EXHIBIT 10.7.1
FIRST AMENDMENT TO FINANCING AGREEMENT
THIS FIRST AMENDMENT TO FINANCING AGREEMENT (this "Amendment"), made
and entered into as of March 16,1998, is by and between RECOVERY ENGINEERING,
INC., a Minnesota corporation (the "Borrower"), and FIRST BANK NATIONAL
ASSOCIATION, a national banking association (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Financing Agreement dated
as of March 31, 1997 the ("Financing Agreement"); and
2. The Borrower desires to amend certain provisions of the Agreement,
and the Lender has agreed to make such amendments, subject to the terms and
conditions set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby covenant
and agree to be bound as follows:
SECTION 1. CAPITALIZED TERMS. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Financing Agreement, unless the context shall otherwise require.
SECTION 2. AMENDMENTS. The Financing Agreement is hereby amended as
follows:
2.1 DEFINITIONS. The definition of "Raw Material Inventory Advance"
contained in Section 1.1 of the Financing Agreement is hereby amended as
follows:
"Raw Material Inventory Advance": As defined in Section 2.1(c)(ii).
Section 1.1 of the Financing Agreement is amended further amended by
adding the definitions of "Cumulative Net profit" thereto in correct
alphabetical order:
"Cumulative Net Profit": The cumulative net profit of the Borrower for
the applicable fiscal year before any deduction for local, state or federal
taxes, in each case determined in accordance with GAAP.
2.2 THE ADVANCES. Section 2.1 of the Financing Agreement is amended in
its entirety as follows:
2.1(a) up to sixty-five percent (65%) of the net amount of Eligible
Accounts which are listed in the Borrower's most current Borrowing Base
Certificate and which are deemed eligible for advances by the Lender, or such
greater or lesser percentage at the Lender's sole and absolute discretion, not
to exceed a maximum amount of $15,000,000 (the "Accounts Advances");
2.1(b) up to fifty percent (50%) of the net amount of Eligible Foreign
Accounts which are listed in the Borrower's most current Borrowing Base
Certificate and which are deemed eligible for advances by the Lender, or such
greater or lesser percentage at the Lender's sole and absolute discretion, not
to exceed a maximum amount of $500,000 (the "Foreign Accounts Advances");
2.1(c)(i) up to forty percent (40%) of the net amount of Eligible
Inventory that consists
of finished goods which is listed in the Borrower's most current Borrowing Base
Certificate and which is deemed eligible for advances by the Lender, or such
greater or lesser percentage at the Lender's sole and absolute discretion not to
exceed a maximum amount of $1,500,000 (the "Finished Goods Inventory Advances");
2.1(c)(ii) up to thirty percent (30%) of the net amount of Eligible
Inventory that consists of raw materials which is listed on the Borrower's most
current Borrowing Base Certificate and which is deemed eligible for advances by
the Lender, or such greater or lesser percentage at the Lender's sole and
absolute discretion not to exceed a maximum amount of $1,500,000 (the "Raw
Materials Inventory Advances"). The Finished Goods Inventory Advances and the
Raw Materials Inventory Advances shall not exceed a maximum of $1,500,00 in the
aggregate.
Notwithstanding the preceding clauses 2.1(a), 2.1(b), 2.1(c) the
maximum aggregate amount advanced against all Eligible Accounts, Eligible
Foreign Accounts and Eligible Inventory from time to time shall not exceed
$15,000,000.
Section 2.1(d) of the Financing Agreement is deleting Section 2.1(d) in
its entirety.
2.1(e) from the date of this Agreement through December 31, 1998, a
maximum amount of $10,000,000, advanced in separate increments not to exceed
$2,000,000, for the purposes of financing or recapturing outstanding capital
expenditures and capital expenditures proposed in the Borrower's 1997 or 1998
fiscal years, and for other working capital expenditures (the "FAR Advances").
Notwithstanding anything to the contrary in this Agreement, in the event Lender,
in its absolute and sole discretion determines that the Advances to the Borrower
exceed the lesser of the percentages or such maximum amount as the Lender may in
its sole discretion determine to make as Advances set forth in the preceding
clauses 2.1(a), 2.1(b), and 2.1(c), Lender may demand and require Borrower to
immediately repay the Advances in such amount to bring the amount of outstanding
Advances within the lesser of the percentages set forth in the preceding clauses
2.1(a), 2.1(b), and 2.1(c) or said maximum amount determined by the Lender.
Loans for additional sums requested by the Borrower may be made at the Lender's
sole discretion based upon the Lender's valuation of the Borrower's collateral
or other factors. The Lender's security interest in all such collateral, and any
other collateral rights, interests and properties which may now or hereafter be
available to the Lender, shall secure and may be applied to the payment of any
and all Advances and other indebtedness secured by the Lender's security
interest, in any order or manner of application and without regard to the method
by which the Lender determines to make Advances hereunder.
2.3 INTEREST RATES AND INTEREST PAYMENTS. Section 2.3 of the Financing
Agreement is amended in its entirety as follows:
2.3(a) Interest shall accrue on the unpaid balance of the Accounts
Advances, the Foreign Account Advances, the Finished Goods Inventory Advances
and the Raw Material Inventory Advances at a floating rate per annum equal to
the sum of the Reference Rate plus 0.75%, (the "Applicable Advance Rate") and
shall be due and payable monthly in arrears on the last day of each calendar
month.
2.3(b) Interest shall accrue on the unpaid balance on the FAR Advances
at a floating rate per annum equal to the sum of the Reference Rate plus 1.25%
(the "Applicable FAR Rate") and shall be due and payable monthly in arrears on
the last day of each calendar month.
2.3(c) Notwithstanding Sections 2.3(a) and 2.3(b) the Applicable
Advance Rate and the Applicable FAR Rate shall be adjusted, based on Borrower's
financial performance, as follows:
(i) in the event that Borrower's Cumulative Net Profit for fiscal year
1998, as of June 30, 1998 (as reported in Borrower's financial statements as of
June 30, 1998, as required by and prepared in accordance with Section 5.1(b) is
at least $291,000, then the Applicable Advance Rate per annum shall be reduced
to the sum of the Reference Rate plus 0.50% and the FAR Rate shall be reduced to
the sum of the Reference Rate plus 1% after the first day of the first calendar
month following the date of Lender's receipt of the June 30, 1998 financial
statement;
(ii) in the event that Borrower's Cumulative Net Profit for fiscal year
1998, as of September 30, 1998 (as reported in Borrower's financial statements
as of September 30, 1998, as required by and prepared in accordance with,
Section 5.1(b) is at least $2,093,000, then the Applicable Advance Rate per
annum shall be reduced to the sum of the Reference Rate plus 0.25% and the FAR
Rate shall be reduced to the sum of the Reference Rate plus 0.75% after the
first day of the first calendar month following the date of Lender's receipt of
the September 30, 1998 financial statement;
(iii) in the event that Borrower's Cumulative Net Profit for fiscal
year 1998, as of December 31, 1998 (as reported in Borrower's financial
statements as of December 31, 1998, as required by and prepared in accordance
with, Section 5.1(b) is at least $4,270,000, then the Applicable Advance Rate
per annum shall be reduced to the Reference Rate and the FAR Rate shall be
reduced to the sum of the Reference Rate plus 0.50% after the first day of the
first calendar month following the date of Lender's receipt of the December 31,
1998 financial statement;
2.3(d) Notwithstanding the foregoing, upon the occurrence and during
the continuance of an Event of Default as defined in the Security Agreement, the
unpaid balance of the Accounts Advances, the Foreign Account Advances, the
Finished Goods Inventory Advances and the Raw Material Inventory Advances shall
thereafter bear interest at a floating rate equal to the sum of (a) the
Applicable Advance Rate, plus (b) 2% and shall be due and payable on demand.
2.3(e) Notwithstanding the foregoing, upon the occurrence and during
the continuance of an Event of Default as defined in the Security Agreement, the
unpaid balance of the FAR Advances shall thereafter bear interest at a floating
rate equal to the sum of (a) the FAR Advance Rate, plus (b) 2% and shall be due
and payable on demand.
2.4 REPAYMENT AND PREPAYMENT. Section 2.4 of the Financing Agreement is
amended in its entirety as follows:
2.4 REPAYMENT AND PREPAYMENT.
UPON THE EARLIER OF (i) TERMINATION OF THIS AGREEMENT PURSUANT TO
ARTICLE VII (ii) ON DEMAND IN ACCORDANCE WITH THE TERMS SET FORTH IN SECTION
21(A) OF THE SECURITY AGREEMENT OR (iii) THE FAILURE OF THE BORROWER TO HAVE
CUMULATIVE NET PROFIT IN THE AMOUNTS AND BY THE DATES SET FORTH IN SECTION
2.3(c)(i), (ii) or (iii), NECESSARY TO ACHIEVE THE ADJUSTMENT OF THE APPLICABLE
FAR RATE AND APPLICABLE ADVANCE RATE SET FORTH IN SECTION 2.3(c)(i), (ii) or
(iii) ALL ADVANCES SHALL BE DUE AND PAYABLE, provided that, if (x) this
Agreement is not sooner terminated, (y) the Borrower achieves the adjustment of
the Applicable FAR Rate and Applicable Advance Rate set forth in Section
2.3(c)(i), (ii) and (iii) or (z) if demand for payment of the FAR Advances is
not sooner made, the outstanding amount of the FAR Advances as shall be reduced
in full in forty-eight (48) equal monthly installments, commencing on the first
day of the first full month following each separate FAR Advance and continuing
on the first day of each month thereafter until such time that the FAR Advances
are paid in full.
2.5 SPECIAL AGREEMENTS REGARDING ACCOUNTS. Section 5.11(a) is amended
by deleting the phrase two (2) Business Days where it appears therein and
replacing it with the phrase one (1) Business Day.
2.6 TERMINATION. Article VII of the Financing Agreement is amended in
its entirety as follows:
This Agreement shall continue in effect until terminated upon not less
than 30 days' prior written notice delivered by manual delivery or certified
mail by either party to the other. Termination shall not impair or affect the
Lender's rights existing as of the time of termination.
In the event that the Borrower gives notice to the Lender of the
termination of this Agreement under Section VII hereof at any time prior to the
third anniversary of the date of this Agreement, the Borrower will pay to the
Lender at the time of such termination a prepayment charge, as additional
compensation for the Lender's costs of entering into this Agreement, in the
amount of (i) $300,000 if the effective date of termination occurs prior to the
first anniversary of the date of this Agreement; (ii) $200,000 if the effective
date of termination occurs after the first anniversary, but prior to the second
anniversary, of the date of this Agreement; and (iii) $100,000 if the effective
date of termination occurs after the second anniversary, but before the fourth
anniversary, of the date of this Agreement, unless the outstanding amount of the
obligations hereunder are refinanced in full by an affiliate of First Bank
System or if termination occurs due to an offering of Borrower's common stock or
through a private placement of Borrower's common stock through an investment
banker. Borrower may prepay the FAR Advances at any time without effecting a
termination, provided, that, amounts prepaid on the FAR Advances after December
30, 1998 may not be reborrowed.
SECTION 3. EFFECTIVENESS OF AMENDMENTS. The amendments contained in
this Amendment shall become effective upon delivery by the Borrower of, and
compliance by the Borrower with, the following: 3.1 This Amendment, duly
executed by the Borrower.
3.2 A copy of the resolutions of the Board of Directors of the Borrower
authorizing the execution, delivery and performance of this Amendment certified
as true and accurate by its Secretary or Assistant Secretary, along with a
certification by such Secretary or Assistant Secretary (i) certifying that there
has been no amendment to the Articles of Incorporation or Bylaws of the Borrower
since true and accurate copies of the same were delivered to the Lender with a
certificate of the Secretary of the Borrower dated March 31, 1997, and (ii)
identifying each officer of the Borrower authorized to execute this Amendment
and any other instrument or agreement executed by the Borrower in connection
with this Amendment, and certifying as to specimens of such officer's signature
and such officer's incumbency in such offices as such officer holds.
3.3 The Borrower shall have satisfied such other conditions as
specified by the Lender or counsel to the Lender, including payment of all
unpaid legal fees and expenses incurred by the Lender through the date of this
Amendment in connection with the Financing Agreement.
SECTION 4. REPRESENTATIONS; ACKNOWLEDGMENTS. The Borrower hereby
represents that on and as of the date hereof and after giving effect to this
Amendment (a) all of the representations and warranties contained in the
Financing Agreement, and in any and all other Loan Documents of the Borrower,
are true, correct and complete in all respects as of the date hereof as though
made on and as of such date, except for changes permitted by the terms of the
Financing Agreement, and (b) the Borrower is in compliance with all covenants
and agreements of the Borrower as set forth in the Financing Agreement and in
any and all other Loan Documents of the Borrower.
The Borrower represents and warrants that the Borrower has the power and legal
right and authority to enter into this Amendment and has duly authorized as
appropriate the execution and delivery of this Amendment and other agreements
and documents executed and delivered by the Borrower in connection herewith or
therewith by proper corporate action. The Borrower acknowledges and agrees that
its obligations to the Lender under the Financing Agreement and exist and are
owing without offset, defense or counterclaim assertable by the Borrower against
the Lender. The Borrower further acknowledges and agrees that its obligations to
the Lender under the Financing Agreement, as amended, constitute "Obligations"
within the meaning of the Security Agreement and are secured by the Security
Agreement, as amended.
SECTION 5. AFFIRMATION, FURTHER REFERENCES. Except as expressly
modified under this Amendment, all of the terms, conditions, provisions,
agreements, requirements, promises, obligations, duties, covenants and
representations of the Borrower under the Financing Agreement, the Security
Agreement, and any and all other Loan Documents entered into with respect to the
obligations under the Financing Agreement are incorporated herein by reference
and are hereby ratified and affirmed in all respects by the Borrower. All
references in the Financing Agreement to "this Agreement," "herein," "hereof,"
and similar references, and all references in the other Loan Documents to the
"Agreement," shall be deemed to refer to the Agreement, as amended by this
Amendment.
SECTION 6. MERGER AND INTEGRATION, SUPERSEDING EFFECT. This Amendment,
from and after the date hereof, embodies the entire agreement and understanding
between the parties hereto and supersedes and has merged into it all prior oral
and written agreements on the same subjects by and between the parties hereto
with the effect that this Amendment, shall control with respect to the specific
subjects hereof and thereof.
SECTION 7. SEVERABILITY. Whenever possible, each provision of this
Amendment and any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto shall be interpreted in such manner as
to be effective, valid and enforceable under the applicable law of any
jurisdiction, but, if any provision of this Amendment or any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto shall be held to be prohibited, invalid or unenforceable under the
applicable law, such provision shall be ineffective in such jurisdiction only to
the extent of such prohibition, invalidity or unenforceability, without
invalidating or rendering unenforceable the remainder of such provision or the
remaining provisions of this Amendment or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto in such
jurisdiction, or affecting the effectiveness, validity or enforceability of such
provision in any other jurisdiction.
SECTION 8. SUCCESSORS. This Amendment shall be binding upon the
Borrower and the Lender and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Lender and the successors and
assigns of the Lender.
SECTION 9. LEGAL EXPENSES. The Borrower agrees to reimburse the Lender,
upon execution of this Amendment, for all reasonable out-of-pocket expenses
(including attorneys' fees and legal expenses of Xxxxxx & Xxxxxxx, counsel for
the Lender) incurred in connection with the Financing Agreement, including in
connection with the negotiation, preparation and execution of this Amendment and
all other documents negotiated, prepared and executed in connection with this
Amendment, and in enforcing the obligations of the Borrower under the Financing
Agreement, as amended by this Amendment, which obligations of the Borrower shall
survive any termination of the Financing Agreement.
SECTION 10. HEADINGS. The headings of various sections of this
Amendment have been inserted for reference only and shall not be deemed to be a
part of this Amendment.
SECTION 11. COUNTERPARTS. This Amendment may be executed in several
counterparts as deemed necessary or convenient, each of which, when so executed,
shall be deemed an original, provided that all such counterparts shall be
regarded as one and the same document, and either party to this Amendment may
execute any such agreement by executing a counterpart of such agreement.
SECTION 12. GOVERNING LAW. The Amendment Documents shall be governed by
the internal laws of the State of Minnesota, without giving effect to conflict
of law principles thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
RECOVERY ENGINEERING, INC.
By /s/ Xxxxx Xxxxxxxxx
Print Name Xxxxx Xxxxxxxxx
Title VP/CFO
Borrower's Address:
0000 Xxxxx 00xx Xxxxxx
Xxxxxxxx Xxxx, XX 00000
FIRST BANK NATIONAL ASSOCIATION
By /s/ Xxxxxxx X. Xxxx
Print Name Xxxxxxx X. Xxxx
Title Officer
Lender's Address:
0000 Xxxxxxx Xxxxxx X.X.
Xxxxxxxxxxx, XX 00000
