EXHIBIT 10
SECOND AMENDMENT TO CREDIT AGREEMENT
This Amendment, dated as of December 31, 2000, is made by and
among INNOVEX, INC., a Minnesota corporation (the "Borrower"), each of the banks
appearing on the signature pages hereof, together with such other banks as may
from time to time become a party to the Credit Agreement (defined below)
pursuant to the terms and conditions of Article VIII of the Credit Agreement
(herein collectively called the "Banks" and individually each called a "Bank"),
and XXXXX FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, formerly known as Norwest
Bank Minnesota, National Association, a national banking association, in its
separate capacity as administrative agent for itself and all other Banks (in
such capacity, the "Agent").
Recitals
--------
A. The Borrower, the Banks and the Agent have entered into a
Credit Agreement dated as of September 15, 1999 and a First Amendment to Credit
Agreement dated as of June 29, 2000 (as amended or restated from time to time,
the "Credit Agreement").
B. The Borrower has requested that the Banks and the Agent,
among other things, amend certain financial covenants of the Credit Agreement
and provide other accommodations.
C. The Borrower has represented to the Banks that it is
undertaking an effort to secure additional financing from foreign financial
institutions. The Borrower has further represented it intends to offer, as
collateral for this financing, its real and personal property assets located in
the country of Thailand. Among other things, this Amendment provides for a
Revolving Facility with a Borrowing Base which includes foreign Accounts and
Inventory. The Banks agree to negotiate in good faith with the Borrower to
facilitate the Borrower's securing the foreign financing. By this Amendment, the
Banks are not agreeing to any specific proposals, terms or conditions regarding
the foreign financing.
D. The Banks and the Agent are willing to grant the Borrower's
requests subject to the terms and conditions set forth below.
Agreement
---------
ACCORDINGLY, in consideration of the premises and for other
good and valuable consideration, the Borrower, the Banks and the Agent agree as
follows:
1. All capitalized terms used in this Amendment and not
otherwise specifically defined in this Amendment shall have the meanings given
such terms in the Credit Agreement.
2. Section 1.1 of the Credit Agreement is hereby amended by
adding the following new definitions or restating the existing definition, as
the case may be, in the appropriate alphabetical location:
"Accounts" has the meaning given in the Security Agreement.
"Borrowing Base" means, at any time and subject to change from
time to time in the Banks' reasonable discretion, the lesser of:
Page 13 of 21
(a) the Revolving Commitment Amount or
(b) the sum of:
(i) 80% of Eligible Accounts, plus
(ii) 70% of Eligible Foreign Accounts, plus
(iii) 50% of Eligible Inventory.
"Borrowing Base Certificate" means a certificate in the form
attached hereto as Exhibit A.
"Eligible Accounts" means all unpaid Accounts of the Borrower,
Innovex Precision Components, Inc., Innovex Southwest, Inc. and Innovex
Thailand, Ltd., net of any credits, except the following shall not in any event
be deemed Eligible Accounts:
(i) That portion of Accounts unpaid 90 days or more after
the invoice date;
(ii) That portion of Accounts that is 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 that portion
of Accounts owed by such units of government for
which the Borrower has provided evidence satisfactory
to the Banks that (A) the Banks have a first priority
perfected security interest and (B) such Accounts may
be enforced by the Banks directly against such unit
of government under all applicable laws);
(v) Accounts owed by an account debtor located outside
the United States which are not (A) backed by a bank
letter of credit naming the Banks as beneficiary or
assigned to the Banks, in the Agent's possession and
acceptable to the Banks in all respects, in their
sole discretion, (B) covered by a foreign receivables
insurance policy acceptable to the Banks in their
sole discretion;
(vi) Accounts owed by an account debtor that is insolvent,
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 the Banks' favor or which are subject to
any lien, security interest or claim in favor of any
Person other than the Banks including without
limitation any payment or performance bond;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or
sales or excise taxes;
(xi) That portion of Accounts owed by any one Account
debtor that would cause the total of such Account
debtor's Accounts to exceed 25% of the total Accounts
of the Borrower, Innovex Precision Components, Inc.,
Innovex Southwest, Inc. and Innovex Thailand, Ltd.,
excepting Accounts owed by Seagate Technology, Inc.
and its Subsidiaries and Affiliates which may
constitute up to 65% of the total Accounts of the
Borrower, Innovex Precision Components, Inc., Innovex
Southwest, Inc. and Innovex Thailand, Ltd.;
Page 14 of 21
(xii) 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
(xiii) Accounts, or portions thereof, otherwise deemed
ineligible by the Banks in their reasonable
discretion.
"Eligible Foreign Accounts" means Accounts of the Borrower, Innovex
Precision Components, Inc., Innovex Southwest, Inc. and Innovex Thailand, Ltd.,
due and owing by an Account debtor located outside the United States; but
excluding any Accounts having the following characteristics:
(i) (A) That portion of Accounts (other than dated
Accounts) unpaid 90 days or more after the invoice
date, (B) that portion of dated Accounts unpaid more
than 60 days after the stated due date, and (C) that
portion of Accounts that do not provide for payment
in full within 180 days after the shipment date;
(ii) That portion of Accounts that is 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;
(v) Accounts owed by an account debtor that is insolvent,
the subject of bankruptcy or similar proceedings or
has gone out of business;
(vi) Accounts owed by a shareholder, Subsidiary,
Affiliate, officer or employee of the Borrower;
(vii) Accounts of the Borrower, Innovex Precision
Components, Inc. and Innovex Southwest, Inc. (but not
Innovex Thailand, Ltd.) not subject to a duly
perfected security interest in the Banks' favor or
Accounts of the Borrower, Innovex Precision
Components, Inc., Innovex Southwest, Inc. and Innovex
Thailand, Ltd. which are subject to any lien,
security interest or claim in favor of any Person
other than the Banks including without limitation any
payment or performance bond;
(viii) That portion of Accounts that has been restructured,
extended, amended or modified;
(ix) That portion of Accounts that constitutes
advertising, finance charges, service charges or
sales or excise taxes;
(x) That portion of Accounts owed by any one Account
debtor that would cause the total of such Account
debtor's Accounts to exceed 25% of the total Accounts
of the Borrower, Innovex Precision Components, Inc.,
Innovex Southwest, Inc. and Innovex Thailand, Ltd.,
excepting Accounts owed by Seagate Technology, Inc.
and its Subsidiaries and Affiliates which may
constitute up to 65% of the total Accounts of the
Borrower, Innovex Precision Components, Inc., Innovex
Southwest, Inc. and Innovex Thailand, Ltd.;
(xi) Accounts denominated in any currency other than
United States dollars, Canadian dollars, French
francs, Swiss francs, German marks, Japanese yen,
United Kingdom pounds sterling or Thai Baht;
(xii) Accounts owed by debtors located in countries not
acceptable to the Banks in their reasonable
discretion;
(xiii) 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 (viii) above;
and
(xiv) Accounts otherwise deemed unacceptable to the Banks
in their reasonable discretion.
"Eligible Inventory" means all Inventory of the Borrower, at the lower
of cost or market value as determined in accordance with GAAP; provided,
however, that the following shall not in any event be deemed Eligible Inventory:
Page 15 of 21
(i) Inventory that is: in-transit; located at any
warehouse, job site or other premises not approved by
the Banks in writing; located outside of the states,
or localities, as applicable, in which the Banks have
filed financing statements to perfect a first
priority security interest in such Inventory (except
Inventory located on premises owned or controlled by
the Borrower, a Subsidiary or an Affiliate in
Thailand, which Inventory shall be deemed Eligible
Inventory); covered by any negotiable or
non-negotiable warehouse receipt, xxxx of lading or
other document of title; on consignment from any
Person; on consignment to any Person or subject to
any bailment unless such consignee or bailee has
executed an agreement with the Banks;
(ii) Supplies, packaging, parts or sample Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow moving or
not currently saleable in the normal course of the
Borrower's operations;
(v) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning
or intends to return to the vendor thereof;
(vi) Inventory that is perishable or live;
(vii) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licensor has agreed in
writing to permit the Banks to exercise their rights
and remedies against such Inventory;
(viii) Inventory classified as "deferred product variance";
(ix) Inventory that is subject to a security interest in
favor of any Person other than the Banks; and
(x) Inventory otherwise deemed ineligible by the Banks in
their reasonable discretion.
"Innovex Mortgage" means the Combination Mortgage, Security
Agreement and Fixture Financing Statement, together with the Assignment
of Rents and Leases, each dated as of December 31, 2000, by and among
the Borrower and the Banks and the Agent, covering certain real
property and fixtures owned by the Borrower and located in the City of
Litchfield, State of Minnesota, as more fully described therein.
"Inventory" has the meaning given in the Security Agreement.
"Margin" means, with respect to computation of the applicable
interest rate on Fundings under a Facility, without regard to the
Borrower's Leverage Ratio and status, commencing January 1, 2001, for
Floating Rate Advances One and one-half percent (1.5%) and for
Eurodollar Rate Advances Three and one-quarter percent (3.25%).
"Mortgages" means the Innovex Mortgage and the Precision
Mortgage.
"Precision Mortgage" mean the Combination Mortgage, Security
Agreement and Fixture Financing Statement, together with the Assignment
of Rents and Leases, each dated as of December 31, 2000, by and among
Innovex Precision Components and the Banks and the Agent, covering
certain real property and fixtures owned by Innovex Precision
Components and located in the City of Maple Plain, State of Minnesota,
as more fully described therein.
"Security Documents" means the Security Agreement, the
Mortgages, the Stock Pledge Agreement(s) and the Guarantor Security
Documents, all as amended from time to time, and each and every
additional agreement entered into by the Borrower and/or any Guarantor
for the benefit of the Banks to secure payment of the Obligations.
"Second Amendment" means the Second Amendment to Credit
Agreement, dated as of December 31, 2000, by and among the Borrower,
the Banks and the Agent.
Page 16 of 21
"Stock Pledge Agreement" means each and all of the Stock
Pledge Agreements dated as of December 31, 2000, by and among the
Borrower and certain of its Subsidiaries, the Banks and the Agent, as
well as any additional Stock Pledge Agreements which the Banks, in
their sole discretion, require the Borrower or its Subsidiaries to
execute and deliver, together with all certificates or instruments
evidencing the Subsidiary Stock.
"Subsidiary Stock" has the meaning set forth in Section 7 of
this Second Amendment.
3. Section 2.1 of the Credit Agreement is hereby amended in
its entirety to read as follows:
"Section 2.1. Commitment as to Revolving Facility. Each
Bank hereby agrees, on the terms and subject to the conditions herein
set forth, to make Revolving Advances to the Borrower from time to time
during the period from the date hereof to and including the Revolving
Commitment Termination Date, in an aggregate amount at any time
outstanding not to exceed such Bank's Percentage of each Borrowing from
time to time requested by the Borrower under the Revolving Facility;
provided, however, that (a) the Revolving Facility Outstanding Amount
shall at no time exceed the Borrowing Base and (b) no Bank's Percentage
of the Revolving Facility Outstanding Amount shall at any time exceed
such Bank's Revolving Commitment. In the event, and whenever, the
Revolving Facility Outstanding Amount exceeds the Borrowing Base, the
Borrower shall pay the difference to the Banks (in amounts equal to
each Bank's Percentage) within one (1) Business Day. Within the above
limits, the Borrower may obtain Revolving Advances, shall prepay
Revolving Advances in accordance with the terms hereof and may reborrow
Revolving Advances in accordance with the applicable terms and
conditions of this Article II."
4. The parties agree that the Borrower shall no longer be entitled to
request Eurodollar Advances under the Revolving Facility. From and
after the date of this Amendment, each Borrowing under the Revolving
Facility shall be funded by the Banks as Floating Rate Advances. All
Eurodollar Funding under the Revolving Facility existing at December
31, 2000 shall automatically convert to Floating Rate Funding at the
expiration of the applicable Interest Period as provided in Section 2.5
of the Credit Agreement. The references in Sections 2.3, 2.4, 2.5, 2.6,
2.7, 2.9, 2.10, 2.14, 2.17, 2.18, 2.19 and 2.20 to Eurodollar Advances,
Eurodollar Funding and Eurodollar Rate, as the case may be, shall be
effective only as to the Eurodollar Funding outstanding under the
Revolving Facility at December 31, 2000 and to Eurodollar Funding under
the Term Facility.
5. To further secure the Obligations, the Borrower shall grant to the
Banks a mortgage on its real property located in the City of Litchfield in the
principal amount of $11,500,000.00, and cause Innovex Precision Components to
execute and deliver a mortgage to the Banks on its real property located in the
City of Maple Plain in the same principal amount as additional security. The
Borrower shall pay all costs associated with the Mortgages, including but not
limited to all recording fees, taxes, attorneys' fees and title insurance
premiums.
6. The Borrower has filed a tax return with the Internal Revenue
Service seeking a refund in the approximate amount of $3,600,000.00 (the "Tax
Refund"). The Borrower hereby assigns all of its rights to receive the Tax
Refund to the Banks and agrees to execute and deliver such documents and
instruments as the Agent may require to give notice of, and perfect, such
assignment with the Internal Revenue Service and the United States Treasury,
including but not limited to IRS Form 8302. The Tax Refund shall be applied to
pay down the Revolving Facility, but such pay down shall not reduce the
Revolving Commitment Amount.
7. The Borrower has various operating Subsidiaries in which it owns or
controls a majority of the outstanding equity, membership interests or shares of
capital stock, located both within and outside of the United States and which,
in turn, own or control a majority of the outstanding equity,
Page 17 of 21
membership interests or shares of capital stock of additional Subsidiaries,
located outside of the United States (collectively, the "Subsidiary Stock"). To
further secure the Obligations, the Borrower agrees to pledge, or cause its
Subsidiaries to pledge, as the case may be, the Subsidiary Stock to the Banks.
The Borrower and the appropriate Subsidiaries shall promptly execute and deliver
a Stock Pledge Agreement with respect to each such Subsidiary to the Agent,
together with all certificates or instruments evidencing the Subsidiary Stock.
To the extent an operating Subsidiary is the holder of Subsidiary Stock and is
not a Guarantor, such Subsidiary shall promptly execute and deliver to the Agent
a Guaranty in the same form and substance as the Guaranties previously given to
the Banks by the Guarantors.
8. The requirement of Section 5.9 regarding the Borrower's Minimum
Interest Coverage Ratio as of December 31, 2000 is waived by Banks, provided,
however, that such Minimum Interest Coverage Ratio is not less than 0.75 to 1.00
as of December 31, 2000. Such waiver is limited to the December 31, 2000
Covenant Computation Date and shall be ineffective if the Minimum Interest
Coverage Ratio is less than 0.75 to 1.00.
9. The requirement of Section 5.12 regarding the Borrower's
profitability is waived by the Banks for the fiscal quarter ending December 31,
2000, but only for such quarter.
10. Section 3.2 of the Credit Agreement is hereby amended by striking
the word "and" at the end of Section 3.2(a), replacing the period (".") at the
end of Section 3.2(b) with a semi-colon (";") and adding the following
subsections:
"(c) the Agent shall have received, in form and substance
satisfactory to the Agent, the Second Amendment, the Mortgages, Stock
Pledge Agreements and any documents or instruments requested by the
Agent with respect to the Tax Refund; and
(d) a current Borrowing Base Certificate evidencing an ability
to borrow under the terms of Section 2.1 of this Credit Agreement."
11. Section 5.1 of the Credit Agreement is hereby amended by striking
the word "and" at the end of Section 5.1(j), replacing the period (".") at the
end of Section 5.1(k) with a semi-colon (";") and adding the following
subsection:
"(l) within ten (10) Business Days after the end of each
month, a Borrowing Base Certificate dated as of the last business day
of such prior month, fully completed and certified by the Chief
Financial Officer of the Borrower."
12. On or before January 30, 2001, the Borrower shall retain a business
consultant acceptable to the Banks to review the Borrower's business plan for
fiscal year 2001. The business consultant shall prepare and deliver a written
evaluation of the business plan to the Borrower and the Banks by no later than
February 28, 2001. Notwithstanding any confidentiality agreement to which the
business consultant may be bound with respect to the Borrower, the Borrower
consents to the delivery of any and all information and opinions arising from or
related to such review by the business consultant to the Banks.
13. This Amendment shall not be or become effective unless and until
the Agent shall have received each of the following items in form and substance
acceptable to the Agent:
(a) This Amendment, duly executed by the Agent, the Banks and
the Borrower, and duly acknowledged by the Guarantors;
(b) A certified copy of the resolutions of the Board of
Directors of the Borrower evidencing that the officers of the Borrower
have authority to enter into this Amendment and the transactions
contemplated by this Amendment (which resolutions may, at the option of
the
Page 18 of 21
Agent, be in the form of ratifying resolutions and be delivered to the
Agent following the effectiveness of this Amendment);
(c) An opinion of counsel to the Borrower and the Guarantors
in form and content acceptable to the Agent;
(d) Payment of all legal fees incurred by the Agent through
the date of this Amendment; and
(e) Such other items as the Agent may require.
14. Except as amended by this Amendment, all of the terms and
conditions of the Credit Agreement and the other Loan Documents shall remain in
all other respects in full force and effect.
15. This Amendment may be executed in any number of counterparts, each
of which shall be deemed to be an original and all of which counterparts taken
together shall constitute but one and the same instrument.
16. The Borrower and each Guarantor, by signing its respective
Acknowledgment and Agreement set forth below, each hereby absolutely and
unconditionally releases and forever discharges the Agent and each of the Banks,
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 (the "Released Parties"), 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 or such Guarantor has had, now has or has
made claim to have against such Released Party 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 in connection with or related to the
transactions evidenced by the Loan Documents, whether such claims, demands and
causes of action are mature or unmatured or known or unknown.
17. The execution of this Amendment shall not be deemed to be a waiver
of any Event of Default under the Credit Agreement, whether or not known to the
Agent and/or the Banks and whether or not existing on the date of this
Amendment.
18. The Borrower hereby represents and warrants to the Agent and the
Banks as follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and to perform all of its obligations under the
Credit Agreement, as amended by this Amendment, and the Credit
Agreement, as amended by this Amendment, and the other Loan Documents
executed on behalf of the Borrower have been duly executed and
delivered by the Borrower and constitute the legal, valid and binding
obligations of the Borrower, enforceable in accordance with their
respective terms.
(b) The execution, delivery and performance by the Borrower of
the Credit Agreement, as amended by this Amendment, and the other Loan
Documents executed on behalf of the Borrower 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
Page 19 of 21
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 IV 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.
19. References. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended by this
Amendment; and any and all references in any of the other Loan Documents to the
"Credit Agreement" shall be deemed to refer to the Credit Agreement as amended
by this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized as of the
date first above written.
INNOVEX, INC.
By
Its
WELLSFARGO BANK MINNESOTA,
NATIONAL ASSOCIATION,
formerly known as
Norwest Bank
Minnesota, National
Association, as Bank
and as Agent
By
Its
U.S. BANK NATIONAL ASSOCIATION,
as Bank
By
Its
Page 20 of 21
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
The undersigned, each a guarantor of all debts, liabilities
and other obligations of Innovex, Inc., a Minnesota corporation (the "Borrower")
to the Banks (as defined in the foregoing Amendment) and the Agent (as defined
in the foregoing Amendment) under the Credit Agreement (as defined in the
foregoing Amendment) and related Loan Documents (as defined in the foregoing
Amendment) pursuant to a separate Guaranty each dated as of September 15, 1999
(each, a "Guaranty") secured by a separate Security Agreement each dated as of
September 15, 1999 (each, a "Guarantor Security Agreement"), hereby (a)
acknowledges receipt of the foregoing Amendment; (b) consents to the terms of
the foregoing Amendment (including, without limitation, the release set forth in
paragraph 26 of the foregoing Amendment) and execution of the foregoing
Amendment by the Borrower; (c) reaffirms its obligations to the Agent and the
Banks pursuant to the terms of its Guaranty, its Guarantor Security Agreement
and any other Loan Documents to which it is a party; and (d) acknowledges that
the Agent and the Banks may amend, restate, extend, renew, or otherwise modify
the Credit Agreement or any other Loan Document or any indebtedness or agreement
of the Borrower in favor of the Agent and/or the Banks, or enter into any
agreement or extend additional or other credit accommodations to the Borrower,
without notifying or obtaining the consent of the undersigned and without
impairing the liability of the undersigned under its Guaranty, its Guarantor
Security Agreement and any other Loan Documents to which it is a party.
INNOVEX PRECISION COMPONENTS, INC.
By
Its
INNOVEX SOUTHWEST, INC.
By
Its
Page 21 of 21