-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V1vJeedcid44zf5U5lxmtWGxFCHkyBjFc+8zPJ7033Ft7+7TVE0+yC2BmRXNnEy/ yRlDh9sa6N+puo2jNpsPQg== 0000933589-96-000003.txt : 19961125 0000933589-96-000003.hdr.sgml : 19961125 ACCESSION NUMBER: 0000933589-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 DATE AS OF CHANGE: 19961122 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PST VANS INC CENTRAL INDEX KEY: 0000933589 STANDARD INDUSTRIAL CLASSIFICATION: 4213 IRS NUMBER: 870411704 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25506 FILM NUMBER: 96666851 BUSINESS ADDRESS: STREET 1: 1901 W 2100 SOUTH CITY: SALT LAKE CITY STATE: UT ZIP: 84119 BUSINESS PHONE: 8019752500 MAIL ADDRESS: STREET 1: 1901 W 2100 S CITY: SALT LAKE CITY STATE: UT ZIP: 84119 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 Commission File No. 0-25506 [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 PST VANS, INC. (Exact name of registrant as specified in this charter) Utah 87-0411704 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1901 West 2100 South Salt Lake City, UT 84119 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: 801-975-2500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] The number of shares outstanding of Registrant's Common Stock, par value $0.001 per share, as of October 31, 1996, was 4,217,157 shares. PST VANS, INC. INDEX PART I, FINANCIAL INFORMATION Page Number Item 1. Financial Statements Condensed Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 1 Condensed Statements of Operations (unaudited) for the Three and Nine Month periods ended September 30, 1996 and September 30, 1995 2 Condensed Statements of Cash Flows (unaudited) for the Nine Month periods ended September 30, 1996 and September 30, 1995 3 Notes to Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II, OTHER INFORMATION Item 1. Legal Proceedings * Item 2. Changes in Securities * Item 3. Defaults Upon Senior Securities * Item 4. Submission of Matters to a Vote of Security Holders * Item 5. Other Information * Item 6. Exhibits and Reports on Form 8-K 12 *No Information Submitted Under This Caption PST VANS, INC. CONDENSED BALANCE SHEETS ASSETS September 30, December 31, 1996 1995 (unaudited) CURRENT ASSETS: -------------- --------------- Cash $ 4,090,011 $ 4,249,981 Receivables, net 16,091,832 16,235,574 Prepaid expenses and other 3,524,134 4,088,996 Inventories and operating supplies 655,502 642,730 Deposits 1,434,875 985,952 -------------- -------------- Total current assets 25,796,354 26,203,233 -------------- -------------- PROPERTY AND EQUIPMENT, net 61,707,785 73,253,423 GOODWILL, net 8,680,140 8,884,112 OTHER ASSETS, net 314,343 541,362 -------------- -------------- $ 96,498,622 $ 108,882,130 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term obligations $ 1,653,901 $ 1,109,337 Current portion of capitalized lease obligations 14,178,485 10,736,025 Accounts payable 4,638,771 4,509,834 Current portion of accrued claims payable 4,270,105 3,656,381 Accrued liabilities 2,779,412 3,256,896 -------------- -------------- Total current liabilities 27,520,674 23,268,473 -------------- -------------- LONG-TERM ACCRUED CLAIMS PAYABLE, net of current portion 1,807,777 2,321,686 LONG-TERM OBLIGATIONS, net of current portion 2,144,516 4,031,690 CAPITALIZED LEASE OBLIGATIONS, net of current portion 40,187,931 51,655,247 STOCKHOLDERS' EQUITY: Common stock 4,217 4,209 Additional paid-in capital 49,759,238 49,731,276 Accumulated deficit (24,925,731) (22,130,451) -------------- -------------- Total stockholders' equity 24,837,724 27,605,034 -------------- -------------- $ 96,498,622 $ 108,882,130 ============== ============== See accompanying notes to condensed financial statements 1 PST VANS, INC. CONDENSED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ REVENUES $ 36,297,413 $ 43,766,499 $110,961,630 $122,029,039 ------------ ------------ ------------ ------------ COST AND EXPENSES: Salaries, wages and benefits 10,820,348 11,464,663 32,860,728 32,872,745 Purchased transportation 7,779,282 11,072,082 24,908,947 30,627,325 Fuel and fuel taxes 5,114,328 5,606,744 15,428,120 15,590,950 Depreciation and amortization 3,263,477 2,591,349 9,950,253 5,510,987 Insurance and claims 1,894,238 3,015,806 7,110,398 6,883,163 Revenue equipment lease expense 1,837,571 2,995,899 6,064,963 9,659,468 Maintenance 2,032,899 2,242,104 5,717,257 6,671,554 General supplies and expense 1,374,371 1,522,159 4,239,349 4,542,031 Taxes and licenses 793,971 987,856 2,549,636 2,533,728 Communications and utilities 831,492 995,043 2,577,582 2,438,180 Amortization of goodwill 67,991 68,000 203,972 203,972 (Gain) Loss on disposition of assets (329,678) (13,580) (1,585,561) 753 ------------ ------------ ------------ ------------ 35,480,290 42,548,125 110,025,644 117,534,856 ============ ============ ============ ============ OPERATING INCOME 817,123 1,218,374 935,986 4,494,183 ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSES): Interest expense (1,188,172) (1,006,246) (3,845,904) (2,788,242) Other income (expense) 24,222 (8,484) 114,638 855 ------------ ------------ ------------ ------------ (1,163,950) (1,014,730) (3,731,266) (2,787,387) ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (346,827) 203,644 (2,795,280) 1,706,796 PROVISION FOR INCOME TAXES - - - (150,315) ------------ ------------ ------------ ------------ NET INCOME (LOSS) (346,827) 203,644 (2,795,280) 1,556,481 ============ ============ ============ ============ NET INCOME (LOSS) PER SHARE (0.08) 0.05 (0.66) 0.41 ------------ ------------ ------------ ------------ WEIGHTED AVERAGE SHARES OUTSTANDING 4,212,862 4,218,497 4,210,568 3,788,141 ------------ ------------ ------------ ------------
See accompanying notes to condensed financial statements 2 PST VANS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (2,795,280) $ 1,556,481 Adjustments to reconcile net income (loss) to net cash provided by operating activities - Depreciation and amortization 10,154,225 5,714,959 Provision for losses on accounts receivable 960,687 507,784 (Gain) Loss on sale of property and equipment (1,585,561) 753 Increase in receivables (816,945) (4,126,617) Decrease in deposits (448,923) 2,185,008 Decrease (Increase) in prepaid and other expenses 564,862 (1,427,660) Increase in inventories and operating supplies (12,772) (168,132) Decrease in other assets, net 227,019 1,783,826 Increase in accounts payable 128,937 345,391 Increase in accrued claims payable 332,506 861,640 Decrease in accrued liabilities (477,484) (907,972) ------------ ----------- Total adjustments 9,026,551 4,768,980 ------------ ----------- Net cash flows provided by operating activities 6,231,271 6,325,461 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (1,149,741) (7,156,970) Proceeds from sale of property and equipment 4,097,996 1,004,445 ------------ ----------- Net cash flows provided by (used in) investing activities 2,948,255 (6,152,525) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt - 405,195 Principal payments on long-term obligations (1,342,610) (1,989,975) Principal payments on capitalized lease obligations (8,024,856) (4,038,091) Decrease in advances from factor - (5,336,289) Purchase of accounts receivable from factor - (9,063,711) Proceeds from issuance of common stock, net 27,970 21,625,824 ------------ ----------- Net cash flows (used in) provided by financing activities (9,339,496) 1,602,953 ------------ ----------- NET INCREASE (DECREASE) IN CASH (159,970) 1,775,889 CASH AT BEGINNING OF PERIOD 4,249,981 765,200 ------------ ----------- CASH AT END OF PERIOD $ 4,090,011 $ 2,541,089 ============ =========== See accompanying notes to condensed financial statements 3 PST VANS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1996 1995 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for - Interest $ 3,875,478 $ 2,687,677 Income taxes 85,395 1,573,678 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Equipment acquired through capitalized leases obligations - 43,037,728 Common stock issued as payment of long-term debt - 112,905 See accompanying notes to condensed financial statements 4 PST VANS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS Note 1. Financial Information: The accompanying condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes the following disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Results of operations for interim periods are not necessarily indicative of results for a full year. These condensed financial statements and notes thereto should be read in conjunction with the Company's financial statements and notes thereto, included in the Company's Form 10-K for the year ended December 31, 1995. Note 2. Income Taxes: Income taxes for the interim periods are based upon the Company's estimated effective annual tax rates. The Company's effective tax rate (income tax expense divided by income before provision for income taxes) decreased to zero for the three and nine months ended September 30, 1996, compared to approximately 0% and 9% for the three and nine months ended September 30, 1995, respectively, as a result of the Company not recording any benefit on its pre-tax loss in 1996. 5 PST VANS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Comparison of the Three Months Ended September 30, 1996 to the Three Months Ended September 30, 1995 Revenues decreased by 17.1% to $36.3 million for the three months ended September 30, 1996 compared to $43.8 million for the three months ended September 30, 1995. The decline in revenues resulted primarily from an 16.6% decrease in average revenue equipment to 1171 tractors for the three months ended September 30, 1996 compared to 1404 tractors for the three months ended September 30, 1995; and a 2.7% decline in rate per total mile for the three months ended September 30, 1996 compared to the three months ended September 30, 1995. Revenues were adversely affected in the third quarter of 1996 by higher than normal driver shortages. Management believes the decrease in rate per loaded mile was a result of an overcapacity of tractors that affected the industry generally. Operating costs and expenses were 97.7% of revenues for the three months ended September 30, 1996, compared to 97.2% of revenues for the three months ended September 30, 1995. Salaries, wages and benefits increased to 29.8% of revenues for the three months ended September 30, 1996 compared to 26.2% of revenues for the three months ended September 30, 1995. This was due primarily to driver pay changes that became effective in October, 1995, a small increase in September 1996, and an increase in the percent of total miles driven by Company drivers compared to independent contractors during the two periods. Company miles increased to 72.4% of total miles for the three months ended September 30, 1996 compared to 67.4% of total miles for the three months ended September 30, 1995, due to a higher ratio of company tractors to total tractors. Purchased transportation decreased to 21.4% of revenues for the three months ended September 30, 1996, compared to 25.3% for the three months ended September 30, 1995, as result of a smaller percent of total miles driven by independent contractors (see previous paragraph) and a reduction in the rate paid to independent contractors. Independent contractors are under contract with the Company and are responsible for their own salaries, wages and benefits, fuel, maintenance and depreciation. Independent contractor costs are classified as purchased transportation expenses. Fuel and fuel taxes, net of surcharges, increased to 14.1% of revenues for the three months ended September 30, 1996, compared to 12.8% of revenues for the three months ended September 30, 1995, as a result of a higher percentage of miles driven with Company tractors and an increase in the cost of fuel. In order to reduce the Company's vulnerability to rapid increases in the price of fuel, the Company has historically entered into purchase contracts with fuel suppliers from time to time for a portion of its estimated fuel requirements at guaranteed prices. The increase in cost of fuel was largely offset by fuel sur- charges to customers and fuel purchase contracts. As these guaranteed price contracts expire, fuel cost could increase if pump prices remain high. Manage- ment expects the cost of fuel to remain high through the fourth quarter. The 6 Company also implemented fuel surcharges to many of its customers, but antici- pates that the purchase contracts and fuel surcharges will help offset some of the increase in the cost of fuel. Revenue equipment lease expense decreased to 5.1% of revenues for the three months ended September 30, 1996, compared to 6.8% of revenues for the three months ended September 30, 1995, primarily as a result of the Company reducing the percentage of its tractor fleet financed through operating leases to 22.0% for the three months ended September 30, 1996, compared to 32.3% for the three months ended September 30, 1995. The decrease was partially offset by an increase in trailers financed by operating lease. Maintenance increased to 5.6% of revenues for the three months ended September 30, 1996, compared to 5.1% of revenues for the three months ended September 30, 1995, as a result of increased tire expense partially offset by reduced repair costs. Management believes the increased tire cost for the three months ended September 30, 1996 was a result of a larger portion of the fleet requir- ing tires during the quarter as a result of the normal wear cycle. Lower re- pair costs are a result of a newer tractor fleet. The average age of Company owned tractors decreased to 1.5 years during the three months ended September 30, 1996 compared to 1.6 years for the three months ended September 30, 1995. Insurance and claims decreased to 5.2% of revenues for the three months ended September 30, 1996, from 6.9% of revenues for the three months ended September 30, 1995 as a result of a decrease in the number of incidents for the three months ended September 30, 1996. The company recently reduced its deductible which will increase the premium, but in management's opinion will reduce overall costs. General supplies and expenses increased to 3.8% of revenues for the three months ended September 30, 1996 compared to 3.4% of revenues for the three months ended September 30, 1995 as a result of increased costs associated with outside consultants. An outside consulting firm was brought in to review various process at the company, including Insurance & Claims, Driver Retention, and Budgeting. Many of their suggestions have been implemented in the company. Taxes and licenses decreased to 2.2% of revenues for the three months ended September 30, 1996, compared to 2.3% of revenues for the three months ended September 30, 1995, as a result of an increase in the percent of company equipment to total equipment. Communications and utilities held even at 2.3% of revenues for the three months ended September 30, 1996, compared to 2.3% of revenues for the three months ended September 30, 1995. The Company uses the "Highway Master" on board communication systems in its fleet of tractors. The Company began installation of "Highway Master" systems in June, 1994. In April 1995, all of the tractors were equipped with the on-board system. The costs associated with the use of the on-board system have been higher than anticipated. The Company has taken various steps in the past to try to reduce the ongoing costs of using the on-board communication system. The use of the "Highway Master" system generally enhances the Company's ability to track loads, service customers and communicate with and monitor drivers. The Company recognized a gain of $329,678, or .9% of revenues for the three months ended September 30, 1996, compared to a gain of $13,580 for the three months ended September 30, 1995, as a result of the Company selling 209 of its older trailers in the third quarter of 1996. 7 Depreciation and amortization increased to 9.0% of revenues for the three months ended September 30, 1996, compared to 5.9% of revenues for the three months ended September 30, 1995, as a result of the majority of the Company's new revenue equipment being financed with capital leases and the increased cost of upgraded equipment. Interest expense increased to 3.3% of revenues for the three months ended September 30, 1996, compared to 2.3% of revenues for the three months ended September 30, 1995 as a result of the majority of the Company's new revenue equipment being financed with capitalized leases and the increased cost of upgraded equipment. As a consequence of the items discussed above, the Company incurred a loss before provision for income taxes for the three months ended September 30, 1996 of $346,827 compared to income before provision for income taxes of $203,644 for the three months ended September 30, 1995. Comparison of the Nine Months Ended September 30, 1996 to the Nine Months Ended September 30, 1995 Revenues decreased by 9.1% to $111.0 million for the nine months ended September 30, 1996 compared to $122.0 million for the nine months ended September 30, 1995. The decrease in revenues was a result of a 3.6% decrease in the number of tractors to 1257 for the nine months ended September 30, 1996 compared to 1304 for the nine months ended September 30, 1995, a decrease in average rates of 1.2% and a decrease in the average miles per tractor of 4.5% between the two periods. Management believes the decrease in average revenue per total mile and decrease in average miles per tractor was a result of slower than anticipated economic conditions in the first nine months of 1996. Addi- tionally, a shortage of qualified drivers increased the average unseated trac- tors in the nine months ended September 30, 1996 compared to the nine months ended September 30, 1995. The driver shortage problem has improved through the end of the third quarter. However, if a shortage of qualified drivers continues to plague the industry, we may experience future shortages. Operating costs and expenses were 99.2% of revenues for the nine months ended September 30, 1996 compared to 96.3% of revenues for the nine months ended September 30, 1995. Operating costs and expenses were adversely affected by the 1.2% reduction in earnings per total mile and the 4.5% decrease in utilization as measured by total miles per truck for the nine months ended September 30, 1996, as well as the factors discussed below. Salaries, wages and benefits increased to 29.6% of revenues for the nine months ended September 30, 1996 compared to 26.9% for the nine months ended September 30, 1995 due primarily from driver pay changes in October 1995 and September 1996 and an increase in the percent of total miles driven by Company drivers compared to independent contractors during the two periods. Company miles increased to 70.9% of total miles for the nine months ended September 30, 1996, compared to 68.0% of total miles for the nine months ended September 30, 1995 due to a higher rate of Company tractors to total tractors. Purchased transportation decreased to 22.4% of revenue for the nine months ended September 30, 1996 compared to 25.1% for the nine months ended September 30, 1995, as a result of a smaller percent of total miles driven by independent contractors and a reduction in the rate paid to independent contractors. Independent contractors are under contract with the company and are responsible for their own salaries, wages and benefits, fuel, maintenance and depreciation. Independent contractor costs are classified as purchased transportation expenses. 8 Fuel and fuel taxes, net of fuel surcharges, increased to 13.9% of revenues for the nine months ended September 30, 1996, compared to 12.8% of revenues for the nine months ended September 30, 1995, as a result of a higher percentage of miles driven with Company tractors and an increase in fuel costs partially offset with fuel surcharges billed to customers and fuel purchase contracts. Management expects the cost of fuel to remain high through the remainder of the year. Revenue equipment lease expense decreased to 5.5% of revenue for the nine months ended September 30, 1996 compared to 7.9% of revenues for the nine months ended September 30, 1995, primarily as a result of the Company reducing the percentage of its tractor fleet financed through operating leases to 25.0% for the nine months ended September 30, 1996 compared to 38.6% for the nine months ended September 30, 1995. Maintenance decreased to 5.2% of revenues for the nine months ended September 30, 1996, compared to 5.5% of revenues for the nine months ended September 30, 1995, as a result of reduced maintenance cost associated with a newer tractor fleet. The average age of Company owned tractors decreased to 1.3 years during the nine months ended September 30, 1996 compared to 1.7 years for the nine months ended September 30, 1995. Insurance and claims increased to 6.4% of revenues for the nine months ended September 30, 1996, from 5.6% of revenues for the nine months ended September 30, 1995 as a result of an increase in the amount of average loss per accident during the nine months ended September 30, 1996 and the volume of small losses compared to the nine months ended September 30, 1995. On October 1, 1995, Management increased the training requirements of new drivers and has changed the driver pay to attract more experienced drivers which management believes are less accident-prone. Management continues to review accidents to determine what actions may be taken to reduce future claims costs. General supplies and maintenance increased to 3.8% of revenue for the nine months ended June 30, 1996 compared to 3.7% of revenues for the nine months ended September 30, 1995 as a result of increased use of outside consultants. Taxes and licenses increased to 2.3% of revenues for the nine months ended September 30, 1996 compared to 2.1% of revenues for the nine months ended September 30, 1995, primarily as a result of an increase in the percentage of company equipment to total equipment. Communications and utilities increased to 2.3% of revenues for the nine months ended September 30, 1996 compared to 2.0% of revenues for the nine months ended September 30, 1995, primarily as a result of the Company utilizing "Highway Master" on board communication system in a larger portion of its fleet of tractors. The Company began installation of "Highway Master" systems in June 1994. In April 1995, all of the tractors were equipped with the on-board system. The costs associated with the use of the on-board system have been higher than anticipated. The Company has taken various steps, however, that it believes will help reduce the ongoing costs of using the on-board communication system during the remainder of 1996. The use of "Highway Master" system generally enhances the Company's ability to track loads, service customers and communicate with drivers and monitor drivers. 9 The Company recognized a gain of $1,585,561, or 1.4% of revenues for the nine months ended September 30, 1996 compared to a loss of $753 for the nine months ended September 30, 1995, as a result of the Company selling its older trailers during the first nine months of 1996. Depreciation and amortization increased to 9.0% of revenues for the nine months ended September 30, 1996, compared to 4.5% of revenues for the nine months ended September 30, 1995, as a result of the majority of the Company's new revenue equipment being financed with capital leases. Interest expense increased to 3.5% of revenues for the nine months ended September 30, 1996, compared to 2.3% of revenues for the nine months ended September 30, 1995 as a result of the majority of the Company's new revenue equipment being financed with capital leases. This increase in interest expense was partially offset by a .8% of revenue decrease in interest expense compared to the nine months ended September 30, 1995, as a result of the Company ceasing to discount its accounts receivable to a factor following its initial public offering of its common stock in March 1995. As a consequence of the items discussed above, the Company incurred a loss before provision for income taxes for the nine months ended September 30, 1996 of $2,795,280, compared to income before provision for income taxes of $1,556,481 for the nine months ended September 30, 1995. The Company's effective tax rate ( income tax expense divided by income before income taxes) decreased to zero for the nine months ended September 30, 1996, compared to 9% for the nine months ended September 30, 1995, as a result of the Company not recording any benefit on its pretax loss. Liquidity and Capital Resources The Company's sources of liquidity have been funds provided by operations, leases on revenue equipment and revolving lines of credit. The Company has a credit facility with the Bank of New York for issuance of letters of credit up to $8.7 million. As of September 30, 1996, the Company had used $8.7 million of this facility, principally for letters of credit in favor of the Company's insurance carrier. As outstanding letters of credit issued under this credit facility are not renewed, the maximum commitment available under this credit facility will be reduced by the amount of the letters of credit that are not renewed. In May, 1995 the Company obtained an additional $8.0 million working capital line of credit which expired on May 12, 1996. Extensions on this $8.0 million line credit were obtained through August 12, 1996, at which time the $8.0 million line of credit expired. Effective August 6, 1996, the company obtained a $7.0 million line of credit. The Company anticipates that use of the line will be primarily for insurance related letters of credit as well as providing any short term cash requirements. As of September 30, 1996, the Company has utilized $3.2 million of the new $7.0 million line of credit for insurance related letters of credit. The credit facility in place with the Bank of New York on September 30, 30, 1996 has loan covenants which obligate the Company to maintain a required level of profitability and cash flow. The Bank of New York has amended these covenants for periods through and including December 31, 1996. The Company is currently in compliance with the Bank of New York covenants. The Company may be required to seek additional amendments or waivers in the future. 10 based on actual operating results. The new $7.0 million line of credit has no loan covenants, but is secured by accounts receivable. Net cash provided by operating activities totaled approximately $6.2 million for the nine months ended September 30, 1996. Net cash provided by investing activities (primarily selling of equipment) amounted to $2.9 million for the nine months ended September 30, 1996. Payments on debt and capitalized lease obligations was $9.3 million for the nine months ended September 30, 1996. The Company expects capital expenditures for the remainder of 1996 to be approximately $0.5 million primarily for a computer system and software replacement and upgrade. For the first nine months of 1996, the Company acquired $1.1 million of new fixed assets, primarily furniture and fixtures and leasehold improvements. Future expansion of the fleet will be made as future economic conditions dictate. Management believes that commitments available under the Company's lines of credit will be sufficient to meet the Company's capital requirements through 1996. The Company's business is capital intensive and will require the Company to seek additional debt and possibly equity capital to enable the Company to maintain a modern fleet. Whether such capital will be available on favorable terms, or at all, will depend on the Company's future operating results, prevailing economic and industry conditions and other factors over which the Company has little or no control. Fuel is one of the Company's most substantial operating expenses. In order to reduce the Company's vulnerability to rapid increased in the price of fuel, the Company enters into purchase contracts with fuel suppliers from time to time for a portion of its estimated fuel requirements at guaranteed prices. As of September 30, 1996, the Company had entered into various agreements with fuel suppliers to purchase approximately 40% of its estimated fuel needs through fourth quarter 1996 and 18% of its fuel needs through June 1997 at a guaranteed price. Although this arrangement helps reduce the Company's vulnerability to rapid increases in the price of fuel, the Company will not benefit from a decrease in the price of fuel to the extent of its commitment to purchase fuel under these contracts. Seasonality In the trucking industry, revenues generally show a seasonal pattern as customers reduce shipments during and after the winter holiday season and its attendant weather variations. Operating expenses also tend to be higher during the cold weather months, primarily due to poorer fuel economy and increased maintenance costs. Inflation Inflation can be expected to have an impact on the Company's operations. The effect of inflation has been minimal over the past three years. This quarterly report on Form 10-Q may be deemed to contain certain forward- looking statements. These statements are subject to known and unknown risks and uncertainties, including decreased demand for freight, slower than anticipated economic conditions, shortages of drivers and such other risks as are identified and discussed herein and in the Company's filings with the Securities and Exchange Commission. These known and unknown risks and uncertainties could cause the Company's actual results in future periods to be materially different from any future performance suggested herein. 11 PART II, OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10.1 - Loan and Security Agreement Exhibit 27.1 - Financial Data Schedule (b) Reports on Form 8-K None 12 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. PST VANS, INC. Date: November 14, 1996 By: \s\ Kenneth R. Norton -------------------------- . . . . . . . . . . . . . . . . . . . . . . . . . .Kenneth R. Norton . . . . . . . . . . . . . . . . . . . . . . . . . .Chief Executive Officer By: \s\ Steven Orme -------------------------- . . . . . . . . . . . . . . . . . . . . . . . . . .Steven Orme . . . . . . . . . . . . . . . . . . . . . . . . . .Controller/Treasurer EX-10 2 Loan and Security Agreement by and between CONGRESS FINANCIAL CORPORATION (NORTHWEST) as Lender and PST VANS, INC. as Borrower Dated: August 6, 1996 TABLE OF CONTENTS Page SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . 1 SECTION 2. CREDIT FACILITIES . . . . . . . . . . . . . . . . 6 2.1 Revolving Loans . . . . . . . . . . . . . . . . . . . 6 2.2 Letter of Credit Accommodations . . . . . . . . . . . 6 2.3 Availability Reserves . . . . . . . . . . . . . . . . 8 SECTION 3. INTEREST AND FEES . . . . . . . . . . . . . . . . 8 3.1 Interest. . . . . . . . . . . . . . . . . . . . . . . 8 3.2 Closing Fee . . . . . . . . . . . . . . . . . . . . . 9 3.3 Facility Fee. . . . . . . . . . . . . . . . . . . . . 9 3.5 Unused Line Fee . . . . . . . . . . . . . . . . . . . 9 SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . 9 4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations. . . . . . . . . . . . . . . . 9 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations . . . . . . . . . . . . . . . . . . . 10 SECTION 5. GRANT OF SECURITY INTEREST. . . . . . . . . . . . 10 SECTION 6. COLLECTION AND ADMINISTRATION . . . . . . . . . . 11 6.1 Borrower's Loan Account . . . . . . . . . . . . . . . 11 6.2 Statements. . . . . . . . . . . . . . . . . . . . . . 11 6.3 Collection of Accounts. . . . . . . . . . . . . . . . 12 6.4 Payments. . . . . . . . . . . . . . . . . . . . . . . 12 6.5 Authorization to Make Loans . . . . . . . . . . . . . 13 6.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . 13 SECTION 7. COLLATERAL REPORTING AND COVENANTS. . . . . . . . 13 7.1 Collateral Reporting. . . . . . . . . . . . . . . . . 13 7.2 Accounts Covenants. . . . . . . . . . . . . . . . . . 14 7.3 [Deleted.]. . . . . . . . . . . . . . . . . . . . . . 15 7.4 [Deleted.] . . . . . . . . . . . . . . . . . . . . . 15 7.5 Power of Attorney . . . . . . . . . . . . . . . . . . 15 7.6 Right to Cure . . . . . . . . . . . . . . . . . . . . 15 7.7 Access to Premises. . . . . . . . . . . . . . . . . . 16 SECTION 8. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 16 8.1 Corporate Existence, Power and Authority; Subsidiaries 16 8.2 Financial Statements; No Material Adverse Change. . . 16 8.3 Chief Executive Office; Collateral Locations. . . . . 17 8.4 Priority of Liens; Title to Properties. . . . . . . . 17 8.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . 17 8.6 Litigation. . . . . . . . . . . . . . . . . . . . . . 17 8.7 Compliance with Other Agreements and Applicable Laws. 17 8.8 Accuracy and Completeness of Information. . . . . . . 18 8.9 Survival of Warranties; Cumulative. . . . . . . . . . 18 SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS. . . . . . . . 18 9.1 Maintenance of Existence. . . . . . . . . . . . . . . 18 9.2 New Collateral Locations. . . . . . . . . . . . . . . 18 9.3 Compliance with Laws, Regulations, Etc. . . . . . . . 18 9.4 Payment of Taxes and Claims . . . . . . . . . . . . . 18 9.5 Insurance . . . . . . . . . . . . . . . . . . . . . . 19 9.6 Financial Statements and Other Information. . . . . . 19 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc 20 9.8 Encumbrances. . . . . . . . . . . . . . . . . . . . . 20 9.9 [Deleted.]. . . . . . . . . . . . . . . . . . . . . . 20 9.10 Loans, Investments, Guarantees, Etc. . . . . . . . . 20 9.11 Dividends and Redemptions. . . . . . . . . . . . . . 21 9.12 Transactions with Affiliates . . . . . . . . . . . . 21 9.13 [Deleted.] . . . . . . . . . . . . . . . . . . . . . 21 9.14 [Deleted.] . . . . . . . . . . . . . . . . . . . . . 21 9.15 Costs and Expenses . . . . . . . . . . . . . . . . . 21 9.16 Further Assurances . . . . . . . . . . . . . . . . . 22 SECTION 10. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . 22 10.1 Events of Default. . . . . . . . . . . . . . . . . . 22 10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW . . . . . . . . . . 24 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. . . . . . . . . . . . . . . . . . 24 11.2 Waiver of Notices. . . . . . . . . . . . . . . . . . 26 11.3 Amendments and Waivers . . . . . . . . . . . . . . . 26 11.4 Waiver of Counterclaims. . . . . . . . . . . . . . . 26 11.5 Indemnification. . . . . . . . . . . . . . . . . . . 26 SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS. . . . . . . . . 26 12.1 Term . . . . . . . . . . . . . . . . . . . . . . . . 26 12.2 Notices. . . . . . . . . . . . . . . . . . . . . . . 27 12.3 Partial Invalidity . . . . . . . . . . . . . . . . . 28 12.4 Successors . . . . . . . . . . . . . . . . . . . . . 28 12.5 Entire Agreement . . . . . . . . . . . . . . . . . . 28 INDEX TO EXHIBITS AND SCHEDULES Exhibit A Information Certificate Schedule 8.4 Existing Liens LOAN AND SECURITY AGREEMENT This Loan and Security Agreement dated August 6, 1996 is entered into by and between Congress Financial Corporation (Northwest), an Oregon corporation ("Lender") and PST Vans, Inc., a Utah corporation ("Borrower"). W I T N E S S E T H: WHEREAS, Borrower has requested that Lender enter into certain financing arrangements with Borrower pursuant to which Lender may make loans and provide other financial accommodations to Borrower; and WHEREAS, Lender is willing to make such loans and provide such financial accommodations on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS All terms used herein which are defined in Article 1 or Article 9 of the Uniform Commercial Code as adopted in the state of Oregon shall have the meanings given therein unless otherwise defined in this Agreement. All references to the plural herein shall also mean the singular and to the singular shall also mean the plural. All references to Borrower and Lender pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. The words "hereof," "herein," "hereunder," "this Agreement" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. An Event of Default shall exist or continue or be continuing until such Event of Default is cured or waived in accordance with Section 11.3. Any accounting term used herein unless otherwise defined in this Agreement shall have the meanings customarily given to such term in accordance with GAAP. For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 1.1 "Accounts" shall mean all present and future rights of Borrower to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance. 1.2 [Deleted.] 1.3 "Availability Reserves" shall mean, as of any date of determination, such amounts as Lender may from time to time establish and revise in good faith reducing the amount of Revolving Loans and Letter of Credit Accommodations which would otherwise be available to Borrower under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks which, as determined by Lender in good faith, do or may affect either (i) the Collateral or any other property which is security for the Obligations or its value, (ii) the assets, business or prospects of Borrower or any Obligor or (iii) the security interests and other rights of Lender in the Collateral (including the enforceability, perfection and priority thereof) or (b) to reflect Lender's good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or misleading in any material respect or (c) in respect of any state of facts which Lender determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default. 1.4 "Blocked Accounts" shall have the meaning set forth in Section 6.3 hereof. 1.5 "Collateral" shall have the meaning set forth in Section 5 hereof. 1.6 "Eligible Accounts" shall mean Accounts created by Borrower which are and continue to be acceptable to Lender based on the criteria set forth below. In general, Accounts shall be Eligible Accounts if: (a) such Accounts arise from the actual and bona fide sale and delivery of goods by Borrower or rendition of services by Borrower in the ordinary course of its business which transactions are completed in accordance with the terms and provisions contained in any documents related thereto. With respect to Accounts arising from the carriage of goods, the delivery of the goods shall have been completed; (b) such Accounts are not unpaid more than ninety (90) days after the date of the original invoice for them; (c) such Accounts comply with the terms and conditions contained in Section 7.2(c) of this Agreement; (d) such Accounts do not arise from sales on consignment, guaranteed sale, sale and return, sale on approval, or other similar terms under which payment by the account debtor may be conditional or contingent; (e) the chief executive office of the account debtor with respect to such Accounts is located in the United States of America, or, at Lender's option, if either: (i) the account debtor has delivered to Borrower an irrevocable letter of credit issued or confirmed by a bank satisfactory to Lender, sufficient to cover such Account, in form and substance satisfactory to Lender and, if required by Lender, the original of such letter of credit has been delivered to Lender or Lender's agent and the issuer thereof notified of the assignment of the proceeds of such letter of credit to Lender, or (ii) such Account is subject to credit insurance payable to Lender issued by an insurer and on terms and in an amount acceptable to Lender, or (iii) such Account is otherwise acceptable in all respects to Lender (subject to such lending formula with respect thereto as Lender may determine); (f) such Accounts do not consist of progress billings, bill and hold invoices or retainage invoices, except as to bill and hold invoices, if Lender shall have received an agreement in writing from the account debtor, in form and substance satisfactory to Lender, confirming the unconditional obligation of the account debtor to take the goods related thereto and pay such invoice; (g) the account debtor with respect to such Accounts has not asserted a counterclaim, defense or dispute and does not have, and does not engage in transactions which may give rise to, any right of setoff against such Accounts; (h) there are no facts, events or occurrences which would impair the validity, enforceability or collectability of such Accounts or reduce the amount payable or delay payment thereunder; (i) such Accounts are subject to the first priority, valid and perfected security interest of Lender and any goods giving rise thereto are not, and were not at the time of the sale thereof, subject to any liens except those permitted in this Agreement; (j) neither the account debtor nor any officer or employee of the account debtor with respect to such Accounts is an officer, employee or agent of or affiliated with Borrower directly or indirectly by virtue of family membership, ownership, control, management or otherwise; (k) the account debtors with respect to such Accounts are not any foreign government, the United States of America, any State, political subdivision, department, agency or instrumentality thereof, unless, if the account debtor is the United States of America, any State, political subdivision, department, agency or instrumentality thereof, upon Lender's request, the Federal Assignment of Claims Act of 1940, as amended, or any similar State or local law, if applicable, has been complied with in a manner satisfactory to Lender; (l) there are no proceedings or actions which are threatened or pending against the account debtors with respect to such Accounts which might result in any material adverse change in any such account debtor's financial condition; (m) such Accounts of a single account debtor or its affiliates do not constitute more than twenty-five percent (25%) of all otherwise Eligible Accounts (but the portion of the Accounts not in excess of such percentage may be deemed Eligible Accounts); (n) such Accounts are not owed by an account debtor who has Accounts unpaid more than ninety (90) days after the date of the original invoice for them which constitute more than fifty percent (50%) of the total Accounts of such account debtor; (o) such Accounts are owed by account debtors whose total indebtedness to Borrower does not exceed the credit limit with respect to such account debtors as determined by Lender from time to time (but the portion of the Accounts not in excess of such credit limit may still be deemed Eligible Accounts); and (p) such Accounts are owed by account debtors deemed creditworthy at all times by Lender, as determined by Lender. General criteria for Eligible Accounts may be established and revised from time to time by Lender in good faith. Any Accounts which are not Eligible Accounts shall nevertheless be part of the Collateral. 1.7 [Deleted.] 1.8 "Equipment" shall mean all of Borrower's now owned and hereafter acquired equipment, machinery, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located. 1.9 "Event of Default" shall mean the occurrence or existence of any event or condition described in Section 10.1 hereof. 1.10 "Excess Availability" shall mean the amount, as determined by Lender equal to: (a) the lesser of (i) the amount of the Revolving Loans available to Borrower as of such time based on the applicable lending formulas multiplied by the Net Amount of Eligible Accounts and the Value of Eligible Inventory, as determined by Lender, and subject to the sublimits and Availability Reserves from time to time established by Lender hereunder and (ii) the Maximum Credit, minus (b) the sum of: (i) the amount of all then outstanding and unpaid Obligations, plus (ii) the aggregate amount of all trade payables of Borrower which are more than thirty (30) days past due as of such time, plus (iii) the amount of all then outstanding book overdrafts. 1.11 "Financing Agreements" shall mean, collectively, this Agreement and all notes, guarantees, security agreements and other agreements, documents and instruments now or at any time hereafter executed and/or delivered by Borrower or any Obligor in connection with this Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.12 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Boards which are applicable to the circumstances as of the date of determination consistently applied, except that, for purposes of Sections 9.13 and 9.14 hereof, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the audited financial statements delivered to Lender prior to the date hereof. 1.13 "Information Certificate" shall mean the Information Certificate of Borrower constituting Exhibit A hereto containing material information with respect to Borrower, its business and assets provided by or on behalf of Borrower to Lender in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein. 1.14 "Inventory" shall mean all of Borrower's now owned and hereafter existing or acquired raw materials, work in process, finished goods and all other inventory of whatsoever kind or nature, wherever located. 1.15 "Letter of Credit Accommodations" shall mean the letters of credit, merchandise purchase or other guaranties which are from time to time either (a) issued or opened by Lender for the account of Borrower or any Obligor or (b) with respect to which Lender has agreed to indemnify the issuer or guaranteed to the issuer the performance by Borrower of its obligations to such issuer. 1.16 "Loans" shall mean the Revolving Loans. 1.17 "Maximum Credit" shall mean the amount of $7,000,000. 1.18 "Net Amount of Eligible Accounts" shall mean the gross amount of Eligible Accounts less (a) sales, excise or similar taxes included in the amount thereof and (b) returns, discounts, claims, credits and allowances of any nature at any time issued, owing, granted, outstanding, available or claimed with respect thereto. 1.19 "Obligations" shall mean any and all Revolving Loans, Letter of Credit Accommodations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower to Lender and/or its affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to Borrower under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the commencement of such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender. 1.20 "Obligor" shall mean any guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than Borrower. 1.21 "Payment Account" shall have the meaning set forth in Section 6.3 hereof. 1.22 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended), business trust, unincorporated association, joint stock corporation, limited liability company, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.23 "Prime Rate" shall mean the rate from time to time publicly announced by CoreStates Bank, N.A., or its successors, at its office in Philadelphia, Pennsylvania, as its prime rate, whether or not such announced rate is the best rate available at such bank. 1.24 "Records" shall mean all of Borrower's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrower with respect to the foregoing maintained with or by any other person). 1.25 "Revolving Loans" shall mean the loans now or hereafter made by Lender to or for the benefit of Borrower on a revolving basis (involving advances, repayments and readvances) as set forth in Section 2.1 hereof. 1.26 [Deleted.] SECTION 2. CREDIT FACILITIES 2.1 Revolving Loans. (a) Subject to, and upon the terms and conditions contained herein, Lender agrees to make Revolving Loans to Borrower from time to time in amounts requested by Borrower up to the amount equal to the sum of: (i) Eighty percent (80%) of the Net Amount of Eligible Accounts, less (ii) any Availability Reserves. (b) Lender may, in its discretion, from time to time, upon not less than five (5) days prior notice to Borrower, reduce the lending formula with respect to Eligible Accounts to the extent that Lender determines in good faith that: (A) the dilution with respect to the Accounts for any period (based on the ratio of (1) the aggregate amount of reductions in Accounts other than as a result of payments in cash to (2) the aggregate amount of total sales) has increased in any material respect or may be reasonably anticipated to increase in any material respect above historical levels, or (B) the general creditworthiness of account debtors has declined.In determining whether to reduce the lending formula(s), Lender may consider events, conditions, contingencies or risks which are also considered in determining Eligible Accounts or in establishing Availability Reserves. (c) Except in Lender's discretion, the aggregate amount of the Loans and the Letter of Credit Accommodations outstanding at any time shall not exceed the Maximum Credit. In the event that the outstanding amount of any component of the Loans, or the aggregate amount of the outstanding Loans and Letter of Credit Accommodations, exceed the amounts available under the lending formulas, the sublimits for Letter of Credit Accommodations set forth in Section 2.2(c) or the Maximum Credit, as applicable, such event shall not limit, waive or otherwise affect any rights of Lender in that circumstance or on any future occasions and Borrower shall, upon demand by Lender, which may be made at any time or from time to time, immediately repay to Lender the entire amount of any such excess(es) for which payment is demanded. 2.2 Letter of Credit Accommodations. (a) Subject to, and upon the terms and conditions contained herein, at the request of Borrower, Lender agrees to provide or arrange for Letter of Credit Accommodations for the account of Borrower containing terms and conditions acceptable to Lender and the issuer thereof. Any payments made by Lender to any issuer thereof and/or related parties in connection with the Letter of Credit Accommodations shall constitute additional Revolving Loans to Borrower pursuant to this Section 2. (b) In addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, Borrower shall pay to Lender a letter of credit fee at a rate equal to one and one-half (1.5%) percent per annum on the daily outstanding balance of the Letter of Credit Accommodations for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month. Such letter of credit fee shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of Borrower to pay such fee shall survive the termination or non-renewal of this Agreement. (c) No Letter of Credit Accommodations shall be available unless on the date of the proposed issuance of any Letter of Credit Accommodations, the Revolving Loans available to Borrower (subject to the Maximum Credit and any Availability Reserves) are equal to or greater than an amount equal to one hundred (100%) percent of the face amount thereof and all other commitments and obligations made or incurred by Lender with respect thereto. Effective on the issuance of each Letter of Credit Accommodation, the amount of Revolving Loans which might otherwise be available to Borrower shall be reduced by such amount. (d) Except in Lender's discretion, (i) the amount of all outstanding Letter of Credit Accommodations and all other commitments and obligations made or incurred by Lender in connection therewith, shall not at any time exceed $5,000,000. At any time an Event of Default exists or has occurred and is continuing, upon Lender's request, Borrower will either furnish cash collateral to secure the reimbursement obligations to the issuer in connection with any Letter of Credit Accommodations or furnish cash collateral to Lender for the Letter of Credit Accommodations, and in either case, the Revolving Loans otherwise available to Borrower shall not be reduced as provided in Section 2.2(c) to the extent of such cash collateral. (e) Borrower shall indemnify and hold Lender harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Lender may suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto, including, but not limited to, any losses, claims, damages, liabilities, costs and expenses due to any action taken by any issuer or correspondent with respect to any Letter of Credit Accommodation. Borrower assumes all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder. Borrower hereby releases and holds Lender harmless from and against any acts, waivers, errors, delays or omissions, whether caused by Borrower, by any issuer or correspondent or otherwise with respect to or relating to any Letter of Credit Accommodation. The provisions of this Section 2.2(e) shall survive the payment of Obligations and the termination or non-renewal of this Agreement. (f) Nothing contained herein shall be deemed or construed to grant Borrower any right or authority to pledge the credit of Lender in any manner. Lender shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer other than Lender unless Lender has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit Accommodation. Borrower shall be bound by any interpretation made in good faith by Lender, or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of Borrower. Lender shall have the sole and exclusive right and authority to, and Borrower shall not: (i) at any time an Event of Default exists or has occurred and is continuing, (A) approve or resolve any questions of non-compliance of documents, (B) give any instructions as to acceptance or rejection of any documents or goods or (C) execute any and all applications for steamship or airway guaranties, indemnities or delivery orders, and (ii) at all times, (A) grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents, and (B) agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in the Collateral. Lender may take such actions either in its own name or in Borrower's name. (g) Any rights, remedies, duties or obligations granted or undertaken by Borrower to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by Borrower to Lender. Any duties or obligations undertaken by Lender to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Lender in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been undertaken by Borrower to Lender and to apply in all respects to Borrower. 2.3 Availability Reserves. All Revolving Loans otherwise available to Borrower pursuant to the lending formulas and subject to the Maximum Credit and other applicable limits hereunder shall be subject to Lender's continuing right to establish and revise Availability Reserves. SECTION 3. INTEREST AND FEES 3.1 Interest. (a) Borrower shall pay to Lender interest on the outstanding principal amount of the non-contingent Obligations at the rate of one percent (1.0%) per annum in excess of the Prime Rate, except that Borrower shall pay to Lender interest, at Lender's option, without notice, at the rate of four percent (4.0%) per annum in excess of the Prime Rate: (i) on the non-contingent Obligations for the period from and after the date of termination or non-renewal hereof, or the date of the occurrence of an Event of Default, and for so long as such Event of Default is continuing as determined by Lender and until such time as Lender has received full and final payment of all such Obligations (notwithstanding entry of any judgment against Borrower) and (ii) on the Revolving Loans at any time outstanding in excess of the amounts available to Borrower under Section 2 (whether or not such excess(es), arise or are made with or without Lender's knowledge or consent and whether made before or after an Event of Default); provided, however, that in the event the excess under clause (ii) results from Lender's reduction of lending formulas, establishment of a credit limit under Section 1.6(o) or establishment of Availability Reserves, the higher rate of interest provided above shall not be effective with respect to such excess for a period of 30 days after the action which creates the excess. All interest accruing hereunder on and after the occurrence of any of the events referred to in Sections 3.1(a)(i) or 3.1(a)(ii) above shall be payable on demand. (b) Interest shall be payable by Borrower to Lender monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs. In no event shall charges constituting interest payable by Borrower to Lender exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. 3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the amount of $52,500, which shall be fully earned as of and payable on the date hereof. 3.3 Facility Fee. Borrower shall pay to Lender annually a facility fee in an amount equal to $17,500 while this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be fully earned as of and payable in advance on each anniversary of the date hereof. 3.4 Audit Fee. Borrower shall pay to Lender an audit fee of $2,000 for each of Lender's periodic field examinations of the Collateral and the Borrower's operations, which examinations Lender expects to perform quarterly. 3.5 Unused Line Fee. Borrower shall pay to Lender monthly an unused line fee at a rate equal to one-quarter percent (.25%) per annum calculated upon the amount by which $5,600,000 exceeds the average daily principal balance of the outstanding Revolving Loans and Letter of Credit Accommodations during the immediately preceding month (or part thereof) while this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be payable on the first day of each month in arrears. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations. Each of the following is a condition precedent to Lender making the initial Loans and providing the initial Letter of Credit Accommodations hereunder: (a) Lender shall have received evidence, in form and substance satisfactory to Lender, that Lender has valid perfected and first priority security interests in and liens upon the Collateral and any other property which is intended to be security for the Obligations or the liability of any Obligor in respect thereof, subject only to the security interests and liens permitted herein or in the other Financing Agreements; (b) all requisite corporate action and proceedings in connection with this Agreement and the other Financing Agreements shall be satisfactory in form and substance to Lender, and Lender shall have received all information and copies of all documents, including, without limitation, records of requisite corporate action and proceedings which Lender may have requested in connection therewith, such documents where requested by Lender or its counsel to be certified by appropriate corporate officers or governmental authorities; (c) no material adverse change shall have occurred in the assets, business or prospects of Borrower since the date of Lender's latest field examination and no change or event shall have occurred which would impair the ability of Borrower or any Obligor to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce the Obligations or realize upon the Collateral; (d) Lender shall have completed a field review of the Records and such other information with respect to the Collateral as Lender may require to determine the amount of Revolving Loans available to Borrower, the results of which shall be satisfactory to Lender, not more than three (3) business days prior to the date hereof; (e) Lender shall have received, in form and substance satisfactory to Lender, all consents, waivers, acknowledgments and other agreements from third persons which Lender may deem necessary or desirable in order to permit, protect and perfect its security interests in and liens upon the Collateral or to effectuate the provisions or purposes of this Agreement and the other Financing Agreements, including, without limitation, acknowledgements by lessors, mortgagees and warehousemen of Lender's security interests in the Collateral, waivers by such persons of any security interests, liens or other claims by such persons to the Collateral and agreements permitting Lender access to, and the right to remain on, the premises to exercise its rights and remedies and otherwise deal with the Collateral; (f) Lender shall have received evidence of insurance and loss payee endorsements required hereunder and under the other Financing Agreements, in form and substance satisfactory to Lender, and certificates of insurance policies and/or endorsements naming Lender as loss payee; (g) the Excess Availability as determined by Lender, as of the date hereof, shall be not less than $1,000,000 after giving effect to the initial Loans made or to be made and Letter of Credit Accommodations issued or to be issued in connection with the initial transactions hereunder; (h) Lender shall have received, in form and substance satisfactory to Lender, such opinion letters of counsel to Borrower with respect to the Financing Agreements and such other matters as Lender may request; and (i) the other Financing Agreements and all instruments and documents hereunder and thereunder shall have been duly executed and delivered to Lender, in form and substance satisfactory to Lender. 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations. Each of the following is an additional condition precedent to Lender making Loans and/or providing Letter of Credit Accommodations to Borrower, including the initial Loans and Letter of Credit Accommodations and any future Loans and Letter of Credit Accommodations: (a) all representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto; and (b) no Event of Default and no event or condition which, with notice or passage of time or both, would constitute an Event of Default, shall exist or have occurred and be continuing on and as of the date of the making of such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto. SECTION 5. GRANT OF SECURITY INTEREST To secure payment and performance of all Obligations, Borrower hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Lender as security, the following property and interests in property, whether now owned or hereafter acquired or existing, and wherever located (collectively, the "Collateral"): 5.1 Accounts; 5.2 all present and future chattel paper, instruments, letters of credit, bankers' acceptances, and guaranties, and all general intangibles relating to the foregoing or to Accounts (including, but not limited to, tax and duty refunds, trademarks, service marks, trade names, applications for the foregoing, goodwill, customer lists, licenses, whether as licensor or licensee, choses in action and other claims); 5.3 all present and future monies, securities, credit balances, deposits, deposit accounts and other property of Borrower now or hereafter held or received by or in transit to Lender or its affiliates or at any other depository or other institution from or for the account of Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including, without limitation, (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, and (c) deposits by and property of account debtors or other persons securing the obligations of account debtors; 5.4 [Deleted.] 5.5 [Deleted.] 5.6 Records; and 5.7 all products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and all claims against third parties for loss or damage to or destruction of any or all of the foregoing. SECTION 6. COLLECTION AND ADMINISTRATION 6.1 Borrower's Loan Account. Lender shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans, Letter of Credit Accommodations and other Obligations and the Collateral, (b) all payments made by or on behalf of Borrower and (c) all other appropriate debits and credits as provided in this Agreement, including, without limitation, fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Lender's customary practices as in effect from time to time. 6.2 Statements. Lender shall render to Borrower each month a statement setting forth the balance in the Borrower's loan account(s) maintained by Lender for Borrower pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Lender but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrower and conclusively binding upon Borrower as an account stated except to the extent that Lender receives a written notice from Borrower of any specific exceptions of Borrower thereto within thirty (30) days after the date such statement has been mailed by Lender. Until such time as Lender shall have rendered to Borrower a written statement as provided above, the balance in Borrower's loan account(s) shall be presumptive evidence of the amounts due and owing to Lender by Borrower. 6.3 Collection of Accounts. (a) Borrower shall establish and maintain, at its expense, blocked accounts or lockboxes and related blocked accounts (in either case, "Blocked Accounts"), as Lender may specify, with such banks as are acceptable to Lender into which Borrower shall promptly deposit and direct its account debtors to directly remit all payments on Accounts and all payments constituting proceeds of other Collateral in the identical form in which such payments are made, whether by cash, check or other manner. The banks at which the Blocked Accounts are established shall enter into an agreement, in form and substance satisfactory to Lender, providing that all items received or deposited in the Blocked Accounts are the property of Lender, that the depository bank has no lien upon, or right to setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein and that the depository bank will wire, or otherwise transfer, in immediately available funds, on a daily basis, all funds received or deposited into the Blocked Accounts to such bank account of Lender as Lender may from time to time designate for such purpose ("Payment Account"). Borrower agrees that all payments made to such Blocked Accounts or other funds received and collected by Lender, whether on the Accounts or as proceeds of other Collateral or otherwise shall be the property of Lender. (b) For purposes of calculating interest on the Obligations, such payments or other funds received will be applied (conditional upon final collection) to the Obligations one (1) business day following the date of receipt of immediately available funds by Lender in the Payment Account. If and when Borrower is permitted to and does deliver remittances directly to Lender rather than deposit them into a Blocked Account, such remittances will be applied (conditional upon final collection) for purposes of calculating interest two (2) business days following date of receipt. For purposes of calculating the amount of the Revolving Loans available to Borrower such payments will be applied (conditional upon final collection) to the Obligations on the business day of receipt by Lender in the Payment Account, if such payments are received within sufficient time (in accordance with Lender's usual and customary practices as in effect from time to time) to credit Borrower's loan account on such day, and if not, then on the next business day. (c) Borrower and all of its affiliates, subsidiaries, shareholders, directors, employees or agents shall, acting as trustee for Lender, receive, as the property of Lender, any monies, checks, notes, drafts or any other payment relating to and/or proceeds of Accounts or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same to be remitted, in kind, to Lender. In no event shall the same be commingled with Borrower's own funds or the funds of any other Person. Borrower agrees to reimburse Lender on demand for any amounts owed or paid to any bank at which a Blocked Account is established or any other bank or person involved in the transfer of funds to or from the Blocked Accounts arising out of Lender's payments to or indemnification of such bank or Person. The obligation of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall survive the termination or non-renewal of this Agreement. 6.4 Payments. All Obligations shall be payable to the Payment Account as provided in Section 6.3 or such other place as Lender may designate from time to time. Lender may apply payments received or collected from Borrower or for the account of Borrower (including, without limitation, the monetary proceeds of collections or of realization upon any Collateral) to such of the Obligations, whether or not then due, in such order and manner as Lender determines. At Lender's option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements may be charged directly to the loan account(s) of Borrower. Borrower shall make all payments to Lender on the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Lender. Borrower shall be liable to pay to Lender, and does hereby indemnify and hold Lender harmless for, the amount of any payments or proceeds surrendered or returned. This Section 6.4 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 6.5 Authorization to Make Loans. Lender is authorized to make the Loans and provide the Letter of Credit Accommodations based upon telephonic or other instructions received from anyone purporting to be an officer of Borrower or other authorized person or, at the discretion of Lender, if such Loans are necessary to satisfy any Obligations. All requests for Loans or Letter of Credit Accommodations hereunder shall specify the date on which the requested advance is to be made or Letter of Credit Accommodations established (which day shall be a business day) and the amount of the requested Loan. Requests received after 11:00 a.m. Pacific time on any day shall be deemed to have been made as of the opening of business on the immediately following business day. All Loans and Letter of Credit Accommodations under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, Borrower when deposited to the credit of Borrower or otherwise disbursed or established in accordance with the instructions of Borrower or in accordance with the terms and conditions of this Agreement. 6.6 Use of Proceeds. Borrower shall use the initial proceeds of the Loans provided by Lender to Borrower hereunder only for: (a) payments to each of the persons listed in the disbursement direction letter furnished by Borrower to Lender on or about the date hereof and (b) costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Financing Agreements. All other Loans made or Letter of Credit Accommodations provided by Lender to Borrower pursuant to the provisions hereof shall be used by Borrower only for general operating, working capital and other proper corporate purposes of Borrower not otherwise prohibited by the terms hereof. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Loans to be considered a "purpose credit" within the meaning of Regulation G of the Board of Governors of the Federal Reserve System, as amended. SECTION 7. COLLATERAL REPORTING AND COVENANTS 7.1 Collateral Reporting. Borrower shall provide Lender with the following documents in a form satisfactory to Lender: (a) on a regular basis as required by Lender, a schedule of Accounts; (b) on a monthly basis or more frequently as Lender may request, agings of accounts payable, (c) upon Lender's request, (i) copies of customer statements and credit memos, remittance advices and reports, and copies of deposit slips and bank statements, and (ii) copies of shipping and delivery documents;(d) agings of accounts receivable on a monthly basis or more frequently as Lender may request; and (e) such other reports as to the Collateral as Lender shall request from time to time. If any of Borrower's records or reports of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, Borrower hereby irrevocably authorizes such service, contractor, shipper or agent to deliver such records, reports, and related documents to Lender and to follow Lender's instructions with respect to further services at any time that an Event of Default exists or has occurred and is continuing. 7.2 Accounts Covenants. (a) Borrower shall notify Lender promptly of: (i) any material delay in Borrower's performance of any of its obligations to any account debtor or the assertion of any claims, offsets, defenses or counterclaims by any account debtor, or any disputes with account debtors, or any settlement, adjustment or compromise thereof, (ii) all material adverse information relating to the financial condition of any account debtor and (iii) any event or circumstance which, to Borrower's knowledge, would cause Lender to consider any then existing Accounts as no longer constituting Eligible Accounts. No credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor without Lender's consent, except in the ordinary course of Borrower's business in accordance with practices and policies previously disclosed in writing to Lender. So long as no Event of Default exists or has occurred and is continuing, Borrower shall settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor. At any time that an Event of Default exists or has occurred and is continuing, Lender shall, at its option, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with account debtors or grant any credits, discounts or allowances. (b) [Deleted.] (c) With respect to each Account: (i) the amounts shown on any invoice delivered to Lender or schedule thereof delivered to Lender shall be true and complete, (ii) no payments shall be made thereon except payments immediately delivered to Lender pursuant to the terms of this Agreement, (iii) no credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor except as reported to Lender in accordance with this Agreement and except for credits, discounts, allowances or extensions made or given in the ordinary course of Borrower's business in accordance with practices and policies previously disclosed to Lender, (iv) there shall be no setoffs, deductions, contras, defenses, counterclaims or disputes existing or asserted with respect thereto except as reported to Lender in accordance with the terms of this Agreement, (v) none of the transactions giving rise thereto will violate any applicable State or Federal laws or regulations, all documentation relating thereto will be legally sufficient under such laws and regulations and all such documentation will be legally enforceable in accordance with its terms. (d) Lender shall have the right at any time or times, in Lender's name or in the name of a nominee of Lender, to verify the validity, amount or any other matter relating to any Account or other Collateral, by mail, telephone, facsimile transmission or otherwise. (e) Borrower shall deliver or cause to be delivered to Lender, with appropriate endorsement and assignment, with full recourse to Borrower, all chattel paper and instruments which Borrower now owns or may at any time acquire immediately upon Borrower's receipt thereof, except as Lender may otherwise agree. (f) Lender may, at any time or times that an Event of Default exists or has occurred and is continuing, (i) notify any or all account debtors that the Accounts have been assigned to Lender and that Lender has a security interest therein and Lender may direct any or all accounts debtors to make payment of Accounts directly to Lender, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Accounts or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Accounts or such other obligations, but without any duty to do so, and Lender shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto (but Lender shall be liable for their gross negligence or wilful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction), and (iv) take whatever other action Lender may deem necessary or desirable for the protection of its interests. At any time that an Event of Default exists or has occurred and is continuing, at Lender's request, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to Lender and are payable directly and only to Lender and Borrower shall deliver to Lender such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Lender may require. 7.3 [Deleted.] 7.4 [Deleted.] 7.5 Power of Attorney. Borrower hereby irrevocably designates and appoints Lender (and all persons designated by Lender) as Borrower's true and lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, to: (a) at any time an Event of Default or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred and is continuing (i) demand payment on Accounts or proceeds of other Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise, (iii) exercise all of Borrower's rights and remedies to collect any Account or other Collateral, (iv) sell or assign any Account upon such terms, for such amount and at such time or times as the Lender deems advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and release any Account, (vii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy or other similar document against an account debtor, (viii) notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Lender, and open and dispose of all mail addressed to Borrower, and (ix) do all acts and things which are necessary, in Lender's determination, to fulfill Borrower's obligations under this Agreement and the other Financing Agreements and (b) at any time to (i) take control in any manner of any item of payment or proceeds thereof, (ii) have access to any lockbox or postal box into which Borrower's mail is deposited, (iii) endorse Borrower's name upon any items of payment or proceeds thereof and deposit the same in the Lender's account for application to the Obligations, (iv) endorse Borrower's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Account or any goods pertaining thereto or any other Collateral, (v) sign Borrower's name on any verification of Accounts and notices thereof to account debtors and (vi) execute in Borrower's name and file any UCC financing statements or amendments thereto. Borrower hereby releases Lender and its officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Lender's own gross negligence or wilful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction. 7.6 Right to Cure. Lender may, at its option, (a) cure any default by Borrower under any agreement with a third party or pay or bond on appeal any judgment entered against Borrower, (b) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and (c) pay any amount, incur any expense or perform any act which, in Lender's judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Lender with respect thereto. Lender may add any amounts so expended to the Obligations and charge Borrower's account therefor, such amounts to be repayable by Borrower on demand. Lender shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrower. Any payment made or other action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 7.7 Access to Premises. From time to time as requested by Lender, at the cost and expense of Borrower, (a) Lender or its designee shall have complete access to all of Borrower's premises during normal business hours and after notice to Borrower, or at any time and without notice to Borrower if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrower's books and records, including, without limitation, the Records, and (b) Borrower shall promptly furnish to Lender such copies of such books and records or extracts therefrom as Lender may request, and (c) Lender or its designee shall have the right to use during normal business hours such of Borrower's personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Accounts and realization of other Collateral. SECTION 8. REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Lender the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which are a continuing condition of the making of Loans and providing Letter of Credit Accommodations by Lender to Borrower: 8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is a corporation duly organized and in good standing under the laws of its state of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on Borrower's financial condition, results of operation or business or the rights of Lender in or to any of the Collateral. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated hereunder and thereunder are all within Borrower's corporate powers, have been duly authorized and are not in contravention of law or the terms of Borrower's certificate of incorporation, by-laws, or other organizational documentation, or any indenture, agreement or undertaking to which Borrower is a party or by which Borrower or its property are bound. This Agreement and the other Financing Agreements constitute legal, valid and binding obligations of Borrower enforceable in accordance with their respective terms. Borrower does not have any subsidiaries except as set forth on the Information Certificate. 8.2 Financial Statements; No Material Adverse Change. All audited financial statements relating to Borrower which have been or may hereafter be delivered by Borrower to Lender have been prepared in accordance with GAAP and all financial statements relating to Borrower which have been or may be delivered by Borrower to Lender (whether audited or unaudited) fairly present the financial condition and the results of operation of Borrower as at the dates and for the periods set forth therein. Except as disclosed in any interim financial statements furnished by Borrower to Lender prior to the date of this Agreement, there has been no material adverse change in the assets, liabilities, properties and condition, financial or otherwise, of Borrower, since the date of the most recent audited financial statements furnished by Borrower to Lender prior to the date of this Agreement. 8.3 Chief Executive Office; Collateral Locations. The chief executive office of Borrower and Borrower's Records concerning Accounts are located only at the address set forth below and its only other places of business and the only other locations of Collateral, if any, are the addresses set forth in the Information Certificate, subject to the right of Borrower to establish new locations in accordance with Section 9.2 below. The Information Certificate correctly identifies any of such locations which are not owned by Borrower and sets forth the owners and/or operators thereof and to the best of Borrower's knowledge, the holders of any mortgages on such locations. 8.4 Priority of Liens; Title to Properties. The security interests and liens granted to Lender under this Agreement and the other Financing Agreements constitute valid and perfected first priority liens and security interests in and upon the Collateral subject only to the subordinate liens indicated on Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof. Borrower has good and marketable title to all of its properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Lender and such others as are specifically listed on Schedule 8.4 hereto or permitted under Section 9.8 hereof. 8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to be filed by it (without requests for extension except as previously disclosed in writing to Lender). All information in such tax returns, reports and declarations is complete and accurate in all material respects. Borrower has paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment received by it, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books. Adequate provision has been made for the payment of all accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. 8.6 Litigation. Except as set forth on the Information Certificate, there is no present investigation by any governmental agency pending, or to the best of Borrower's knowledge threatened, against or affecting Borrower, its assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the best of Borrower's knowledge threatened, against Borrower or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement, which if adversely determined against Borrower would result in any material adverse change in the assets, business or prospects of Borrower or would impair the ability of Borrower to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce any Obligations or realize upon any Collateral. 8.7 Compliance with Other Agreements and Applicable Laws. Borrower is not in default in any material respect under, or in violation in any material respect of any of the terms of, any agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound and which default or violation could have a material adverse effect upon the Collateral or Borrower's business or financial condition. Borrower is in compliance in all material respects with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and orders of any foreign, Federal, State or local governmental authority. 8.8 Accuracy and Completeness of Information. All information furnished by or on behalf of Borrower in writing to Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated hereby or thereby, including, without limitation, all information on the Information Certificate is true and correct in all material respects on the date as of which such information is dated or certified and does not omit any material fact necessary in order to make such information not misleading. No event or circumstance has occurred which has had or could reasonably be expected to have a material adverse affect on the business, assets or prospects of Borrower, which has not been fully and accurately disclosed to Lender in writing. 8.9 Survival of Warranties; Cumulative. All representations and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to Lender on the date of each additional borrowing or other credit accommodation hereunder and shall be conclusively presumed to have been relied on by Lender regardless of any investigation made or information possessed by Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which Borrower shall now or hereafter give, or cause to be given, to Lender. SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS 9.1 Maintenance of Existence. Borrower shall at all times preserve, renew and keep in full force and effect its corporate existence and rights and franchises with respect thereto and maintain in full force and effect all permits, licenses, trademarks, trade names, approvals, authorizations, leases and contracts necessary to carry on the business as presently or proposed to be conducted. Borrower shall give Lender thirty (30) days prior written notice of any proposed change in its corporate name, which notice shall set forth the new name and Borrower shall deliver to Lender a copy of the amendment to the Certificate of Incorporation of Borrower providing for the name change certified by the Secretary of State of the jurisdiction of incorporation of Borrower as soon as it is available. 9.2 New Collateral Locations. Borrower may open any new location within the continental United States provided Borrower (a) gives Lender thirty (30) days prior written notice of the intended opening of any such new location and (b) executes and delivers, or causes to be executed and delivered, to Lender such agreements, docu- ments, and instruments as Lender may deem reasonably necessary or desirable to protect its interests in the Collateral at such location, including, without limitation, UCC financing statements. 9.3 Compliance with Laws, Regulations, Etc. Borrower shall, at all times, comply in all material respects with all laws, rules, regulations, licenses, permits, approvals and orders of any Federal, State or local governmental authority applicable to it. 9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books. Borrower shall be liable for any tax or penalties imposed on Lender as a result of the financing arrangements provided for herein and Borrower agrees to indemnify and hold Lender harmless with respect to the foregoing, and to repay to Lender on demand the amount thereof, and until paid by Borrower such amount shall be added and deemed part of the Loans, provided, that, nothing contained herein shall be construed to require Borrower to pay any income or franchise taxes attributable to the income of Lender from any amounts charged or paid hereunder to Lender. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 9.5 Insurance. Borrower shall, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. Said policies of insurance shall be satisfactory to Lender as to form, amount and insurer. Borrower shall furnish certificates, policies or endorsements to Lender as Lender shall require as proof of such insurance, and, if Borrower fails to do so, Lender is authorized, but not required, to obtain such insurance at the expense of Borrower. All policies shall provide for at least thirty (30) days prior written notice to Lender of any cancellation or reduction of coverage and that Lender may act as attorney for Borrower in obtaining, and at any time an Event of Default exists or has occurred and is continuing, adjusting, settling, amending and canceling such insurance. Borrower shall cause Lender to be named as a loss payee and an additional insured (but without any liability for any premiums) under such insurance policies and Borrower shall obtain non-contributory lender's loss payable endorsements to all insurance policies in form and substance satisfactory to Lender. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Lender as its interests may appear and further specify that Lender shall be paid regardless of any act or omission by Borrower or any of its affiliates. At its option, Lender may apply any insurance proceeds received by Lender at any time to the cost of repairs or replacement of Collateral and/or to payment of the Obligations, whether or not then due, in any order and in such manner as Lender may determine or hold such proceeds as cash collateral for the Obligations. 9.6 Financial Statements and Other Information. (a) Borrower shall keep proper books and records in which true and complete entries shall be made of all dealings or transactions of or in relation to the Collateral and the business of Borrower and its subsidiaries (if any) in accordance with GAAP and Borrower shall furnish or cause to be furnished to Lender: (i) within twenty (20) days after the end of each fiscal month, monthly unaudited consolidated financial statements, and, if Borrower has any subsidiaries, unaudited consolidating financial statements (including in each case balance sheets, statements of income and loss and statements of shareholders' equity), all in reasonable detail, fairly presenting the financial position and the results of the operations of Borrower and its subsidiaries as of the end of and through such fiscal month and (ii) within ninety (90) days after the end of each fiscal year, audited consolidated financial statements and, if Borrower has any subsidiaries, audited consolidating financial statements of Borrower and its subsidiaries (including in each case balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), and the accompanying notes thereto, all in reasonable detail, fairly presenting the financial position and the results of the operations of Borrower and its subsidiaries as of the end of and for such fiscal year, together with the opinion of independent certified public accountants, which accountants shall be an independent accounting firm selected by Borrower and reasonably acceptable to Lender, that such financial statements have been prepared in accordance with GAAP, and present fairly the results of operations and financial condition of Borrower and its subsidiaries as of the end of and for the fiscal year then ended. (b) Borrower shall promptly notify Lender in writing of the details of (i) any loss, damage, investigation, action, suit, proceeding or claim relating to the Collateral or any other property which is security for the Obligations or which would result in any material adverse change in Borrower's business, properties, assets, goodwill or condition, financial or otherwise and (ii) the occurrence of any Event of Default or event which, with the passage of time or giving of notice or both, would constitute an Event of Default. (c) Borrower shall promptly after the sending or filing thereof furnish or cause to be furnished to Lender copies of all reports which Borrower sends to its stockholders generally and copies of all reports and registration statements which Borrower files with the Securities and Exchange Commission, any national securities exchange or the National Association of Securities Dealers, Inc. (d) Borrower shall furnish or cause to be furnished to Lender such budgets, forecasts, projections and other information respecting the Collateral and the business of Borrower, as Lender may, from time to time, reasonably request. Lender is hereby authorized to deliver a copy of any financial statement or any other information relating to the business of Borrower to any court or other government agency or to any participant or assignee or prospective participant or assignee. Borrower hereby irrevocably authorizes and directs all accountants or auditors to deliver to Lender, at Borrower's expense, copies of the financial statements of Borrower and any reports or management letters prepared by such accountants or auditors on behalf of Borrower and to disclose to Lender such information as they may have regarding the business of Borrower. Any documents, schedules, invoices or other papers delivered to Lender may be destroyed or otherwise disposed of by Lender one (1) year after the same are delivered to Lender, except as otherwise designated by Borrower to Lender in writing. 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower shall not, directly or indirectly, (a) merge into or with or consolidate with any other Person or permit any other Person to merge into or with or consolidate with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of any stock or indebtedness to any other Person or any of its assets to any other Person (except for (i) sales of Inventory in the ordinary course of business and (ii) the disposition of worn-out or obsolete Equipment or Equipment no longer used in the business of Borrower , or (c) form or acquire any subsidiaries, or (d) wind up, liquidate or dissolve or (e) agree to do any of the foregoing. 9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of the Collateral, except: (a) liens and security interests of Lender; and (b) the security interests and liens set forth on Schedule 8.4 hereto. 9.9 [Deleted.] 9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly or indirectly, make any loans or advance money or property to any person, or invest in (by capital contribution, dividend or otherwise) or purchase or repurchase the stock or indebtedness or all or a substantial part of the assets or property of any person, or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly) the indebtedness, performance, obligations or dividends of any Person or agree to do any of the foregoing, except: (a) the endorsement of instruments for collection or deposit in the ordinary course of business; (b) investments in: (i) short-term direct obligations of the United States Government, (ii) negotiable certificates of deposit issued by any bank satisfactory to Lender, payable to the order of the Borrower or to bearer and delivered to Lender, and (iii) commercial paper rated A1 or P1; provided, that, as to any of the foregoing, unless waived in writing by Lender, Borrower shall take such actions as are deemed necessary by Lender to perfect the security interest of Lender in such investments and (c) the guarantees set forth in the Information Certificate. 9.11 Dividends and Redemptions. Borrower shall not, directly or indirectly, declare or pay any dividends on account of any shares of class of capital stock of Borrower now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of capital stock (or set aside or otherwise deposit or invest any sums for such purpose) for any consideration other than common stock or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares or agree to do any of the foregoing. 9.12 Transactions with Affiliates. Borrower shall not enter into any transaction for the purchase, sale or exchange of property or the rendering of any service to or by any affiliate, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms no less favorable to the Borrower than Borrower would obtain in a comparable arm's length transaction with an unaffiliated person. 9.13 [Deleted.] 9.14 [Deleted.] 9.15 Costs and Expenses. Borrower shall pay to Lender on demand all costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement, the other Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including, but not limited to: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all title insurance and other insurance premiums, appraisal fees and search fees; (c) costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and maintaining the Blocked Accounts, together with Lender's customary charges and fees with respect thereto; (d) charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations; (e) costs and expenses of preserving and protecting the Collateral; (f) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Financing Agreements or defending any claims made or threatened against Lender arising out of the transactions contemplated hereby and thereby (including, without limitation, preparations for and consultations concerning any such matters); (g) for activities preceding the funding of the initial loans under this Agreement and after the occurrence of an Event of Default or an event or condition which, with notice or passage of time, or both, would constitute an Event of Default, all out-of-pocket expenses and costs from time to time incurred by Lender during the course of field examinations of the Collateral and Borrower's operations, plus a per idem charge at the rate of $600 per person per day for Lender's examiners in the field and office; (h) the fees and disbursements of counsel (including legal assistants) to Lender in connection with any of the foregoing. 9.16 Further Assurances. At the request of Lender at any time and from time to time, Borrower shall, at its expense, duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Financing Agreements. Lender may at any time and from time to time request a certificate from an officer of Borrower representing that all conditions precedent to the making of Loans and providing Letter of Credit Accommodations contained herein are satisfied. In the event of such request by Lender, Lender may, at its option, cease to make any further Loans or provide any further Letter of Credit Accommodations until Lender has received such certificate and, in addition, Lender has determined that such conditions are satisfied. Where permitted by law, Borrower hereby authorizes Lender to execute and file one or more UCC financing statements signed only by Lender. SECTION 10. EVENTS OF DEFAULT AND REMEDIES 10.1 Events of Default. The occurrence or existence of any one or more of the following events are referred to herein individually as an "Event of Default," and collectively as "Events of Default": (a) Borrower fails to pay when due any of the Obligations or fails to perform any of the terms, covenants, conditions or provisions contained in this Agreement or any of the other Financing Agreements; (b) any representation, warranty or statement of fact made by Borrower to Lender in this Agreement, the other Financing Agreements or any other agreement, schedule, confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any material respect; (c) any Obligor revokes, terminates or fails to perform any of the terms, covenants, conditions or provisions of any guarantee, endorsement or other agreement of such party in favor of Lender; (d) any judgment for the payment of money is rendered against Borrower or any Obligor in excess of $100,000 in any one case or in the aggregate and shall remain undischarged or unvacated for a period in excess of thirty (30) days or execution shall at any time not be effectively stayed, or any judgment other than for the payment of money, or injunction, attachment, garnishment or execution is rendered against Borrower or any Obligor or any of their assets; (e) any Obligor (being a natural person or a general partner of an Obligor which is a partnership) dies or Borrower or any Obligor, which is a partnership or corporation, dissolves or suspends or discontinues doing business; (f) Borrower or any Obligor becomes insolvent (however defined or evidenced), makes an assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a meeting of its creditors or principal creditors; (g) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed against Borrower or any Obligor or all or any part of its properties and such petition or application is not dismissed within thirty (30) days after the date of its filing or Borrower or any Obligor shall file any answer admitting or not contesting such petition or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested is granted sooner; (h) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at a law or equity) is filed by Borrower or any Obligor or for all or any part of its property; or (i) any default by Borrower or any Obligor under any agreement, document or instrument relating to any indebtedness for borrowed money owing to any person other than Lender, or any capitalized lease obligations, contingent indebtedness in connection with any guarantee, letter of credit, indemnity or similar type of instrument in favor of any person other than Lender, in any case in an amount in excess of $100,000, which default continues for more than the applicable cure period, if any, with respect thereto, or any default by Borrower or any Obligor under any material contract, lease, license or other obligation to any person other than Lender, which default continues for more than the applicable cure period, if any, with respect thereto; (j) any change in the controlling ownership of Borrower; (k) the indictment or threatened indictment of Borrower or any Obligor under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against Borrower or any Obligor, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any of the property of Borrower or such Obligor; (l) there shall be a material adverse change in the business, assets or prospects of Borrower or any Obligor after the date hereof; or (m) there shall be an event of default under any of the other Financing Agreements. 10.2 Remedies. (a) At any time an Event of Default exists or has occurred and is continuing, Lender shall have all rights and remedies provided in this Agreement, the other Financing Agreements, the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to or consent by Borrower or any Obligor, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Lender hereunder, under any of the other Financing Agreements, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Lender's discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by Borrower of this Agreement or any of the other Financing Agreements. Lender may, at any time or times, proceed directly against Borrower or any Obligor to collect the Obligations without prior recourse to the Collateral. (b) Without limiting the foregoing, at any time an Event of Default exists or has occurred and is continuing, Lender may, in its discretion and without limitation, (i) accelerate the payment of all Obligations and demand immediate payment thereof to Lender (provided, that, upon the occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations shall automatically become immediately due and payable), (ii) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (iii) require Borrower, at Borrower's expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (v) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, public or private sales at any exchange, broker's board, at any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrower, which right or equity of redemption is hereby expressly waived and released by Borrower and/or (vii) terminate this Agreement. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, five (5) days prior notice by Lender to Borrower designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrower waives any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Borrower waives the posting of any bond which might otherwise be required. (c) Lender may apply the cash proceeds of Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Obligations, in whole or in part and in such order as Lender may elect, whether or not then due. Borrower shall remain liable to Lender for the payment of any deficiency with interest at the highest rate provided for herein and all costs and expenses of collection or enforcement, including attorneys' fees and legal expenses. (d) Without limiting the foregoing, upon the occurrence of an Event of Default or an event which with notice or passage of time or both would constitute an Event of Default, Lender may, at its option, without notice, (i) cease making Loans or arranging for Letter of Credit Accommodations or reduce the lending formulas or amounts of Revolving Loans and Letter of Credit Accommodations available to Borrower and/or (ii) terminate any provision of this Agreement providing for any future Loans or Letter of Credit Accommodations to be made by Lender to Borrower. SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Agreement and the other Financing Agreements and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of Oregon (without giving effect to principles of conflicts of law). (b) Borrower and Lender irrevocably consent and submit to the non-exclusive jurisdiction of the Circuit Court of the State of Oregon for Multnomah County and the United States District Court for the District of Oregon and waive any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Agreement or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Agreement or any of the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that any dispute with respect to any such matters shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against Borrower or its property). (c) Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth on the signature pages hereof and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Lender's option, by service upon Borrower in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, Borrower shall appear in answer to such process, failing which Borrower shall be deemed in default and judgment may be entered by Lender against Borrower for the amount of the claim and other relief requested. (d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Lender shall not have any liability to Borrower (whether in tort, contract, equity or otherwise) for losses suffered by Borrower in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Lender, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement. 11.2 Waiver of Notices. Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and commercial paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on Borrower which Lender may elect to give shall entitle Borrower to any other or further notice or demand in the same, similar or other circumstances. 11.3 Amendments and Waivers. Neither this Agreement nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 11.4 Waiver of Counterclaims. Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other then compulsory counterclaims) in any action or proceeding with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 11.5 Indemnification. Borrower shall indemnify and hold Lender, and its directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including, without limitation, amounts paid in settlement, court costs, and the fees and expenses of counsel. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion which it is permitted to pay under applicable law to Lender in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS 12.1 Term. (a) This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect for a term ending on the date two (2) years from the date hereof (the "Renewal Date"), and from year to year thereafter, unless sooner terminated pursuant to the terms hereof. Lender or Borrower may terminate this Agreement and the other Financing Agreements effective on the Renewal Date or on the anniversary of the Renewal Date in any year by giving to the other party at least sixty (60) days prior written notice; provided, that, this Agreement and all other Financing Agreements must be terminated simultaneously. Upon the effective date of termination or non-renewal of the Financing Agreements, Borrower shall pay to Lender, in full, all outstanding and unpaid Obligations and shall furnish cash collateral to Lender in such amounts as Lender determines are reasonably necessary to secure Lender from loss, cost, damage or expense, including attorneys' fees and legal expenses, in connection with any contingent Obligations, including issued and outstanding Letter of Credit Accommodations and checks or other payments provisionally credited to the Obligations and/or as to which Lender has not yet received final and indefeasible payment. Such cash collateral shall be remitted by wire transfer in Federal funds to such bank account of Lender as Lender may, in its discretion, designate in writing to Borrower for such purpose. Interest shall be due until and including the next business day, if the amounts so paid by Borrower to the bank account designated by Lender are received in such bank account later than 12:00 noon, Pacific time. (b) No termination of this Agreement or the other Financing Agreements shall relieve or discharge Borrower of its respective duties, obligations and covenants under this Agreement or the other Financing Agreements until all Obligations have been fully and finally discharged and paid, and Lender's continuing security interest in the Collateral and the rights and remedies of Lender hereunder, under the other Financing Agreements and applicable law, shall remain in effect until all such Obligations have been fully and finally discharged and paid. (c) If for any reason this Agreement is terminated prior to the end of the then current term or renewal term of this Agreement, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits as a result thereof, Borrower agrees to pay to Lender, upon the effective date of such termination, an early termination fee in the amount set forth below if such termination is effective in the period indicated: Amount Period (i) 3% of Maximum Credit from the date hereof to and including the first anniversary hereof (ii) 1% of Maximum Credit any time after the first anniversary hereof provided, however, that if this Agreement is terminated and the Obligations satisfied in full after the first anniversary hereof from proceeds of new financing provided to Borrower by CoreStates Bank, N.A., no early termination fee shall be payable. Such early termination fee shall be presumed to be the amount of damages sustained by Lender as a result of such early termination and Borrower agrees that it is reasonable under the circumstances currently existing. The early termination fee provided for in this Section 12.1 shall be deemed included in the Obligations. 12.2 Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Lender at its address set forth below and to Borrower at its chief executive office set forth below, or to such other address as either party may designate by written notice to the other in accordance with this provision, and (b) deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. 12.3 Partial Invalidity. If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 12.4 Successors. This Agreement, the other Financing Agreements and any other document referred to herein or therein shall be binding upon and inure to the benefit of and be enforceable by Lender, Borrower and their respective successors and assigns, except that Borrower may not assign its rights under this Agreement, the other Financing Agreements and any other document referred to herein or therein without the prior written consent of Lender. Lender may, after notice to Borrower, assign its rights and delegate its obligations under this Agreement and the other Financing Agreements and further may assign, or sell participations in, all or any part of the Loans, the Letter of Credit Accommodations or any other interest herein to another financial institution or other person, in which event the assignee or participant shall have, to the extent of such assignment or participation, the same rights and benefits as it would have if it were the Lender hereunder, except as otherwise provided by the terms of such assignment or participation. 12.5 Entire Agreement. This Agreement, the other Financing Agreements, any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represent the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be duly executed as of the day and year first above written. LENDER CONGRESS FINANCIAL CORPORATION (NORTHWEST) By:_____________________________ Title:___________________________ Address: 101 SW Main Street, Suite 725 Portland, OR 97204 BORROWER PST VANS, INC. By:_____________________________ Kenneth R. Norton Title: Chief Executive Officer Chief Executive Office: 1901 W. 2100 South Salt Lake City, UT 84126 7267\62\138791 EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PST VANS, INC. SEPTEMBER 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 SEP-30-1996 4,090,011 0 17,216,624 1,124,896 655,502 25,796,354 81,944,255 20,236,471 96,498,622 27,520,674 0 0 0 4,217 24,833,507 96,498,622 0 110,961,630 0 110,025,644 (114,638) 0 3,845,904 (2,795,280) 0 (2,795,280) 0 0 0 (2,795,280) (.66) (.66)
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