Contract; (d) the date when the Inventory is to be returned under each Rental
Contract; and, (e) any other information which DFS may reasonably request. If
the rental period under the Rental Contract is ninety (90) days or longer,
Borrower will stamp the original of such Rental Contract with the following
legend:
'FOR VALUE RECEIVED, THIS AGREEMENT HAS BEEN ASSIGNED TO DEUTSCHE
FINANCIAL SERVICES CORPORATION AND THERE ARE NO DEFENSES AGAINST THE
ASSIGNEE.'
Other than to DFS, Borrower will not assign, sell, pledge, convey or by any
other means transfer any Rental Contracts or chattel paper, without DFS' prior
written consent. Borrower will not enter into any Rental Contracts for
Inventory financed by DFS or against which DFS has advanced funds pursuant to
which: (i) the original term of the Rental Contract is greater than three
hundred sixty five (365) days; (ii) the customer is bound to become the owner
of such Inventory; or,(iii) the customer has an option to become the owner of
such Inventory for nominal consideration, or for consideration which is less
than the unpaid balance owed to DFS for such Inventory. If any such Rental
Contracts are issued, Borrower will take any action which DFS may reasonably
require to perfect and/or protect DFS' security interest in such Rental
Contracts and/or the Inventory subject thereto.
11. DEFAULT/REMEDIES
Borrower will be in default under this Agreement (each, a "DEFAULT")
if:
(a) Borrower breaches any terms, covenants, warranties or
representations contained herein, or in any other Loan Document;
(b) any representation, statement, report or certificate made or
delivered by Borrower to DFS is not materially accurate when made or any
representation in Sections 7.1 (C), 8.5, 8.7, 8.9, 8.17, 8.20 AND 8.23 is not
absolutely true and correct when made;
(c) Borrower fails to pay any portion of Borrower's debts to DFS when
due and payable hereunder or under any other agreement between DFS and Borrower;
(d) Borrower abandons any Collateral;
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(e) Borrower is or becomes in default of any obligation in excess of $
250,000.00 owed to any third party;
(f) a money judgment in excess of $100,000.00 issues against Borrower;
(g) an attachment, sale or seizure in excess of $100,000.00 issues or
is executed against any assets of Borrower;
(h) Borrower ceases existence as a corporation;
(i) Borrower ceases or suspends business;
(j) Borrower makes a general assignment for the benefit of creditors;
(k) Borrower becomes insolvent or a voluntary or involuntary petition
is filed by or against the Borrower under the Federal Bankruptcy Code, any state
insolvency law or any similar law;
(l) any receiver is appointed for any of Borrower's assets;
(m) Borrower loses any franchise, permission, license or right to sell
or deal in any Collateral which represents more than fifteen percent (15%) of
Borrower's total revenues;
(n) Borrower misrepresents Borrower's financial condition or
organizational structure;
(o) any of the Collateral becomes subject to any Lien, claim,
encumbrance or security interest other than a Permitted Lien;
(p) Borrower shall be enjoined, restrained or in any way prevented by
court, governmental or administrative order from conducting all or any material
part of its Business; or any part of the Collateral shall be taken through
condemnation or the value thereof shall be impaired through condemnation;
(q) DFS determines in good faith that it is insecure with respect to
any material portion of the Collateral or the payment of any part of Borrower's
Obligations.
In the event of a Default:
(i) DFS may at any time at DFS' election, without notice or demand to
Borrower, do any one or more of the following: reduce the amount
advanced against any eligible Collateral; cease making further
Loans and declare all or any of the Obligations immediately due
and payable, together with all costs and expenses of DFS'
collection activity, including, without limitation, all
reasonable attorneys' fees; exercise any or all rights under
applicable law (including, without limitation, the right to
possess, transfer and dispose of the Collateral); and/or cease
extending any additional credit to Borrower.
(ii) Borrower will segregate and keep the Collateral in trust for DFS,
and in good order and repair, and will not sell, rent, lease,
consign, otherwise dispose of or use any Collateral, nor further
encumber any Collateral.
(iii) Upon DFS' oral or written demand, Borrower will immediately
deliver the Collateral to DFS, in good order and repair, at a
place specified by DFS, together with all related documents; or
DFS may, in DFS' sole discretion and without notice or demand to
Borrower, take immediate possession of the Collateral together
with all related documents.
(iv) DFS may, without notice, apply the Default Interest Rate.
(v) DFS may, without notice to Borrower and at any time or times
hereafter enforce payment and collect, by legal proceedings or
otherwise, Accounts in the name of Borrower or DFS; and take
control of any cash or non-cash items of payment or proceeds of
Accounts and of any rejected, returned, repossessed or stopped in
transit goods relating to Accounts. DFS may at its sole election
and without demand enter, with or without process of law, any
premises where Collateral might be and, without charge or
liability to DFS therefor do one or more of the following: (i)
take possession of the Collateral and use or store it in said
premises or remove it to such other place or places as DFS may
deem convenient; (ii) take possession of all or part of such
premises and the Collateral and place a custodian in the
exclusive control thereof until completion of enforcement of DFS'
security interest in the Collateral or until DFS' removal of the
Collateral and, (iii) remain on such premises and use the same,
together with Borrower's materials, supplies, books and records,
for the purpose of liquidating or collecting such Collateral and
conducting and preparing for disposition of such Collateral.
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(vi) Upon the occurrence of a Default under SECTIONS 11(C), (E), (J),
(K), OR (L), all Obligations shall automatically be accelerated
and due and payable and the Default Interest Rate shall
automatically apply as of the date of the first occurrence of
such Default, without any prior notice, demand or action of any
type on the part of DFS.
(vii) Upon DFS' oral or written demand, Borrower will immediately
deliver the original Rental Contracts to DFS, and DFS may collect
in DFS' name all amounts owed to Borrower under the Rental
Contracts.
All of DFS' rights and remedies are cumulative. DFS' failure to exercise
any of DFS' rights or remedies hereunder will not waive any of DFS' rights
or remedies as to any past, current or future Default.
12. SALE OF COLLATERAL
Borrower agrees that if DFS conducts a private sale of any Collateral
by requesting bids from 10 or more dealers or distributors in that type of
Collateral, any sale by DFS of such Collateral in bulk or in parcels within 120
days of: (a) DFS' taking possession and control of such Collateral; or (b) when
DFS is otherwise authorized to sell such Collateral; whichever occurs last, to
the bidder submitting the highest cash bid therefor, is a commercially
reasonable sale of such Collateral under the Uniform Commercial Code. Borrower
agrees that the purchase of any Collateral by a vendor, as provided in any
agreement between DFS and the vendor, if any, is a commercially reasonable
disposition and private sale of such Collateral under the Uniform Commercial
Code, and no request for bids shall be required. Borrower further agrees that
7 or more days prior written notice will be commercially reasonable notice of
any public or private sale (including any sale to a vendor). Borrower
irrevocably waives any requirement that DFS retain possession and not dispose of
any Collateral until after an arbitration hearing, arbitration award,
confirmation, trial or final judgment. If DFS disposes of any such Collateral
other than as herein contemplated, the commercial reasonableness of such
disposition will be determined in accordance with the laws of the state
governing this Agreement.
13. INDEMNIFICATIONS
In addition to the payment of expenses and attorneys' fees, if
applicable, whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to indemnify, pay and hold DFS and the officers,
directors, employees, agents, and affiliates of DFS (collectively called the
"INDEMNITEES") harmless from and against, any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for any of
such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against the Indemnitees, in any manner relating to or
arising out of the Loan Documents, the statements contained in any commitment
letters delivered by DFS, DFS' agreement to make the Loans or any other payment
hereunder, or the use or intended use of the proceeds of any of the Loans
hereunder (the "INDEMNIFIED LIABILITIES"); PROVIDED, HOWEVER, that Borrower
shall have no obligation to an Indemnitee hereunder with respect to Indemnified
Liabilities arising from the gross negligence or willful misconduct of an
Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, Borrower shall contribute the maximum
portion that it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them. The provisions of the undertakings and
indemnification set out in this SECTION 13 shall survive satisfaction and
payment of the Obligations and termination of this Agreement.
14. OTHER TERMS
14.1 AMENDMENT, CHANGES AND MODIFICATION.
The Loan Documents may be amended, changed or modified only
as may be agreed upon in writing by Borrower and DFS from time to time.
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14.2 BINDING EFFECT.
The Loan Documents will be binding upon the parties, their
successors and assigns, provided, however, that Borrower shall not assign or
attempt to assign this Agreement, any other Loan Document or any of its
interests under the Loan Documents, without the prior written consent of DFS.
14.3 BROKER FEE.
Neither party is obligated to pay any premium or other
charge, brokerage fee or commission in connection with the agreements set forth
herein. Each party will indemnify the other and hold it harmless from any such
claim arising out of such party's acts or those of its representatives.
14.4 ENTIRE AGREEMENT.
The Loan Documents embody the entire agreement of the
parties relating to the Credit Facility. There are no promises, terms,
conditions, obligations or warranties other than those contained in the Loan
Documents. The Loan Documents supersede all prior communications,
representations or agreements, verbal or written, between the parties relating
to the Credit Facility.
14.5 HEADINGS.
The headings to the sections of this Agreement are included
only for the convenience of the parties and will not have the effect of
defining, diminishing or enlarging the rights of the parties or affecting the
construction or interpretation of any portion of this Agreement.
14.6 INCORPORATION BY REFERENCE.
All other Loan Documents are incorporated herein by this
reference and are made a part of this Agreement as if fully set forth herein.
This Agreement, prior to such incorporation, controls in the event of any
conflict with the terms of any other Loan Documents.
14.7 INTERPRETATION.
For the purpose of construing this Agreement, unless the
context otherwise requires, words in the singular will be deemed to include
words in the plural, and vice versa.
14.8 NOTICES.
Any notice under the Loan Documents, will be in writing.
Any notice to be given or document to be delivered under the Loan Documents will
be deemed to have been duly given upon delivery, if delivered in person or by
any expedited delivery service which provides proof of delivery, upon tested
telex or facsimile transmission, or on the fifth Business Day after mailing, if
mailed by certified mail, return receipt requested, postage prepaid mail,
addressed to DFS or Borrower at the appropriate addresses. DFS will use
reasonable efforts to deliver any notice DFS is required to give to Borrower;
provided, however, that failure by DFS to actually give any such notice will not
be deemed to be a waiver of any rights or remedies of DFS and will not give rise
to any claims, defenses or damages by Borrower. The addresses for notices are
those set forth below or such other addresses as may be hereafter specified by
written notice by the parties:
to DFS: Deutsche Financial Services Corporation
1633 Des Peres Road, Suite 305
St. Louis, Missouri 63131
Attention: Kenneth C. MacDonell
Facsimile No.:(314) 909-0307
with a copy to: Deutsche Financial Services Corporation
655 Maryville Centre Drive
St. Louis, MO 63141-5832
Attention: General Counsel
Facsimile No.:(314) 523-3228
to Borrower: Western Power and Equipment Corp.
4601 N.E. 77th Avenue, Suite 200
Vancouver, WA 98662
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Attention: Mark J. Wright
Facsimile No.:(360) 253-4830
14.9 NO THIRD PARTY BENEFICIARY RIGHTS AND RELIANCE.
No Person not a party to this Agreement will have any
benefit under this Agreement nor have third-party beneficiary rights as a result
of any of the Loan Documents, nor will any party be entitled to rely on any
actions or inactions of DFS or its agents, all of which are done for the sole
benefit and protection of DFS.
14.10 PROTECTION OR PRESERVATION OF COLLATERAL.
DFS will not have any contractual duty to protect, insure,
collect or realize upon the Collateral or preserve rights in it against prior
parties. DFS will not be responsible or liable for any shortage, discrepancy,
damage, loss or destruction of any part of the Collateral regardless of the
cause.
14.11 RELATIONSHIP OF THE PARTIES.
Neither DFS on the one hand nor Borrower on the other hand
will be deemed a partner, joint venturer or related entity of the other by
reason of the Loan Documents.
14.12 REVERSAL OF PAYMENTS.
To the extent that Borrower makes a payment or payments to
DFS, which payment or payments or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party under any bankruptcy law,
state or federal law, common law, or equitable cause, then to the extent of such
payment or proceeds received, the Credit Facility will be revived and continue
in full force and effect, as if such payment or proceeds had not been received
by DFS.
14.13 SEVERABILITY.
If any provision of this Agreement (either generally, or as
to a specific application to a set of facts) will be held to be invalid, illegal
or unenforceable, such invalidity, illegality or unenforceability will not
affect any other provision of this Agreement (either in its entirety, or as to
or the application of such provision to any other set of facts), but this
Agreement will be construed as if such invalid, illegal or unenforceable
provision never had been included in this Agreement.
14.14 MAXIMUM INTEREST.
Borrower acknowledges that DFS intends to strictly conform
to the applicable usury laws governing this Agreement. Regardless of any
provision contained herein or in any other document executed or delivered in
connection herewith or therewith, DFS shall never be deemed to have contracted
for, charged or be entitled to receive, collect or apply as interest on this
Agreement (whether termed interest herein or deemed to be interest by judicial
determination or operation of law), any amount in excess of the maximum amount
allowed by applicable law, and, if DFS ever receives, collects or applies as
interest any such excess, such amount which would be excessive interest will be
applied first to the reduction of the unpaid principal balances of advances
under this Agreement, and, second, any remaining excess will be paid to
Borrower. In determining whether or not the interest paid or payable under any
specific contingency exceeds the highest lawful rate, Borrower and DFS shall, to
the maximum extent permitted under applicable law: (a) characterize any
non-principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense or fee rather than as interest; (b)
exclude voluntary pre-payments and the effect thereof; and (c) spread the total
amount of interest throughout the entire term of this Agreement so that the
interest rate is uniform throughout such term.
14.15 WAIVERS BY DFS.
DFS may at any time or from time to time waive all or any
rights under any of the Loan Documents, but any waiver or indulgence at any time
or from time to time will not constitute, unless specifically so expressed by
DFS in writing, a future waiver by DFS of performance by Borrower.
14.16 SURVIVAL.
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The grant of security interest herein to secure all
Obligations, and all provisions relating to the Collateral will survive
termination of this Agreement and will remain in full force and effect until all
Obligations have been paid in full and this Agreement has been terminated. The
Agreement to arbitrate all Disputes will survive termination of this Agreement.
14.17 PARTICIPATIONS; ASSIGNMENTS.
DFS may, at any time and from time to time, grant
participations to lender(s) acceptable to Borrower in its interest in this
Agreement or any Loan Document, or of any portion thereof, or assign its
interest in this Agreement or any Loan Document, or any portion thereof, without
the consent of Borrower, but DFS will provide Borrower notice as soon as
practical after sale to an unaffiliated third party. DFS shall not be required
to provide notice to Borrower of any sale or assignment to (i) a parent company
or subsidiary of DFS or (ii) any entity majority owned by DFS so long as DFS
continues to service the Loans under this Agreement.
14.18 COUNTERPARTS.
This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
14.19 INFORMATION.
DFS may provide to any third party any credit, financial or
other information on Borrower that DFS may from time to time possess.
14.20 RELEASE.
Borrower releases DFS from all claims and causes of action
which Borrower may now or hereafter have for any loss or damage to it claimed to
be caused by or arising from: (a) any failure of DFS to protect, enforce or
collect, in whole or in part, any Account; (b) DFS' notification to any Account
Debtors thereon of DFS' security interest in any of the Accounts; (c) DFS'
directing any Account Debtor to pay any sum owing to Borrower directly to DFS;
and (d) any other act or omission to act on the part of DFS, its officers,
agents or employees, except for willful misconduct or gross negligence. DFS
will have no obligation to preserve rights to Accounts against prior parties.
14.21 MISCELLANEOUS.
Time is of the essence regarding Borrower's performance of
its obligations to DFS notwithstanding any course of dealing or custom on DFS'
part to grant extensions of time. Borrower's liability under this Agreement is
direct and unconditional and will not be affected by the release or
nonperfection of any security interest granted hereunder. DFS will have the
right to refrain from or postpone enforcement of this Agreement or any other
Loan Documents without prejudice and the failure to strictly enforce the Loan
Documents will not be construed as having created a course of dealing between
DFS and Borrower contrary to the specific terms of the Loan Documents or as
having modified, released or waived the same. The express terms of this
Agreement and the other Loan Documents will not be modified by any course of
dealing, usage of trade, or custom of trade which may deviate from the terms
hereof. If Borrower fails to pay any taxes, fees or other obligations which may
impair DFS' interest in the Collateral, or fails to keep the Collateral insured,
DFS may, but shall not be required to, pay such taxes, fees or obligations and
pay the cost to insure the Collateral, and the amounts paid will be: (a) an
additional debt owed by Borrower to DFS, which shall be subject to finance
charges as provided herein; and (b) due and payable immediately in full.
Borrower agrees to pay all of DFS' reasonable attorneys' fees and expenses
incurred by DFS in enforcing DFS' rights hereunder.
14.22 WAIVERS BY BORROWER.
Borrower irrevocably waives notice of: DFS' acceptance of
this Agreement, presentment, demand, protest, nonpayment, nonperformance, and
dishonor. Borrower and DFS irrevocably waive all rights to claim any punitive
and/or exemplary damages. Borrower waives all rights of offset and counter
claims Borrower may have against DFS. Borrower waives all notices of default
and non-payment at maturity of any or all of the Accounts.
14.23 NO ORAL AGREEMENTS.
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ORAL AGREEMENTS OR COMMITMENTS TO LEND MONEY, EXTEND CREDIT
OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU, (BORROWER(S)) AND US
(CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN
WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
DFS may, from time to time, announce in writing to Borrower its policies and
procedures regarding its administration of this facility including, without
limit, DFS' fees and/or charges for transfers of funds to or from Borrower,
including Electronic Transfers; any subsequent use by Borrower of this facility
following any such announcement shall constitute Borrower's acceptance of such
revised policies and procedures.
14.24 USE OF COUNSEL AND RECEIPT OF AGREEMENT.
Borrower acknowledges that it has received a true and
complete copy of this Agreement. Borrower acknowledges that it has (a) had
representation of counsel during negotiation of this Agreement, and (b) read and
understood this Agreement.
14.25 FACSIMILES, ETC.
Notwithstanding anything herein to the contrary: (a) DFS
may rely on any facsimile copy, electronic data transmission or electronic data
storage of any statement, statement of transaction, financial statements or
other reports, and (b) such facsimile copy, electronic data transmission or
electronic data storage will be deemed an original, and the best evidence
thereof for all purposes, including, without limitation, under this Agreement or
any other Loan Documents, and for all evidentiary purposes before any
arbitrator, court or other adjudicatory authority.
14.26 POWER OF ATTORNEY.
Borrower irrevocably appoints DFS (and any Person designated
by it) as Borrower's true and lawful Attorney with full power to at any time, in
the discretion of DFS (after Default has occurred) to: (a) endorse the name of
Borrower upon any of the items of payment of proceeds of the Collateral and
deposit the same in the account of DFS for application to the Obligations; (b)
sign the name of Borrower to verify the accuracy of the Accounts; (c) sign the
name of Borrower on any document or instrument that DFS shall deem necessary or
appropriate to perfect and maintain perfected the security interests in the
Collateral under this Agreement and other Loan Documents; (d) initiate and
settle any insurance claim and endorse Borrower's name on any check, instrument
or other item of payment; (e) endorse the name of Borrower upon financing
statements, instruments, Certificates of Title and Statements of Origin
pertaining to the Collateral; (f) supply omitted information and correct errors
in any documents between DFS and Borrower; and (g) do anything to preserve and
protect the Collateral and DFS' rights and interest therein; (h) in a
commercially reasonable manner in the circumstances demand payment, enforce
payment and otherwise exercise all of Borrower's rights, and remedies with
respect to the collection of any Accounts; (i) in a commercially reasonable
manner in the circumstances settle, adjust, compromise, extend or renew any
Accounts; (j) in a commercially reasonable manner in the circumstances settle,
adjust or compromise any legal proceedings brought to collect any Accounts; (k)
in a commercially reasonable manner in the circumstances sell or assign any
Accounts upon such terms, for such amounts and at such time or times as DFS may
deem advisable; (l) in a commercially reasonable manner in the circumstances
discharge and release any Accounts; (m) prepare, file and sign Borrower's name
on any Proof of Claim in Bankruptcy or similar document against any Account
Debtor; (n) endorse the name of Borrower upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to any Account or goods pertaining thereto; and (o) take
control in any manner of any item of payments or proceeds and for such purpose
to notify the Postal Authorities to change the address for delivery of mail
addressed to Borrower to such address as DFS may designate. This power of
attorney is for value and coupled with an interest and is irrevocable so long as
any Obligations remain outstanding and by DFS exercising such right, DFS shall
not waive any right against Borrower until the Obligations are paid in full.
15. BINDING ARBITRATION.
15.1 ARBITRABLE CLAIMS.
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Except as otherwise specified below, all actions, disputes,
claims and controversies under common law, statutory law or in equity of any
type or nature whatsoever (including, without limitation, all torts, whether
regarding negligence, breach of fiduciary duty, restraint of trade, fraud,
conversion, duress, interference, wrongful replevin, wrongful sequestration,
fraud in the inducement, usury or any other tort, all contract actions, whether
regarding express or implied terms, such as implied covenants of good faith,
fair dealing, and the commercial reasonableness of any Collateral disposition,
or any other contract claim, all claims of deceptive trade practices or lender
liability, and all claims questioning the reasonableness or lawfulness of any
act), whether arising before or after the date of this Agreement, and whether
directly or indirectly relating to: (a) this Agreement and/or any amendments and
addenda hereto, or the breach, invalidity or termination hereof; (b) any
previous or subsequent agreement between DFS and Borrower; (c) any act committed
by DFS or by any parent company, subsidiary or affiliated company of DFS (the
"DFS COMPANIES"), or by any employee, agent, officer or director of a DFS
Company whether or not arising within the scope and course of employment or
other contractual representation of the DFS Companies provided that such act
arises under a relationship, transaction or dealing between DFS and Borrower;
and/or (d) any other relationship, transaction or dealing between DFS and
Borrower (collectively the "DISPUTES"), will be subject to and resolved by
binding arbitration.
15.2 ADMINISTRATIVE BODY.
All arbitration hereunder will be conducted by the American
Arbitration Association ("AAA"). If the AAA is dissolved, disbanded or becomes
subject to any state or federal bankruptcy or insolvency proceeding, the parties
will remain subject to binding arbitration which will be conducted by a mutually
agreeable arbitral forum. The parties agree that all arbitrator(s) selected
will be attorneys with at least five (5) years secured transactions experience.
The arbitrator(s) will decide if any inconsistency exists between the rules of
any applicable arbitral forum and the arbitration provisions contained herein.
If such inconsistency exists, the arbitration provisions contained herein will
control and supersede such rules. The site of all arbitration proceedings will
be in St. Louis County, Missouri.
15.3 DISCOVERY.
Discovery permitted in any arbitration proceeding commenced
hereunder is limited as follows. No later than thirty (30) days after the
filing of a claim for arbitration, the parties will exchange detailed statements
setting forth the facts supporting the claim(s) and all defenses to be raised
during the arbitration, and a list of all exhibits and witnesses. No later than
twenty-one (21) days prior to the arbitration hearing, the parties will exchange
a final list of all exhibits and all witnesses, including any designation of any
expert witness(es) together with a summary of their testimony; a copy of all
documents and a detailed description of any property to be introduced at the
hearing. Under no circumstances will the use of interrogatories, requests for
admission, requests for the production of documents or the taking of depositions
be permitted. However, in the event of the designation of any expert
witness(es), the following will occur: (a) all information and documents relied
upon by the expert witness(es) will be delivered to the opposing party, (b) the
opposing party will be permitted to depose the expert witness(es), (c) the
opposing party will be permitted to designate rebuttal expert witness(es), and
(d) the arbitration hearing will be continued to the earliest possible date that
enables the foregoing limited discovery to be accomplished.
15.4 EXEMPLARY OR PUNITIVE DAMAGES.
The Arbitrator(s) will not have the authority to award exemplary
or punitive damages and each party hereby irrevocably waives any right to claim
any exemplary or punitive damages.
15.5 CONFIDENTIALITY OF AWARDS.
All arbitration proceedings, including testimony or evidence at
hearings, will be kept confidential, although any award or order rendered by the
arbitrator(s) pursuant to the terms of this Agreement may be entered as a
judgment or order in any state or federal court and may be confirmed within the
federal judicial district which includes the residence of the party against whom
such award or order was entered. This Agreement concerns transactions involving
commerce among the several states. The Federal Arbitration Act, Title 9 U.S.C.
Sections 1 et seq., as
32
<PAGE>
amended ("FAA") will govern all arbitration(s) and confirmation proceedings
hereunder.
15.6 PREJUDGMENT AND PROVISIONAL REMEDIES.
Nothing herein will be construed to prevent DFS' or Borrower's
use of bankruptcy, receivership, injunction, repossession, replevin, claim and
delivery, sequestration, seizure, attachment, foreclosure, dation and/or any
other prejudgment or provisional action or remedy relating to any Collateral for
any current or future debt owed by either party to the other. Any such action
or remedy will not waive DFS' or Borrower's right to compel arbitration of any
Dispute.
15.7 ATTORNEYS' FEES.
If either Borrower or DFS brings any other action for judicial
relief with respect to any Dispute (other than those set forth in SECTION 15.6)
the party bringing such action will be liable for and immediately pay all of the
other party's costs and expenses (including attorneys' fees) incurred to stay or
dismiss such action and remove or refer such Dispute to arbitration. If either
Borrower or DFS brings or appeals an action to vacate or modify an arbitration
award and such party does not prevail, such party will pay all costs and
expenses, including attorneys' fees, incurred by the other party in defending
such action. Except as set forth above, each party will bear their own costs
and expenses (including attorneys' fees).
15.8 LIMITATIONS.
Any arbitration proceeding must be instituted: (a) with respect
to any Dispute for the collection of any debt owed by either party to the other,
within two (2) years after the date the last payment was received by the
instituting party; and (b) with respect to any other Dispute, within two (2)
years after the date the incident giving rise thereto occurred, whether or not
any damage was sustained or capable of ascertainment or either party knew of
such incident. Failure to institute an arbitration proceeding within such
period will constitute an absolute bar and waiver to the institution of any
proceeding, whether arbitration or a court proceeding, with respect to such
Dispute.
15.9 SURVIVAL AFTER TERMINATION.
The agreement to arbitrate will survive the termination of this
Agreement.
16. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION.
IF THIS AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL
PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE WITHOUT A JURY. BORROWER AND DFS WAIVE ANY RIGHT TO A
JURY TRIAL IN ANY SUCH PROCEEDING.
17. GOVERNING LAW.
Borrower acknowledges and agrees that this and all other agreements
between Borrower and DFS have been substantially negotiated, and will be
substantially performed, in the state of Missouri. Accordingly, Borrower agrees
that all Disputes will be governed by, and construed in accordance with, the
laws of such state, except to the extent inconsistent with the provisions of the
FAA which shall control and govern all arbitration proceedings hereunder.
IN WITNESS WHEREOF, the parties have, by their duly authorized
officers, executed this Agreement as of the Effective Date.
THIS AGREEMENT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS
ATTEST: WESTERN POWER & EQUIPMENT CORP.,
a Delaware corporation
By: /s/ Mark J. Wright By: /s/ C. Dean McLain
--------------------------- ---------------------------------
Secretary Print Name: C. Dean McLain
------------------------
Title: President/CEO
-----------------------------
ATTEST: WESTERN POWER AND& EQUIPMENT CORP.,
an Oregon corporation
33
<PAGE>
By: /s/ Mark J. Wright By: /s/ C. Dean McLain
--------------------------- ---------------------------------
Secretary Print Name: C. Dean McLain
------------------------
Title: President/CEO
-----------------------------
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Thomas L. Meredith
---------------------------------
Print Name: Thomas L. Meredith
------------------------
Title: Vice President
-----------------------------
34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND ON PAGES 1 THROUGH 3 OF THE
COMPANY'S FORM 10-Q FOR THE QUARTER AND YEAR-TO-DATE, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-30-1997
<CASH> 358
<SECURITIES> 0
<RECEIVABLES> 12392
<ALLOWANCES> 656
<INVENTORY> 72891
<CURRENT-ASSETS> 85661
<PP&E> 10458
<DEPRECIATION> 2860
<TOTAL-ASSETS> 96169
<CURRENT-LIABILITIES> 69555
<BONDS> 3052
0
0
<COMMON> 4
<OTHER-SE> 23099
<TOTAL-LIABILITY-AND-EQUITY> 96169
<SALES> 108244
<TOTAL-REVENUES> 108244
<CGS> 96279
<TOTAL-COSTS> 97279
<OTHER-EXPENSES> 7609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2572
<INCOME-PRETAX> 2158
<INCOME-TAX> 848
<INCOME-CONTINUING> 1310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1310
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
