SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010.
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Commission File Number. 1-14173
MARINEMAX, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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59-3496957
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(State or Other Jurisdiction of
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(I.R.S. Employer Identification Number)
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Incorporation or Organization)
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18167 U.S. Highway 19 North, Suite 300
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Clearwater, Florida
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33764
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(Address of Principal Executive Offices)
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(ZIP Code)
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727-531-1700
(Registrants Telephone Number, Including Area Code)
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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
þ
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
The number of outstanding shares of the registrants Common Stock on July 31, 2010 was 22,135,831.
MARINEMAX, INC. AND SUBSIDIARIES
Table of Contents
2
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
MARINEMAX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in thousands, except share and per share data)
(Unaudited)
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Three Months Ended
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Nine Months Ended
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June 30,
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June 30,
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2009
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2010
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2009
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2010
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Revenue
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$
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151,514
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$
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115,383
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$
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381,346
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$
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325,948
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Cost of sales
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118,898
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80,829
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305,313
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245,217
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Gross profit
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32,616
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34,554
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76,033
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80,731
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Selling, general, and administrative expenses
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38,975
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33,340
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114,197
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92,600
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Income (loss) from operations
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(6,359
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)
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1,214
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(38,164
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)
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(11,869
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)
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Interest expense
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3,380
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702
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11,216
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3,223
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Income (loss) before income tax benefit
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(9,739
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)
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512
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(49,380
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)
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(15,092
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)
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Income tax benefit
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559
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5,591
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19,419
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Net income (loss)
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$
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(9,180
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)
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$
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512
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$
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(43,789
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)
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$
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4,327
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Basic net income (loss) per common share
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$
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(0.49
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)
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$
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0.02
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$
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(2.37
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)
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$
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0.20
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Diluted net income (loss) per common share
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$
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(0.49
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)
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$
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0.02
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$
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(2.37
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)
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$
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0.19
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Weighted average number of common shares
used in computing net income (loss) per
common share:
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Basic
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18,575,332
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22,077,086
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18,502,933
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21,951,424
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Diluted
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18,575,332
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22,793,218
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18,502,933
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22,612,105
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See accompanying notes to condensed consolidated financial statements.
3
MARINEMAX, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
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September 30,
2009
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June 30,
2010
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(Unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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25,508
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$
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24,356
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Accounts receivable, net
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35,497
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19,388
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Income tax receivable
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9,983
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Inventories, net
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205,934
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181,388
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Prepaid expenses and other current assets
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12,314
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10,725
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Total current assets
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289,236
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235,857
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Property and equipment, net
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102,316
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98,465
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Other long-term assets
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2,092
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2,205
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Total assets
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$
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393,644
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$
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336,527
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES:
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Accounts payable
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$
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15,847
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$
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28,597
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Customer deposits
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4,882
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16,478
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Accrued expenses
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29,328
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24,881
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Short-term borrowings
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142,000
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57,212
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Total current liabilities
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192,057
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127,168
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Other long-term liabilities
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3,831
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2,672
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Total liabilities
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195,888
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129,840
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STOCKHOLDERS EQUITY:
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Preferred stock, $.001 par value, 1,000,000 shares
authorized, none issued or outstanding at September 30, 2009 and June
30, 2010
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Common stock, $.001 par value, 24,000,000 and 40,000,000 shares
authorized, 22,496,659 and 22,922,706 shares issued and 21,705,759
and 22,131,806 shares outstanding at September 30, 2009 and June 30,
2010, respectively
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22
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23
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Additional paid-in capital
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204,772
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209,375
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Retained earnings
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8,772
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13,099
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Treasury stock, at cost, 790,900 shares held at September 30, 2009
and June 30, 2010
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(15,810
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)
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(15,810
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)
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Total stockholders equity
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197,756
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206,687
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Total liabilities and stockholders equity
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$
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393,644
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$
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336,527
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See accompanying notes to condensed consolidated financial statements.
4
MARINEMAX, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders Equity
(Amounts in thousands, except share data)
(Unaudited)
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Additional
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Total
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Common Stock
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Paid-in
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Retained
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Treasury
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Stockholders
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Shares
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Amount
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Capital
|
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Earnings
|
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Stock
|
|
|
Equity
|
|
BALANCE, September 30, 2009
|
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21,705,759
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$
|
22
|
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$
|
204,772
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|
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$
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8,772
|
|
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$
|
(15,810
|
)
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|
$
|
197,756
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|
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|
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Net income
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|
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4,327
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|
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4,327
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Shares issued pursuant to
employee stock purchase plan
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172,371
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|
1
|
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|
483
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|
|
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|
484
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|
Shares issued upon exercise
of stock options
|
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|
178,448
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|
|
|
|
|
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|
949
|
|
|
|
|
|
|
|
|
|
|
|
949
|
|
Net shares issued upon the
vesting of equity awards
|
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70,206
|
|
|
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|
|
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|
(104
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)
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|
|
|
|
|
|
|
|
|
|
(104
|
)
|
Stock-based compensation
|
|
|
5,022
|
|
|
|
|
|
|
|
3,256
|
|
|
|
|
|
|
|
|
|
|
|
3,256
|
|
Tax benefits of options exercised
|
|
|
|
|
|
|
|
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|
|
19
|
|
|
|
|
|
|
|
|
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|
19
|
|
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|
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|
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|
|
|
|
|
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|
|
|
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BALANCE, June 30, 2010
|
|
|
22,131,806
|
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|
$
|
23
|
|
|
$
|
209,375
|
|
|
$
|
13,099
|
|
|
$
|
(15,810
|
)
|
|
$
|
206,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
See accompanying notes to condensed consolidated financial statements.
5
MARINEMAX, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands, except share data)
(Unaudited)
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|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2010
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(43,789
|
)
|
|
$
|
4,327
|
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
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Depreciation and amortization
|
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|
7,072
|
|
|
|
5,690
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|
Deferred income tax provision
|
|
|
9
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|
|
|
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|
(Gain) loss on sale of property and equipment
|
|
|
(89
|
)
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|
|
25
|
|
Loss on extinguishment and modification of debt
and short-term borrowings
|
|
|
389
|
|
|
|
1,023
|
|
Stock-based compensation expense
|
|
|
4,289
|
|
|
|
3,256
|
|
Excess tax benefits from options exercised
|
|
|
|
|
|
|
19
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
(19
|
)
|
(Increase) decrease in
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
1,610
|
|
|
|
16,109
|
|
Income tax receivable
|
|
|
|
|
|
|
9,983
|
|
Inventories, net
|
|
|
128,780
|
|
|
|
24,546
|
|
Prepaid expenses and other assets
|
|
|
(833
|
)
|
|
|
(196
|
)
|
(Decrease) increase in
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
12,271
|
|
|
|
12,750
|
|
Customer deposits
|
|
|
(440
|
)
|
|
|
11,596
|
|
Accrued expenses
|
|
|
(240
|
)
|
|
|
(5,606
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
109,029
|
|
|
|
83,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,926
|
)
|
|
|
(1,186
|
)
|
Proceeds from sale of property and equipment
|
|
|
134
|
|
|
|
31
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,792
|
)
|
|
|
(1,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net repayments on short-term borrowings
|
|
|
(122,000
|
)
|
|
|
(84,788
|
)
|
Debt modification costs
|
|
|
(2,354
|
)
|
|
|
(60
|
)
|
Net proceeds from issuance of common stock under
incentive compensation and employee purchase plans
|
|
|
678
|
|
|
|
1,329
|
|
Excess tax benefits from options exercised
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(123,676
|
)
|
|
|
(83,500
|
)
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(16,439
|
)
|
|
|
(1,152
|
)
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
30,264
|
|
|
|
25,508
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
13,825
|
|
|
$
|
24,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
11,313
|
|
|
$
|
3,751
|
|
Income taxes
|
|
$
|
83
|
|
|
$
|
31
|
|
See accompanying notes to condensed consolidated financial statements.
6
MARINEMAX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. COMPANY BACKGROUND:
We are the largest recreational boat retailer in the United States. We engage primarily in the
retail sale, brokerage, and service of new and used boats, motors, trailers, marine parts, and
accessories and offer slip and storage accommodations in certain locations. In addition, we arrange
related boat financing, insurance, and extended service contracts. As of June 30, 2010, we operated
through 56 retail locations in 19 states, consisting of Alabama, Arizona, California, Colorado,
Connecticut, Florida, Georgia, Kansas, Maryland, Minnesota, Missouri, New Jersey, New York, North
Carolina, Ohio, Oklahoma, Rhode Island, Tennessee, and Texas.
We are the nations largest retailer of Sea Ray, Boston Whaler, Meridian, Cabo, and Hatteras
recreational boats and yachts, all of which are manufactured by Brunswick Corporation
(Brunswick). Sales of new Brunswick boats accounted for approximately 51% of our revenue in
fiscal 2009. Brunswick is the worlds largest manufacturer of marine products and marine engines.
We believe we represented in excess of 6% of all Brunswick marine sales, including approximately
31% of its Sea Ray boat sales, during our 2009 fiscal year.
We have dealership agreements with Sea Ray, Boston Whaler, Cabo, Hatteras, Meridian, and
Mercury Marine, all subsidiaries or divisions of Brunswick. We also have a dealer agreement with
Azimut Yachts. These agreements allow us to purchase, stock, sell, and service these manufacturers
boats and products. These agreements also allow us to use these manufacturers names, trade
symbols, and intellectual properties in our operations.
We are a party to a multi-year dealer agreement with Brunswick covering Sea Ray products that
appoints us as the exclusive dealer of Sea Ray boats in our geographic markets. We are a party to a
multi-year dealer agreement with Hatteras Yachts that gives us the exclusive right to sell Hatteras
Yachts throughout the states of Florida (excluding the Florida panhandle), New Jersey, New York,
and Texas. We are also the exclusive dealer for Cabo Yachts throughout the states of Florida, New
Jersey, and New York through a multi-year dealer agreement. We are also the exclusive dealer for
Italy-based Azimut-Benetti Groups product line, Azimut Yachts, for the Northeast United States
from Maryland to Maine and for the state of Florida through a multi-year dealer agreement. We
believe non-Brunswick brands offer a migration for our existing customer base or fill a void in our
product offerings, and accordingly, do not compete with the business generated from our other
prominent brands.
As is typical in the industry, we deal with manufacturers, other than Sea Ray, Boston Whaler,
Hatteras, Cabo, and Azimut Yachts, under renewable annual dealer agreements, each of which gives us
the right to sell various makes and models of boats within a given geographic region. Any change or
termination of these agreements, or the agreements discussed above, for any reason, or changes in
competitive, regulatory, or marketing practices, including rebate or incentive programs, could
adversely affect our results of operations. Although there are a limited number of manufacturers of
the type of boats and products that we sell, we believe that adequate alternative sources would be
available to replace any manufacturer other than Sea Ray as a product source. These alternative
sources may not be available at the time of any interruption, and alternative products may not be
available at comparable terms, which could affect operating results adversely.
General economic conditions and consumer spending patterns can negatively impact our operating
results. Unfavorable local, regional, national, or global economic developments or uncertainties
regarding future economic prospects could reduce consumer spending in the markets we serve and
adversely affect our business. Economic conditions in areas in which we operate dealerships,
particularly Florida in which we generated 44%, 43%, and 45% of our revenue during fiscal 2007,
2008, and 2009, respectively, can have a major impact on our operations. Local influences, such as
corporate downsizing and military base closings, also could adversely affect our operations in
certain markets.
In an economic downturn, consumer discretionary spending levels generally decline, at times
resulting in disproportionately large reductions in the sale of luxury goods. Consumer spending on
luxury goods also may decline as a result of lower consumer confidence levels, even if prevailing
economic conditions are favorable. Although we have expanded our operations during periods of
stagnant or modestly declining industry trends, the cyclical nature of the recreational boating
industry or the lack of industry growth may adversely affect our business, financial condition, and
results of operations. Any period of adverse economic conditions or low consumer confidence has a
negative effect on our business.
7
Lower consumer spending resulting from a downturn in the housing market and other economic
factors adversely affected our business in fiscal 2007 and continued weakness in consumer spending
resulting from substantial weakness in the financial markets and deteriorating economic conditions
had a very substantial negative effect on our business in fiscal 2008, 2009, and to date in 2010.
These conditions caused us to defer our acquisition program, delay new store openings, reduce our
inventory purchases, engage in inventory reduction efforts, close some of our retail locations,
reduce our headcount, and amend our credit facility. We cannot predict the length or severity of
these unfavorable economic or financial conditions or the extent to which they will adversely
affect our operating results nor can we predict the effectiveness of the measures we have taken to
address this environment or whether additional measures will be necessary.
2. BASIS OF PRESENTATION:
These unaudited consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim financial information,
the instructions to Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X and should be
read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30,
2009. Accordingly, these unaudited consolidated financial statements do not include all of the
information and footnotes required by accounting principles generally accepted in the United States
for complete financial statements. All adjustments, consisting of only normal recurring adjustments
considered necessary for fair presentation, have been reflected in these unaudited consolidated
financial statements. As of June 30, 2010, our financial instruments consisted of cash and cash
equivalents, accounts receivable, accounts payable, and short-term borrowings. The carrying amounts
of our financial instruments reported on the balance sheet at June 30, 2010 approximate fair value
due either to length of maturity or existence of variable interest rates, which approximate
prevailing market rates. The operating results for the three and nine months ended June 30, 2010
are not necessarily indicative of the results that may be expected in future periods.
The preparation of unaudited consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the unaudited consolidated financial statements and the reported amounts
of revenue and expenses during the reporting periods. The estimates made by us in the accompanying
unaudited consolidated financial statements include valuation allowances, valuation of long-lived
assets, and valuation of accruals. Actual results could differ from those estimates.
Unless the context otherwise requires, all references to MarineMax mean MarineMax, Inc.
prior to its acquisition of five previously independent recreational boat dealers in March 1998
(including their related real estate companies), and all references to the Company, our
company, we, us, and our mean, as a combined company, MarineMax, Inc. and the 20
recreational boat dealers, two boat brokerage operations, and two full-service yacht repair
operations acquired to date (the acquired dealers, and together with the brokerage and repair
operations, operating subsidiaries or the acquired companies).
In order to provide comparability between periods presented, certain amounts have been
reclassified from the previously reported unaudited consolidated financial statements to conform to
the unaudited consolidated financial statement presentation of the current period. The unaudited
consolidated financial statements include our accounts and the accounts of our subsidiaries, all of
which are wholly owned. All significant intercompany transactions and accounts have been
eliminated.
3. INVENTORIES
Inventory costs consist of the amount paid to acquire the inventory, net of vendor
consideration and purchase discounts, the cost of equipment added, reconditioning costs, and
transportation costs relating to acquiring inventory for sale. We state new boat, motor, and
trailer inventories at the lower of cost, determined on a specific-identification basis, or market.
We state used boat, motor, and trailer inventories, including trade-ins, at the lower of cost,
determined on a specific-identification basis, or market. We state parts and accessories at the
lower of cost, determined on an average cost basis, or market. We utilize our historical
experience, the aging of the inventories, and our consideration of current market trends as the
basis for determining lower of cost or market valuation allowance. As of September 30, 2009 and
June 30, 2010, our lower of cost or market valuation allowance was $17.7
8
million and $8.4 million, respectively. If events occur and market conditions change, causing
the fair value to fall below carrying value, the lower of cost or market valuation allowance could
increase.
4. IMPAIRMENT OF LONG-LIVED ASSETS
FASB Accounting Standards Codification 360-10-40, Property, Plant, and Equipment, Impairment
or Disposal of Long-Lived Assets (ASC 360-10-40), previously referred to as Statement of
Financial Accounting Standards No. 144, Accounting for Impairment or Disposal of Long-Lived
Assets, requires that long-lived assets, such as property and equipment and purchased intangibles
subject to amortization, be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset
is measured by comparison of its carrying amount to undiscounted future net cash flows the asset is
expected to generate. If such assets are considered to be impaired, the impairment to be recognized
is measured as the amount by which the carrying amount of the asset exceeds its fair market value.
Estimates of expected future cash flows represent our best estimate based on currently available
information and reasonable and supportable assumptions. Any impairment recognized in accordance
with ASC 360-10-40 is permanent and may not be restored. As of June 30, 2010, we had not recognized
any impairment of long-lived assets in connection with ASC 360-10-40 based on our reviews for the
fiscal year ending September 30, 2010.
5. INCOME TAXES:
We account for income taxes in accordance with FASB Accounting Standards Codification 740,
Income Taxes (ASC 740), previously referred to as Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, and Financial Accounting Standard Board Interpretation No.
48, Accounting for Uncertainty in Income Taxes. Under ASC 740, we recognize deferred tax assets
and liabilities for the future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
basis. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to
taxable income in the years in which we expect those temporary differences to be recovered or
settled. We record valuation allowances to reduce our deferred tax assets to the amount expected
to be realized by considering all available positive and negative evidence.
Pursuant to ASC 740, we must consider all positive and negative evidence regarding the
realization of deferred tax assets, including past operating results and future sources of taxable
income. Under the provisions of ASC 740-10, we determined that our net deferred tax asset needed
to be fully reserved given recent earnings and industry trends.
The Worker, Homeownership, and Business Assistance Act of 2009 (the Act) was signed into law
in November 2009. The Act allowed us to carryback the 2009 net operating loss, which had a
valuation allowance recorded against the entire amount and which we were not able to carryback
under the prior tax law. The additional carryback generated a tax refund of $19.2 million. The tax
refund was recorded as income tax benefit during our quarter ended December 31, 2009, the period
the Act was enacted. We filed a carryback claim with the Internal Revenue Service, and we received
a $19.2 million refund in the quarter ended March 31, 2010.
6. SHORT-TERM BORROWINGS:
In June 2010, we entered into an Inventory Financing Agreement (the Credit Facility) with GE
Commercial Distribution Finance Company (GECDF). The Credit Facility provides a floor plan
financing commitment of $100 million and allows us to request a $50 million increase to this
commitment under an accordion feature, subject to GECDF approval. The Credit Facility matures in
June 2013 and may be extended for two one-year periods, subject to GECDF approval.
The Credit Facility has certain financial covenants as specified in the agreement. The
covenants include provisions that our leverage ratio not exceed 2.75 to 1 and that our current
ratio must be greater than 1.2 to 1. As of June 30, 2010, we were in compliance with all of the
Credit Facility covenants. The interest rate for amounts outstanding under the Credit Facility is
378 basis points above the one-month London Inter-Bank Offering Rate (LIBOR). There is an unused
line fee of ten basis points on the unused portion of the Credit Facility.
9
Advances will be initiated by the acquisition of eligible new and used inventory or will be
advances against eligible new and used inventory that have been partially paid-off. Advances on new
inventory will mature 1,081 days from the original invoice date. Advances on used inventory will
mature 361 days from the date we acquire the used inventory. Each advance is subject to a
curtailment schedule, which requires that we pay down the balance of each advance on a periodic
basis starting after six months. The curtailment schedule varies based on the type and value of the
inventory. The collateral for the Credit Facility is all of our personal property with certain
limited exceptions. None of our real estate has been pledged as collateral under the Credit
Facility.
The Credit Facility replaces our prior $180 million credit facility that provided for a line
of credit with asset-based borrowing availability. The prior credit facility had certain financial
covenants as specified in the agreement. The interest rate for amounts outstanding under the prior
credit facility was 490 basis points above the one-month LIBOR. During the quarter ended June 30,
2010, we accelerated the amortization of the prior credit facility loan costs of approximately $1.0
million.
As of June 30, 2010, our indebtedness associated with financing our inventory and working
capital needs totaled approximately $57.2 million. At June 30, 2009 and 2010, the interest rate on
the outstanding short-term borrowings was 4.6% and 4.1%, respectively. At June 30, 2010, our
additional available borrowings under our Credit Facility were approximately $42.8 million.
As is common in our industry, we receive interest assistance directly from boat manufacturers,
including Brunswick. The interest assistance programs vary by manufacturer but generally include
periods of free financing or reduced interest rate programs. The interest assistance may be paid
directly to us or our lender depending on the arrangements the manufacturer has established. We
classify interest assistance received from manufacturers as a reduction of inventory cost and
related cost of sales as opposed to netting the assistance against our interest expense incurred
with our lender.
The availability and costs of borrowed funds can adversely affect our ability to obtain
adequate boat inventory and the holding costs of that inventory as well as the ability and
willingness of our customers to finance boat purchases. As of June 30, 2010, we had no long-term
debt. However, we rely on our Credit Facility to purchase our inventory of boats. The aging of our
inventory limits our borrowing capacity as defined curtailments reduce the allowable advance rate
as our inventory ages. Our access to funds under our Credit Facility also depends upon the ability
of GECDF to meet its funding commitments, particularly if it experiences shortages of capital or
experiences excessive volumes of borrowing requests from others during a short period of time. A
continuation of depressed economic conditions, weak consumer spending, turmoil in the credit
markets, and lender difficulties could interfere with our ability to utilize our Credit Facility to
fund our operations. Any inability to utilize our Credit Facility could require us to seek other
sources of funding to repay amounts outstanding under the credit agreement or replace or supplement
our credit agreement, which may not be possible at all or under commercially reasonable terms.
Similarly, decreases in the availability of credit and increases in the cost of credit
adversely affect the ability of our customers to purchase boats from us and thereby adversely
affect our ability to sell our products and impact the profitability of our finance and insurance
activities. Tight credit conditions, during fiscal 2009 and continuing in fiscal 2010, adversely
affected the ability of customers to finance boat purchases, which had a negative affect on our
operating results.
7.
|
|
STOCK-BASED COMPENSATION:
|
We account for our share-based compensation plans following the provisions of FASB Accounting
Standards Codification 718, Compensation Stock Compensation (ASC 718), previously referred
to as Statement of Financial Accounting Standards No. 123R, Share-Based Payment. In accordance
with ASC 718, we use the Black-Scholes valuation model for valuing all stock-based compensation and
shares granted under the Employee Stock Purchase Plan. We measure compensation for restricted stock
awards and restricted stock units at fair value on the grant date based on the number of shares
expected to vest and the quoted market price of our common stock. We recognize compensation cost
for all awards in earnings, net of estimated forfeitures, on a straight-line basis over the
requisite service period for each separately vesting portion of the award.
During the nine months ended June 30, 2009 and 2010, we recognized stock-based compensation
expense of approximately $4.3 million and $3.3 million, respectively, in selling, general, and
administrative expenses on the condensed consolidated statements of operations. Tax benefits
realized for tax deductions from option exercises for
10
the nine months ended June 30, 2010 was approximately $19,000. There was no income tax benefit
recorded in the comparable period last year.
Cash received from option exercises under all share-based payment arrangements for the nine
months ended June 30, 2009 and 2010, was approximately $678,000 and $1.3 million, respectively. We
currently expect to satisfy share-based awards with registered shares available to be issued.
8.
|
|
THE INCENTIVE STOCK PLANS:
|
During February 2007, our stockholders approved a proposal to approve our 2007 Incentive
Compensation Plan (2007 Plan), which replaced our 1998 Incentive Stock Plan (1998 Plan). Our
2007 Plan provides for the grant of stock options, stock appreciation rights, restricted stock,
stock units, bonus stock, dividend equivalents, other stock related awards, and performance awards
(collectively, awards), that may be settled in cash, stock, or other property. Our 2007 Plan is
designed to attract, motivate, retain, and reward our executives, employees, officers, directors,
and independent contractors by providing such persons with annual and long-term performance
incentives to expend their maximum efforts in the creation of stockholder value. The total number
of shares of our common stock that may be subject to awards under the 2007 Plan is equal to
1,000,000 shares, plus (i) any shares available for issuance and not subject to an award under the
1998 Plan, (ii) the number of shares with respect to which awards granted under the 2007 Plan and
the 1998 Plan terminate without the issuance of the shares or when the shares are forfeited or
repurchased; (iii) with respect to awards granted under the 2007 Plan and the 1998 Plan, the number
of shares that are not issued as a result of the award being settled for cash or otherwise not
issued in connection with the exercise or payment of the award; and (iv) the number of shares that
are surrendered or withheld in payment of the exercise price of any award or any tax withholding
requirements in connection with any award granted under the 2007 Plan and the 1998 Plan. The 2007
Plan terminates in February 2017, and awards may be granted at any time during the life of the 2007
Plan. The date on which awards vest are determined by the Board of Directors or the Plan
Administrator. The exercise prices of options are determined by the Board of Directors or the Plan
Administrator and are at least equal to the fair market value of shares of common stock on the date
of grant. The term of options under the 2007 Plan may not exceed ten years. The options granted
have varying vesting periods. To date, we have not settled or been under any obligation to settle
any awards in cash.
The following table summarizes option activity from September 30, 2009 through June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Intrinsic
|
|
|
|
|
|
|
Remaining
|
|
|
|
Shares Available
|
|
|
|
|
|
|
Value (in
|
|
|
Weighted Average
|
|
|
Contractual Life
|
|
|
|
for Grant
|
|
|
Options Outstanding
|
|
|
thousands)
|
|
|
Exercise Price
|
|
|
(in years)
|
|
Balance at September 30, 2009
|
|
|
1,007,875
|
|
|
|
1,995,194
|
|
|
$
|
5,173
|
|
|
$
|
10.37
|
|
|
|
7.0
|
|
Options granted
|
|
|
(432,300
|
)
|
|
|
432,300
|
|
|
|
|
|
|
$
|
7.93
|
|
|
|
|
|
Options
cancelled/forfeited/expired
|
|
|
103,268
|
|
|
|
(103,268
|
)
|
|
|
|
|
|
$
|
12.94
|
|
|
|
|
|
Restricted stock awards forfeited
|
|
|
1,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(178,448
|
)
|
|
|
|
|
|
$
|
5.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
|
680,419
|
|
|
|
2,145,778
|
|
|
$
|
3,714
|
|
|
$
|
10.16
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010
|
|
|
|
|
|
|
1,135,278
|
|
|
$
|
1,528
|
|
|
$
|
12.75
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of options granted during the nine months ended
June 30, 2009 and 2010 was $1.74 and $5.41, respectively. The total intrinsic value of options
exercised during the nine months ended June 30, 2009 and 2010 was approximately $3,900 and
$900,000, respectively.
As of June 30, 2009 and 2010, there was approximately $1.6 million of unrecognized
compensation costs related to non-vested options that are expected to be recognized over a weighted
average period of 2.3 years and 2.2 years, respectively. The total fair value of options vested
during the nine months ended June 30, 2010 was approximately $2.2 million. There was no fair value
associated with options that vested during the nine months ended June 30, 2009 since the grant
price was in excess of the market price.
11
We continued using the Black-Scholes model to estimate the fair value of options granted
during fiscal 2010. The expected term of options granted is derived from the output of the option
pricing model and represents the period of time that options granted are expected to be
outstanding. Volatility is based on the historical volatility of our common stock. The risk-free
rate for periods within the contractual term of the options is based on the U.S. Treasury yield
curve in effect at the time of grant.
The following are the weighted-average assumptions used for each respective period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free interest rate
|
|
|
2.9
|
%
|
|
|
2.4
|
%
|
|
|
2.2
|
%
|
|
|
2.3
|
%
|
Volatility
|
|
|
82.8
|
%
|
|
|
86.2
|
%
|
|
|
63.6
|
%
|
|
|
85.8
|
%
|
Expected life
|
|
5 years
|
|
5 years
|
|
6 years
|
|
5 years
|
9.
|
|
EMPLOYEE STOCK PURCHASE PLAN:
|
During February 2008, our stockholders approved our 2008 Employee Stock Purchase Plan (Stock
Purchase Plan). The Stock Purchase Plan provides for up to 500,000 shares of common stock to be
available for purchase by our regular employees who have completed at least one year of continuous
service. The Stock Purchase Plan provides for implementation of up to 10 annual offerings beginning
on the first day of October starting in 2008, with each offering terminating on September 30 of the
following year. Each annual offering may be divided into two six-month offerings. For each
offering, the purchase price per share will be the lower of (i) 85% of the closing price of the
common stock on the first day of the offering or (ii) 85% of the closing price of the common stock
on the last day of the offering. The purchase price is paid through periodic payroll deductions not
to exceed 10% of the participants earnings during each offering period. However, no participant
may purchase more than $25,000 worth of common stock annually.
We continued using the Black-Scholes model to estimate the fair value of options granted
to purchase shares issued pursuant to the Stock Purchase Plan. The expected term of options granted
is derived from the output of the option pricing model and represents the period of time that
options granted are expected to be outstanding. Volatility is based on the historical volatility of
our common stock. The risk-free rate for periods within the contractual term of the options is
based on the U.S. Treasury yield curve in effect at the time of grant.
The following are the weighted-average assumptions used for each respective period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free interest
rate
|
|
|
0.4
|
%
|
|
|
.24
|
%
|
|
|
0.5
|
%
|
|
|
.18
|
%
|
Volatility
|
|
|
149.7
|
%
|
|
|
61.4
|
%
|
|
|
169.1
|
%
|
|
|
71.3
|
%
|
Expected life
|
|
six months
|
|
six months
|
|
six months
|
|
six months
|
10.
|
|
RESTRICTED STOCK AWARDS:
|
We have granted non-vested (restricted) stock awards or restricted stock units (collectively,
restricted stock awards) to certain key employees pursuant to the 1998 Plan or the 2007 Plan. The
restricted stock awards have varying vesting periods, but generally become fully vested at either
the end of year four or the end of year five, depending on the specific award. Certain awards
granted in fiscal 2008 require certain levels of performance by us after the grant before they are
earned. Such performance metrics must be achieved by September 2011, or the awards will be
forfeited. The stock underlying the vested restricted stock units will be delivered upon vesting.
Certain awards granted in fiscal 2010 require a minimum level of performance of our stock price
compared to an index before they are earned. Such performance metrics must be achieved by
September 2012, or the awards will be forfeited. The stock underlying the vested restricted stock
units will be delivered upon vesting.
12
We accounted for the restricted stock awards granted during fiscal 2007, 2008, and 2009 using
the measurement and recognition provisions of ASC 718. Accordingly, the fair value of the
restricted stock awards is measured on the grant date and recognized in earnings over the requisite
service period for each separately vesting portion of the award.
The following table summarizes restricted stock award activity from September 30, 2009 through
June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
|
|
Non-vested balance at September 30, 2009
|
|
|
520,070
|
|
|
$
|
22.65
|
|
Changes during the period
|
|
|
|
|
|
|
|
|
Awards granted
|
|
|
119,100
|
|
|
$
|
7.00
|
|
Awards vested
|
|
|
(187,142
|
)
|
|
$
|
21.13
|
|
Awards forfeited
|
|
|
(1,576
|
)
|
|
$
|
15.59
|
|
|
|
|
|
|
|
|
|
Non-vested balance at June 30, 2010
|
|
|
450,452
|
|
|
$
|
18.19
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010, we had approximately $2.3 million of total unrecognized compensation cost
related to non-vested restricted stock awards. We expect to recognize that cost over a
weighted-average period of 1.0 years.
11.
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NET INCOME/LOSS PER SHARE:
|
The following is a reconciliation of the shares used in the denominator for calculating basic
and diluted net income/loss per share:
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|
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|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
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Nine Months Ended
|
|
|
|
June 30,
|
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|
June 30,
|
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|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
Weighted average common shares outstanding
used in calculating basic income (loss) per
share
|
|
|
18,575,332
|
|
|
|
22,077,086
|
|
|
|
18,502,933
|
|
|
|
21,951,424
|
|
Effect of dilutive options
|
|
|
|
|
|
|
716,132
|
|
|
|
|
|
|
|
660,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common
equivalent shares used in calculating diluted
income (loss) per share
|
|
|
18,575,332
|
|
|
|
22,793,218
|
|
|
|
18,502,933
|
|
|
|
22,612,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 1,982,300 and 1,294,519 shares of common stock were outstanding at June
30, 2009 and 2010, respectively, but were not included in the computation of income (loss) per
share because the options exercise prices were greater than the average market price of our common
stock, and therefore, their effect would be anti-dilutive.
12.
|
|
COMMITMENTS AND CONTINGENCIES:
|
We are party to various legal actions arising in the ordinary course of business. The ultimate
liability, if any, associated with these matters was not believed to be material at June 30, 2010.
While it is not feasible to determine the actual outcome of these actions as of June 30, 2010, we
do not believe that these matters will have a material adverse effect on our consolidated financial
condition, results of operations, or cash flows.
13
|
|
|
ITEM 2.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This Managements Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements include statements relating to our ability to capitalize on our core
strengths to substantially outperform the industry and result in leading market share, our ability
to align our retailing strategies with the desire of consumers to produce leading market share, our
belief that the steps we have taken to address weak market conditions will yield an increase in
future revenue, and our expectations that our core strengths and retailing strategies will position
us to capitalize on growth opportunities as they occur and will allow us to emerge from the current
challenging economic environment with greater earnings potential as general economic trends
improve. Actual results could differ materially from those currently anticipated as a result of a
number of factors, including those set forth under Risk Factors in our Annual Report on Form 10-K
for the fiscal year ended September 30, 2009.
General
We are the largest recreational boat retailer in the United States with fiscal 2009 revenue in
excess of $588 million. Through 56 retail locations in 19 states, we sell new and used recreational
boats and related marine products, including engines, trailers, parts, and accessories. We also
arrange related boat financing, insurance, and extended warranty contracts; provide boat repair and
maintenance services; offer yacht and boat brokerage services; and, where available, offer slip and
storage accommodations.
MarineMax was incorporated in January 1998. We commenced operations with the acquisition of
five independent recreational boat dealers on March 1, 1998. Since the initial acquisitions in
March 1998, we have acquired 20 recreational boat dealers, two boat brokerage operations, and two
full-service yacht repair facilities. As a part of our acquisition strategy, we frequently engage
in discussions with various recreational boat dealers regarding their potential acquisition by us.
Potential acquisition discussions frequently take place over a long period of time and involve
difficult business integration and other issues, including, in some cases, management succession
and related matters. As a result of these and other factors, a number of potential acquisitions
that from time to time appear likely to occur do not result in binding legal agreements and are not
consummated. We did not complete any significant acquisitions during the fiscal years ended
September 30, 2008 and 2009 and to date in 2010.
General economic conditions and consumer spending patterns can negatively impact our operating
results. Unfavorable local, regional, national, or global economic developments or uncertainties
regarding future economic prospects could reduce consumer spending in the markets we serve and
adversely affect our business. Economic conditions in areas in which we operate dealerships,
particularly Florida in which we generated 44%, 43%, and 45% of our revenue during fiscal 2007,
2008, and 2009, respectively, can have a major impact on our operations. Local influences, such as
corporate downsizing, military base closings, inclement weather, and environmental conditions, such
as the BP oil spill in the Gulf of Mexico, also could adversely affect our operations in certain
markets.
In an economic downturn, consumer discretionary spending levels generally decline, at times
resulting in disproportionately large reductions in the sale of luxury goods. Consumer spending on
luxury goods also may decline as a result of lower consumer confidence levels, even if prevailing
economic conditions are favorable. Although we have expanded our operations during periods of
stagnant or modestly declining industry trends, the cyclical nature of the recreational boating
industry or the lack of industry growth could adversely affect our business, financial condition,
or results of operations in the future. Any period of adverse economic conditions or low consumer
confidence has a negative effect on our business.
Lower consumer spending resulting from a downturn in the housing market and other economic
factors adversely affected our business in fiscal 2007 and continued weakness in consumer spending
resulting from substantial weakness in the financial markets and deteriorating economic conditions
had a very substantial negative effect on our business in fiscal 2008, 2009 and to date in 2010.
These conditions caused us to defer our acquisition program, delay new store openings, reduce our
inventory purchases, engage in inventory reduction efforts, close some of our retail locations,
reduce our headcount, and amend our credit facility. We cannot predict the length or severity of
these unfavorable economic or financial conditions or the extent to which they will adversely
affect our
14
operating results nor can we predict the effectiveness of the measures we have taken to
address this environment or whether additional measures will be necessary.
Although economic conditions have adversely affected our operating results, we have
capitalized on our core strengths to substantially outperform the industry, resulting in leading
market share. Our ability to produce such market share supports the alignment of our retailing
strategies with the desires of consumers. We believe the steps we have taken to address weak
market conditions will yield an increase in future revenue. As general economic trends improve, we
expect our core strengths and retailing strategies will position us to capitalize on growth
opportunities as they occur and will allow us to emerge from this challenging economic environment
with greater earnings potential.
Application of Critical Accounting Policies
We have identified the policies below as critical to our business operations and the
understanding of our results of operations. The impact and risks related to these policies on our
business operations is discussed throughout Managements Discussion and Analysis of Financial
Condition and Results of Operations when such policies affect our reported and expected financial
results.
In the ordinary course of business, we make a number of estimates and assumptions relating to
the reporting of results of operations and financial condition in the preparation of our financial
statements in conformity with accounting principles generally accepted in the United States. We
base our estimates on historical experience and on various other assumptions that we believe are
reasonable under the circumstances. The results form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results could differ significantly from those estimates under different assumptions and conditions.
We believe that the following discussion addresses our most critical accounting policies, which are
those that are most important to the portrayal of our financial condition and results of operations
and require our most difficult, subjective, and complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.
Revenue Recognition
We recognize revenue from boat, motor, and trailer sales, and parts and service operations at
the time the boat, motor, trailer, or part is delivered to or accepted by the customer or service
is completed. We recognize commissions earned from a brokerage sale at the time the related
brokerage transaction closes. We recognize revenue from slip and storage services on a
straight-line basis over the term of the slip or storage agreement. We recognize commissions earned
by us for placing notes with financial institutions in connection with customer boat financing when
we recognize the related boat sales. We also recognize marketing fees earned on credit life,
accident and disability, and hull insurance products sold by third-party insurance companies at the
later of customer acceptance of the insurance product as evidenced by contract execution or when
the related boat sale is recognized. We also recognize commissions earned on extended warranty
service contracts sold on behalf of third-party insurance companies at the later of customer
acceptance of the service contract terms as evidenced by contract execution or recognition of the
related boat sale.
Certain finance and extended warranty commissions and marketing fees on insurance
products may be charged back if a customer terminates or defaults on the underlying contract within
a specified period of time. Based upon our experience of repayments and defaults, we maintain a
chargeback allowance that was not material to our financial statements taken as a whole as of June
30, 2010. Should results differ materially from our historical experiences, we would need to modify
our estimate of future chargebacks, which could have a material adverse effect on our operating
margins.
Vendor Consideration Received
We account for consideration received from our vendors in accordance with FASB Accounting
Standards Codification 605-50, Revenue Recognition, Customer Payments and Incentives (ASC
605-50), previously referred to as Emerging Issues Task Force Issue No. 02-16, Accounting by a
Customer (Including a Reseller) for Certain Consideration Received from a Vendor. ASC 605-50
requires us to classify interest assistance received from manufacturers as a reduction of inventory
cost and related cost of sales as opposed to netting the assistance
15
against our interest expense incurred with our lenders. Pursuant to ASC 605-50, amounts
received by us under our co-op assistance programs from our manufacturers are netted against
related advertising expenses.
Inventories
Inventory costs consist of the amount paid to acquire the inventory, net of vendor
consideration and purchase discounts, the cost of equipment added, reconditioning costs, and
transportation costs relating to acquiring inventory for sale. We state new boat, motor, and
trailer inventories at the lower of cost, determined on a specific-identification basis, or market.
We state used boat, motor, and trailer inventories, including trade-ins, at the lower of cost,
determined on a specific-identification basis, or market. We state parts and accessories at the
lower of cost, determined on an average cost basis, or market. We utilize our historical
experience, the aging of the inventories, and our consideration of current market trends as the
basis for determining lower of cost or market valuation allowance. As of September 30, 2009 and
June 30, 2010, our lower of cost or market valuation allowance was $17.7 million and $8.4 million,
respectively. If events occur and market conditions change, causing the fair value to fall below
carrying value, the lower of cost or market valuation allowance could increase.
Impairment of Long-Lived Assets
FASB Accounting Standards Codification 360-10-40, Property, Plant, and Equipment, Impairment
or Disposal of Long-Lived Assets (ASC 360-10-40), previously referred to as Statement of
Financial Accounting Standards No. 144, Accounting for Impairment or Disposal of Long-Lived
Assets, requires that long-lived assets, such as property and equipment and purchased intangibles
subject to amortization, be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset
is measured by comparison of its carrying amount to undiscounted future net cash flows the asset is
expected to generate. If such assets are considered to be impaired, the impairment to be recognized
is measured as the amount by which the carrying amount of the asset exceeds its fair market value.
Estimates of expected future cash flows represent our best estimate based on currently available
information and reasonable and supportable assumptions. Any impairment recognized in accordance
with ASC 360-10-40 is permanent and may not be restored. As of June 30, 2010, we had not recognized
any impairment of long-lived assets in connection with ASC 360-10-40 based on our reviews for the
fiscal year ending September 30, 2010.
Income Taxes
We account for income taxes in accordance with FASB Accounting Standards Codification 740,
Income Taxes (ASC 740), previously referred to as Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, and Financial Accounting Standard Board Interpretation
No. 48, Accounting for Uncertainty in Income Taxes. Under ASC 740, we recognize deferred tax
assets and liabilities for the future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their
respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates
expected to apply to taxable income in the years in which we expect those temporary differences to
be recovered or settled. We record valuation allowances to reduce our deferred tax assets to the
amount expected to be realized by considering all available positive and negative evidence.
Pursuant to ASC 740, we must consider all positive and negative evidence regarding the
realization of deferred tax assets, including past operating results and future sources of taxable
income. Under the provisions of ASC 740-10, we determined that our net deferred tax asset needed
to be fully reserved given recent earnings and industry trends.
The Worker, Homeownership, and Business Assistance Act of 2009 (the Act) was signed into law
in November 2009. The Act allowed us to carryback the 2009 net operating loss, which had a
valuation allowance recorded against the entire amount and which we were not able to carryback
under the prior tax law. The additional carryback generated a tax refund of $19.2 million. The tax
refund was recorded as income tax benefit during our quarter ended December 31, 2009, the period
the Act was enacted. We filed a carryback claim with the Internal Revenue Service, and we received
a $19.2 million refund in the quarter ended March 31, 2010.
Stock-Based Compensation
We account for our share-based compensation plans following the provisions of FASB Accounting
Standards Codification 718, Compensation Stock Compensation (ASC 718), previously referred to
as Statement of
16
Financial Accounting Standards No. 123R, Share-Based Payment. In accordance with ASC 718,
we use the Black-Scholes valuation model for valuing all stock-based compensation and shares
granted under the Employee Stock Purchase Plan. We measure compensation for restricted stock awards
and restricted stock units at fair value on the grant date based on the number of shares expected
to vest and the quoted market price of our common stock. We recognize compensation cost for all
awards in earnings, net of estimated forfeitures, on a straight-line basis over the requisite
service period for each separately vesting portion of the award.
Consolidated Results of Operations
The following discussion compares the three and nine months ended June 30, 2010 with the three
and nine months ended June 30, 2009 and should be read in conjunction with the condensed
consolidated financial statements, including the related notes thereto, appearing elsewhere in this
report.
Three Months Ended June 30, 2010 Compared with Three Months Ended June 30, 2009
Revenue.
Revenue decreased $36.1 million, or 23.8%, to $115.4 million for the three months
ended June 30, 2010 from $151.5 million for the three months ended June 30, 2009. Of this decrease,
$23.8 million was attributable to a 17.2% decline in comparable-store sales and approximately $12.3
million, net, was attributable to stores opened or closed that were not eligible for inclusion in
the comparable-store base for the three months ended June 30, 2010. The decline in our
comparable-store sales was due to the ongoing economic pressure on our industry, a difficult retail
financing environment, and the impact of the BP oil spill in the Gulf of Mexico on customers
purchasing decisions, all of which have adversely impacted our retail sales.
Gross Profit.
Gross profit increased $1.9 million, or 5.9%, to $34.5 million for the three
months ended June 30, 2010 from $32.6 million for the three months ended June 30, 2009. Gross
profit as a percentage of revenue increased to 30.0% for the three months ended June 30, 2010 from
21.5% for the three months ended June 30, 2009. The increase in gross profit as a percentage of
revenue was a result of the actions we have taken to dramatically reduce inventory levels and
improve its aging. This has resulted in a reduction in the amounts of discounting required on new
and used boat sales. Gross profit has also been positively impacted by a product mix shift from
boat sales to our higher margin brokerage services, finance and insurance products, and service,
parts and accessories products. As these higher margin businesses become a larger component of our
overall revenue, our overall gross profit will increase accordingly.
Selling, General, and Administrative Expenses.
Selling, general, and administrative expenses
decreased $5.7 million, or 14.4%, to $33.3 million for the three months ended June 30, 2010 from
$39.0 million for the three months ended June 30, 2009. Selling, general, and administrative
expenses as a percentage of revenue increased approximately 3.2% to 28.9% for the three months
ended June 30, 2010 from 25.7% for the three months ended June 30, 2009. This increase in selling,
general, and administrative expenses as a percentage of revenue was primarily attributable to the
same-store sales decline, which resulted in a reduction in our ability to leverage our expense
structure. The reduction in the dollar level of selling, general, and administrative expenses
resulted from expense reductions and store closures that occurred during fiscal 2009. We operated
65 locations at the end of June 2009 compared with 56 locations at the end of June 2010. Associated
with the store closures, we have reduced personnel costs, commissions, and manager bonuses along
with reductions in marketing, travel, and entertainment expenses. The three months ended June 30,
2009 included approximately $2.0 million in store closing costs. Additionally, the three months
ended June 30, 2010 included approximately $1.0 million of debt extinguishment costs related to our
previous credit facility.
Interest Expense.
Interest expense decreased $2.7 million, or 79.0%, to $702,000 for the three
months ended June 30, 2010 from $3.4 million for the three months ended June 30, 2009. The decrease
was primarily a result of decreased borrowings under our credit facility. Interest expense as a
percentage of revenue decreased to 0.6% for the three months ended June 30, 2010 from 2.2% for the
three months ended June 30, 2009 because of the reductions in the average borrowings on our credit
facility.
Income Tax Benefit.
We had no income tax expense for the three months ended June 30, 2010
compared to a tax benefit of $559,000 for the three months ended June 30, 2009. Our effective
income tax rate was low for both the three months ended June 30, 2010 and 2009, primarily due to
the limitations on our net operating loss carryback,
17
which limited the tax benefit we were able to record and changes in our valuation allowances
associated with our deferred tax assets.
Nine Months Ended June 30, 2010 Compared with Nine Months Ended June 30, 2009
Revenue.
Revenue decreased $55.4 million, or 14.5%, to $325.9 million for the nine months
ended June 30, 2010 from $381.3 million for the nine months ended June 30, 2009. Of this decrease,
$18.5 million was attributable to a 5.4% decline in comparable-store sales and approximately $36.9
million, net, was attributable to stores opened or closed that were not eligible for inclusion in
the comparable-store base for the nine months ended June 30, 2010. The decline in our
comparable-store sales was due to the ongoing economic pressure on our industry, a difficult retail
financing environment, and the impact of the BP oil spill in the Gulf of Mexico on customers
purchasing decisions, all of which have adversely impacted our retail sales.
Gross Profit.
Gross profit increased $4.7 million, or 6.2% to $80.7 million for the nine
months ended June 30, 2010 from $76.0 million for the nine months ended June 30, 2009. Gross profit
as a percentage of revenue increased to 24.8% for the nine months ended June 30, 2010 from 19.9%
for the nine months ended June 30, 2009. The increase in gross profit as a percentage of revenue
was a result of the actions we have taken to dramatically reduce inventory levels and improve its
aging. This has resulted in a reduction in the amounts of discounting required on new and used boat
sales. Gross profit has also been positively impacted by a product mix shift from boat sales to our
higher margin brokerage services, finance and insurance products, and service, parts and
accessories products. As these higher margin businesses become a larger component of our overall
revenue, our overall gross profit will increase accordingly.
Selling, General, and Administrative Expenses.
Selling, general, and administrative expenses
decreased $21.6 million, or 18.9%, to $92.6 million for the nine months ended June 30, 2010 from
$114.2 million for the nine months ended June 30, 2009. The overall decrease in selling, general,
and administrative expenses resulted from the strategic store reductions that we enacted throughout
our 2009 fiscal year. We operated 65 locations at the end of June 2009 compared with 56 locations
at the end of June 2010. Additionally, with reductions in workforce, we reduced personnel costs,
commissions, and manager bonuses along with reductions in marketing, travel, and entertainment
expenses. The nine months ended June 30, 2009 included approximately $3.4 million in store closing
costs. Additionally, the nine months ended June 30, 2010 included approximately $1.0 million of
debt extinguishment costs related to our previous credit facility. Selling, general, and
administrative expenses as a percentage of revenue decreased approximately 1.6% to 28.4% for the
nine months ended June 30, 2010 from 30.0% for the nine months ended June 30, 2009, as a result of
our reduced cost structure.
Interest Expense.
Interest expense decreased $8.0 million, or 71.2%, to $3.2 million for the
nine months ended June 30, 2010 from $11.2 million for the nine months ended June 30, 2009. The
decrease was primarily a result of decreased borrowings under our credit facility. Interest expense
as a percentage of revenue decreased to 1.0% for the nine months ended June 30, 2010 from 2.9% for
the nine months ended June 30, 2009 because of the reductions in the average borrowings on our
credit facility.
Income Tax Benefit.
Our income tax benefit for the nine months ended June 30, 2010 was $19.4
million compared with $5.6 million for the nine months ended June 30, 2009. The increase in our tax
benefit was due to the enactment of the Worker, Homeownership, and Business Assistance Act of 2009
(the Act), which was signed into law in November 2009. The Act allowed us to carryback the 2009
net operating loss, which had a valuation allowance recorded against the entire amount and which we
were not able to carryback under the prior tax law. The additional carryback generated a tax refund
of $19.2 million. The tax refund was recorded as income tax benefit during the quarter ended
December 31, 2009, the period the Act was enacted. We filed a carryback claim with the Internal
Revenue Service, and we received a $19.2 million refund in the quarter ended March 31, 2010.
Liquidity and Capital Resources
Our cash needs are primarily for working capital to support operations, including new and used
boat and related parts inventories, off-season liquidity, and growth through acquisitions and new
store openings. We regularly monitor the aging of our inventories and current market trends to
evaluate our current and future inventory needs. We also use this evaluation in conjunction with
our review of our current and expected operating performance and expected business levels to
determine the adequacy of our financing needs. These cash needs have historically been financed
with cash generated from operations and borrowings under our credit facility. Our ability to
utilize our
18
credit facility to fund operations depends upon the collateral levels and compliance with the
covenants of the credit facility. Turmoil in the credit markets and weakness in the retail markets
may interfere with our ability to remain in compliance with the covenants of the credit facility
and therefore utilize the credit facility to fund operations. At June 30, 2010, we were in
compliance with all of the credit facility covenants. We currently depend upon dividends and other
payments from our dealerships and our credit facility to fund our current operations and meet our
cash needs. Currently, no agreements exist that restrict this flow of funds from our dealerships.
For the nine months ended June 30, 2010, cash provided by operating activities approximated
$83.5 million. For the nine months ended June 30, 2010, cash provided by operating activities was
primarily related to a decrease in inventories due to our reduction in purchasing and our
comparable-store sales, a decrease in accounts receivable from our manufacturers, a decrease in
income tax receivable, an increase in our accounts payable, and an increase in customer deposits.
For the nine months ended June 30, 2009, cash provided by operating activities approximated $109.0
million. For the nine months ended June 30, 2009, cash provided by operating activities was
primarily generated by the reductions in inventories and increase in accounts payable, partially
offset by the net loss for the period.
For the nine months ended June 30, 2009 and 2010, cash used in investing activities
approximated $1.8 million and $1.2 million, respectively, and was primarily used to purchase
property and equipment associated with improving existing retail facilities.
For the nine months ended June 30, 2009 and 2010, cash used in financing activities
approximated $123.7 million and $83.5 million, respectively, and was primarily attributable to net
payments on our short-term borrowings as a result of decreased inventory levels.
In June 2010, we entered into an Inventory Financing Agreement (the Credit Facility) with GE
Commercial Distribution Finance Company (GECDF). The Credit Facility provides a floor plan
financing commitment of $100 million and allows us to request a $50 million increase to this
commitment under an accordion feature, subject to GECDF approval. The Credit Facility matures in
June 2013 and may be extended for two one-year periods, subject to GECDF approval.
The Credit Facility has certain financial covenants as specified in the agreement. The
covenants include provisions that our leverage ratio not exceed 2.75 to 1 and that our current
ratio must be greater than 1.2 to 1. As of June 30, 2010, we were in compliance with all of the
Credit Facility covenants. The interest rate for amounts outstanding under the Credit Facility is
378 basis points above the one-month London Inter-Bank Offering Rate (LIBOR). There is an unused
line fee of ten basis points on the unused portion of the Credit Facility.
Advances will be initiated by the acquisition of eligible new and used inventory or will be
advances against eligible new and used inventory that have been partially paid-off. Advances on new
inventory will mature 1,081 days from the original invoice date. Advances on used inventory will
mature 361 days from the date we acquire the used inventory. Each advance is subject to a
curtailment schedule, which requires that we pay down the balance of each advance on a periodic
basis starting after six months. The curtailment schedule varies based on the type and value of the
inventory. The collateral for the Credit Facility is all of our personal property with certain
limited exceptions. None of our real estate has been pledged as collateral under the Credit
Facility.
The Credit Facility replaces our prior $180 million credit facility that provided for a line
of credit with asset-based borrowing availability. The prior credit facility had certain financial
covenants as specified in the agreement. The interest rate for amounts outstanding under the prior
credit facility was 490 basis points above the one-month LIBOR. During the quarter ended June 30,
2010, we accelerated the amortization of the prior credit facility loan costs of approximately $1.0
million.
The foregoing description of the Credit Facility is only a summary and is qualified in its
entirety by reference to the full text of the Credit Facility, attached hereto as Exhibit 10.1, and
the initial Program Terms Letter issued under the Credit Facility, attached hereto as Exhibit 10.2 and
incorporated herein by reference.
As of June 30, 2010, our indebtedness associated with financing our inventory and working
capital needs totaled approximately $57.2 million. At June 30, 2009 and 2010, the interest rate on
the outstanding short-term
19
borrowings was 4.6% and 4.1%, respectively. At June 30, 2010, our additional available
borrowings under our Credit Facility were approximately $42.8 million.
We issued a total of 421,025 shares of our common stock in conjunction with our Incentive
Stock Plans and Employee Stock Purchase Plan during the nine months ended June 30, 2010 for
approximately $1.3 million in cash. Our Incentive Stock Plans provide for the grant of incentive
and non-qualified stock options to acquire our common stock, the grant of restricted stock awards
and restricted stock units, the grant of common stock, the grant of stock appreciation rights, and
the grant of other cash awards to key personnel, directors, consultants, independent contractors,
and others providing valuable services to us. Our Employee Stock Purchase Plan is available to all
our regular employees who have completed at least one year of continuous service.
Except as specified in this Managements Discussion and Analysis of Financial Condition and
Results of Operations and in the attached unaudited condensed consolidated financial statements,
we have no material commitments for capital for the next 12 months. We believe that our existing
capital resources will be sufficient to finance our operations for at least the next 12 months,
except for possible significant acquisitions.
Impact of Seasonality and Weather on Operations
Our business, as well as the entire recreational boating industry, is highly seasonal, with
seasonality varying in different geographic markets. With the exception of Florida, we generally
realize significantly lower sales and higher levels of inventories, and related short-term
borrowings, in the quarterly periods ending December 31 and March 31. The onset of the public boat
and recreation shows in January stimulates boat sales and allows us to reduce our inventory levels
and related short-term borrowings throughout the remainder of the fiscal year. Our business could
become substantially more seasonal if we acquire dealers that operate in colder regions of the
United States or close retail locations in warm climates.
Our business is also subject to weather patterns, which may adversely affect our results
of operations. For example, drought conditions (or merely reduced rainfall levels) or excessive
rain may close area boating locations or render boating dangerous or inconvenient, thereby
curtailing customer demand for our products. In addition, unseasonably cool weather and prolonged
winter conditions may lead to a shorter selling season in certain locations. Hurricanes and other
storms could result in disruptions of our operations or damage to our boat inventories and
facilities, as has been the case when Florida and other markets were hit by hurricanes. Although
our geographic diversity is likely to reduce the overall impact to us of adverse weather conditions
in any one market area, these conditions will continue to represent potential, material adverse
risks to us and our future financial performance.
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 2010, all of our short-term debt bore interest at a variable rate, tied to LIBOR
as a reference rate. Changes in the underlying LIBOR interest rate or the spread charged under our
performance pricing grid on our short-term debt could affect our earnings. For example, a
hypothetical 100 basis point increase in the interest rate on our short-term debt would result in
an increase of approximately $600,000 in annual pre-tax interest expense. This estimated increase
is based upon the outstanding balance of our short-term debt as of June 30, 2010 and assumes no
mitigating changes by us to reduce the outstanding balances, no additional interest assistance that
could be received from vendors due to the interest rate increase, and no changes in the base LIBOR
rate.
Products purchased from Italian-based manufacturers are subject to fluctuations in the euro to
U.S. dollar exchange rate, which ultimately may impact the retail price at which we can sell such
products. Accordingly, fluctuations in the value of the euro as compared with the U.S. dollar may
impact the price points at which we can profitably sell Italian products, and such price points may
not be competitive with other product lines in the United States. Accordingly, such fluctuations in
exchange rates ultimately may impact the amount of revenue, cost of goods sold, cash flows, and
earnings we recognize for Italian product lines. We cannot predict the effects of exchange rate
fluctuations on our operating results. In certain cases, we may enter into foreign currency cash
flow hedges to reduce the variability of cash flows associated with forecasted purchases of boats
and yachts from Italian-based manufacturers. We are not currently engaged in foreign currency
exchange hedging transactions to manage our foreign currency exposure. If and when we do engage in
foreign currency exchange hedging transactions, we cannot assure that our strategies will
adequately protect our operating results from the effects of exchange rate fluctuations.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material
information required to be disclosed by us in Securities Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms, and that such information is accumulated and communicated to
our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure.
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by
this report. Based on such evaluation, such officers have concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Controls
During the quarter ended June 30, 2010, there were no changes in our internal controls over
financial reporting that materially affected, or were reasonably likely to materially affect, our
internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls and internal controls will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can
occur because of simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by management override of
the control. The design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions; over time, a control may
become inadequate because
21
of changes in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
CEO and CFO Certifications
Exhibits 31.1 and 31.2 are the Certifications of the Chief Executive Officer and the Chief
Financial Officer, respectively. The Certifications are required in accordance with Section 302 of
the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report, which
you are currently reading, is the information concerning the Evaluation referred to in the
Section 302 Certifications and this information should be read in conjunction with the Section 302
Certifications for a more complete understanding of the topics presented.
22
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. REMOVED AND RESERVED
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
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10.1
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Inventory Financing Agreement executed on June 24, 2010, among
MarineMax, Inc. and its subsidiaries, as Borrowers, and GE Commercial
Distribution Finance Corporation, as Lender.
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10.2
|
|
Program Terms Letter executed on June 24, 2010, among
MarineMax, Inc. and its subsidiaries, as Borrowers, and GE Commercial
Distribution Finance Corporation, as Lender.
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31.1
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Certification of Chief Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of
1934, as amended.
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31.2
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Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of
1934, as amended.
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32.1
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Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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|
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32.2
|
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Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Certain information in this exhibit has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
|
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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MARINEMAX, INC.
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August 9, 2010
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By:
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/s/ Michael H. McLamb
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Michael H. McLamb
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Executive Vice President,
Chief Financial Officer, Secretary, and Director
(Principal Accounting and Financial Officer)
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24
Exhibit 10.1
NOTE: PORTIONS OF THIS EXHIBIT INDICATED BY [****] ARE SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST, AND HAVE BEEN OMITTED FROM THIS EXHIBIT. COMPLETE, UNREDACTED COPIES OF THIS EXHIBIT HAVE BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AS PART OF THIS COMPANYS CONFIDENTIAL TREATMENT REQUEST.
INVENTORY FINANCING AGREEMENT
This Inventory Financing Agreement (as from time to time amended and together with any
Transaction Statements, as hereinafter defined, this
Agreement
) is among GE Commercial
Distribution Finance Corporation (
CDF
), with its chief executive office and principal
place of business at 5595 Trillium Boulevard, Hoffman Estates, Illinois 60192, and the persons
listed in the section of this Agreement entitled List of Dealers (each, individually, a
Dealer
and, collectively,
Dealers
).
RECITALS
(a) Dealers do business together or are related entities.
(b) Dealers desire to have one common credit facility instead of separate credit facilities
and have requested that CDF extend such common credit facility.
1.
Extensions of Credit
.
(a)
Initial Advances
. CDF and Dealers hereby acknowledge, confirm and agree
that Dealers are indebted to CDF and certain other lenders pursuant to the Second Amended
and Restated Credit and Security Agreement, dated as of June 19, 2006, as amended from time
to time (the
Existing Financing Agreement
). Subject to the terms and conditions
of this Agreement, on the date hereof (the
Closing Date
), CDF agrees to make
available to Dealers an advance in an amount sufficient to repay to CDF and the other lender
parties thereto the amount of indebtedness due under the Existing Financing Agreement (the
Payoff Advance
). In addition, on or before July 2, 2010, CDF agrees to make
available to Dealers an advance in an amount equal to the aggregate invoice amount of
certain open invoices of Dealers with [****] and affiliates thereof identified in an advance
request from Dealers acceptable to CDF, less any curtailment amounts that would have been
required to be made with respect to such units if CDF had financed 100% of the original
invoice amount with respect to such units on or about the applicable invoice date (the
[****]
and, together with the Payoff Advance, the
Initial Advances
).
(b)
Floor Plan Advances
. Subject to the terms and conditions of this Agreement, CDF
agrees to thereafter make available to Dealers extensions of credit on a revolving basis in
such amounts as Dealers may from time to time request up to an aggregate total of one
hundred million dollars ($100,000,000.00) (as such amount may be increased by CDF pursuant
to this Section 1, the
Maximum Credit Amount
), minus (i) the outstanding amount of
Approvals (as defined below), and (ii) the aggregate outstanding amount of any other
obligations of Dealers to CDF and any CDF Affiliates, to purchase inventory, which will be
subject to a purchase money security interest in favor of CDF, from Dealers existing
vendors identified on Exhibit A to this Agreement and any additional vendors acceptable to
CDF in its sole discretion (such existing vendors and additional vendors, in each case until
any such vendor shall be disapproved by written notice from CDF due to (x) such vendors
failure to comply with any law, rule, regulation, order or decree; (y) such vendors failure
to comply with any internal policies and procedures of CDF or any CDF Affiliate (as defined
below) relating to import or export controls, anti-money laundering, anti-terrorism,
securities law, banking law or
Inventory Financing Agreement
1
regulation, fraud statutes and other similar laws and regulations and codes of ethical
conduct (collectively,
Internal Policies
); or (z) any circumstance which may make
CDFs disbursement of any advance to such vendor illegal or otherwise in violation of any
law, rule, regulation, order or decree applicable to CDF or any Internal Policies, each, a
Vendor
and, collectively,
Vendors
) and for other purposes (including the
Pre-Owned Inventory Sublimit described below);
provided
,
however
, that (1)
repayments from time to time of the outstanding balance of the indebtedness hereunder shall
be available to be reborrowed pursuant to the terms and conditions of this Agreement; (2) if
the Obligations hereunder outstanding at any time or from time to time exceed the Maximum
Credit Amount, Dealers shall immediately (but in any event within two (2) Business Days)
repay the Obligations in such amount necessary to eliminate such excess;
provided
that, in its reasonable discretion, CDF may immediately cease to make loans and/or to issue
Approvals until such repayment occurs, and (3) notwithstanding anything else contained in
this Agreement, (I) CDF may, in its reasonable discretion, immediately cease to make loans
and/or to issue Approvals (x) upon the occurrence and during the continuance of any Default
or upon the occurrence and during the continuance of any event which, with the giving of
notice, the passage of time, or both would result in a Default, or (y) if any remittance for
any Obligations is dishonored when first presented for payment, until such payment is
honored; and (II) upon termination of this Agreement, Dealers shall repay to CDF all
Obligations hereunder, plus interest accrued to the date of payment. If a Vendor is
disapproved for any reason set forth above, such disapproval will only affect Dealers
ability to request, and CDFs obligation to fund, subsequent advances and will not require
immediate repayment of previous advances with respect to inventory purchased from such
disapproved Vendor.
(c)
Pre-Owned Inventory Advances and Sublimits
. Subject to the overall Maximum
Credit Amount set forth above and the terms and conditions of this Agreement, on and after
the Closing Date, CDF agrees to make cash advances to Dealers with respect to pre-owned
units of inventory; provided that such cash advances shall not exceed the Pre-Owned
Inventory Sublimit and must comply with the pre-owned inventory advance terms set forth
herein. Regardless of the amount of credit available to Dealers under the Maximum Credit
Amount hereunder, CDF shall not provide extensions of credit to Dealers in excess of twenty
million dollars ($20,000,000.00) with respect to used or pre-owned inventory (the
Pre-Owned Inventory Sublimit
). Within such Pre-Owned Inventory Sublimit, (A) any
advances with respect to units with applicable valuations of five hundred thousand dollars
($500,000.00) or more shall require unit specific documentation (including an advance
request form), (B) CDF will not advance Dealers more than fifteen million dollars
($15,000,000.00) of such Pre-Owned Inventory Sublimit for used or pre-owned inventory with
applicable valuations of less than five hundred thousand dollars ($500,000.00) (the
Other Pre-Owned Sublimit
), and (C) CDF will not advance Dealers more than ten
million dollars ($10,000,000.00) of such Pre-Owned Inventory Sublimit for used or pre-owned
inventory with applicable valuations of five hundred thousand dollars ($500,000.00) or more
(the
Specific Pre-Owned Sublimit
).
(d)
Advance Rates; Approvals
. The advance rates with respect to pre-owned
inventory as well as additional details of the financing program are set forth in any
program terms letter executed by the parties hereto from time to time (collectively, the
Program Terms Letter
), the terms of which are incorporated herein by this
reference. An
Approval
shall be defined as CDFs indication to a Vendor that CDF
is willing to provide financing to Dealers with respect to a particular invoice or invoices.
Notwithstanding the foregoing, if any
Inventory Financing Agreement
2
particular Vendor shall be the subject of any bankruptcy, reorganization, arrangement,
insolvency, receivership, dissolution, liquidation or similar proceeding, CDF may reduce the
applicable advance rates set forth in the Program Terms Letter with respect to any inventory
sold by such Vendor after the date of such proceeding by up to ten percent (10%). This
Agreement concerns the extension of credit, and not the provision of goods or services.
(e)
Re-Advances
. Subject to the overall Maximum Credit Amount set forth above
and the terms and conditions of this Agreement, on and after the Closing Date, CDF agrees to
make cash advances to Dealers with respect to units of inventory (excluding used or
pre-owned inventory) financed by CDF pursuant to Section 1(a) or 1(b) of this Agreement for
which Dealers may have previously made payments to CDF;
provided
that such units of
inventory have not previously been repaid in full, and further provided such cash advances
shall not exceed (a) 100% of the original invoice amount with respect to such units, less
(b) any curtailment amounts that have been required to be made with respect to such units
or, if such units were financed by CDF in connection with the Initial Advances, any
curtailment amounts that would have been required to be made with respect to such units if
CDF had financed 100% of the original invoice amount with respect to such units on or about
the applicable invoice date;
provided
,
further
, that such cash advances, in
the aggregate, shall not exceed the Re-Advance Sublimit specified in the Program Terms
Letter or, if not specified in such Program Terms Letter, twenty-five percent (25%) of the
Maximum Credit Amount within any thirty (30) day period.
(f)
Increases in Maximum Credit Amount
. By delivery to CDF of a written notice
signed by each Dealer, Dealers may request an increase in the Maximum Credit Amount of up to
fifty million dollars ($50,000,000.00) and an increase in the sublimit for cash advances
with respect to used or pre-owned inventory of up to twenty percent (20%) of such
incremental amount;
provided
that, at the time of any such request and upon the
effectiveness of such increase, (i) no Default shall exist, and (ii) Dealers shall be in
compliance with each of the covenants contained in Section 7(c) of this Agreement. Any such
increase shall be at CDFs sole and absolute discretion, subject to CDFs prior written
consent and subject to such terms and conditions as CDF may elect, which shall be evidenced
by an amendment to this Agreement in form and substance acceptable to CDF.
2.
Financing Terms
. Certain financial terms of any advance which CDF makes under this
Agreement are set forth in the Program Terms Letter. In connection with financing an item of
inventory for any Dealer, CDF will transmit or otherwise send to Dealer a
Transaction
Statement
which is a record that may be authenticated and transmitted by CDF to such Dealer
from time to time which identifies the Collateral financed and/or the advance made and the terms
and conditions of repayment of such advance as provided in this Agreement. Dealers agree that a
Dealers failure to notify CDF in writing of any objection to a Transaction Statement within thirty
(30) days after a Transaction Statement is transmitted or otherwise sent to such Dealer shall
constitute Dealers (a) acceptance thereof, (b) agreement that CDF is financing such inventory at
Dealers request, and (c) agreement that such Transaction Statement will be incorporated herein by
reference to the extent not inconsistent with the terms hereof. To the extent any Transaction
Statement is inconsistent with the terms hereof, this Agreement (including any applicable Program
Terms Letter) shall govern and control. If any Dealer objects to any Transaction Statement, such
Dealer and CDF will work in good faith to resolve such objection within sixty (60) days after the
applicable Transaction Statement is transmitted or otherwise sent to such Dealer. However,
notwithstanding such objection, Dealers will
Inventory Financing Agreement
3
pay CDF for such inventory in accordance with this Agreement. With respect to any advance CDF
makes to a Vendor on behalf of a Dealer, CDF may apply against any such amount owed to Vendor any
amount CDF is owed from such Vendor with respect to Free Floor Periods (each, a
CDF
Credit
) or any other amounts CDF is owed from such Vendor. Notwithstanding the foregoing,
Dealers agree to pay the full amount reflected on any Transaction Statement.
3.
Security Interest
.
(a) Each Dealer hereby grants to CDF a security interest in all of the Collateral as
security for all Obligations to CDF under this Agreement.
(b)
Collateral
means all personal property of each Dealer, whether such
property or such Dealers right, title or interest therein or thereto is now owned or
existing or hereafter acquired or arising, and wherever located, including without
limitation, all Accounts, Inventory, Equipment, other Goods, General Intangibles (including
without limitation, Payment Intangibles), Chattel Paper (whether tangible or electronic),
Instruments (including without limitation, Promissory Notes), Deposit Accounts, Investment
Property and Documents, any cash collateral such Dealer may have paid to CDF, and all
Products and Proceeds of the foregoing;
provided
that Collateral shall exclude (i)
all Fixtures (other than Goods affixed to Inventory) and (ii) all equipment leases and
agreements between Dealers and vendors, but only to the extent such leases and agreements
prohibit or restrict such Dealers from granting a security interest therein and such
prohibition or restriction is not ineffective under Article 9 of the Illinois Uniform
Commercial Code or any other applicable law, rule or regulation;
provided
,
further
, that Collateral shall include (x) all Accounts and General Intangibles
arising under such equipment leases and agreements between Dealers and vendors and (y) all
payments and other property received or receivable in connection with any sale or other
disposition of such leases and agreements. Without limiting the foregoing, the Collateral
includes each Dealers right to all Vendor Credits (as defined below). Similarly, the
Collateral includes, without limitation, all books and records, electronic or otherwise,
which evidence or otherwise relate to any of the foregoing property, and all computers,
disks, tapes, media and other devices in which such records are stored. For purposes of
this Section 3 only, capitalized terms used in this Section 3, which are not otherwise
defined, shall have the meanings given to them in Article 9 of the Illinois Uniform
Commercial Code.
(c)
Obligations
means all indebtedness and other obligations of any nature
whatsoever of each Dealer to CDF and/or to any person that at any time directly or
indirectly controls, is controlled by, or is under common control with CDF, any and all
direct and indirect subsidiaries, affiliates and parent companies of CDF and any and all
direct and indirect subsidiaries, affiliates and parent companies of any such person (each,
a
CDF Affiliate
), whether such indebtedness or other obligations arise under this
Agreement or any other existing or future agreement between or among any one or more
Dealers, CDF and/or a CDF Affiliate or otherwise, and whether for principal, interest, fees,
expenses, indemnification obligations or otherwise, and whether such indebtedness or other
obligations are existing, future, direct, indirect, acquired, contractual, noncontractual,
joint and/or several, fixed, contingent or otherwise.
Inventory Financing Agreement
4
(d)
Vendor Credits
means all of each Dealers rights to any price protection
payments, rebates, discounts, credits, factory holdbacks, incentive payments and other
amounts which at any time are due a Dealer from a Vendor.
(e) CDF will not exercise sole dominion and control over any Deposit Account included
in the Collateral except as contemplated by Section 12 of this Agreement after a Default.
4.
Representations and Warranties
. Each Dealer represents and warrants that at the
time of execution of this Agreement and at the time of each approval and each advance hereunder:
(a) such Dealer is in good standing in its jurisdiction of organization and is
qualified to transact business in each other jurisdiction in which the nature of its
business or property requires such qualification, unless failure to so qualify could not
result, individually or in the aggregate, in a Material Adverse Effect (as defined below);
(b) such Dealer does not conduct business under any trade styles or trade names except
as disclosed by such Dealer to CDF in writing and except to the extent that such conduct
could not result, individually or in the aggregate, in a Material Adverse Effect;
(c) such Dealer has all the necessary authority to enter into and perform this
Agreement, and the execution, delivery and performance of this Agreement will not violate
(i) such Dealers organizational documents, (ii) any agreement binding upon it, unless such
violation could not result, individually or in the aggregate, in a Material Adverse Effect,
or (iii) any law, rule, regulation, order or decree, unless such violation could not result,
individually or in the aggregate, in a Material Adverse Effect;
(d) such Dealer keeps its records respecting accounts and chattel paper at its chief
executive office identified below and keeps the Collateral only at locations permitted by
Section 5(b)(xiii) of this Agreement;
(e) this Agreement correctly sets forth such Dealers true legal name, the type of its
organization, the jurisdiction in which such Dealer is incorporated or otherwise organized,
and such Dealers organizational identification number, if any, in each case, as of the date
hereof;
(f) all information supplied by such Dealer to CDF, including any financial, credit or
accounting statements or application for credit, in connection with this Agreement is true,
correct and complete in all material respects;
(g) all advances and other transactions hereunder are for business purposes and not for
personal, family, household or any other consumer purposes;
(h) such Dealer has good title to all Collateral in which it purports to have any
interest;
(i) there are no actions or proceedings pending or threatened against Dealers which
could reasonably be expected to result, individually or in the aggregate, in a Material
Adverse Effect; and
Inventory Financing Agreement
5
(j) on the Closing Date, neither a Default nor an event which, with the giving of
notice, the passage of time, or both, would result in a Default has occurred and is
continuing, and, at the time of each approval and each advance hereunder, a Default has not
occurred and is not continuing.
Material Adverse Effect
means a material adverse effect in (i) Dealers business,
operations or financial condition, taken as a whole, (ii) the performance and enforceability of
this Agreement, (iii) any portion of the Collateral in excess of one million dollars
($1,000,000.00), or (iv) the perfection and priority of CDFs Liens in the Collateral.
5.
Covenants
.
(a) Until sold as permitted by this Agreement, each Dealer shall own all of its
Collateral financed by CDF free and clear of all liens, security interests, claims and other
encumbrances, whether arising by agreement or operation of law (collectively
Liens
), other than:
(i) Liens in favor of CDF;
(ii) purchase money Liens on Dealers new inventory manufactured by vendors that
have been disapproved by CDF;
(iii) Liens on Dealers new, used and pre-owned inventory manufactured by
vendors that have been disapproved by CDF;
provided
that such Liens are
subject to subordination or intercreditor agreements in form and substance acceptable
to CDF, in its sole discretion, whereby CDF subordinates its Liens in such inventory;
(iv) Liens for taxes, assessments or other governmental charges that are not due
or payable or that are due or payable, but are being diligently contested in good
faith by appropriate proceedings; provided that such contested taxes, assessments or
other governmental charges do not exceed five hundred thousand dollars ($500,000.00)
in aggregate at any time;
(v) Liens of carriers, warehousemen, mechanics, materialmen and landlords
incurred in the ordinary course of business for sums not yet due or payable;
provided
,
however
, that Liens of landlords are permitted only to the
extent that such Liens are subordinate to the Liens in favor of CDF pursuant to an
agreement in form and substance acceptable to CDF or if such subordination is not
required pursuant to the terms of the Program Terms Letter;
(vi) Liens incurred in the ordinary course of business in connection with
workers compensation, unemployment insurance or other forms of governmental
insurance or benefits;
(vii) existing Liens identified in Exhibit B to this Agreement, but only to the
extent securing the indebtedness identified in such Exhibit;
provided
that
the amount of
Inventory Financing Agreement
6
such indebtedness does not exceed the outstanding amounts thereof on the date of
this Agreement;
(viii) Liens for capital leases and equipment financing in a combined aggregate
amount not exceeding ten million dollars ($10,000,000.00), but only to the extent
encumbering the property leased under such capital leases or acquired with the
proceeds of such equipment financing; and
(ix) Liens on or with respect to cash collateral to secure (a) obligations to
depository institutions with respect to deposit and treasury management services
provided by such institutions to Dealers of up to one million dollars ($1,000,000.00)
in the aggregate, and (b) reimbursement obligations under letters of credit of up to
three million five hundred thousand dollars ($3,500,000.00) in the aggregate;
provided
that the amount of cash collateral securing the obligations
described in clauses (a) and (b) of this Section 5(a)(ix) shall not exceed three
million five hundred thousand dollars ($3,500,000.00) in the aggregate at any time.
(b) Each Dealer will:
(i) keep all Collateral at locations permitted by Section 5(b)(xiii) of this
Agreement and keep all tangible Collateral in good order, repair and operating
condition and insured as required herein;
(ii) promptly file all tax returns required by law and promptly pay all taxes,
fees, and other governmental charges for which it is liable, including without
limitation all governmental charges against the Collateral or this Agreement;
(iii) permit CDF and its designees, without notice, to inspect the Collateral
(including, without limitation, each certificate of title or statement of origin
issued for Collateral financed by CDF) during normal business hours and at any other
time CDF deems desirable (and such Dealer hereby grants CDF and its designees an
irrevocable license to enter such Dealers business locations during normal business
hours without notice to such Dealer to account for and inspect all Collateral and to
examine and copy such Dealers books and records related to the Collateral);
(iv) keep complete and accurate records of its business, including inventory,
accounts and sales; and permit CDF and its designees to inspect and copy such records
upon request;
(v) furnish CDF with such additional information regarding the Collateral and
such Dealers business and financial condition as CDF may from time to time
reasonably request (including without limitation financial statements and projections
more frequently than set forth below);
(vi) immediately notify CDF of any material adverse change in the Dealers
business, operations or financial condition taken as a whole or any reduction in the
aggregate value of the Collateral of five hundred thousand dollars ($500,000.00) or
more;
Inventory Financing Agreement
7
(vii) execute (or cause any third party in possession of Collateral to execute)
all documents CDF requests to perfect and maintain CDFs security interest in the
Collateral;
(viii) upon CDFs request, (i) at any time the aggregate Obligations with
respect to any Collateral or Dealer located in Ohio exceeds five million dollars
($5,000,000.00), deliver to CDF immediately upon such request (and CDF may retain)
each certificate of title or statement of origin issued for such Collateral financed
by CDF, and (ii) at any time during the continuance of a Default, deliver to CDF
immediately upon such request (and CDF may retain) each certificate of title or
statement of origin issued for Collateral financed by CDF;
(ix) at all times be duly organized, existing, in good standing, qualified and
licensed to do business in each jurisdiction in which the nature of its business or
property so requires;
(x) notify CDF of the commencement of any material legal proceedings against
such Dealer;
(xi) comply with all laws, rules and regulations applicable to such Dealer,
including without limitation, the USA PATRIOT ACT and all laws, rules and
regulations relating to import or export controls or anti-money laundering;
(xii) conduct business only under such trade styles and trade names as such
Dealer has disclosed to CDF in writing prior to such conduct;
(xiii) only permit Collateral to be located at locations described in Exhibit C
to this Agreement and at such other locations in the United States disclosed to CDF
in writing at least fifteen (15) days prior to such Dealers use of such location
(but excluding the locations of any consigned inventory), unless CDF otherwise agrees
to such location or consignment in writing (collectively, the
Permitted
Locations
);
provided
that such fifteen (15) day notice and CDF approval
shall not be required for inventory (including consigned inventory not financed by
CDF hereunder) with an aggregate invoice amount of less than five million dollars
($5,000,000.00) located at other locations (including locations outside of the United
States, but excluding boat shows) for up to thirty (30) days per unit and,
provided
,
further
, that such notice shall be reduced to one (1) day
and CDF approval shall not be required for inventory (excluding consigned inventory)
with an aggregate invoice amount of less than five million dollars ($5,000,000.00)
located at boat shows for up to thirty (30) days; and
(xiv) provide to CDF, when requested by CDF, a copy of such Dealers
organizational documents, and will provide to CDF any subsequent amendments thereto
bearing indicia of filing from the appropriate governmental authority, or such other
documents verifying such Dealers true and correct legal name as CDF may request from
time to time.
Inventory Financing Agreement
8
(c)
Financial Covenants
. Dealers covenant and agree that, so long as any of
the Obligations to CDF remain outstanding or this Agreement remains in effect, even if no
Obligations to CDF are outstanding, Dealers shall:
(i) maintain at all times a ratio of Debt to Tangible Net Worth of not more than
2.75 to 1.0 measured as of fiscal quarter end June 30, 2010 and each successive
fiscal quarter end thereafter; and
(ii) maintain at all times a Current Ratio of not less than 1.2 to 1.0 as of
fiscal quarter end June 30, 2010 and each successive fiscal quarter end thereafter.
For purposes of this Section 5(c), in each case calculated for Dealers on a consolidated
basis:
Current Ratio
shall mean the ratio, calculated in accordance with
generally accepted accounting principles as of the date hereof (
GAAP
), of (A)
current assets determined in accordance with GAAP to (B) current liabilities determined in
accordance with GAAP less balloon payments due on real estate loans which CDF in its
reasonable discretion expects to be refinanced;
Debt
shall mean all obligations,
contingent or otherwise, which, in accordance with GAAP, should be classified on the balance
sheet as liabilities, and in any event including capital leases, Contingent Liabilities that
are required to be disclosed and quantified in notes to financial statements in accordance
with GAAP, and liabilities secured by any Lien on any property regardless of whether such
secured liability is with or without recourse;
Tangible Net Worth
shall mean the
shareholders equity determined in accordance with GAAP, minus items treated as intangible
assets under GAAP, amounts owing by any employee, officer or other affiliate, other than
draws to commissioned and seasonally compensated employees and advances made for customary
travel expenses incurred in the conduct of Dealers business, and any other assets that
cannot be identified as tangible assets to CDFs reasonable satisfaction; and
Contingent Liabilities
shall mean any obligation, contingent or otherwise, of any
Dealer guaranteeing or having the economic effect of guaranteeing any Debt or obligation of
another in any manner, whether directly or indirectly, including without limitation any
obligation of such Dealer, direct or indirect, (X) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or any security for the payment thereof, (Y)
to purchase property or services for the purpose of assuring the owner of such Debt of its
payment, or (Z) to maintain the solvency, working capital, equity, cash flow, fixed charge
or other coverage ratio, or any other financial condition of the primary obligor so as to
enable the primary obligor to pay any Debt or to comply with any agreement relating to any
Debt or obligation.
(d) No Dealer will, without CDFs prior written consent:
(i) use (except for demonstration purposes), rent, lease, sell, transfer,
consign (except consigned inventory located at locations permitted by Section
5(b)(xiii) of this Agreement), license, encumber or otherwise dispose of any
Collateral except for sales of inventory at retail in the ordinary course of such
Dealers business and except for Collateral with an aggregate value not exceeding
five hundred thousand dollars ($500,000.00) in any one calendar year;
(ii) sell or otherwise transfer inventory to a Dealer Affiliate (as defined
below), except in accordance with Section 5(e) of this Agreement;
Inventory Financing Agreement
9
(iii) engage in any other material transaction not in the ordinary course of
such Dealers business with respect to the Collateral or which would result,
individually or in the aggregate, in a Material Adverse Effect;
(iv) change the nature of its business in any material manner or its legal
structure or be a party to a merger or consolidation (other than a merger or
consolidation of a Dealer with or into another Dealer) or change its type of
organization, its jurisdiction of incorporation or organization, or its
organizational identification number, if any;
(v) change its name or conduct business under a trade style or trade name other
than those disclosed by such Dealer to CDF in writing without giving CDF at least
thirty (30) days prior written notice thereof;
(vi) change its chief executive office or office where it keeps its records with
respect to accounts or chattel paper;
(vii) change the state in which it is incorporated or otherwise organized
(except upon thirty (30) days prior written notice to CDF);
(viii) finance on a secured basis with any Vendor or any third party the
acquisition of inventory of the same brand as any new inventory financed or to be
financed by CDF; or
(ix) store Collateral financed by CDF with any third party except for Collateral
at locations permitted by Section 5(b)(xiii) of this Agreement.
For purposes of this Agreement, a
Dealer Affiliate
means any person that: (i)
directly or indirectly controls, is controlled by or is under common control with a Dealer,
(ii) directly or indirectly owns 5% or more of a Dealer, (iii) is a director, partner,
manager, or officer of a Dealer or an affiliate of a Dealer, or (iv) any natural person
related to a Dealer or an affiliate of a Dealer.
(e) Notwithstanding the provisions of Section 5(d)(ii) of this Agreement, a Dealer may
sell or otherwise transfer inventory to another Dealer who is a signatory to this Agreement.
The parties agree that any such inventory that is sold or otherwise transferred at any time
by one Dealer to another shall be and remain Collateral and shall continue to secure the
Obligations.
(f) Each Dealer, within ten (10) days of the end of each calendar year, will provide a
list of all locations where Collateral is or may be kept, including information as to
whether the property is owned or leased, any Liens or other encumbrances on such property,
and if leased, the name of the lessor, the lease term, and any other information CDF shall
request. If any Collateral location is subject to a mortgage, deed of trust, or other Lien
in favor of any person other than CDF, except any Lien permitted by Section 5(a) of this
Agreement, Dealers agree to promptly obtain an agreement from such person, waiving such
persons Lien on the Collateral and providing CDF reasonable access thereto, in form and
substance acceptable to CDF and duly executed and delivered by such person.
Inventory Financing Agreement
10
(g) Within thirty (30) days after the Closing Date, Dealers shall provide CDF evidence
of the termination or release of all Liens in favor of Bank of America, N.A., as collateral
agent, on any and all property of Dealers and all other Liens on any and all property of
Dealers securing the obligations of Dealers under the Existing Financing Agreement.
(h) Within thirty (30) days after the date hereof, Dealers shall have delivered to CDF
duly executed originals of tri-party blocked account agreements with respect to each deposit
account maintained by each Dealer other than deposit accounts with less than two hundred
fifty thousand dollars ($250,000.00) in the aggregate on deposit in all such deposit
accounts at any time.
6.
Insurance
.
(a) All risk of loss, damage to or destruction of Collateral shall at all times be on
Dealers. Each Dealer shall keep all of its tangible Collateral insured for full value
against all insurable risks, under policies delivered to CDF, on terms and with insurers
reasonably acceptable to CDF, with CDF as the loss payee (with respect to any claim in
excess of two hundred fifty thousand dollars ($250,000.00) per occurrence), assignee or
additional insured, as appropriate. Such insurance shall be subject to cancellation or
change only (i) upon ten (10) days written notice to CDF for non-payment of premium or (ii)
upon thirty (30) days written notice to CDF for all other reasons, and shall provide that
CDFs interests will not be impaired by any failure of Dealers to comply with the terms of
such insurance or by any exercise of remedies by CDF with respect to the property insured.
With respect to any claim during the continuance of any Default, CDF is authorized, but not
required, to act as attorney-in-fact for each Dealer in adjusting and settling any insurance
claims under any such policy and in endorsing any checks or drafts drawn by insurers. To
facilitate the exercise of such rights by CDF, each Dealer has executed and delivered to CDF
a Power of Attorney, which CDF agrees not to exercise any rights under unless a Default has
occurred and is continuing. In addition, at any time (before and after the occurrence of
any Default), (A) each Dealer shall promptly remit to CDF in the form received, with all
necessary endorsements, all proceeds of such insurance which such Dealer may receive, and
(B) CDF, at its election, shall either apply any proceeds of insurance it may receive toward
payment of the Obligations or pay such proceeds to such Dealer or any other Dealer.
(b) Except as otherwise required by Section 6(a) of this Agreement, Dealers shall (i)
keep their insurable property adequately insured at all times by financially sound and
reputable insurers to such extent and against such risks, including fire and other risks
insured against by extended coverage, as is customary with companies similarly situated and
in the same or similar businesses, (ii) maintain in full force and effect public liability
and workers compensation insurance, in amounts customary for such similar companies to cover
normal risks, by insurers reasonably satisfactory to CDF, and (iii) maintain such other
insurance as may be required by law or reasonably requested by CDF. Dealers shall deliver
evidence of renewal of each insurance policy on or before the date of its expiration, and
from time to time shall deliver to CDF, upon demand, evidence of the maintenance of such
insurance. Dealers shall delivery promptly to CDF copies of all reports provided to
insurers by any Dealer.
Inventory Financing Agreement
11
(c) The following notice is given pursuant to Section 180/15 of the Collateral
Protection Act set forth in Chapter 815 Section 180/1 of the Illinois Compiled Statutes;
nothing contained in such notice shall be deemed to limit or modify the terms of this
Agreement: UNLESS DEALER PROVIDES EVIDENCE OF THE INSURANCE COVERAGE REQUIRED BY DEALERS
AGREEMENT WITH CDF, CDF MAY PURCHASE INSURANCE AT DEALERS EXPENSE TO PROTECT CDFS INTEREST
IN SUCH DEALERS COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT, PROTECT SUCH DEALERS
INTEREST. THE COVERAGE THAT CDF PURCHASES MAY NOT PAY ANY CLAIM THAT SUCH DEALER MAKES OR
ANY CLAIM THAT IS MADE AGAINST SUCH DEALER IN CONNECTION WITH THE COLLATERAL. SUCH DEALER
MAY LATER CANCEL ANY INSURANCE PURCHASED BY CDF, BUT ONLY AFTER PROVIDING CDF EVIDENCE THAT
SUCH DEALER HAS OBTAINED INSURANCE AS REQUIRED UNDER THIS AGREEMENT. IF CDF PURCHASES
INSURANCE FOR ANY COLLATERAL, DEALERS WILL BE RESPONSIBLE FOR THE COSTS OF THAT INSURANCE,
INCLUDING THE INSURANCE PREMIUM, INTEREST AND ANY OTHER CHARGES CDF MAY IMPOSE IN CONNECTION
WITH THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE CANCELLATION OR
EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY BE ADDED TO DEALERS TOTAL
OUTSTANDING BALANCE OR OBLIGATION. THE COSTS OF THE INSURANCE MAY BE MORE THAN THE COST OF
INSURANCE A DEALER MAY BE ABLE TO OBTAIN ON ITS OWN.
7.
Financial Statements
. Unless waived by CDF, Dealers will deliver to CDF, in a form
reasonably satisfactory to CDF: (a) Dealers audited year-end balance sheet and audited annual
profit and loss statement for each fiscal year after the date hereof, prepared on a consolidated
basis, within twenty (20) days after the same are prepared but in no event later than one hundred
and twenty (120) days after the end of each fiscal year, accompanied by an unqualified opinion of
independent certified public accountants acceptable to CDF; (b) within sixty (60) days after the
end of each of such Dealers fiscal quarters, a reasonably detailed balance sheet and income
statement as of the last day of such quarter covering Dealers operations on a consolidated basis
for such quarter; (c) within thirty (30) days after the end of Dealers fiscal months, a reasonably
detailed balance sheet and income statement as of the last day of such month covering Dealers
operations for such month, on a consolidated basis; (d) within forty-five (45) days prior to
Dealers year-end, Dealers financial projections for the next fiscal year on a consolidated basis;
and (e) within ten (10) days after CDFs reasonable request, any other information relating to the
Collateral or the financial condition of any Dealer or Dealers. Each Dealer represents that all
financial statements and information which have been or may hereafter be delivered by Dealers are
and will be true and correct in all material respects and, with respect to all quarterly and annual
financial statements, prepared in accordance with GAAP consistently applied in all material
respects, and there has been no material adverse change in the financial or business condition of
Dealers, taken as a whole, since the submission to CDF of such financial statements, and Dealers
acknowledge CDFs reliance thereon.
8.
Payment Terms
. Each Dealer will pay CDF the principal amount of the Obligations
owed CDF on each item of Collateral financed by CDF upon the occurrence of any of the following
events, subject to the Program Terms Letter: (a) when such Collateral is lost, stolen or materially
damaged and such loss or damage is the subject of an insurance claim payable to CDF as loss payee,
(i) a portion of the principal amount of the Obligations with respect to such Collateral equal to
such principal amount, minus the insurance claim amount (net of any applicable deductible)
immediately
Inventory Financing Agreement
12
after such loss or damage or after the determination of the claim amount or the deductible
amount, as applicable, and (ii) the remaining principal amount of the Obligations with respect to
such Collateral immediately upon the earlier of (A) receipt of any proceeds of such insurance
(including, without limitation, receipt of any proceeds made payable to such Dealer and CDF
jointly) or rejection or denial of such claim and (B) thirty (30) days (or such later date as CDF
may agree in writing) after such loss or damage; (b) when such Collateral is lost, stolen or
materially damaged and such loss or damage is not the subject of an insurance claim payable to CDF
as loss payee, immediately after such loss or damage; (c) when Collateral is sold, transferred,
rented, leased, consigned (unless Dealer has complied with CDFs documentation requirements and CDF
has consented in writing to such consignment arrangement), otherwise disposed of, or its payment
term has matured, immediately upon the earlier of (i) Dealers receipt of the proceeds thereof, and
(ii) seven (7) calendar days after such occurrence; and (d) when otherwise required under the terms
of this Agreement. In addition, each Dealer will pay CDF the required principal amount of the
Obligations owed CDF on each item of Collateral financed by CDF in strict accordance with any
curtailment schedule or other curtailment or repayment provisions for such Collateral as described
in the Program Terms Letter. The initial payment terms, curtailment terms and advance rates with
respect to Dealers financing program hereunder are set forth in the Program Terms Letter.
Subsequent financing program terms, or changes to Dealers then current financing program terms,
may be set forth in an amended Program Terms Letter executed by the parties hereto. If a Dealer is
required to make immediate payment to CDF of any past due obligation discovered during any
Collateral review, or at any other time, CDFs acceptance of such payment shall not be construed to
have waived or amended the terms of its financing program. Each Dealer will send all payments to
CDF as directed. CDF may apply: (1) payments to reduce finance charges first and then principal,
regardless of a Dealers instructions; and (2) principal payments to the oldest (earliest) invoice
for Collateral financed by CDF, but, in any event, all principal payments, may, in CDFs sole
discretion, first be applied to such Collateral which is sold, lost, stolen, damaged, rented,
leased, or otherwise disposed of or unaccounted for. Any Vendor Credit granted to any Dealer for
any Collateral will not reduce the Obligations Dealers owe CDF until CDF has received payment
therefor in cash. Each Dealer will: (A) pay CDF even if any Collateral is defective or fails to
conform to any warranties extended by any third party; and (B) indemnify and hold CDF harmless
against all claims and defenses asserted by any buyer of any Collateral. Each Dealer waives all
rights of setoff such Dealer may have against CDF. Any payment hereunder which would otherwise be
due on a day which is not a Business Day, shall be due on the next succeeding Business Day, with
such extension of time included in any calculation of applicable finance charges. In addition to
the other provisions of this Agreement, in order to adequately secure Dealers Obligations to CDF,
Dealers shall, at CDFs request, immediately pay CDF the amount necessary to reduce the sum of
outstanding advances hereunder to an amount which does not exceed the amount available to be
borrowed pursuant to the provisions of the Program Terms Letter. For purposes of this Agreement,
Business Day
means any day the Federal Reserve Bank of Chicago is open for the
transaction of business.
9.
Calculation of Charges
.
(a) Dealers shall pay fees, charges and interest (collectively,
Charges
) with
respect to each advance in accordance with the Agreement and pursuant to the terms of the
Program Terms Letter. Dealers shall pay CDF its customary Charges for any check or other
item which is returned unpaid to CDF. Unless otherwise provided in the Agreement, the
following additional provisions shall be applicable to Charges: (i) any reference to
One month Libor
rate shall mean for any calendar month the One month Libor rate
published in the Money Rates column of
The Wall Street Journal
on the first
Business Day of such month; (ii)
Inventory Financing Agreement
13
all Charges shall be paid by Dealers monthly pursuant to the terms of the billing
statement in which such Charges appear; (iii) interest on each advance and principal amount
of the Obligations related thereto shall be computed each calendar month on the sum of the
daily balances thereof during such month divided by thirty (30) and (A) in the case where a
monthly rate of interest is provided for, multiplied by the monthly rate provided for in the
Agreement; or (B) in the case where an annual rate of interest is provided for, multiplied
by one-twelfth of the annual rate provided for in the Agreement; or (C) in the case where a
daily rate of interest is provided for, multiplied by such daily rate and multiplied by
thirty (30); (iv) interest on an advance shall begin to accrue on the Start Date which shall
be defined as the earlier of: (A) the invoice date referred to in the Vendors invoice; or
(B) the ship date referred to in the Vendors invoice; or (C) the date CDF makes such
advance;
provided
,
however
, if a Vendor fails to fully pay, by honoring or
paying any CDF Credit or otherwise, the interest or other cost of financing such inventory
during the period between the Start Date and the end of the Free Floor Period (as defined
below), then Dealers shall pay such interest to CDF on demand as if there were no Free Floor
Period with respect to such inventory; (v) for the purpose of computing Charges, any payment
will be credited pursuant to CDFs payment recognition policy, as in effect from time to
time; and (vi) advances or any part thereof not paid when due (and Charges not paid when
due, at the option of CDF, shall become part of the principal amount of the Obligations and)
shall bear interest at the Default Rate (as defined below). For purposes of this Agreement,
the following definitions shall apply:
Default Rate
shall mean the lesser of 3%
per annum above the rate in effect immediately prior to the Default or the highest lawful
contract rate of interest permitted under applicable law;
Free Floor Period
shall
mean a period equal to the number of days during which a Vendor agrees to assume the cost of
financing Collateral purchased by a Dealer by granting CDF a CDF Credit.
(b) CDF intends to strictly conform to the usury laws governing this Agreement.
Regardless of any provision contained herein, in any Transaction Statement, or in any other
document, CDF shall never be deemed to have contracted for, charged or be entitled to
receive, collect or apply as interest, any amount in excess of the maximum amount allowed by
applicable law. If CDF ever receives any amount which, if considered to be interest, would
exceed the maximum amount permitted by law, CDF will apply such excess amount to the
reduction of the unpaid principal balance which any Dealer owes, and then will pay any
remaining excess to such Dealer. In determining whether the interest paid or payable
exceeds the highest lawful rate, Dealers and CDF shall, to the maximum extent permitted
under applicable law, (1) characterize any non-principal payment (other than payments which
are expressly designated as interest payments hereunder) as an expense or fee rather than as
interest, (2) exclude voluntary pre-payments and the effect thereof, and (3) spread the
total amount of interest throughout the entire term of this Agreement so that the interest
rate is uniform throughout such term. CDF will recognize and credit payments made by check,
ACH, federal wire, or other acceptable means, according to its payment recognition policies
from time to time in effect, or as otherwise agreed. Information regarding CDF payment
recognition policies is available from Dealers CDF representative or the CDF website, or
will be communicated pursuant to Section 10(b) of this Agreement.
10.
Billing Statement/Fees; Right to Modify Charges and Other Terms
.
(a) CDF will transmit or otherwise send to each Dealer a monthly billing statement
identifying all charges due on such Dealers account with CDF. The charges specified on
each
Inventory Financing Agreement
14
billing statement will be (1) due and payable no later than the fifteenth
(15
th
) day of the month in which such billing statement is transmitted to or
received by Dealer, and (2) an account stated, unless CDF receives a Dealers written
objection thereto within fifteen (15) days after it is transmitted or otherwise sent to
Dealers. If CDF does not receive, by the 25
th
day of any given month, payment of
all charges accrued to a Dealers account with CDF during the immediately preceding month,
Dealers will (to the extent allowed by law) pay CDF a late fee equal to the greater of five
dollars ($5.00) or five percent (5%) of the amount of such charges (payment of such fee does
not waive the default caused by the late payment). CDF may adjust the billing statement at
any time to conform to applicable law and this Agreement.
(b) CDF may charge one or more fees in connection with the servicing and administration
of a Dealers account, as set forth herein and in the Program Terms Letter.
11.
Default
. The occurrence of one or more of the following events shall constitute a
default by Dealers (a
Default
):
(a) a Dealer shall either (1) fail to pay any principal amount of Obligations owed to
CDF when due (without any grace period) or (2) fail to pay any interest or other Obligations
owed to CDF within fifteen (15) days after the due date therefore;
(b) any representation made to CDF by or on behalf of Dealers shall not be true when
made;
(c) if a Dealer shall breach any covenant (other than any covenant contained in Section
5(c) of this Agreement), warranty or agreement to or with CDF and such breach shall not be
cured within thirty (30) days after the earlier of (i) knowledge thereof by an officer of
any Dealer and (ii) written notice of such breach is delivered by CDF to any Dealer;
provided
that, if such breach is subject to cure and Dealers are diligently pursuing
cure by appropriate means at the end of such thirty (30) days, then Dealers shall have an
additional thirty (30) days thereafter to complete the cure of such breach;
provided
,
however
, that, if such breach is of the covenant contained in
Section 5(h) of this Agreement, the cure periods set forth herein shall not apply and such
breach shall immediately result in a Default hereunder;
(d) Dealers shall breach any covenant contained in Section 5(c) of this Agreement as of
the end of two (2) consecutive fiscal months or as of the end of more than two (2) months in
any twelve (12) month period;
(e) a Dealer (including, if a Dealer is a partnership or limited liability company, any
partner or member of a Dealer) shall die, become insolvent or generally fail to pay its
debts as they become due or, if a business, shall cease to do business as a going concern
other than mergers or consolidations permitted by Section 5(d)(iv) of this Agreement;
(f) any letter of credit provided by a Dealer to CDF with respect to any Obligations or
Collateral shall terminate or not be renewed at least sixty (60) days prior to its stated
expiration or maturity;
(g) a Dealer abandons any Collateral with an aggregate value exceeding five hundred thousand
dollars ($500,000.00) in any twelve (12) month period;
Inventory Financing Agreement
15
NOTE: PORTIONS OF THIS EXHIBIT INDICATED BY [****] ARE SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST, AND HAVE BEEN OMITTED FROM THIS EXHIBIT. COMPLETE, UNREDACTED COPIES OF THIS EXHIBIT HAVE BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AS PART OF THIS COMPANYS CONFIDENTIAL TREATMENT REQUEST.
(h) a Dealer shall make an assignment for the benefit of creditors, or commence a
proceeding with respect to itself under any bankruptcy, reorganization, arrangement,
insolvency, receivership, dissolution or liquidation statute or similar law of any
jurisdiction, or any such proceeding shall be commenced against it or any of its property
and such proceeding commenced against it or any of its property shall not be dismissed or
otherwise discharged within sixty (60) days thereafter (an
Automatic Default
);
(i) an attachment, sale or seizure shall be issued or shall be executed against assets
of any Dealer with a value exceeding five hundred thousand dollars ($500,000.00) in the
aggregate in any twelve (12) month period;
(j) a Dealer shall file or authorize the filing of any correction or termination
statement with respect to any Uniform Commercial Code (the
UCC
) filing made by CDF
in connection herewith;
(k) any third party shall file any correction or termination statement with respect to
any UCC filing made by CDF in connection herewith and Dealers shall fail to perfect CDFs
security interest in the Collateral and re-establish the first-priority thereof within
thirty (30) days after the filing of such correction or termination statement;
(l) a material adverse change shall occur in the business, operations or financial
condition of Dealers, taken as a whole;
(m) (i) a Dealer fails to make any payment in excess of [****] when due with respect to
any debt owed to any third party of [****] or more in the aggregate and such failure shall
continue after any applicable notice, grace or cure period therefor; or (ii) a default shall
occur, or a Dealer shall give or receive notice of default, with respect to any debt owed to
any third party of one million dollars ($1,000,000.00) or more in the aggregate and such
default shall entitle such third party to declare such debt due and payable prior to its
stated maturity or to exercise any other right or remedy or take any adverse action with
respect thereto; or (iii) a default shall occur, or a Dealer shall give or receive notice of
default, with respect to any debt owed to any third party of two hundred fifty thousand
dollars ($250,000.00) or more in the aggregate and such third party shall have declared such
debt due and payable prior to its stated maturity or exercised any other right or remedy or
taken any adverse action with respect thereto;
(n) (i) a Dealer fails to make any payment in excess of [****] when due with respect to any
debt or other obligation owed to any CDF Affiliate of [****] or more in the aggregate and
such failure shall continue after any applicable notice, grace or cure period therefor; or
(ii) a default shall occur, or a Dealer shall give or receive notice of default, with
respect to any debt or other obligation owed to any CDF Affiliate of one hundred thousand
dollars ($100,000.00) or more in the aggregate and such default shall entitle such CDF
Affiliate to declare such debt due and payable prior to its stated maturity or to exercise
any other right or remedy or take any adverse action with respect thereto; or (iii) a
default shall occur, or a Dealer shall give or receive notice of default, with respect to
any debt or other obligation owed to any CDF Affiliate of twenty-five thousand dollars
($25,000.00) or more in the aggregate and such
Inventory Financing Agreement
16
CDF Affiliate shall have declared such debt due and payable prior to its stated
maturity or exercised any other right or remedy or taken any adverse action with respect
thereto; or
(o) any final judgment against any Dealer for the payment of one million dollars
($1,000,000.00) or more in excess of insurance, and such judgment shall remain unstayed and
unpaid for over thirty (30) days; or
(p) any events shall occur which, but for the dollar thresholds set forth in this
Section 11, would constitute Defaults hereunder and, in the aggregate, such events relate to
asset values, Collateral values, or payments in excess of two million dollars
($2,000,000.00) in any twelve (12) month period.
12.
Rights and Remedies Upon Default
. Upon the occurrence of a Default, CDF shall
have all rights and remedies of a secured party under the UCC as in effect in any applicable
jurisdiction and other applicable law and all the rights and remedies set forth in this Agreement.
Upon the occurrence of a Default, CDF may terminate any obligations it has under this Agreement and
any outstanding credit approvals immediately and/or declare any and all Obligations immediately due
and payable without notice or demand. Each Dealer waives notice of intent to accelerate, and of
acceleration of any Obligations. Upon the occurrence of a Default, CDF may exercise control over
any Deposit Accounts (as defined in Article 9 of the Illinois Uniform Commercial Code) included in
the Collateral and apply any balances on deposit therein to the Obligations in such order and
amount as CDF may elect. Upon the occurrence of a Default, CDF may enter any premises of any one
or more of Dealers, with or without process of law, without force, to search for, take possession
of, and remove the Collateral, or any part thereof. Upon the occurrence of a Default, if CDF
requests, each Dealer shall cease disposition of and shall assemble the Collateral and make it
available to CDF, at Dealers expense, at a convenient place or places designated by CDF. Upon the
occurrence of a Default, CDF may take possession of the Collateral or any part thereof on any one
or more of Dealers premises and cause it to remain there at Dealers expense, pending sale or
other disposition. Each Dealer agrees that the sale of inventory by CDF to a person who is liable
to CDF under a guaranty, endorsement, repurchase agreement or the like shall not be deemed to be a
transfer subject to UCC §9-618 or any similar provision of any other applicable law, and each
Dealer waives any provision of such laws to that effect. Each Dealer agrees that the repurchase of
inventory by a Vendor pursuant to a repurchase agreement with CDF shall be a commercially
reasonable method of disposition. Dealers shall be jointly and severally liable to CDF for any
deficiency resulting from CDFs disposition of any Collateral, including without limitation a
repurchase by a Vendor, regardless of any subsequent disposition thereof. No Dealer is a
beneficiary of, nor has any right to require CDF to enforce, any repurchase agreement. Any notice
of a disposition shall be deemed reasonably and properly given if given to a Dealer at least ten
(10) days before such disposition. If a Dealer fails to perform any of its obligations under this
Agreement, CDF may perform the same in any form or manner CDF in its reasonable discretion deems
necessary or desirable, and all monies paid by CDF in connection therewith shall be additional
Obligations and shall be immediately due and payable without notice together with interest payable
on demand at the Default Rate. All of CDFs rights and remedies shall be cumulative. At CDFs
request, or without request in the event of an Automatic Default, each Dealer shall pay all Vendor
Credits to CDF as soon as the same are received for application to the Obligations. Each Dealer
authorizes CDF to collect such amounts directly from Vendors and, upon request of CDF, shall
instruct Vendors to pay CDF directly. Each Dealer irrevocably waives any requirement that CDF
retain possession and not dispose of any Collateral until after an arbitration
hearing, arbitration award, confirmation, trial or final judgment or appeal thereof. During
the
Inventory Financing Agreement
17
continuation of a Default, CDFs election to extend or not extend credit to a Dealer is solely
at CDFs discretion. If a Default is in effect, and without regard to whether CDF has accelerated
any Obligations, CDF may, without notice, apply the Default Rate.
13.
Power of Attorney
. Each Dealer authorizes CDF to: (a) file financing statements
describing CDF as Secured Party, such Dealer as Debtor and indicating the Collateral; (b)
authenticate, execute or endorse on behalf of such Dealer any instruments, chattel paper,
certificates of title, manufacturer statements of origin, builders certificate, financing
statements and amendments thereto, or other notices or records comprising or related to Collateral
or evidencing financing under the Agreement or evidencing or maintaining the perfection of the
security interest granted hereby, as attorney-in-fact for such Dealer; and (c) supply any omitted
information and correct errors in any documents between CDF and such Dealer. This power of
attorney and the other powers of attorney granted herein are irrevocable and coupled with an
interest.
14.
Collection and Other Costs
. Dealers shall pay to CDF on demand all reasonable
attorneys fees and legal expenses and other costs and expenses incurred by CDF in connection with
establishing, perfecting, maintaining perfection of, protecting and enforcing its Lien on the
Collateral and collecting any Obligations, or in connection with the negotiation and execution of
this Agreement and any modification thereof, any Default or in connection with any action or
proceeding under any bankruptcy or insolvency laws or incurred pursuant to an arbitration
proceeding involving a Dealer or any Collateral. All fees, expenses, costs and other amounts
described in this Section 14 shall constitute Obligations, shall be secured by the Collateral and
interest shall accrue thereon at the Default Rate.
15.
Information
. Each Dealer irrevocably authorizes CDF to investigate and make
inquiries of former, current, or future creditors or other persons and credit bureaus regarding or
relating to Dealers (including, to the extent permitted by law, any equity holders of any Dealer,
unless the equity of such Dealer is publicly-traded on a recognized exchange). CDF may provide to
any CDF Affiliate or any third parties any financial, credit or other information regarding Dealers
that CDF may at any time possess, whether such information was supplied by Dealers to CDF or
otherwise obtained by CDF. Further, each Dealer irrevocably authorizes and instructs any third
parties (including without limitation, any Vendors or customers of Dealers) to provide to CDF any
credit, financial or other information regarding Dealers that such third parties may at any time
possess, whether such information was supplied by any Dealer to such third parties or otherwise
obtained by such third parties.
16.
Dealers Claims Against Vendors
. No Dealer will assert against CDF any claim or
defense such Dealer may have against any Vendor whether for breach of contract, warranty,
misrepresentation, failure to ship, lack of authority, or otherwise, including without limitation
claims or defenses based upon charge backs, credit memos, rebates, price protection payments or
returns. Any such claims or defenses or other claims or defenses a Dealer may have against a Vendor
shall not affect Dealers liabilities or obligations to CDF.
17.
Term and Termination
. Unless sooner terminated as provided in this Agreement, the
term of this Agreement shall be for three (3) years from the date hereof and, if CDF provides
written notice to Dealers of CDFs intent to renew the current term at least (ninety) 90 days prior
to the end of the then current term, at CDFs sole election, the term of this Agreement shall
automatically renew for
up to two successive one year periods thereafter. Upon termination of this Agreement, all
Obligations to CDF hereunder shall become immediately due and payable without notice or demand.
Upon any
Inventory Financing Agreement
18
termination, Dealers shall remain fully and jointly and severally liable to CDF for all
Obligations hereunder, including without limitation all fees, expenses and charges, arising prior
to or after termination, and all of CDFs rights and remedies and its security interest shall
continue until all Obligations to CDF hereunder are paid and all obligations of Dealers to CDF
hereunder are performed in full. All waivers and indemnifications in CDFs favor, and the
agreement to arbitrate, set forth in this Agreement will survive any termination of this Agreement.
18.
Binding Effect
. No Dealer may assign its interest in this Agreement without CDFs
prior written consent. CDF may assign or participate CDFs interest, in whole or in part, without
Dealers consent;
provided
that CDF shall retain a majority interest in this Agreement,
unless a Default or any event which, with the giving of notice, the passage of time, or both would
result in a Default, shall have occurred and be continuing at the time of such assignment or
participation. This Agreement will protect and bind CDFs and each Dealers respective heirs,
representatives, successors and assigns, as the case may be.
19.
Notices
. Except as required by law or as otherwise provided herein, all notices
or other communications to be given under the Agreement or under the UCC shall be in writing served
either personally, by deposit with a reputable overnight courier with charges prepaid, or by
deposit in the United States mail, first-class postage prepaid or provided for, addressed to
Dealers at their chief executive offices shown below or to any office to which CDF sends billing
statements, or to CDF at its address shown in the preamble hereto, to the attention of its Credit
Department, or at such other address designated by such party by notice to the other. Any such
communication shall be deemed to have been given upon delivery in the case of personal delivery,
one Business Day after deposit with an overnight courier or three (3) Business Days after deposit
in the United States mail except that any notice of change of address shall not be effective until
actually received.
20.
Severability
. If any provision of this Agreement or its application is invalid or
unenforceable, the remainder of this Agreement will not be impaired or affected and will remain
binding and enforceable.
21.
Receipt of Agreement
. Each Dealer acknowledges that it has received a true and
complete copy of this Agreement. Each Dealer has read and understands this Agreement.
Notwithstanding anything herein to the contrary, CDF may rely on any facsimile copy, electronic
data transmission, or electronic data storage of: this Agreement, any Transaction Statement,
billing statement, financing statement, authorization to pre-file financing statements, invoice
from a Vendor, financial statements or other reports, which will be deemed an original, and the
best evidence thereof for all purposes.
22.
Acceptance by CDF
. CDF may accept this Agreement by issuance of an approval to a
Vendor for the purchase of inventory by Dealers or by making an advance hereunder.
23.
Miscellaneous
. Time is of the essence regarding each Dealers
performance of its obligations to CDF. Each Dealers liability to CDF is direct and
unconditional and will not be affected by the release or nonperfection of any security
interest granted hereunder. CDF may refrain from or postpone enforcement of this
Agreement or any other agreements between CDF and a Dealer without prejudice,
and the failure to strictly enforce these agreements will not create a course
of dealing which waives, amends or modifies such agreements. Any waiver by CDF
of a Default shall only be effective if in writing signed by CDF and
transmitted to a Dealer. The express terms of this Agreement will not
Inventory Financing Agreement
19
be modified by any course of dealing, usage of trade, or custom of trade which may
deviate from the terms hereof. If a Dealer fails to pay any taxes, fees or other obligations which
may materially impair CDFs interest in the Collateral, or fails to keep any Collateral insured,
CDF may, but shall not be required to, pay such amounts. Such paid amounts will be: (a) additional
Obligations which Dealers owe to CDF, which are subject to finance charges as provided herein and
shall be secured by the Collateral; and (b) due and payable immediately in full upon demand to
Dealers. Section titles used herein are for convenience only, and do not define or limit the
contents of any Section. All words used herein shall be understood and construed to be of such
number and gender as the circumstances may require. This Agreement may be validly executed in one
or more multiple counterpart signature pages. This Agreement shall be construed without
presumption for or against any party who drafted all or any portion of this Agreement. No
modification of this Agreement shall bind CDF unless in a writing signed by CDF and transmitted to
Dealers. Among other symbols, CDF hereby adopts GE Commercial Distribution Finance Corporation,
GE Commercial Distribution Finance, GECDF or CDF as evidence of its intent to authenticate a
record.
24.
List of Dealers
. The following persons are parties to this Agreement as Dealers:
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DEALER NAME
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TYPE OF ENTITY
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JURISDICTION
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MarineMax, Inc.
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corporation
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Delaware
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MarineMax East, Inc.
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corporation
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Delaware
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MarineMax Services, Inc.
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corporation
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Delaware
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MarineMax Northeast, LLC
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limited liability company
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Delaware
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Boating Gear Center, LLC
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limited liability company
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Delaware
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US Liquidators, LLC
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limited liability company
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Delaware
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Newcoast Financial Services, LLC
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limited liability company
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Delaware
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25.
Limitation of Remedies and Damages
. In the event there is any dispute under this
Agreement, the aggrieved party shall not be entitled to exemplary or punitive damages so that the
aggrieved partys remedy in connection with any action arising under or in any way related to this
Agreement shall be limited to a breach of contract action and any damages in connection therewith
are limited to actual and direct damages, except that CDF may seek equitable relief in connection
with any judicial repossession of, or temporary restraining order with respect to, the Collateral.
26.
BINDING ARBITRATION
.
(a)
Arbitrable Claims
. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in equity of any type
or nature whatsoever, whether arising before or after the date of this Agreement, and
whether directly or indirectly relating to: (a) this Agreement and/or any amendments and
addenda hereto, or the breach, invalidity or termination hereof; (b) any previous or
subsequent agreement between CDF and any one or more Dealers; (c) any act committed by CDF
or by any parent company, subsidiary or affiliated company of CDF (the
CDF
Companies
), or by any employee, agent, officer or director of a CDF Company whether or
not arising within the scope and course of employment or other contractual representation of
the CDF Companies provided that such act arises under a relationship, transaction or dealing
between CDF and any one or more Dealers; and/or (d) any other relationship, transaction or
dealing between or among CDF and any one or more Dealers (collectively the
Disputes
), will be subject to and resolved by binding arbitration.
Notwithstanding the foregoing, the parties agree that either party may pursue
Inventory Financing Agreement
20
claims against the other that do not exceed Fifteen Thousand Dollars ($15,000.00) in
the aggregate in a court of competent jurisdiction. Service of arbitration claims shall be
acceptable if made by U.S. mail or overnight delivery to the address for the party described
herein.
(b)
Administrative Body
. All arbitration hereunder will be conducted in
accordance with the Commercial Arbitration Rules of either: (a) The American Arbitration
Association (
AAA
); or (b) United States Arbitration & Mediation (
USA&M
).
The party first filing an arbitration claim shall designate which arbitration forum and
rules are to be applied for all disputes between the parties. The arbitration rules are
currently found at www.adr.org for AAA, and at www.usam-midwest.com for USA&M. AAA claims
may be filed in any AAA office. Claims filed with USA&M shall be filed in its Midwest
office located at 720 Olive Street, Suite 2020, St. Louis, Missouri 63101. All
arbitrator(s) selected will be attorneys with at least five (5) years secured transactions
experience. A panel of three arbitrators shall hear all claims exceeding One Million
Dollars ($1,000,000.00), exclusive of interest, costs and attorneys fees. The
arbitrator(s) will decide if any inconsistency exists between the rules of the applicable
arbitral forum and the arbitration provisions contained herein. If such inconsistency
exists, the arbitration provisions contained herein will control and supersede such rules.
The arbitrator shall follow the terms of this Agreement and the applicable law, including
without limitation, the attorney-client privilege and the attorney work product doctrine.
(c)
Hearings
. Each party hereby consents to a documentary hearing for all
arbitration claims by submitting the dispute to the arbitrator(s) by written briefs and
affidavits, along with relevant documents. However, arbitration claims will be submitted by
way of an oral hearing if any party requests an oral hearing within forty (40) days after
service of the claim and that party remits the appropriate deposit for fees and arbitrator
compensation within ten (10) days of making the request. Each party agrees that failure
to timely pay all fees and arbitrator compensation billed to the party requesting the oral
hearing will be deemed such partys consent to submitting the Dispute to the arbitrator on
documents and such partys waiver of its request for an oral hearing. The site of all oral
arbitration hearings will be in the Division of the Federal Judicial District in which the
designated arbitration association maintains a regional office that is closest to Dealers.
(d)
Discovery
. Discovery permitted in any arbitration proceeding commenced
hereunder is limited as follows. No later than forty (40) days after the filing and service
of a claim for arbitration, the parties in contested cases will exchange detailed statements
setting forth the facts supporting the claim(s) and all defenses to be raised during the
arbitration, and a list of all exhibits and witnesses. No later than twenty-one (21) days
prior to the oral arbitration hearing, the parties will exchange a final list of all
exhibits and all witnesses, including any designation of any expert witness(es) together
with a summary of their testimony; a copy of all documents and a detailed description of any
property to be introduced at the hearing. Under no circumstances will the use of
interrogatories, requests for admission, requests for the production of documents or the
taking of depositions be permitted. However, in the event of the designation of any expert
witness(es), the following will occur: (i) all information and documents relied upon by the
expert witness(es) will be delivered to the opposing party; (ii) the opposing party will be
permitted to depose the expert witness(es); (iii) the opposing party will be permitted to
designate rebuttal expert witness(es); and (iv) the arbitration hearing will be
Inventory Financing Agreement
21
continued to the earliest possible date that enables the foregoing limited discovery to
be accomplished.
(e)
Exemplary or Punitive Damages
. The arbitrator(s) will not have the
authority to award exemplary or punitive damages.
(f)
Confidentiality of Awards
. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential, although any award or order
rendered by the arbitrator(s) pursuant to the terms of this Agreement may be confirmed as a
judgment or order in any state or federal court of competent jurisdiction within the federal
judicial district which includes the residence of the party against whom such award or order
was entered. This Agreement concerns transactions involving commerce among the several
states. The Federal Arbitration Act, Title 9 U.S.C. Sections 1 et seq., as amended
(
FAA
) will govern all arbitration(s) and confirmation proceedings hereunder.
(g)
Prejudgment and Provisional Remedies
. Nothing herein will be construed to
prevent CDFs or a Dealers use of bankruptcy, receivership, injunction, repossession,
replevin, claim and delivery, sequestration, seizure, attachment, foreclosure, and/or any
other prejudgment or provisional action or remedy relating to any Collateral for any current
or future debt owed by either party to the other. Any such action or remedy will not waive
CDFs or a Dealers right to compel arbitration of any Dispute.
(h)
Attorneys Fees
. If either a Dealer or CDF brings any other action for
judicial relief with respect to any Dispute (other than those set forth in Sections 26(a) or
26(g) of this Agreement), the party bringing such action will be liable for and immediately
pay all of the other partys costs and expenses (including attorneys fees) incurred to stay
or dismiss such action and remove or refer such Dispute to arbitration. If either a Dealer
or CDF brings or appeals an action to vacate or modify an arbitration award and such party
does not prevail, such party will pay all costs and expenses, including attorneys fees,
incurred by the other party in defending such action. Additionally, if a Dealer sues CDF or
institutes any arbitration claim or counterclaim against CDF in which CDF is the prevailing
party, Dealers will pay all costs and expenses (including attorneys fees) incurred by CDF
in the course of defending such action or proceeding.
(i)
Limitations
. Any arbitration proceeding must be instituted: (a) with
respect to any Dispute for the collection of any debt owed by either party to the other,
within two (2) years after the date the last payment by or on behalf of the payor was
received and applied in respect of such debt by the payee; and (b) with respect to any other
Dispute, within two (2) years after the date the incident giving rise thereto occurred,
whether or not any damage was sustained or capable of ascertainment or either party knew of
such incident. Failure to institute an arbitration proceeding within such period will
constitute an absolute bar and waiver to the institution of any proceeding, whether
arbitration or a court proceeding, with respect to such Dispute. Notwithstanding the
foregoing, this limitations provision will be suspended temporarily as of the date any of
the following events occur and will not resume until the date following the date either
party is no longer subject to (i) bankruptcy, (ii) receivership, (iii) any proceeding
regarding an assignment for the benefit of creditors, or (iv) any legal proceeding,
Inventory Financing Agreement
22
civil or criminal, which prohibits either party from foreclosing any interest it might
have in the collateral of the other party.
(j)
Survival After Termination
. The agreement to arbitrate will survive the
termination of this Agreement.
27.
Multiple Dealers; Joint and Several Liability; Designation of Authorized
Representatives
.
(a) All advances by CDF to and all other Obligations of any Dealer shall constitute one
general obligation of all of the Dealers. Notwithstanding anything herein to the contrary,
the Dealers shall be primarily and jointly and severally liable for all Obligations of any
Dealer to CDF. Notwithstanding the foregoing, if and to the extent a Dealer is deemed to be
a guarantor of another Dealer hereunder, such Dealers liability for any credit extended to
or for the benefit of such other Dealer shall be deemed to be a guaranty of payment and
performance, and not merely a guaranty of collection. To the fullest extent permitted by
law, each Dealer hereby waives promptness, diligence, notice of acceptance, and any other
notices of any nature whatsoever with respect to any of the Obligations to CDF under this
Agreement, and any requirement that CDF protect, secure, perfect or insure any security
interest or lien or any property subject thereto or exhaust any right or take any action
against any other Dealer, any other person or any Collateral. Each Dealer agrees that any
rights of subrogation, indemnification, reimbursement or any similar rights it may have
against any other Dealer with respect to its liability hereunder or otherwise, whether such
rights arise under an express or implied contract or by operation of law, shall be subject,
junior and subordinate in all respect to all Obligations of such Dealer to CDF hereunder and
that the enforcement of such rights shall be stayed until such time as the Dealers shall
have indefeasibly paid in full all of the Obligations to CDF hereunder and CDF shall be
under no duty to extend credit to or for the benefit of any Dealer. The liability of each
Dealer shall be absolute and unconditional irrespective of (i) any change in the time,
manner or place of payment of, or in any other term of, any of the Obligations, or any other
amendment or waiver of or any consent to departure from this Agreement or any other
agreement between or among any one or more of the Dealers and CDF, (ii) any exchange,
release or non-perfection of any Collateral or any release or amendment or waiver of or
consent to departure from any other guaranty or any release of any guarantor or any other
person liable in whole or in part for all or any of the Obligations to CDF under this
Agreement, (iii) the disallowance or avoidance of all or any portion of CDFs claim(s) for
repayment of the Obligations of any Dealer to CDF hereunder or of CDFs interest in any
security for such Obligations, or (iv) any other circumstance which might otherwise
constitute a defense available to, or discharge of, a Dealer or a guarantor or any other
surety.
(b) Each Dealer (each, a
Principal
) hereby appoints each other Dealer (each,
an
Agent
) as the Principals agent and attorney-in-fact (1) to take any action,
(2) to execute any document or instrument, (3) to consent or agree to any amendment or other
modification of this Agreement and/or any other agreements between or among any one or more
of the Dealers and CDF and/or any waiver of or departure from any of the terms hereof or
thereof, (4) to perform any Obligation to CDF under this Agreement of the Principal, and (5)
to give or receive any notice by or to any Dealer hereunder or thereunder; and in each case
without regard to whether
Inventory Financing Agreement
23
any such action is done in the name of an Agent or a Principal and, if done in the name
of an Agent, without regard to whether such Agents capacity as agent or attorney-in-fact is
so designated. Without limiting the generality of the foregoing, an Agent may request
extensions of credit to or on behalf of any one or more of the Dealers and/or incur any
other Obligations for the account of any one or more of the Dealers, and in any such event
all of the Dealers shall be fully and jointly and severally bound by and liable for the
actions of such Agent. CDF shall be entitled to rely absolutely and without duty of inquiry
or investigation upon any agreement, request, communication or other notice given by an
Agent under this Agreement and/or any other agreements between or among any one or more of
the Dealers and CDF (including without limitation, any request by an Agent to make credit
extensions to or on behalf of itself and/or any one or more other Dealers) until three (3)
Business Days after CDF shall have received written notice from each Principal of the
revocation of this agency and power of attorney, which revocation shall constitute a
Default.
(c) Pursuant to the Secretary Certificates of the corporate Dealers and the Limited
Liability Company and Member Certificates of the limited liability company Dealers executed
and delivered to CDF on the date hereof, each Dealer identified the names of persons
authorized to act on behalf of such Dealer in connection with this Agreement, the
certificates and documents contemplated hereby, and the transactions referenced herein and
therein. CDF shall be entitled to rely absolutely and without duty of inquiry or
investigation upon any agreement, request, communication or other notice given by such
authorized persons under this Agreement and/or any other agreements between or among any one
or more of the Dealers and CDF (including without limitation, any request by such authorized
representative to make credit extensions to or on behalf of such Dealer) until three (3)
Business Days after CDF shall have received written notice from such Dealer of the
revocation of such persons authority and the identity of each additional person authorized
to act on behalf of such Dealer thereafter.
28.
Governing Law
. This Agreement and all agreements between or among Dealers and CDF
have been substantially negotiated and will be substantially performed in the state of Illinois.
Accordingly, all Disputes will be governed by, and construed in accordance with, the laws of such
state, except to the extent inconsistent with the provisions of the FAA, which will control and
govern all arbitration proceedings hereunder.
29.
INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION
. IF THIS AGREEMENT IS FOUND TO
BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A
COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. DEALERS AND CDF WAIVE ANY RIGHT TO A
JURY TRIAL IN ANY SUCH PROCEEDING. SIMILARLY, IF THIS AGREEMENT OR A PARTICULAR DISPUTE HEREUNDER
IS NOT SUBJECT TO ARBITRATION, DEALERS HEREBY CONSENT TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN ILLINOIS AND WAIVES ANY OBJECTION WHICH DEALERS MAY HAVE BASED ON
IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY ACTION OR PROCEEDING IN ANY SUCH
COURT.
[Remainder of page blank]
Inventory Financing Agreement
24
THIS CONTRACT CONTAINS BINDING ARBITRATION,
JURY WAIVER AND PUNITIVE DAMAGE WAIVER PROVISIONS.
Dated: June 24, 2010.
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MARINEMAX, INC.
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By:
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/s/ Kurt M. Frahn
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Print Name:
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Kurt M. Frahn
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Vice President of Finance, Treasurer
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Title:
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and Assistant Secretary
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Tax ID:
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59-3496957
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Org. ID (if any):
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2849981 8100
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Chief Executive Office and Principal Place of Business:
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18167 US Highway 19 North
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Suite 300
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Clearwater, FL 33764
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MARINEMAX EAST, INC.
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By:
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/s/ Kurt M. Frahn
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Print Name:
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Kurt M. Frahn
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Title:
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Assistant Secretary
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Tax ID:
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94-3382331
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Org. ID (if any):
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3332179 8100
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Chief Executive Office and Principal Place of Business:
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18167 US Highway 19 North
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Suite 300
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Clearwater, FL 33764
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MARINEMAX SERVICES, INC.
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By:
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/s/ Kurt M. Frahn
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Print Name:
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Kurt M. Frahn
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Title:
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Assistant Secretary
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Tax ID:
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74-2979572
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Org. ID (if any):
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3331764 8100
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Chief Executive Office and Principal Place of Business:
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18167 US Highway 19 North
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Suite 300
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Clearwater, FL 33764
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Inventory Financing Agreement
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MARINEMAX NORTHEAST, LLC
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By:
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/s/ Kurt M. Frahn
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Print Name:
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Kurt M. Frahn
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Title:
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Assistant Secretary
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Tax ID:
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26-0668571
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Org. ID (if any):
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4402087 8100
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Chief Executive Office and Principal Place of Business:
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18167 US Highway 19 North
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Suite 300
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Clearwater, FL 33764
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BOATING GEAR CENTER, LLC
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By:
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MARINEMAX EAST, INC., the sole member of
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Boating Gear Center, LLC
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By:
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/s/ Kurt M. Frahn
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Print Name:
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Kurt M. Frahn
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Title:
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Assistant Secretary
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Tax ID:
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20-2113374
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Org. ID (if any):
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3908460 8100
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Chief Executive Office and Principal Place of Business:
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18167 US Highway 19 North
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Suite 300
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Clearwater, FL 33764
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US LIQUIDATORS, LLC
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By:
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/s/ Kurt M. Frahn
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Print Name:
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Kurt M. Frahn
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Title:
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Assistant Secretary
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Tax ID:
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20-5817473
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Org. ID (if any):
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4242668 8100
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Chief Executive Office and Principal Place of Business:
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18167 US Highway 19 North
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Suite 300
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Clearwater, FL 33764
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Inventory Financing Agreement
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NEWCOAST FINANCIAL SERVICES, LLC
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By:
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/s/ Kurt M. Frahn
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Print Name:
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Kurt M. Frahn
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Title:
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Assistant Secretary
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Tax ID:
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59-3529057
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Org. ID (if any):
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2920730 8100
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Chief Executive Office and Principal Place of Business:
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18167 US Highway 19 North
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Suite 300
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Clearwater, FL 33764
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GE COMMERCIAL DISTRIBUTION FINANCE CORPORATION
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By:
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/s/ Waller Blackwell
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Print Name:
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Waller Blackwell
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Title:
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Wholesale Risk Underwriting Leader
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Inventory Financing Agreement
Exhibit A
Existing Vendors
Inventory Financing Agreement
A-1
Exhibit B
Existing Liens
Inventory Financing Agreement
B-1
Exhibit C
Permitted Locations
Inventory Financing Agreement
C-1