EXHIBIT 10.21
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
Dated as of April 16, 1998
RSI SYSTEMS, 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 or lease 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 Amended and Restated 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 the common stockholders'
equity of the Borrower, determined in accordance with GAAP, but excluding
any capital stock (including the conversion of debt to equity) for which
the Borrower has not received readily available funds on approximately the
same day such capital stock was issued.
"Borrowing Base" means the lesser of:
(a) the Maximum Line less the Norwest Bank Revolving Advances;
or
(b) the sum of:
(i) the lesser of (A) 75% of Eligible Accounts,
(ii) 100% of Eligible Certificates of Deposits, plus
(iii) 100% of Eligible Marketable Securities.
"Collateral" has the meaning given in Section 3.1.
"Commitment" means the Lender's commitment to make Advances pursuant
to Article II.
"Control Agreement" means that certain Notice of Pledge and Control
Agreement by and among NISI, the Lender, Norwest Bank and the Borrower of
even date herewith.
"Credit Facility" means the credit facility being made available to
the Borrower by the Lender pursuant to Article II.
"Debt" of any Person means all items of indebtedness or liability
which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that
Person as at the date as of which Debt is to be determined. For purposes
of determining a Person's aggregate Debt at any time, "Debt" shall also
include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under GAAP.
"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 the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"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
[or, if the Lender in its discretion has determined that a
particular dated Account of 120 days or less from invoice date may
be eligible, that portion of such Account which is more than 30 days
past the stated due date];
(ii) That portion of Accounts that are disputed or subject to
a claim of offset or a contra account;
(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
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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 Bank;
(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; and
(xii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Eligible Certificates of Deposit" means those certificates of
deposit (i) issued by a bank acceptable to the Lender in its sole
discretion, and (ii) in which the Lender has a first perfected and senior
security interest, provided, however, that the Lender may deem any or all
of such certificates of deposits ineligible at any time, in its sole
discretion.
"Eligible Marketable Securities" means, in the Lender's sole
discretion, government/agency securities, in the NISI Account, and for
which the Lender has received a Control Agreement executed and
acknowledged by the Borrower and NISI.
"Event of Default" has the meaning specified in Section 7.1.
"Existing Revolving Advances" has the meaning specified in Section
2.1.
"Floating Rate" means an annual rate equal to the sum of the Base
Rate plus the Spread, which Floating Rate shall change when and as the
Base Rate changes.
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"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.
"Loan Documents" means (i) this Agreement, the Note, the Pledge
Agreement and the Control Agreement, each of even date herewith; and (ii)
the Old Security Documents and the Disclosure by the Borrower in favor of
the Lender each dated as of June 26, 1997.
"Maturity Date" means June 26, 1999.
"Maximum Line" means $1,000,000.
"Minimum Interest Charge" has the meaning given in Section 2.3(b).
"NISI" means Norwest Investment Services, Inc., a Minnesota
corporation.
"NISI Account" means account no. 00000000 maintained with NISI.
"Norwest Bank Credit Agreement" means that certain Amended and
Restated Credit Agreement by and between Norwest Bank 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 Bank" means Norwest Bank Minnesota, National Association, a
national banking association.
"Norwest Bank Revolving Advances" means the outstanding principal
balance of the revolving advances as of a given date made by Norwest Bank
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.
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"Old Credit Documents" means that certain Credit and Security
Agreement dated as of June 26, 1997 as amended by the First Amendment to
Credit and Security Agreement dated as of December 31, 1997.
"Old Revolving Note" means the Borrower's revolving promissory note
dated as of June 26, 1997, payable to the order of the Lender in the
original principal amount of $1,000,000.
"Old Security Documents" means the Old Credit Documents, the Patent
and Trademark Security Agreement, and the Collateral Account Agreement and
the Lockbox Agreement, each dated as of June 26, 1997.
"Patent and Trademark Security Agreement" means the Patent and
Trademark Security Agreement by the Borrower in favor of the Lender dated
as of June 26, 1997.
"Permitted Liens" means security interests, liens and encumbrances
acceptable to the Lender in its sole discretion including without
limitation those liens described on Exhibit C.
"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.
"Pledge Agreement" means the Collateral Pledge Agreement by the
Borrower in favor of the Lender and NBCI of even date herewith.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession.
"Revolving Advance" has the meaning given in Section 2.2.
"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 Coverage" means the ratio of the value of the Eligible
Marketable Securities to the outstanding Revolving Advances.
"Security Interest" has the meaning given in Section 3.1.
"Spread" means for each month a percentage based on the number of
days during the month that are a Tier One Period, Tier Two Period or Tier
Three Period as set forth below:
Period Type Spread
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Tier One Period 0%
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Tier Two Period 1.0%
Tier Three Period 4.0%
"Support Agreement" means the Management Support Agreement by Xxxxxx
Lies, dated as of June 26, 1997.
"Tier One Period" means any period during which the Security
Coverage is greater than or equal to one-hundred twenty-five percent
(125%).
"Tier Two Period" means any period during which the Security
Coverage is less than one-hundred twenty-five percent (125%) but greater
than or equal to fifty (50%) and there is Excess Availability of at least
$200,000.
"Tier Three Period" means any period during which the Security
Coverage is less than fifty (50%) or there is Excess Availability of less
than $200,000.
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility pursuant to Section
2.5, or (iii) the date the Lender demands payment of the Obligations after
an Event of Default pursuant to Section 7.1.
"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 Existing Revolving Advances. The Lender has made various
advances to the Borrower (the "Existing Revolving Advances") as evidenced by the
Old Credit Documents. As of April 15, 1998, the outstanding principal balance of
the Existing Revolving Advances was $0. Upon execution and delivery of this
Agreement, the Existing Revolving Advances shall be deemed to be Revolving
Advances made pursuant to Section 2.2 and repayable in accordance with the
Revolving Note. To the extent the Revolving Note evidences the Existing
Revolving Advances, the Revolving Note shall be issued in substitution for and
replacement of but not in payment of the Old Credit Documents.
Section 2.2 Revolving Advances. The Lender agrees, on the terms and
conditions set forth herein, to make advances to the Borrower from time to time
from the date this Agreement is signed and delivered to the Termination Date
(each a "Revolving 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 2.2, the Borrower may request Revolving Advances,
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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 2.3 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), the Borrower, during any Tier Two
Period or Tier Three Period, shall pay to the Lender interest of not less
than (i) $2083.33 per month during a Tier Two Period (prorated for less
than full months), and (ii) $3750 per month during a Tier Three Period
(prorated for less than full months). The Borrower shall pay any
deficiency between (i) such minimum interest charge and (ii) the sum of
the amount of interest otherwise calculated under Sections (a) and (c)
hereof plus the amount of interest paid during the same period under the
Norwest Bank Credit Agreement. Such minimum interest charge deficiency
shall be payable in arrears on the first day of the following month.
(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 2.4 Determination of Tier Periods. Each month, upon receipt
of a report from NISI on the value of the Eligible Marketable Securities, or
sooner at the Lender's sole discretion or (i) if the value of the Eligible
Marketable Securities decreases, or (ii) if the Borrower requests that any
Investment Property be removed from the NISI Account, the Lender shall determine
whether the Borrower is in a Tier One Period, a Tier Two Period or a Tier Three
Period. Such determination shall be applied prospectively.
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Section 2.5 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) 2.00% of the Maximum Line, or
(B) $45,000 less all interest paid since the date hereof, or, if this
Agreement is renewed hereof, since the last Maturity Date; provided,
however, that such prepayment fee shall be waived if such prepayment is
made because of increased cash flow generated from the Borrower's
operations in the normal course of business or refinancing by an affiliate
of the Lender.
Section 2.6 Capital Adequacy; Increased Costs and Reduced Return. If
any Related Lender determines at any time that its Return has been reduced as a
result of any Rule Change, such Related Lender may require the Borrower to pay
it the amount necessary to restore its Return to what it would have been had
there been no Rule Change. The Borrower may terminate the Credit Facility
pursuant to Section 2.5(a) without incurring the prepayment fee set forth in
Section 2.5(b) if the Borrower terminates the Credit Facility within 45 days
after the date the Lender gives notice of the Rule Change. For purposes of this
Section 2.6:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy,
or the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital
in amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) "Return", for any period, means the return as determined by such
Related Lender on the Advances based upon its total capital requirements
and a reasonable attribution formula that takes account of the Capital
Adequacy Rules then in effect. Return may be calculated for each calendar
quarter and for the shorter period between the end of a calendar quarter
and the date of termination in whole of this Agreement.
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(c) "Rule Change" means any change in any Capital Adequacy Rule
occurring after the Closing Date, but the term does not include any
changes in applicable requirements that on the Closing Date are scheduled
to take place under the existing Capital Adequacy Rules or any increases
in the capital that any Related Lender is required to maintain to the
extent that the increases are required due to a regulatory authority's
assessment of the financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to) the Lender,
any parent corporation of the Lender and any assignee of any interest of
the Lender hereunder and any participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.6, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.7 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 2.8 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 2.9 Amendment Fee. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable amendment fee of $10,000, due and
payable upon the execution of this Agreement.
Section 2.10 Unused Line Fee. For the purposes of this Section 2.10
"Credit Exposure" means (i) the Maximum Line, minus (ii) the outstanding
Revolving Advances. The Borrower shall pay to the Lender an unused line fee of
one quarter of one percent (0.25%) of the average daily Credit Exposure during
each calendar quarter, due and payable quarterly in arrears on the first day of
each quarter and on the Termination Date.
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:
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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 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 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
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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 and termination of the
Commitment, or final sale or disposition of all goods constituting
Collateral and delivery of all such goods to purchasers.
(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. Without limiting the generality of the Patent
and Trademark Security Agreement, 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.
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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 Initial Advance. The
Lender's obligation to make the 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) A Certificate of the Secretary of the Borrower certifying as to
(1) the resolutions of the board of directors of the Borrower approving
the execution and delivery of this Amended and Restated Credit and
Security Agreement and the Revolving Note, (2) the fact that the Articles
of Incorporation and Bylaws of the Borrower, which were certified and
delivered to the Lender pursuant to the Certificate of the Borrower's
Secretary dated as of June 26, 1997, continue in full force and effect and
have not been amended or otherwise modified except as set forth in
Certificates previously delivered or the Certificate to be delivered, and
(3) certifying that the officers and agents of the Borrower who have been
certified to the Lender, pursuant to the Certificate of Authority of the
Borrower's Secretary dated as of June 26, 1997, as being authorized to
sign and to act on behalf of the Borrower continue to be so authorized or
setting forth the sample signatures of each of the officers and agents of
the Borrower authorized to execute and deliver this Agreement and all
other documents, agreements and certificates on behalf of the Borrower.
(d) Payment of the fee described in Section 2.9.
(e) The Control Agreement, properly executed by the Borrower and
NISI.
(f) The Pledge Agreement, properly executed by the Borrower.
(g) The First Amendment to Lockbox Service Agreement, properly
executed by the Borrower and Norwest Bank.
(h) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 Conditions Precedent to All Advances. The Lender's
obligation to make each Advance shall be subject to the further conditions
precedent that 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 June 30, 1997 and its
unaudited financial statements for the fiscal year to day ending December 31,
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.
Section 5.3 Legal Agreements. The Old Credit Documents constitute
the legal, valid and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective terms. The Borrower has no
claim, defense or offset to enforcement of the Old Credit Documents.
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.
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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 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 Sections 6.7 and 6.8 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; 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 Sections
6.7 and 6.8;
(c) within five (5) Business Days after the end of each month,
agings of the Borrower's accounts receivable and accounts payable and an
accounts receivable certification as of the end of such month; and
(d) as soon as available and in any event within five (5) Business
Days after the end of each month inventory certifications as at the end of
such month;
(e) during a Tier Two Period, as soon as available and in any event
within two (2) Business Days after the end of each week, a properly
completed Borrowing Base Certificate as at the end of such week, signed by
the Borrower's chief financial officer;
(f) as soon as available and in any event within 15 days of receipt
thereof, a copy of the checking account statement of the Borrower as of
the last day of each
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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;
(g) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected balance sheets and income statements for each
month of such year, each in reasonable detail, representing the Borrower's
good faith projections and certified by the Borrower's chief financial
officer as being the most accurate projections available 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;
(h) 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;
(i) as soon as possible and in any event within three (3) days after
it is due, a copy of the Borrower's rent payment to Phoenix Mutual Life
Insurance Company and written notice of any rent due to Phoenix Mutual
Life Insurance Company but not paid;
(j) at a minimum during any Tier Three Period and at the Lender's
sole discretion, 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, the Permitted Liens, purchase money security interests in
equipment, 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
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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.
Section 6.7 Minimum Tangible Net Worth. The Borrower will maintain
its Tangible Net Worth, determined as at the end of each month, at an amount not
less than $350,000.
Section 6.8 Minimum Book Net Worth. The Borrower will maintain,
during each period described below, its Book Net Worth determined as at the end
of each month, at an amount not less than $2,000,000.
Section 6.9 Renewal of Financial Covenants. On or before December 31
of each year, the Lender shall establish acceptable covenant levels for Sections
6.7 and 6.8 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 (a) in no event shall such covenant levels be less
stringent than the present levels and (b) 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 December 31 of such year, such failure shall constitute an Event of
Default hereunder.
Section 6.10 No Sale or Transfer of Collateral and Other Assets. The
Borrower will not sell, lease, assign, transfer or otherwise dispose of (a) the
stock of any subsidiary, (b) all or a substantial part of its assets, or (c) any
Collateral or any interest therein (whether in one transaction or in a series of
transactions) to anyone other than the sale of Inventory in the ordinary course
of business.
Section 6.11 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 unless the Borrower has delivered written
notice to the Lender at least thirty (30) days prior to such change. 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
unless the Borrower has delivered written notice to the Lender at least thirty
(30) days prior to such name change.
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:
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(a) Failure to pay the Note when due, and in this connection
Borrower hereby waives presentment, notice of dishonor and protest;
(b) A petition shall be filed by or against the Borrower or any
Guarantor under the United States Bankruptcy Code naming the Borrower or
such Guarantor as debtor;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in any Loan Document.
(d) 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. During any Default Period the
Lender may exercise any or all of the following rights and remedies:
(a) The Lender, may by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;
(b) 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;
(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 8.2) at least 10
calendar days before the date of intended disposition or other action.
ARTICLE VIII
Miscellaneous
Section 8.1 Restatement of Old Credit Documents. This Agreement is
executed for the purpose of amending and restating the Old Credit Documents.
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Section 8.2 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 8.3 Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses (including 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. Notwithstanding
the foregoing,
(a) during a Tier One Period, the Borrower shall not have to
reimburse the Lender for collateral fees, costs and expenses; and
(b) during a Tier Two Period, the Borrower shall not have to
reimburse the Lender for collateral fees, costs and expenses to the extent
they exceed $3,000 per year.
Section 8.4 Indemnity. In addition to the payment of expenses
pursuant to Section 8.3, 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 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
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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 8.4 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 8.5 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.
Section 8.6 Waiver of Defaults. The Borrower is in default of
Sections 6.1(b) and 6.1(c) of the Credit Agreement relating to reporting
requirements, (the "Default"). Upon the terms and subject to the conditions set
forth in this Amendment, the Lender hereby waives the Default. This waiver shall
be effective only in this specific instance and for the specific purpose for
which it is given, and this waiver shall not entitle the Borrower to any other
or further waiver in any similar or other circumstances.
Section 8.7 Waiver. The Borrower hereby absolutely and
unconditionally releases and forever discharges the Bank, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Borrower has had, now has or has made claim to have against any such person for
or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date of this Agreement,
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whether such claims, demands and causes of action are matured or unmatured or
known or unknown.
Section 8.8 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. RSI SYSTEMS, INC.
By By
----------------------------------- -----------------------------------
Xxxxx X. Xxxxxxxx Xxxxxx X. Lies
Its Vice President Its President and Chief Executive
Officer
Address: Address:
Norwest Center 0000 Xxxx 00xx Xxxxxx
Sixth Street and Xxxxxxxxx Xxxxxx Xxxxx, Xxxxxxxxx 00000
Xxxxxxxxxxx, Xxxxxxxxx 00000-0000
Telecopy No. 612/341-2472 Telecopy No. (000) 000-0000
Federal Tax ID No. 00-0000000 Federal Tax I.D. No. 00-0000000
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Exhibit A to Credit and Security
Agreement
REVOLVING NOTE
$1,000,000 Minneapolis, Minnesota
April 16, 1998
For value received, the undersigned, RSI SYSTEMS, INC., a Minnesota
corporation (the "Borrower"), hereby promises to pay on the Termination Date
under the Credit Agreement (defined below) 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 One Million Dollars
($1,000,000) or, if less, the aggregate unpaid principal amount of all Advances
made by the Lender to the Borrower under the Amended and Restated 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. To the extent this Note evidences the
Borrower's obligation to pay Existing Revolving Advances, this Note is issued in
substitution for and replacement of but not in payment of the Borrower's
promissory note dated as of June 26, 1997 payable to the order of the Lender in
the original principal amount of $1,000,000.
RSI SYSTEMS, INC.
By
----------------------------------------
Xxxxxx X. Lies
Its President and Chief Executive Officer
Exhibit B to Credit and Security
Agreement
COMPLIANCE CERTIFICATE
To: Xxxxxxx X. Xxxxxxx
Norwest Business Credit, Inc.
Date: __________________, 199___
Subject: RSI Systems, Inc.
Financial Statements
In accordance with our Amended and Restated Credit and Security
Agreement dated as of April 16, 1998 (the "Credit Agreement"), attached are the
financial statements of RSI Systems, 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 Tangible Net Worth. Pursuant to Section 6.7 of the Credit
Agreement, as of the Reporting Date the Borrower's Tangible Net Worth was
$____________ which [ ] satisfies [ ] does not satisfy the requirement
that such amount be not less than $350,000.
2. Minimum Book Net Worth. Pursuant to Section 6.8 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 $2,000,000.
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.
RSI SYSTEMS, INC.
By
----------------------------------------
Its Chief Financial Officer
Exhibit C to Credit and Security
Agreement
PERMITTED LIENS
Creditor Collateral Jurisdiction Filing Date Filing No.
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NONE
