FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Amendment, dated as of November 25, 1998, is made by and among
Xxxxxxxx, Inc., a Minnesota corporation (the "Borrower"), NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association ("Norwest"; in
its separate capacity as administrative agent for the Lenders, the "Agent"), and
each of the financial institutions appearing on the signature pages hereof.
Recitals
The Borrower, the Agent and the Lenders are parties to a Credit and
Security Agreement dated as of June 19, 1998 (the "Credit Agreement").
Capitalized terms used in these recitals and in the preamble have the meanings
given to them in the Credit Agreement unless otherwise specified.
On July 31, 1998, the Borrower paid the Bridge Notes in full and no
Additional Warrants were issued.
The Borrower is presently in default of various financial covenants
and has requested that the Lenders waive such defaults and agree to make certain
amendments to the Credit Agreement. The Agent is willing to grant the Borrower's
requests pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. DEFINED TERMS. Capitalized terms used in this Amendment which
are defined in the Credit Agreement shall have the same meanings as defined
therein, unless otherwise defined herein. In addition, Section 1.1 of the Credit
Agreement is amended by adding or amending, as the case may be, the following
definitions:
"'Borrowing Base' means, at any time, the lesser of:
(a) the aggregate Revolving Facility Amounts of the Lenders, or
(b) subject to change from time to time in the sole discretion of
all the Lenders, the sum of:
(i) eighty-five percent (85%) of Eligible Accounts, plus
(ii) the lesser of $4,000,000 or sixty percent (60%) of Eligible Raw
Materials Inventory, plus
(iii) the lesser of $4,000,000 or fifty percent (50%) of Eligible
Finished Goods Inventory, plus
(iv) the lesser of $2,000,000 or twenty percent (20%) of Eligible
Other Inventory, LESS
(v) $1,000,000."
"'Cash Flow Available for Debt Service' as of a given date means the
sum of (i) Pre-tax Net Income, (ii) Interest Expense, (iii) depreciation
and amortization, (iv) operating lease payments, and (v) Net Equity
Proceeds, LESS (v) Capital Expenditures, for the fiscal year-to-date period
ending on such date."
"'Debt Service' as of a given date means the sum of (i) all payments
of principal on Debt of the Borrower, whether scheduled or unscheduled,
(ii) Interest Expense, (iii) operating lease payments, (iv) cash paid for
restructuring charges or against restructuring reserves, and (v) all
installments of rent under capitalized lease obligations of the Borrower
(determined in accordance with GAAP) incurred during the fiscal year-to-
date period ending on such date."
"'First Amendment' means the First Amendment to Credit and Security
Agreement by and among the Borrower, the Lenders and the Agent dated as of
November 25, 1998."
"'First Amendment Effective Date' means the date all conditions set
forth in Section 8 of the First Amendment are satisfied."
"'Net Equity Proceeds" means the net cash proceeds actually received
by the Borrower from sale of additional common or preferred stock or
convertible instruments in the Borrower on or after the First Amendment
Effective Date.
"'Revolving Floating Rate' means, effective as of November 20, 1998,
an annual rate equal to (i) from November 20, 1998 through the date the
Borrower receives not less than $4,900,000 in Net Equity Proceeds, the sum
of the Base Rate plus one half of one percent (0.5%), and (ii) after such
amount is received, the Base Rate, which rate shall change when and as the
Base Rate changes."
"'Term Floating Rate' means, effective as of November 20, 1998, an
annual rate equal to (i) from November 20, 1998 through the date the
Borrower receives not less than $4,900,000 in Net Equity Proceeds, the sum
of the Base Rate plus one half of one percent (0.5%), and (ii) after such
amount is received, the Base Rate, which rate shall change when and as the
Base Rate changes."
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2. FINANCIAL COVENANTS. Sections 6.17 through 6.21 and Section 7.12
of the Credit Agreement are amended to read as follows and a new Section 6.22 is
added immediately after Section 6.21:
"Section 6.17 RESERVED.
"Section 6.18 MINIMUM CASH FLOW AVAILABLE FOR DEBT SERVICE. The
Borrower will achieve Cash Flow Available for Debt Service, determined as
at the end of each fiscal quarter, at not less than the amount set forth
opposite such quarter:
FISCAL QUARTER ENDING MINIMUM CASH FLOW
ON OR ABOUT AVAILABLE FOR DEBT
SERVICE
11/30/98 $(300,000)
2/28/99 $5,500,000
5/31/99 $10,300,000
8/31/99 $21,100,000
"Section 6.19 MINIMUM DEBT SERVICE COVERAGE RATIO. The Borrower will
maintain its Debt Service Coverage Ratio, determined as at the end of each
quarter, at not less than the ratio set forth opposite such quarter:
FISCAL QUARTER ENDING MINIMUM DEBT SERVICE
ON OR ABOUT COVERAGE RATIO
2/28/99 0.70 to 1.00
8/31/99 1.50 to 1.00
"Section 6.20 MINIMUM PRE-TAX NET INCOME. The Borrower will achieve
Pre-tax Net Income, determined as of the end of each fiscal quarter
described below, of not less than the amount set forth opposite such fiscal
quarter:
FISCAL QUARTER ENDING ON MINIMUM PRE-TAX NET
OR ABOUT INCOME
11/30/98 $(2,710,000)
2/28/99 $(5,050,000)
5/31/99 $(4,985,000)
8/31/99 $(4,210,000)
"Section 6.21 MINIMUM NET WORTH. The Borrower will maintain its Net
Worth, determined as at the end of each fiscal quarter described below, of
not less than the amount set forth opposite such fiscal quarter:
0
XXXXXX XXXXXXX XXXXXX XX MINIMUM NET WORTH
OR ABOUT
11/30/98 $74,200,000
2/28/99 $76,400,000
5/31/99 $76,000,000
8/31/99 $81,300,000
"Section 6.22 NEW COVENANTS. Within 60 days after each fiscal year end
of the Borrower, the Borrower and the Required Banks shall agree on new
covenant levels for Sections 6.18 through 6.21 for periods after such
fiscal year end. The new covenant levels will be based on the Borrower's
projections for such periods and shall be no less stringent than the
present levels.
"Section 7.12 CAPITAL EXPENDITURES. The Borrower will not, and will
not permit any Subsidiary to, expend or contract to expend, in the
aggregate, for Capital Expenditures during each fiscal quarter described
below, amounts in excess of the amount set forth opposite such quarter:
FISCAL QUARTER ENDING CAPITAL EXPENDITURES
ON OR ABOUT
11/30/98 $2,500,000
2/28/99 $2,200,000
5/31/99 $1,400,000
8/31/99 $1,500,000
PROVIDED, HOWEVER, that amounts not expended during any fiscal quarter
listed above (other than the last) may be carried forward and expended
through August 31, 1999."
3. PAYMENTS ON DEBT. The following new Section 7.21 is added to the
Credit Agreement immediately after Section 7.20:
"Section 7.21 PAYMENTS ON DEBT OWED TO THIRD PARTIES. The Borrower
shall not make any payments on Debt owed to Persons other than the Banks
except: (i) regularly scheduled payments of principal and interest pursuant
to the terms of Debt instruments satisfactory to the Agent; and
(ii) prepayments of Debt owed to ReliaStar in the amount of $500,000 on
December 1, 1998, $250,000 on January 1, 1999 and $250,000 on February 1,
1999."
4. EVENTS OF DEFAULT. Section 8.1(q) of the Credit Agreement is
amended to read as follows:
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"(q) Failure of the Borrower to receive Net Equity Proceeds
of at least $4,900,000 by February 28, 1999, and at least $4,900,000
by August 30, 1999."
5. COMPLIANCE CERTIFICATE. Exhibit F to the Credit Agreement is
replaced by Exhibit A to this First Amendment.
6. NO OTHER CHANGES. Except as explicitly amended by this
Amendment, all of the terms and conditions of the Credit Agreement shall remain
in full force and effect and shall apply to any advance or letter of credit
thereunder.
7. WAIVER OF DEFAULTS. The Borrower is in default of the following
provisions of the Credit Agreement as of August 28, 1998 (collectively, the
"Defaults"):
COVENANT REQUIRED ACTUAL
Section 6.18 Cash Flow Available for Debt Not less than $(3,398,000)
Service $(3,403,000)
Section 6.20 Minimum Pre-tax Net Income Not less than $(36,497,000)
$(36,000,000)
Section 6.21 Minimum Net Worth Not less than $78,380,000
$78,533,000
Section 7.12 Capital Expenditures Not more than $5,504,000
$5,170,000
Also, the Borrower has borrowed money from Boeing Capital Corporation in
violation of Section 7.2 of the Credit Agreement and redeemed 623 shares of
Series B Preferred stock held by Southbrook, Inc. in violation of Section 7.5
of the Credit Agreement.
Upon the terms and subject to the conditions set forth in this Amendment, the
Lenders hereby waives the Defaults. 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.
8. CONDITIONS PRECEDENT. This Amendment, and the waiver set
forth in Paragraph 7 hereof, shall be effective when the Lenders shall have
received an executed original hereof, together with each of the following,
each in substance and form acceptable to the Lenders in its sole discretion:
(a) A Certificate of the Secretary of the Borrower certifying as to
(i) the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Amendment, (ii) the fact that the articles
of incorporation and bylaws of the Borrower, which were certified and
delivered to the Lenders pursuant to the
5
Certificate of Authority of the Borrower's secretary or assistant
secretary dated as of June 19, 1998 in connection with the execution and
delivery of the Credit Agreement continue in full force and effect and
have not been amended or otherwise modified except as set forth in the
Certificate to be delivered, and (iii) certifying that the officers and
agents of the Borrower who have been certified to the Lenders, pursuant
to the Certificate of Authority of the Borrower's secretary or assistant
secretary dated as of June 19, 1998, 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 Amendment and all other
documents, agreements and certificates on behalf of the Borrower.
(b) Such other matters as the Lenders may require.
9. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Lenders as follows:
(a) The Borrower has all requisite power and authority to execute
this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and
constitute the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate action and
do not (i) require any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of any
law, rule or regulation or of any order, writ, injunction or decree
presently in effect, having applicability to the Borrower, or the articles
of incorporation or by-laws of the Borrower, or (iii) result in a breach of
or constitute a default under any indenture or loan or credit agreement or
any other agreement, lease or instrument to which the Borrower is a party
or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in Article V
of the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except to the extent that such representations
and warranties relate solely to an earlier date.
10. REFERENCES. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
11. NO OTHER WAIVER. Except as set forth in Paragraph 7 hereof, the
execution of this Amendment and acceptance of any documents related hereto shall
not be
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deemed to be a waiver of any Default or Event of Default under the Credit
Agreement or breach, default or event of default under any Security Document
or other document held by the Lenders, whether or not known to the Lenders
and whether or not existing on the date of this Amendment.
12. RELEASE. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Lenders, 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 Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
13. COSTS AND EXPENSES. The Borrower hereby reaffirms its agreement
under the Credit Agreement to pay or reimburse the Lenders on demand for all
costs and expenses incurred by the Lenders in connection with the Credit
Agreement, the Security Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay all fees and disbursements of counsel to the Lenders
for the services performed by such counsel in connection with the preparation of
this Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lenders may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses.
14. MISCELLANEOUS. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
NORWEST BANK MINNESOTA, XXXXXXXX, INC.
NATIONAL ASSOCIATION, as Agent
By /s/ Xxxxx X. Xxxxxxx By /s/ Xxxx X. XxXxxxx
----------------------------- -----------------------------
Xxxxx X. Xxxxxxx Xxxx X. XxXxxxx
Its Vice President Its Vice President of Finance
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NORWEST BANK MINNESOTA, XXXXXX TRUST AND SAVINGS
NATIONAL ASSOCIATION BANK
By /s/ Xxxxx X. Xxxxxxx By /s/ Xxxxxx Xxxxx
----------------------------- -----------------------------
Xxxxx X. Xxxxxxx Xxxxxx Xxxxx
Its Vice President Its Vice President
NBD BANK THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By /s/ Xxxxxxxxxx X. Xxxxx By /s/ Xxxxxxx Xxxxxx
----------------------------- -----------------------------
Xxxxxxxxxx X. Xxxxx Xxxxxxx Xxxxxx
Its Vice President Its Assistant Vice President
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Exhibit A to First Amendment to
Credit and Security Agreement
COMPLIANCE CERTIFICATE
TO: Xxxxx X. Xxxxxxx
Norwest Bank Minnesota, National Association
DATE: ____________________, 199__
SUBJECT: Financial Statements
Dear Xx. Xxxxxxx:
I am the duly qualified and acting [Vice President of Finance]
[assistant corporate controller] of Xxxxxxxx, Inc. (the "Borrower") and I am
familiar with the financial statements and financial affairs of the Borrower.
I am authorized to execute this Compliance Certificate on behalf of the
Borrower.
Pursuant to Section 6.1 of the Credit and Security Agreement dated
as of June 19, 1998, by and among the Borrower, Norwest Bank Minnesota,
National Association, as agent ("Norwest"; herein in such capacity, together
with any party which may become the successor Agent under such Credit and
Security Agreement, the "Agent"), and each of the financial institutions
which are now or may hereafter become parties to such Credit and Security
Agreement, as amended by the First Amendment to Credit and Security Agreement
dated as of November ___, 1998 (as the same may be further amended,
supplemented or restated from time to time, the "Credit Agreement"), enclosed
are an unaudited balance sheet and statements of income and retained earnings
of the Borrower, as of ___________, 199__ (the "Reporting Date"), and for the
year-to-date period ending on the Reporting Date. All terms used in this
Compliance Certificate shall have the meanings given in the Credit Agreement.
The balance sheet and statements of income and retained earnings
fairly present the financial condition of the Borrower as of the date
thereof. They have been prepared in accordance with GAAP.
I hereby certify to the Lenders as follows:
/ / 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.
I further certify to the Lenders as follows:
1. MINIMUM CASH FLOW AVAILABLE FOR DEBT SERVICE. Pursuant to
Section 6.18, as of the Reporting Date, the Borrower's Cash Flow Available
for Debt Service was $_____________, which / / satisfies / / does not
satisfy the requirement that such amount be no less than
$_____________________ as set forth in the table below:
FISCAL QUARTER ENDING MINIMUM CASH FLOW
ON OR ABOUT AVAILABLE FOR DEBT
SERVICE
11/30/98 $(300,000)
2/28/99 $5,500,000
5/31/99 $10,300,000
8/31/99 $21,100,000
2. MINIMUM DEBT SERVICE COVERAGE RATIO. Pursuant to Section 6.19 of
the Credit Agreement, as of the Reporting Date, the Borrower's Debt Service
Coverage Ratio was _____ to 1.00 which / / satisfies / / does not satisfy
the requirement that such ratio be no less than ______ to 1.00 on the
Reporting Date as set forth in table below:
FISCAL QUARTER ENDING ON OR MINIMUM DEBT SERVICE
ABOUT COVERAGE RATIO
2/28/99 0.70 to 1.00
8/31/99 1.50 to 1.00
3. MINIMUM PRE-TAX NET INCOME. Pursuant to Section 6.20 of the
Credit Agreement, the Borrower's Pre-tax Net Income as of the Reporting
Date, was $____________, which / / satisfies / / does not satisfy the
requirement that such amount be not less than $_____________ during such
period as set forth in table below:
-2-
FISCAL QUARTER ENDING ON MINIMUM PRE-TAX NET INCOME
OR ABOUT
11/30/98 $(2,710,000)
2/28/99 $(5,050,000)
5/31/99 $(4,985,000)
8/31/99 $(4,210,000)
4. MINIMUM BOOK NET WORTH. Pursuant to Section 6.21 of the Credit
Agreement, as of the Reporting Date, the Borrower's Book Net Worth was
$____________, which / / satisfies / / does not satisfy the requirement that the
Borrower's Book Net Worth be not less than $_________________ on the Reporting
Date as set forth below:
FISCAL QUARTER ENDING ON MINIMUM NET WORTH
OR ABOUT
11/30/98 $74,200,000
2/28/99 $76,400,000
5/31/99 $76,000,000
8/31/99 $81,300,000
5. CAPITAL EXPENDITURES. Pursuant to Section 7.12 of the Credit
Agreement, for the fiscal quarter ending on the Reporting Date, the Borrower and
its Subsidiaries have expended or contracted to expend for Capital Expenditures,
$__________________ in the aggregate, which / / satisfies / / does not satisfy
the requirement that such expenditures not exceed $__________ in the aggregate
during such fiscal quarter as set forth below plus $_________________ which was
carried forward from prior fiscal quarters in accordance with Section 7.12.
FISCAL QUARTER ENDING ON CAPITAL EXPENDITURES
OR ABOUT
11/30/98 $2,500,000
2/28/99 $2,200,000
5/31/99 $1,400,000
8/31/99 $1,500,000
-3-
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.
XXXXXXXX, INC.
By
------------------------------
Its [Vice President of Finance] [Assistant
Corporate Controller]
-4-
