CREDIT AND SECURITY AGREEMENT
Dated as of May 28, 1997
NICOLLET PROCESS ENGINEERING, INC., a Minnesota corporation (the
"Borrower"), and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the
"Lender"), hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
"Accounts" means the aggregate unpaid obligations of customers and
other account debtors to the Borrower arising out of the sale, lease or
license of goods or rendition of services by the Borrower on an open
account or deferred payment basis, whether now existing or hereafter
arising.
"Advance" means a Revolving Advance.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented and restated from time to time.
"Base Rate" means the rate of interest publicly announced from time to
time by Norwest Bank Minnesota, National Association as its "base rate" or,
if such bank ceases to announce a rate so designated, any similar successor
rate designated by the Lender.
"Book Net Worth" means the aggregate of (i) the common stockholders'
equity of the Borrower, determined in accordance with GAAP, plus (ii)
Convertible Notes; but excluding any capital stock (including the
conversion of debt to equity except for the Convertible Notes) for which
the Borrower has not received readily available funds on approximately the
same day such capital stock was issued.
"Borrowing Base" means, at any time and subject to change from time to
time in the Lender's sole discretion, the lesser of:
(a) the Maximum Line less the Norwest Minnesota Revolving
Advances; or
(b) 80% of Eligible Accounts.
"Collateral" has the meaning given in Section 3.1
"Convertible Notes" means promissory notes issued by the Borrower
after the date hereof which by their terms automatically convert into
equity securities of the Borrower.
"Credit Facility" means the discretionary credit facility being made
available to the Borrower by the Lender pursuant to Article II.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date that such Event of Default has been cured, if possible,
or waived by the Lender.
"Default Rate" means an annual rate equal to three percent (3%) over
the Floating Rate, which rate shall change when and as the Floating Rate
changes.
"Eligible Accounts" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts over 90 days past invoice
date;
(ii) That portion of Accounts that are disputed or subject
to a claim of offset or a contra account, including, without
limitation, down payments received from account debtors;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be included
in Eligible Accounts that portion of Accounts owed by such units of
government for which the Borrower has provided evidence satisfactory
to the Lender that (A) the Lender has a first priority perfected
security interest and (B) such Accounts may be enforced by the Lender
directly against such unit of government under all applicable laws);
(v) Accounts owed by an account debtor located outside the
United States;
(vi) Accounts owed by an account debtor that is the subject
of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, subsidiary, affiliate,
officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security
interest in favor of the Lender or which are subject to any lien,
security interest or claim in favor of any Person other than the
Lender or Norwest Minnesota;
(ix) That portion of Accounts that have been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes finance
charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of
whether otherwise eligible, if 10% or more of the total amount due
under Accounts from such debtor is ineligible under clauses (i), (ii)
or (ix) above;
(xii) Accounts which are deposit xxxxxxxx (i.e. those
Accounts generated from the invoicing of a down payment); and
(xiii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Event of Default" has the meaning specified in Section 7.1.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
plus three percent (3%), which annual rate shall change when and as the
Base Rate changes.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.2.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired.
"Life Insurance Assignment" means the Assignment of Life Insurance
Policy as Collateral to be executed by the owner and beneficiary thereof,
in form and substance satisfactory to the Lender, granting the Lender and
Norwest Minnesota a lien on the Life Insurance Policy to secure payment of
the Obligations.
"Life Insurance Policy" has the meaning given in Section 6.10 .
"Loan Documents" means this Agreement, the Note, the Security
Documents and the Disclosure by the Borrower in favor of the Lender of even
date herewith.
"Maturity Date" means the one year anniversary of the date of this
Agreement.
"Maximum Line" means $800,000.
"Non-Use Period" has the meaning set forth in Section 2.8 (a) hereof.
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"Norwest Bank Credit Agreement" means that certain Credit Agreement by
and between Norwest Minnesota and the Borrower of even date herewith.
"Norwest Bank Credit Facility" means the credit facility extended to
the Borrower pursuant to the Norwest Bank Credit Agreement.
"Norwest Minnesota" means Norwest Bank Minnesota, National
Association, a national banking association.
"Norwest Minnesota Revolving Advances" means the outstanding principal
balance of the revolving advances as of a given date made by Norwest
Minnesota to the Borrower pursuant to the Norwest Bank Credit Agreement.
"Note" means the Revolving Note.
"Obligations" means each and every debt, liability and obligation of
every type and description which the Borrower may now or at any time
hereafter owe to the Lender, including all indebtedness arising under this
Agreement, the Note or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter
entered into.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A
hereto.
"Security Documents" means this Agreement, the Life Insurance
Assignment, and the Support Agreement, each of even date herewith and by
and between the Borrower and the Lender and, the Collateral Account
Agreement and the Lockbox Agreement by and among the Borrower, the Lender
and Norwest Bank Minnesota, National Association.
"Security Interest" has the meaning given in Section 3.1.
"Support Agreement" means the Management Support Agreement by Xxxxxx
Xxxxxx, of even date herewith.
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"Termination Date" means the Maturity Date or the date the Lender
demands payment pursuant to Section 2.3 or Section 7.2, or the Borrower
terminates the Credit Facility pursuant to Section 2.4, as the case may be.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of Minnesota.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 REVOLVING ADVANCES. The Lender may, in its sole
discretion, make advances to the Borrower from time to time from the date this
Agreement is signed and delivered to the Termination Date, on the terms and
subject to the conditions herein set forth (each a "Revolving Advance"). The
Lender shall not consider any request for a Revolving Advance if, after giving
effect to such requested Revolving Advance, the sum of the outstanding and
unpaid Revolving Advances would exceed the Borrowing Base. The Borrower's
obligation to pay the Revolving Advances shall be evidenced by the Revolving
Note and shall be secured by the Collateral. Within the limits set forth in this
Section ref RevolvingAdvances \*mergeformat 2.1, the Borrower may request
Revolving Advances, prepay, and request additional Revolving Advances. The
Borrower shall make each request for a Revolving Advance to the Lender before
11:00 a.m. (Minneapolis time) of the day of the requested Revolving Advance.
Requests may be made in writing or by telephone.
Section 2.2 INTEREST; DEFAULT INTEREST. All interest shall be payable
monthly in arrears on the first day of the month and on demand.
(a) REVOLVING NOTE. Except as set forth in subsection (c) and (d),
the outstanding principal balance of the Advances shall bear interest at the
Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable
pursuant to subsections (a) and (c), beginning on the date the initial
Advance is made and continuing for each twelve month period (each a
"Period") thereafter (prorated for less than full Periods), the Borrower
shall pay to the Lender interest of not less than $65,000 per Period during
the term of this Agreement (prorated to exclude calendar months during a
Non-Use Period in which there are no outstanding, unpaid Advances or
outstanding, unpaid Norwest Minnesota Revolving Advances), and the Borrower
shall pay any deficiency between (i) such minimum interest charge and (ii)
the sum of the amount of interest for such Period otherwise calculated
under Sections (a) and (c) hereof and the amount of interest paid for such
Period under the Norwest Bank Credit Agreement. Such minimum interest
charge deficiency shall be payable in arrears on the last day of such
Period. For example, if on August 1, 1997 the initial Advance is made and
during the Period thereafter (ending on July 31, 1998) there are two months
during a Non-Use Period in which there are no outstanding, unpaid Advances
and no outstanding, unpaid Norwest Minnesota Revolving
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Advances, the Borrower's minimum interest charge for such Period would be
$54,166. If, during such Period, the Borrower has paid interest of $20,000
under Sections (a) and (c) hereof and $10,000 under the Norwest Bank Credit
Facility, the Borrower would be required to pay the Lender $24,166 on July
31, 1998.
(c) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(d) USURY. In any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Section 2.3 DISCRETIONARY NATURE OF CREDIT FACILITY; AUTOMATIC
RENEWAL. THE LENDER MAY AT ANY TIME AND FOR ANY REASON REFUSE TO MAKE AN
ADVANCE AND/OR DEMAND PAYMENT OF THE ADVANCES AND TERMINATE THIS AGREEMENT
WHETHER BORROWER IS OR IS NOT IN COMPLIANCE WITH THIS AGREEMENT. The Lender need
not show that an adverse change has occurred in the Borrower's condition,
financial or otherwise, in order to refuse to make any requested Advance or to
demand payment of the Advances. Unless terminated by the Lender at any time or
by the Borrower pursuant to Section 2.4, this Agreement shall remain in effect
until the Maturity Date.
Section 2.4 TERMINATION BY BORROWER.
(a) TERMINATION BY BORROWER. The Borrower may terminate this
Agreement at any time and, subject to payment and performance of all
Obligations, may obtain any release or termination of the Security Interest
to which the Borrower is otherwise entitled by law by: (i) giving at least
30 days' prior written notice to the Lender of the Borrower's intention to
terminate this Agreement, (ii) terminating the Norwest Bank Credit
Agreement pursuant to the terms thereof, and (iii) paying the Lender a
prepayment fee in accordance with subsection (b) if the Borrower terminates
this Agreement effective as of any date other than a Maturity Date.
(b) PREPAYMENT FEE. If the Borrower desires to terminate this
Agreement as of any date other than a Maturity Date, or as of a Maturity
Date but without giving at least 90 days' prior written notice thereof, it
shall (i) give at least 30 days' prior written notice to the Lender of the
Borrower's intention to do so, and (ii) pay to the Lender a prepayment fee
equal to the greater of (A) an amount equal to the minimum interest charge
which would have been paid pursuant to Section 2.2(b) hereof if the Credit
Facility had continued through the Maturity Date and outstanding, unpaid
Advances had existed during each month through the Maturity Date or (B) 2%
of the Maximum Line; PROVIDED, HOWEVER, that such prepayment fee shall be
waived if such
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prepayment is made because of increased cash flow generated from the
Borrower's operations or refinancing by an affiliate of the Lender.
Section 2.5 MANDATORY PREPAYMENT. Without notice or demand, if the
outstanding principal balance of the Revolving Advances shall at any time exceed
the Borrowing Base, the Borrower shall immediately prepay the Revolving Advances
to the extent necessary to eliminate such excess.
Section 2.6 ADVANCES WITHOUT REQUEST. The Borrower hereby authorizes
the Lender, in its discretion, at any time or from time to time without the
Borrower's request, to make Revolving Advances to pay accrued interest, fees,
uncollected items that have been applied to the Obligations, and other
Obligations due and payable from time to time.
Section 2.7 ORIGINATION FEE. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable origination fee of $8,000, due and
payable upon the execution of this Agreement. The Lender acknowledges receipt of
$10,000 toward payment of this fee and the fees, costs and expenses described in
Section 8.2.
Section 2.8 SUSPENSION OF LINE USE, LINE MAINTENANCE, LINE MAINTENANCE
FEE.
(a) SUSPENSION OF LINE USE. So long as no Default Period exists,
the Borrower may elect to suspend its right to request Advances and Norwest
Minnesota Revolving Advances pursuant to the terms of this Section 2.8. If
the Borrower elects not to request any Advances and Norwest Minnesota
Advances during an upcoming month or months and suspend use of this Credit
Facility and the Norwest Bank Credit Facility (each a "Non-Use Period"),
the Borrower must deliver written notice to the Lender at least ten (10)
days prior to the first day of any such Non-Use Period, which notice must
state (i) that an election hereunder has been made, and (ii) the beginning
date of the Non-Use Period. A Non-Use Period may only begin on the first
day of a calendar month. If on any day during a Non-Use Period there are
any outstanding, unpaid Advances or any outstanding, unpaid Norwest
Minnesota Revolving Advances, the Borrower shall be required to pay the
minimum interest charge for the month or months in which such Advance or
Norwest Minnesota Revolving Advance was outstanding and unpaid.
(b) LINE MAINTENANCE FEE. The Borrower hereby agrees to pay the
Lender a monthly line maintenance fee of $1,000 for each calendar month
during a Non-Use Period in which there are no outstanding, unpaid Advances
and no outstanding, unpaid Norwest Minnesota Revolving Advances. Such line
maintenance fees shall be due and payable on the last day of each Period,
as such term is defined in Section 2.2(b) hereof.
(c) NOTICE PRIOR TO USE OF LINE. After a Non-Use Period has been
initiated, the Lender shall not consider making any Advance hereunder until
thirty (30) days
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after it has received written notice from the Borrower requesting that the
Non-Use Period be terminated and the Credit Facility and the Norwest Bank
Credit Facility be reactivated.
ARTICLE III
SECURITY INTEREST
Section 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby grants to
the Lender a security interest (the "Security Interest") in the following
collateral (the "Collateral"), as security for the payment and performance of
the Obligations:
INVENTORY: All inventory of Borrower, as such term is defined in the UCC,
whether now owned or hereafter acquired, whether consisting of whole goods,
spare parts or components, supplies or materials, whether acquired, held or
furnished for sale, for lease or under service contracts or for manufacture
or processing, and wherever located;
ACCOUNTS AND OTHER RIGHTS TO PAYMENT: Each and every right of Borrower to
the payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease, license
or other disposition of goods or other property, out of a rendering of
services, out of a loan, out of the overpayment of taxes or other
liabilities, or otherwise arises under any contract or agreement, whether
such right to payment is created, generated or earned by Borrower or by
some other Person who subsequently transfers such Person's interest to
Borrower, whether such right to payment is or is not already earned by
performance, and howsoever such right to payment may be evidenced, together
with all other rights and interests (including all liens and security
interests) which Borrower may at any time have by law or agreement against
any account debtor or other obligor obligated to make any such payment or
against any property of such account debtor or other obligor; all including
all of Borrower's rights to payment in the form of all present and future
accounts, contract rights, loans and obligations receivable, chattel
papers, bonds, notes and other debt instruments, tax refunds and rights to
payment in the nature of general intangibles;
EQUIPMENT: All of the Borrower's equipment, as such term is defined in the
UCC whether now or hereafter owned, including all present and future
machinery, vehicles, furniture, fixtures, manufacturing equipment, shop
equipment, office and recordkeeping equipment, parts, tools, supplies, and
including specifically the goods described in any equipment schedule or
list herewith or hereafter furnished to the Lender by Borrower;
GENERAL INTANGIBLES: All of Borrower's general intangibles, as such term
is defined in the UCC, whether now owned or hereafter acquired, including
all present and future contract rights, patents, patent applications,
copyrights, trademarks, trade
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names, trade secrets, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, the right to use Borrower's
name, and the goodwill of Borrower's business; and
INVESTMENT PROPERTY: All of Borrower's investment property, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but
not limited to all securities, security entitlements, securities accounts,
commodity contracts, commodity accounts, stocks, bonds, mutual fund shares,
money market shares and U.S. Government securities;
together with all substitutions and replacements for and products of any of
the foregoing property and together with proceeds of any and all of the
foregoing property and, in the case of all tangible property, together
with all accessions and together with (i) all accessories, attachments,
parts, equipment and repairs now or hereafter attached or affixed to or
used in connection with any such goods, and (ii) all warehouse receipts,
bills of lading and other documents of title now or hereafter covering such
goods.
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. The
Lender may at any time (either before or after the occurrence of an Event of
Default) notify any account debtor or other Person obligated to pay the amount
due that such right to payment has been assigned or transferred to the Lender
for security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, as the Borrower's agent and attorney-in-fact, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for
the Borrower's account or forwarding such mail to the Borrower's last known
address.
Section 3.3 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of each premises where Borrower conducts its business and
has any rights of possession (the "Premises") at any time during any
Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose
of goods that are Collateral and for other purposes that the Lender in good
faith considers related.
(c) The Lender's right to hold the Premises shall terminate upon the
earlier of payment in full of all Obligations, or final sale or disposition
of all goods constituting Collateral and delivery of all such goods to
purchasers.
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(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession or use of any of the Premises;
provided, however, that if the Lender does pay or account for any rent or
other compensation for the possession or use of any of the Premises, the
Borrower shall reimburse the Lender promptly for the full amount thereof.
Section 3.4 LICENSE. The Borrower hereby grants to the Lender a non-
exclusive, worldwide and royalty-free license to use, sub-license or otherwise
exploit all trademarks, franchises, trade names, copyrights and patents of the
Borrower for the purpose of selling, leasing or otherwise disposing of any or
all Collateral following an Event of Default. The foregoing license includes
the right to reproduce, distribute, publicly perform, display and create
derivative works from any and all of the Borrower's copyrights.
Section 3.5 FILING A COPY. A carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by Borrower is
sufficient as a financing statement.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 CONDITIONS PRECEDENT TO THE LENDER'S WILLINGNESS TO
CONSIDER MAKING ADVANCES. The Lender's willingness to consider making an
initial Advance hereunder shall be subject to the condition precedent that the
Lender shall have received all of the following, each in form and substance
satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank Minnesota, National Association.
(d) The Lockbox Agreement, properly executed by the Borrower and
Norwest Bank Minnesota, National Association.
(e) Current searches of appropriate filing offices showing that
(i) no state or federal tax liens have been filed and remain in effect
against the Borrower, (ii) no financing statements have been filed and
remain in effect against the Borrower except those financing statements
relating to those security interests or liens set forth in Exhibit C hereto
(the "Permitted Liens") or to liens held by Persons who have agreed in
writing that upon receipt of proceeds of the Advances, they will deliver
UCC releases and/or terminations satisfactory to the Lender, and (iii) the
Lender has duly filed all financing statements necessary to perfect the
Security Interest, to the extent the Security Interest is capable of being
perfected by filing.
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(f) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the execution,
delivery and performance of the Loan Documents, (ii) the Borrower's
articles of incorporation and bylaws, and (iii) the signatures of the
Borrower's agents authorized to execute and deliver the Loan Documents
and other instruments, agreements and certificates, including Advance
requests, on the Borrower's behalf.
(g) A current certificate issued by the Secretary of State of
Minnesota, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Minnesota.
(h) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(i) An Officer's Certificate from an officer of the Borrower
confirming, in his personal capacity, the representations and warranties
set forth in Article V and the Disclosure.
(j) The Support Agreement in favor of the Lender, properly executed
by Xxxxxx Xxxxxx in his personal capacity.
(k) An opinion of counsel to the Borrower, addressed to the Lender.
(l) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(m) The Life Insurance Assignment, properly executed by the
beneficiary and owner thereof, and the Life Insurance Policy, each in form
and substance satisfactory to the Lender, together with such evidence as
the Lender may request that the Life Insurance Policy is subject to no
assignments or encumbrances other than the Life Insurance Assignment.
(n) An Intercreditor Agreement by and between the Lender and Norwest
Minnesota.
(o) Such other loan documents as the Lender may reasonably require,
and such financial records and information as the Lender may require in its
sole discretion.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender will not
consider any request for an Advance unless on such date:
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(a) the representations and warranties contained in Article V and the
Disclosure are correct on and as of the date of such Advance as though made
on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from
such Advance which constitutes a Default or an Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 NAME; LOCATIONS; TAX ID NO.; SUBSIDIARIES. During its
existence, the Borrower has done business solely under its corporate name as set
forth herein and under such trade names and such other corporate names as
disclosed to Lender in writing before this Agreement is signed and delivered.
The address of Borrower's chief executive office and principal place of business
and its federal tax identification number are set forth below its signature to
this Agreement. All Inventory is located at that location or at one of the other
locations disclosed to Lender in writing before this Agreement is signed and
delivered. The Borrower has no subsidiaries except as disclosed to Lender in
writing before this Agreement is signed and delivered.
Section 5.2 FINANCIAL CONDITION; NO ADVERSE CHANGE. Before this
Agreement was signed and delivered, the Borrower furnished the Lender its
audited financial statements for its fiscal year ended August 31, 1996 and its
unaudited financial statements for the fiscal year to date ending April 30,
1997, each certified by the Borrower. Those statements fairly present the
Borrower's financial condition as of the dates indicated therein and the results
of its operations for the periods then ended and were prepared in accordance
with GAAP. Since the date of the most recent financial statements, there has
been no material adverse change in the business, properties or condition
(financial or otherwise) of the Borrower.
ARTICLE VI
COVENANTS OF THE BORROWER
So long as the Advances or any amount owing to Lender hereunder shall
remain unpaid, the Borrower will comply with the requirements in this Article,
unless the Lender shall otherwise consent in writing.
Section 6.1 REPORTING REQUIREMENTS. The Borrower will deliver to the
Lender each of the following in form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrower, the Borrower's audited financial
statements prepared in accordance with GAAP; together with (i) copies of
all management letters prepared
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by such accountants; (ii) a report signed by such accountants stating
that in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Default or
Event of Default hereunder and all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Section 6.7 and (iii) a
certificate of the Borrower's chief financial officer stating that such
financial statements have been prepared in accordance with GAAP, that
they fairly present the Borrower's financial condition and the results of
its operations, and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder and, if so,
stating in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days after the
end of each month, an unaudited/internal balance sheet and statement of
income and retained earnings of the Borrower as at the end of and for such
month and for the year to date period then ended, prepared in accordance
with GAAP, subject to year-end audit adjustments, PROVIDED, HOWEVER, that
during any month which is the end of a fiscal quarter of the Borrower, the
financial statements submitted within 20 days after the end of the month
shall be considered preliminary and the Borrower shall deliver its final,
completed financial statements, as filed in the Borrower's 10-QSB, within
45 days after the end of such month; and accompanied by a certificate of
the Borrower's chief financial officer, substantially in the form of
Exhibit B hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments and
fairly represent the Borrower's financial condition and the results of its
operations, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the facts
with respect thereto, and (iii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Section 6.7;
(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and accounts payable and an accounts
receivable certification of ineligible Accounts as of the end of such
month;
(d) as soon as available and in any event within 15 days of receipt,
a copy of the checking account statement of the Borrower as of the last day
of each month from each bank with which Borrower maintains a checking
account, such statements to be provided to the Lender directly by each such
bank or by the Borrower with respect to a bank that is unwilling to send
them to the Lender;
(e) as soon as available and in any event prior to the end of each
fiscal year of the Borrower, the projected balance sheets and income
statements for each quarter of the next fiscal year, each in reasonable
detail, representing the Borrower's good faith projections and certified by
the Borrower's chief financial officer as being the
-13-
most accurate projections available at the time of submission and identical
to the projections used by the Borrower for internal planning purposes,
together with such supporting schedules and information as the Lender may
in its discretion require;
(f) as soon as available and in any event within three (3) days after
they are due, copies of tax payments due and paid and written notice of any
and all taxes due but not paid;
(g) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports, records
or information as the Lender may request.
Section 6.2 INSPECTION. Upon the Lender's request, the Borrower will
permit any officer, employee, attorney, agent or accountant for the Lender to
audit, review, make extracts from or copy any and all records of the Borrower
and to inspect the Collateral at all times during ordinary business hours.
Section 6.3 ACCOUNT VERIFICATION. The Lender may at any time and from
time to time send, or request the Borrower to send, requests for verification of
Accounts or notices of assignment to account debtors and other obligors. The
Borrower authorizes the Lender to verify Accounts as frequently as daily and the
Borrower understands the Lender intends to do so by telephone and/or in writing.
Section 6.4 NO OTHER LIENS. The Borrower will keep all Collateral
free and clear of all security interests, liens and encumbrances except the
Security Interest, purchase money security interests in equipment, the Permitted
Liens and other security interests approved by the Lender in writing.
Section 6.5 INSURANCE. The Borrower will at all times keep all
tangible Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request, with
a lender's loss payable clause in favor of Lender to the extent of its interest.
Section 6.6 LOCKBOX; COLLATERAL ACCOUNT. The Borrower has provided
the Lender with agreements regarding a lockbox and a collateral account in
connection with the collection of Accounts. The Lender hereby agrees to waive
any Event of Default which arises solely as a result of the Lender's failure to
apply readily available funds in the Borrower's collateral account to the
Obligations pursuant to the terms of this Agreement or the collateral account
agreement.
Section 6.7 MINIMUM BOOK NET WORTH. The Borrower will maintain its
Book Net Worth, determined as at the end of each month, at an amount not less
than $1,310,000.
-14-
On or before September 30, 1997, the Lender shall establish acceptable covenant
levels for this Section based upon the Borrower's projections for such periods.
The Lender shall negotiate in good faith with the Borrower to establish such
covenant levels, provided that (i) in no event shall such covenant levels be
less stringent than the present levels and (ii) if for any reason the Borrower
and the Lender do not enter into legally binding documentation establishing such
covenants at levels acceptable to the Lender in its reasonable discretion on or
prior to September 30, 1997 such failure shall constitute an Event of Default
hereunder.
Section 6.8 NO SALE OR TRANSFER OF COLLATERAL AND OTHER ASSETS. The
Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the
stock of any subsidiary, (ii) all or a substantial part of its assets, or
(iii) any Collateral or any interest therein (whether in one transaction or in a
series of transactions) to anyone other than the sale or license of Inventory in
the ordinary course of business.
Section 6.9 PLACE OF BUSINESS; NAME. The Borrower will not change
the location of its chief executive office or principal place of business
from that disclosed pursuant to Section 5.1. The Borrower will not permit any
tangible Collateral to be located in any state or area in which, in the event
of such location, a financing statement covering such Collateral would be
required to be, but has not in fact been, filed in order to perfect the
Security Interest. The Borrower will not change its name.
Section 6.10 KEY PERSON LIFE INSURANCE. The Borrower shall maintain
insurance upon the life of Xxxxxx Xxxxxx, its chief executive officer, with the
death benefit thereunder in an amount not less than $100,000 (the "Life
Insurance Policy"). The right to receive the proceeds of the Life Insurance
Policy shall be assigned to the Lender by the Life Insurance Assignment.
Section 6.11 AUTHORIZED SIGNERS. The secretary or assistant secretary
of the Borrower shall from time to time, upon a change in the persons duly
elected, qualified and acting as the officers or agents of the Borrower,
immediately certify to the Lender the names and signatures of the persons
authorized to sign or to act. The Lender shall be fully protected in relying on
such certificates and on the obligation of the secretary or assistant secretary
immediately to certify to the Lender any change in any facts so certified. The
Lender shall be indemnified and saved harmless by the Borrower from any claims,
demands, expenses, loss or damage resulting from or growing out of honoring or
relying on the signature or other authority (whether or not properly used) of
any officer or person whose name and signature was so certified, or refusing to
honor any signature or authority not so certified.
Section 6.12 REGISTRATION OF PATENTS, COPYRIGHTS, TRADEMARKS, ETC. At
least five (5) days prior to registering, filing or otherwise recording any of
the Borrower's trademarks, tradenames, copyrights or patents in the United
States Patent and Trademark Office, the United States Copyright Office or any
similar federal or state office, the Borrower shall deliver written notice to
the Lender stating the actions being taken and describing the intellectual
property being so registered, filed or recorded. The Borrower hereby agrees
that
-15-
it shall promptly execute all security agreements and financing statements as
the Lender may require with respect to any such trademark, tradename, copyright
or patent being so registered, filed or recorded.
ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 7.1 EVENTS OF DEFAULT. An "Event of Default" as used herein
shall mean any of the following:
(a) Failure to pay the Note when demanded, and in this connection
Borrower hereby waives presentment, notice of dishonor and protest;
(b) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in any Loan Document;
(d) The Life Insurance Policy shall be terminated, by the Borrower or
otherwise; or the Life Insurance Policy shall be scheduled to terminate
within 30 days and the Borrower shall not have delivered a satisfactory
renewal thereof to the Lender; or the Borrower shall fail to pay any
premium on the Life Insurance Policy when due; or the Borrower shall take
any other action that impairs the value of the Life Insurance Policy;
(e) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in the Norwest Bank Credit Agreement.
Section 7.2 RIGHTS AND REMEDIES. As provided in Section 2.3, the
Lender may, at any time and for any reason, refuse to make any requested Advance
or demand payment of the Obligations. In addition, upon the occurrence of an
Event of Default or at any time thereafter, the Lender may exercise any or all
of the following rights and remedies:
(a) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC, including
the right to take possession of Collateral, or any evidence thereof,
proceeding without judicial process or by judicial process (without a prior
hearing or notice thereof, which the Borrower hereby expressly waives) and
the right to sell, lease or otherwise dispose of any or all of the
Collateral, and in connection therewith, the Borrower will on demand
assemble the Collateral and make it available to the Lender at a place to
be designated by the Lender which is reasonably convenient to both parties;
(b) The Lender may require the Borrower to, and the Borrower hereby
agrees that it shall register, file or otherwise record any and all of the
Borrower's
-16-
trademarks, tradenames, copyrights and patents in the United States Patent
and Trademark Office, the United States Copyright Office or any similar
state office as the Lender may require. The Lender may also require the
Borrower to, and the Borrower hereby agrees that it shall, promptly execute
all security agreements and financing statements as the Lender may require
with respect to any such trademark, tradename, copyright or patent being so
registered, filed or recorded.
(c) The Lender may exercise any other rights and remedies available
to it by law or agreement.
The remedies provided hereunder are cumulative.
Section 7.3 CERTAIN NOTICES. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required
by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8.1) at least 10
calendar days before the date of intended disposition or other action.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 ADDRESSES FOR NOTICES, ETC. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for hereunder shall be in writing and shall be (i) personally
delivered, (ii) sent by first class United States mail, (iii) sent by overnight
courier of national reputation, or (iv) transmitted by telecopy, in each case
addressed or telecopied to the party to whom notice is being given at its
address or telecopy number as set forth below its signature to this Agreement.
Section 8.2 COSTS AND EXPENSES. The Borrower agrees to pay on demand
all reasonable costs and expenses (including reasonable legal fees) incurred by
the Lender in connection with the Loan Documents and any other document or
agreement related thereto, and the transactions contemplated hereby, including
wire transfer and ACH charges, the cost of credit reports, overadvance fees, the
expense of any auditors (at the rate established from time to time by the Lender
as its audit fees, which fees are currently $62.50 per hour per auditor, plus
out of pocket expenses), and fees and expenses in enforcing this Agreement.
Section 8.3 INDEMNITY. In addition to the payment of expenses
pursuant to Section 8.2, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents
of the foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of
the execution and
-17-
delivery of this Agreement and the other Loan Documents or the making
of the Advances;
(ii) any and all liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) in connection with any investigative,
administrative or judicial proceedings, whether or not such Indemnitee
shall be designated a party thereto, which may be imposed on, incurred
by or asserted against any such Indemnitee, in any manner related to
or arising out of or in connection with the making of the Advances,
this Agreement and the other Loan Documents or the use or intended use
of the proceeds of the Advances; and
(iii) any claim, loss or damage to which any Indemnitee may
be subjected as a result of any violation of any federal, state, local
or other governmental statute, regulation, law, or ordinance dealing
with the protection of human health and the environment.
If any investigative, judicial or administrative proceeding arising from any
of the foregoing is brought against any Indemnitee, then the Borrower or
counsel designated by the Borrower and satisfactory to the Indemnitee, will
resist and defend such action, suit or proceeding to the extent and in the
manner directed by the Indemnitee. Each Indemnitee will use its best efforts
to cooperate in the defense of any such action, suit or proceeding. If the
foregoing undertaking to indemnify, defend and hold harmless may be held to
be unenforceable because it violates any law or public policy, the Borrower
shall nevertheless make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law. The Borrower's obligation under this Section 8.3 shall
survive the termination of this Agreement and the discharge of the Borrower's
other obligations hereunder.
Section 8.4 BINDING EFFECT; ASSIGNMENT; COUNTERPARTS; EXCHANGING
INFORMATION. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written consent of the
Lender. This Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Without limiting the Lender's right to share
information regarding the Borrower and its Affiliates with the Lender's
participants, accountants, lawyers and other advisors, the Lender, Norwest
Corporation, and all direct and indirect subsidiaries of Norwest Corporation,
may exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates, and the Borrower waives any right of
confidentiality it may have with respect to such exchange of such information.
-18-
Section 8.5 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL.
This Agreement and the Note shall be governed by and construed in accordance
with the laws (other than conflict laws) of the State of Minnesota. Each party
consents to the personal jurisdiction of the state and federal courts located in
the State of Minnesota in connection with any controversy related to this
Agreement, waives any argument that venue in any such forum is not convenient
and agrees that any litigation initiated by any of them in connection with this
Agreement shall be venued in either the District Court of Hennepin County,
Minnesota located in Minneapolis, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division. THE PARTIES WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the date first above written.
NORWEST BUSINESS CREDIT, INC. NICOLLET PROCESS ENGINEERING, INC
By /s/ Xxxxxx X. Xxxxxxx By /s/ Xxxxxx X. Xxxxxx
-------------------------------- --------------------------------
Xxxxxx X. Xxxxxxx Xxxxxx X. Xxxxxx
Its Assistant Vice President Its President and
Chief Executive Officer
Address: Address:
Norwest Center 000 Xxxxx Xxxxx Xxxxxx
Xxxxx Xxxxxx and Marquette Avenue Suite 1040 Ford Centre
Minneapolis, Minnesota 55479-0152 Xxxxxxxxxxx, Xxxxxxxxx 00000
Telecopy No. 612/341-2472 Telecopy No. (000)000-0000
Federal Tax ID No. 00-0000000 Federal Tax I.D. No. 00-0000000
-19-
Exhibit A to Credit and Security
Agreement
REVOLVING NOTE
$800,000 Minneapolis, Minnesota
May 28, 1997
For value received, the undersigned, NICOLLET PROCESS ENGINEERING,
INC., a Minnesota corporation (the "Borrower"), hereby promises to pay ON DEMAND
to the order of NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the
"Lender"), at its main office in Minneapolis, Minnesota, or at any other place
designated at any time by the holder hereof, in lawful money of the United
States of America and in immediately available funds, the principal sum of Eight
Hundred Thousand Dollars ($800,000) or, if less, the aggregate unpaid principal
amount of all Advances made by the Lender to the Borrower under the Credit and
Security Agreement of even date herewith by and between the Lender and the
Borrower (as the same may hereafter be amended, supplemented or restated from
time to time, the "Credit Agreement") together with interest on the principal
amount hereunder remaining unpaid from time to time (computed on the basis of
actual days elapsed in a 360-day year) from the date of the initial Advance
until this Note is fully paid at the rate from time to time in effect under the
Credit Agreement.
This Note is the Revolving Note as defined in the Credit Agreement and
is subject to the Credit Agreement.
NICOLLET PROCESS ENGINEERING, INC.
By /s/ Xxxxxx X. Xxxxxx
--------------------
Xxxxxx X. Xxxxxx
Its President and Chief Executive
Officer
A-1
Exhibit B to Credit and Security
Agreement
COMPLIANCE CERTIFICATE
To: Xxxxxx Xxxxxxx
Norwest Business Credit, Inc.
Date: , 199
------------------ ---
Subject: Nicollet Process Engineering, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of May
28, 1997 (the "Credit Agreement"), attached are the financial statements of
Nicollet Process Engineering, Inc. (the "Borrower") as of and for
, 19 (the "Reporting Date") and the year-to-date period then
--------------- ---
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition as of the date thereof.
EVENTS OF DEFAULT. (Check one):
/ / The undersigned does not have knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement.
/ / The undersigned has knowledge of the occurrence of a Default or Event
of Default under the Credit Agreement and attached hereto is a
statement of the facts with respect to thereto.
FINANCIAL COVENANTS. I further hereby certify as follows:
1. MINIMUM BOOK NET WORTH. Pursuant to Section 6.7 of the Credit
Agreement, as of the Reporting Date, the Borrower's Book Net Worth was
$ which / / satisfies / / does not satisfy the requirement that
------------
such amount be not less than $1,310,000 on the Reporting Date.
B-1
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
NICOLLET PROCESS ENGINEERING, INC.
By
----------------------------
Its Chief Financial Officer
B-2
Exhibit C to Credit and Security
Agreement
PERMITTED LIENS
Creditor Collateral Jurisdiction Filing Date Filing No.
-------- ---------- ------------ ----------- ----------
Xxxxx X. Windows based die Hennepin 01/26/96 1115197
Xxxxxxxxxx, casting process County
dba LDG monitoring Software
Software commonly called
Solution Process Vision
Xxxxx X. Windows based die State of 01/25/96 1820120
Xxxxxxxxxx, casting process Minnesota
dba LDG monitoring Software
Software commonly called
Solution Process Vision
M&I First Telrad Digital KeyBX Hennepin 07/11/94 1102543
National 128 Telephone System County
Leasing Corp. more particularly
described on Schedule
A [of the UCC-1] and
made a part [t]hereof.
M&I First Telrad Digital KeyBX State of 07/11/94 1687425
National 128 Telephone System Minnesota
Leasing Corp. more particularly
described on Schedule
A [of the UCC-1] and
made a part [t]hereof.
C-1
