CREDIT AGREEMENT
This Credit Agreement (the "Agreement") dated as of January 31, 1996 (the
"Effective Date") is between Norwest Bank Minnesota South, National Association
(the "Bank") and Xxxxxxx Electronics, Incorporated (the "Borrower").
BACKGROUND
The Borrower has asked the Bank to extend to it a $2,000,000.00 conditional
revolving line of credit to be used for purposes of funding increases in
accounts receivable and inventory.
The Revolving Note, this Agreement, and all "Security Agreements" described in
Exhibit B may collectively be referred to as the "Documents."
In consideration of the above premises, the Borrower and the Bank agree as
follows:
1. LINE OF CREDIT
1.1 Line of Credit Amount. During the Line Availability Period defined
below, the Bank agrees to provide a conditional revolving line of
credit (the "Line") to the Borrower. Outstanding amounts under the Line
will not, at any one time, exceed the lesser of the Borrowing Base or
Two Million and 10/100 Dollars ($2,000,000.00). The Borrowing Base is
defined in Exhibit A-1 of this Agreement. This is a conditional
revolving line of credit and each advance under the Line, if made, will
be at the sole discretion of the Bank.
1.2 Line Availability Period. The "Line Availability Period" will mean the
period of time from the Effective Date or the date on which all
conditions precedent described in this Agreement have been met,
whichever is later, to May 31, 1997 (the "Line Expiration Date").
1.3 Advances. The Borrower's obligation to repay advances made under the
Line will be evidenced by a single promissory note (the "Revolving
Note") dated as of the Effective Date and in form and content
acceptable to the Bank. Reference is made to the Revolving Note for
interest rate and repayment terms.
1.4 Mandatory Prepayment. If at any time the principal outstanding under the
Revolving Note exceeds the lesser of the Borrowing Base or $2,000,000.00,
the Borrower must immediately prepay the Revolving Note to eliminate the
excess.
2. EXPENSES
2.1 Documentation Expenses. The Borrower agrees to pay the Bank's
reasonable expenses relating to the preparation of the Documents. The
Borrower also agrees to pay the Bank's expenses relating to any
amendments to the Documents that may be necessary in the future.
Expenses include, but are not limited to, reasonable attorneys' fees,
including the allocated costs of the Bank's in-house counsel.
2.2 Collection Expenses. In the event the Borrower fails to pay the Bank
any amounts due under this Agreement or under the Documents, the
Borrower will pay all costs of collection, including reasonable
attorneys' fees and legal expenses incurred by the Bank.
2.3 Miscellaneous Expense. The Borrower agrees to reimburse the Bank for all
expenses paid to third parties relating to the perfection of its security
interest in collateral pledged to the Bank.
3. DISBURSEMENTS AND PAYMENTS
3.1 Requests for Advances. Any line advance permitted under this Agreement
must be requested by telephone or in a writing delivered to the Bank
(or transmitted via facsimile) by any person reasonably believed by the
Bank to be an authorized officer of the Borrower. The Bank will not
consider any such request if there is an event which is, or with notice
or the lapse of time would be, an event of default under this
Agreement. Proceeds will be deposited into the Borrower's account at
the Bank or disbursed in such other manner as the parties agree.
3.2 Payments. All principal, interest and fees due under the Documents will
be paid to the Bank by the direct debit of available funds on deposit
in the Borrower's account with the Bank. The Bank will debit the
account on the dates the payments become due. If a due date does not
fall on a day on which the Bank is open for substantially all of its
business (a "Banking Day"), the Bank will debit the account on the next
Banking Day and interest will continue to accrue during the extended
period. If there are insufficient funds in the account on the day the
Bank enters any debit authorized by this Agreement, the debit will be
reversed and the payment will be due immediately without necessity of
demand by direct remittance of immediately available funds.
4. SECURITY
All amounts due under this Agreement and the Documents will be secured
as provided in Exhibit B. The Borrower also hereby grants the Bank a
security interest (independent of the Bank's right of set-off) in its
deposit accounts at the Bank nd in any other debt obligations of the
Bank to the Borrower.
5. CONDITIONS PRECEDENT
The Borrower must deliver to the Bank the documents described in
Exhibit B, properly executed and inform and content acceptable to the
Bank, prior to the Bank's initial advance or disbursement under this
Agreement. The Borrower must also deliver to the Bank any additional
documents described in Exhibit B as a condition precedent to subsequent
advances or disbursements under this Agreement.
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6. REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, the Borrower, to the
best of its knowledge and upon due inquiry, makes the representations
and warranties contained in Exhibit C. Each request for an advance
under this Agreement constitutes a reaffirmation of these
representations and warranties.
7. COVENANTS
During the time period that credit is available under this Agreement,
and thereafter until all amounts due under the Documents are paid in
full, unless the Bank shall otherwise agree in writing, the Borrower
agrees to:
7.1 Financial Information
(a) Annual Financial Statements. Provide the Bank within 120 days of the
Borrower's fiscal year end, the Borrower's annual financial statements. The
statements must be audited with an unqualified opinion by a certified
public accountant acceptable to the Bank.
(b) Interim Financial Statements. Provide the Bank within 45 days of each month
end, the Borrower's interim financial statements certified as correct in
form acceptable to the Bank.
(c) Borrowing Base Certificate. Provide the Bank within 30 days of each month
end a Borrowing Base Certificate in the form of Exhibit A-2, certified as
correct by an officer of the Borrower.
(d) Accounts Receivable Aging. Provide the Bank within 45 days of each quarter
end, an accounts receivable aging report in form acceptable to the Bank and
certified as correct by an officer of the Borrower acceptable to the Bank.
(e) Notices of Default. Provide the Bank prompt written notice of: 1) any event
which has or might after the passage of time or the giving of notice, or
both, constitute an event of default under any of the Documents; 2) any
future event that would cause the representations and warranties contained
in this Agreement to be untrue when applied to the Borrower's circumstances
as of the date of such event; 3) its discovery of any unpermitted release,
emission, discharge or disposal of any material of environmental concern;
or 4) its receipt of a claim from any governmental entity or third party
alleging noncompliance with environmental laws applicable to its operations
or properties.
(f) Additional Information. Provide the Bank with such other information as it
may reasonably request, and permit the Bank to visit and inspect its
properties and examine its books and records.
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7.2 Financial Covenants
(a) Tangible Net Worth. Maintain a positive Tangible Net Worth as of the end of
each fiscal year that is no less than the Borrower's Tangible Net Worth as
of fiscal year end 1995.
"Tangible Net Worth" means total assets less total liabilities and less
the following types of assets: (1) leasehold improvements; (2)
receivables and other investments in or amounts due from any
shareholder, director, officer, employee or other person or entity
related to or affiliated with the Borrower; (3) goodwill, patents,
copyrights, mailing lists, trade names, trademarks, servicing rights,
organizational and franchise costs, bond underwriting costs and other
like assets properly classified as intangible.
(b) Total Liabilities to Tangible Net Worth Ratio. Maintain a ratio of total
liabilities to Tangible Net Worth of less than 2.20 to 1.0 as of the end of
each fiscal year.
(c) Net Profit. Achieve a positive after-tax net profit as of each fiscal year
end.
(d) Current Ratio. Maintain a ratio of Current Assets to Current Liabilities of
at least 1.2 to 1.0 as of the end of each fiscal year.
"Current Assets" means current assets less receivables and investments
in or other amounts due from any shareholder, director, officer,
employee or any person or entity related to or affiliated with the
Borrower.
"Current Liabilities" means current liabilities less any portion of
such current liabilities that constitute Subordinated Debt.
(e) Debt Service Coverage Ratio. Maintain a ratio of Traditional Cash Flow
plus interest expense to Current Maturities of Long Term Debt plus
interest expense of at least 1.2 to 1.0 as of the end of each fiscal
year.
"Traditional Cash Flow" means the aggregate amount of the following:
(1) net income after taxes; (2) amortization expense; (3) depreciation
and depletion expense; (4) deferred tax expense and (5) similar
non-cash charges against income which the Bank determines in its
discretion to be appropriate "add-backs."
"Current Maturities of Long Term Debt" means that portion of the
Borrower's long term debt and capital leases payable within 12 months
of the determination date.
7.3 Other Covenants
(a) Additional Borrowing. Refrain from incurring any indebtedness except:
(i) Trade credit incurred in the ordinary course of business.
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(ii) Indebtedness expressly subordinated to the Bank in a writing
acceptable to the Bank.
(iii) Indebtedness in existence on the date of this Agreement and
disclosed in advance to the Bank in writing.
(iv) Purchase money indebtedness (including capitalized leases) for
the acquisition of fixed assets, provided that the total principal
amount outstanding at any one time does not exceed $30,000.00.
(b) Other Liens. Refrain from allowing any security interest or lien on
property it owns now or in the future, except:
(i) Liens in favor of the Bank.
(ii) Liens for taxes not delinquent or which the Borrower is
contesting in good faith.
(iii) Liens outstanding on the date of this Agreement and disclosed in
advance to the Bank in writing.
(iv) Liens which secure purchase money indebtedness allowed under this
Agreement.
(c) Insurance. Cause its properties to be adequately insured by a reputable
insurance company against loss or damage and to carry such other
insurance (including business interruption, flood, or environmental
risk insurance) as is usually carried by persons engaged in the same or
similar business. Such insurance must, with respect to the Bank's
collateral security, include a lender's loss payable endorsement in
favor of and in form acceptable to the Bank.
(d) Nature of Business. Refrain from engaging in any line of business
materially different from that presently engaged in by the Borrower.
(e) Deposit Accounts. Maintain its principal deposit accounts with the Bank.
(f) Merger. Refrain from consolidating, merging, pooling, syndicating or
otherwise combining with any other entity.
(g) Maintenance of Properties. Make all repairs, renewals or replacements
necessary to keep its plant, properties and equipment in good working
condition.
(h) Books and Records. Maintain adequate books and records and refrain from
making any material changes in its accounting procedures whether for tax
purposes or otherwise.
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(i) Compliance with Laws. Comply in all material respects with all laws
applicable to its business and the ownership of its property.
(j) Preservation of Rights. Maintain and preserve all rights, privileges,
charters and franchises it now has.
These covenants were negotiated by the Bank and Borrower based on
information provided to the Bank by the Borrower. A breach of a
covenant is an indication that the risk of the transaction has
increased. As consideration for any waiver or modification of these
covenants, the Bank may require: additional collateral, guaranties or
other credit support; higher fees or interest rates; and possible
modifications to the Documents and the monitoring of the Agreement. The
waiver or modification of any covenant that has been violated by the
Borrower will be made in the sole discretion of the Bank. These options
do not limit the Bank's right to exercise its rights under Section 8 of
this Agreement.
8. EVENTS OF DEFAULT AND REMEDIES
8.1 Default
The Line is a conditional line of credit and may be terminated by the
Bank at any time in its discretion. Without prejudice to the
conditional nature of the Line, upon the occurrence of any one or more
of the following events of default, or at any time afterward unless the
default has been cured, the Bank may declare the Line to be terminated
and in its discretion accelerate and declare the unpaid principal,
accrued interest and all other amounts payable under the Revolving Note
to be immediately due and payable:
(a) Default by the Borrower in the payment when due of any principal or
interest due under the Revolving Note and continuance for 10 days.
(b) Default by the Borrower in the observance or performance of any
covenant or agreement contained in this Agreement, and continuance for
more than 30 days.
(c) Default by the Borrower in the observance or performance of any
covenant or agreement contained in the Documents, or any of them,
excluding this Agreement, after giving effect to any applicable grace
period.
(d) Default by the Borrower in any agreement with the Bank or any other
lender that relates to indebtedness or contingent liabilities which
would allow the maturity of such indebtedness to be accelerated.
(e) Any representation or warranty made by the Borrower to the Bank is untrue
in any material respect.
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(f) Any litigation or governmental proceeding against the Borrower seeking an
amount that would have a material adverse effect upon the Borrower and
which is not insured or subject to indemnity by a solvent third party
either 1) results in a judgment in an amount that would have a material
adverse effect upon the Borrower or 2) remains unresolved on the earlier of
the completion of discovery or on the 270th day following its commencement,
unless as of that date no judgment has been rendered and the contingent
liability arising as a result is classified as "remote" by the Borrower's
counsel as that term is defined in FASB 5, in a signed opinion addressed to
the Bank.
(g) A garnishment, levy or writ of attachment, or any local, state, or federal
notice of tax lien or levy is served upon the Bank for the attachment of
property of the Borrower in the Bank's possession or indebtedness owed to
the Borrower by the Bank.
(h) A material adverse change occurs in the Borrower's financial condition or
ability to repay its obligations to the Bank.
8.2 Immediate Default
If, with or without the Borrower consent, a custodian, trustee or
receiver is appointed for any of the Borrower's properties, or if a
petition is filed by or against the Borrower under the United States
Bankruptcy Code, then the Line shall immediately terminate and the
unpaid principal, accrued interest and all other amounts payable under
the Revolving Note and the Documents will become immediately due and
payable without notice or demand.
9. MISCELLANEOUS.
(a) 360 Day Year. All interest and fees due under this Agreement will be
calculated on the basis of actual days elapsed in a 360 day year.
(b) GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all calculations for compliance
with financial covenants will be made using generally accepted
accounting principles consistently applied ("GAAP").
(c) No Waiver; Cumulative Remedies. No failure or delay by the Bank in
exercising any rights under this Agreement shall be deemed a waiver of
those rights. The remedies provided for in the Agreement are cumulative and
not exclusive of any remedies provided by law.
(d) Amendments or Modifications. Any amendment or modification of this
Agreement must be in writing and signed by the Bank and Borrower. Any
waiver of any provision in this Agreement must be in writing and signed
by the Bank.
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(e) Binding Effect; Assignment. This Agreement and the Documents are
binding on the successors and assigns of the Borrower and Bank. The
Borrower may not assign its rights under this Agreement and the
Documents without the Bank's prior written consent. The Bank may sell
participations in or assign this Agreement and the Documents and
exchange financial information about the Borrower with actual or
potential participants or assignees.
(f) Minnesota Law. This Agreement and the Documents will be governed by the
substantive laws of the State of Minnesota.
(g) Severability of Provisions. If any part of this Agreement or the Documents
are unenforceable, the rest of this Agreement or the Documents may still be
enforced.
(h) Integration. This Agreement and the Documents describe the entire
understanding and agreement of the parties and supersedes all prior
agreements between the Bank and the Borrower relating to each credit
facility subject to this Agreement, whether verbal or in writing.
Address for notices to Bank: Address for notices to Borrower:
Norwest Bank Minnesota south, Xxxxxxx Electronics, Incorporated
National Association 0000 Xxxxx Xxxxx
Second and Xxxxxxx Xxxxxx Xxxxxxx, Xxxxxxxxx 00000
Xxxxxxx, Xxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxx, Attention: W. Xxxx Xxxxxxx, Xx.
Vice President President
Norwest Bank Minnesota South, Xxxxxxx Electronics, Incorporated
National Association
By: /s/ Xxxxxxx X. Xxxx By: /s/ W. Xxxx Xxxxxxx
Xxxxxxx X. Xxxx, Vice President W. Xxxx Xxxxxxx, Xx., President
By:
Its:
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EXHIBIT A-1
BORROWING BASE DEFINITION
"Borrowing Base" means the sum of 80% of Eligible Accounts Receivable (as
defined below) plus 60% of Eligible Inventory (as defined below).
Eligible Accounts Receivable means all accounts receivable except those which
are:
1) Greater than 90 days past the invoice date.
2) Due from an account debtor, 10% or more of whose accounts owed
to the Borrower are more than 90 days past the invoice date.
3) Subject to offset or dispute.
4) Due from an account debtor who is subject to any bankruptcy
proceeding.
5) Owed by a shareholder, subsidiary, affiliate, officer or
employee of the Borrower.
6) Not subject to a perfected first lien security interest in
favor of the Bank.
7) Due from an account debtor located outside the United States
and not supported by a standby letter of credit acceptable to
the Bank.
8) Due from a unit of government, whether foreign or domestic.
9) Otherwise deemed ineligible by the Bank in its reasonable
discretion.
Eligible Inventory means all inventory of the Borrower, at the lower of cost or
market as determined by generally accepted accounting principals, except
inventory which is:
1) In transit; or located at any warehouse not approved by the Bank.
2) Covered by a warehouse receipt, xxxx of lading or other document
of title.
3) On consignment to or from any other person or subject to any
bailment.
4) Damaged, obsolete or not salable in the Borrower's ordinary
course of business.
5) Subject to a perfected first lien security interest in favor of
any third party.
6) Supplies or parts inventory.
7) [Deleted]
8) Otherwise deemed ineligible by the Bank in its reasonable
discretion.
EXHIBIT A-2
XXXXXXX ELECTRONICS, INCORPORATED
BORROWING BASE CERTIFICATE
To: Norwest Bank Minnesota South,
National Association
Second and Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxx 00000-0000
(the "Bank")
Xxxxxxx Electronics, Incorporated (the "Borrower") certifies that the following
computation of the Borrowing Base was performed as of __________________ in
accordance with the Borrowing Base definitions set forth in Exhibit A-1 to the
Credit Agreement between the Bank and the Borrower dated January 31, 1996.
Total Accounts Receivable $
Less: 1) Greater than 90 days in age $
2) Other ineligibles $
Eligible Accounts Receivable $
80% of Eligible Accounts Receivable $
Total Inventory $
Less: Ineligible Inventory $
Eligible Inventory $
60% of Eligible Inventory $
Total Borrowing Base $
Total Line Outstandings $
Excess (Deficit) $
XXXXXXX ELECTRONICS, INCORPORATED
By:
Its:
EXHIBIT B
CONDITIONS PRECEDENT TO INITIAL ADVANCE AND SECURITY
Note
The Revolving Note
Security Documents
Security Agreement. A Security Agreement signed by the Borrower granting the
Bank a first lien security interest in the Borrower's accounts, inventory,
equipment and general intangibles. The Borrower will also execute financing
statements sufficient to perfect the security interest granted to the Bank.
Landlord's Waiver. A landlord's consent agreement for any personal property in
which the Bank has been granted a security interest that is located on real
property not owned by the --------------------------
Other
Arbitration Agreement. The Bank's standard form of Arbitration Agreement signed
by the Bank and Borrower, subjecting to binding arbitration potential
controversies between the Bank and Borrower relating to the Documents and the
Agreement, as more fully described in the Arbitration Agreement.
CONDITIONS PRECEDENT TO ALL ADVANCES
Borrowing Base Certificate. Concurrent with each request for credit under the
Line, the Borrower will deliver a Borrowing Base Certificate to the Bank in the
form of Exhibit A-2, unless the Bank is in possession of a Borrowing Base
Certificate current within 0 days of the requested advance.
EXHIBIT C
REPRESENTATIONS AND WARRANTIES
Organizational Status. The Borrower is a corporation duly formed and in good
standing under the laws of the State of Minnesota.
Authorization. This Agreement, and the execution and delivery of the Documents
required hereunder, is within the Borrower's powers, has been duly authorized
and does not conflict with any of its organizational documents or any other
agreement by which the Borrower is bound, and has been signed by all persons
authorized and required to do so under its organizational documents.
Financial Reports. The Borrower has provided the Bank with its annual audited
financial statement dated December 31, 1994 and its unaudited interim financial
statement dated December 31, 1995, and these statements fairly represent the
financial condition of the Borrower as of their respective dates and were
prepared in accordance with GAAP.
Litigation. There is no litigation or governmental proceeding pending or
threatened against the Borrower which could have a material adverse effect on
the Borrower's financial condition or business.
Taxes. The Borrower has paid when due all federal, state and local taxes.
No Default. There is no event which is, or with notice or the lapse of time
would be, an event of default under this Agreement.
ERISA. The Borrower is in compliance in all material respects with ERISA and has
received no notice to the contrary from the PBGC or other governmental entity.
Environmental Matters. 1) The Borrower is in compliance in all material respects
with all health and environmental laws applicable to the Borrower and its
operations and knows of no conditions or circumstances that could interfere with
such compliance in the future; 2) the Borrower has obtained all environmental
permits and approvals required by law for the operation of its business; and 3)
the Borrower has not identified any "recognized environmental conditions", as
that term is defined by the American Society for Testing and Materials in its
standards for environmental due diligence, which could subject the Borrower to
enforcement action if brought to the attention of appropriate governmental
authorities.
