Exhibit 10.5
SECOND AMENDED AND RESTATED
CREDIT
AND SECURITY AGREEMENT
BY AND BETWEEN
NORTECH SYSTEMS INCORPORATED
AND
WELLS FARGO BANK,
NATIONAL
ASSOCIATION
August 6,
2009
TABLE OF CONTENTS
|
|
|
Page
|
|
|
|
|
ARTICLE I. DEFINITIONS
|
1
|
|
Section 1.1
|
Definitions
|
1
|
|
Section 1.2
|
Other Definitional Terms; Rules of
Interpretation
|
12
|
|
|
|
|
|
ARTICLE II. AMOUNT AND TERMS OF THE CREDIT
FACILITY
|
13
|
|
Section 2.1
|
Revolving Advances
|
13
|
|
Section 2.2
|
Procedures for Requesting
Advances
|
13
|
|
Section 2.3
|
Increased Costs; Capital Adequacy; Funding
Exceptions
|
14
|
|
Section 2.4
|
Letters of Credit
|
15
|
|
Section 2.5
|
Special Account
|
16
|
|
Section 2.6
|
Payment of Amounts Drawn Under Letters of
Credit; Obligation of Reimbursement
|
16
|
|
Section 2.7
|
Obligations Absolute
|
17
|
|
Section 2.8
|
Term Advances
|
18
|
|
Section 2.9
|
Payments and Interest on Term
Notes
|
18
|
|
Section 2.10
|
Interest; Default Interest; Participations;
Usury
|
18
|
|
Section 2.11
|
Fees
|
18
|
|
Section 2.12
|
Time for Interest Payments; Payment on
Non-Banking Days; Computation of Interest and Fees
|
19
|
|
Section 2.13
|
Voluntary Prepayment; Reduction of the Maximum
Line; Termination of the Credit Facility by the
Borrower
|
20
|
|
Section 2.14
|
Mandatory Prepayment
|
21
|
|
Section 2.15
|
Revolving Advances to Pay
Obligations
|
20
|
|
Section 2.16
|
Use of Proceeds
|
20
|
|
Section 2.17
|
Liability Records
|
20
|
|
Section 2.18
|
Collateral Account and Sweep of
Funds
|
21
|
|
|
|
|
|
ARTICLE III. SECURITY INTEREST; OCCUPANCY;
SETOFF
|
21
|
|
Section 3.1
|
Grant of Security Interest
|
21
|
|
Section 3.2
|
Notification of Account Debtors and Other
Obligors
|
21
|
|
Section 3.3
|
Assignment of Insurance
|
22
|
|
Section 3.4
|
Occupancy
|
22
|
|
Section 3.5
|
License
|
23
|
|
Section 3.6
|
Financing Statement
|
23
|
|
Section 3.7
|
Setoff
|
23
|
|
Section 3.8
|
Collateral
|
24
|
|
|
|
|
|
ARTICLE IV. CONDITIONS OF LENDING
|
24
|
|
Section 4.1
|
Conditions Precedent to the Initial Revolving
Advance and Letter of Credit
|
24
|
|
Section 4.2
|
Conditions Precedent to All Advances and Letters
of Credit
|
26
|
|
|
|
|
|
ARTICLE V. REPRESENTATIONS AND
WARRANTIES
|
26
|
|
Section 5.1
|
Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Federal Employer
Identification Number
|
26
|
|
Section 5.2
|
Capitalization
|
27
|
|
Section 5.3
|
Authorization of Borrowing; No Conflict as to
Law or Agreements
|
27
|
|
Section 5.4
|
Legal Agreements
|
27
|
|
Section 5.5
|
Subsidiaries
|
27
|
|
Section 5.6
|
Financial Condition; No Adverse
Change
|
27
|
|
Section 5.7
|
Litigation
|
27
|
|
Section 5.8
|
Regulation U
|
28
|
|
Section 5.9
|
Taxes
|
28
|
|
Section 5.10
|
Titles and Liens
|
28
|
|
Section 5.11
|
Intellectual Property Rights
|
28
|
|
Section 5.12
|
Plans
|
29
|
|
Section 5.13
|
Default
|
29
|
|
Section 5.14
|
Environmental Matters
|
29
|
|
Section 5.15
|
Submissions to Lender
|
30
|
|
Section 5.16
|
Financing Statements
|
30
|
|
Section 5.17
|
Rights to Payment
|
31
|
|
Section 5.18
|
Financial Solvency
|
31
|
|
|
|
|
|
ARTICLE VI. COVENANTS
|
31
|
|
Section 6.1
|
Reporting Requirements
|
32
|
|
Section 6.2
|
Financial Covenants
|
36
|
|
Section 6.3
|
Permitted Liens; Financing
Statements
|
36
|
|
Section 6.4
|
Indebtedness
|
36
|
|
Section 6.5
|
Guaranties
|
37
|
|
Section 6.6
|
Investments and Subsidiaries
|
37
|
|
Section 6.7
|
Dividends and Distributions
|
37
|
|
Section 6.8
|
Salaries
|
37
|
|
Section 6.9
|
Grant of Security Interest Upon
Request
|
38
|
|
Section 6.10
|
Books and Records; Inspection and
Examination
|
38
|
|
Section 6.11
|
Account Verification
|
38
|
|
Section 6.12
|
Compliance with Laws
|
38
|
|
Section 6.13
|
Payment of Taxes and Other Claims
|
39
|
|
Section 6.14
|
Maintenance of Properties
|
39
|
|
Section 6.15
|
Insurance
|
39
|
|
Section 6.16
|
Preservation of Existence
|
40
|
|
Section 6.17
|
Delivery of Instruments, etc
|
40
|
|
Section 6.18
|
Sale or Transfer of Assets; Suspension of
Business Operations
|
40
|
|
Section 6.19
|
Consolidation and Merger; Asset
Acquisitions
|
40
|
|
Section 6.20
|
Sale and Leaseback
|
40
|
|
Section 6.21
|
Restrictions on Nature of
Business
|
41
|
ii
|
Section 6.22
|
Accounting
|
41
|
|
Section 6.23
|
Discounts, etc
|
41
|
|
Section 6.24
|
Plans
|
41
|
|
Section 6.25
|
Place of Business; Name
|
41
|
|
Section 6.26
|
Constituent Documents
|
41
|
|
Section 6.27
|
Change in Senior Management
|
41
|
|
Section 6.28
|
Performance by the Lender
|
41
|
|
Section 6.29
|
Depository Accounts
|
42
|
|
|
|
|
|
ARTICLE VII. EVENTS OF DEFAULT, RIGHTS AND
REMEDIES
|
42
|
|
Section 7.1
|
Events of Default
|
42
|
|
Section 7.2
|
Rights and Remedies
|
44
|
|
Section 7.3
|
Certain Notices
|
45
|
|
|
|
|
|
ARTICLE VIII. MISCELLANEOUS
|
45
|
|
Section 8.1
|
No Waiver; Cumulative Remedies; Compliance with
Laws
|
45
|
|
Section 8.2
|
Amendments, Etc
|
46
|
|
Section 8.3
|
Addresses for Notices; Requests for
Accounting
|
46
|
|
Section 8.4
|
Arbitration
|
46
|
|
Section 8.5
|
Further Documents
|
48
|
|
Section 8.6
|
Costs and Expenses
|
49
|
|
Section 8.7
|
Indemnity
|
49
|
|
Section 8.8
|
Participants
|
50
|
|
Section 8.9
|
Execution in Counterparts; Telefacsimile
Execution
|
50
|
|
Section 8.10
|
Retention of Borrower’s
Records
|
50
|
|
Section 8.11
|
Binding Effect; Assignment; Complete Agreement;
Exchanging Information
|
50
|
|
Section 8.12
|
Severability of Provisions
|
50
|
|
Section 8.13
|
Headings
|
51
|
|
Section 8.14
|
Amendment and Restatement of Existing Credit
Agreement
|
51
|
|
Section 8.15
|
Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial
|
51
|
|
Section 8.16
|
No Waiver under Existing Credit
Agreement
|
51
|
|
Section 8.17
|
Release
|
51
|
iii
SECOND AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
Dated as of August 6,
2009
This Second Amended and Restated
Credit and Security Agreement (“ Agreement ”) is
entered into between NORTECH SYSTEMS INCORPORATED , a
Minnesota corporation (the “ Borrower ”),
WELLS FARGO BANK, NATIONAL ASSOCIATION , a national banking
association (the “ Lender ”).
RECITALS
A.
The Borrower and Lender previously entered into that certain
Amended and Restated Credit and Security Agreement dated as of
December 30, 2002 (the “ Existing Credit
Agreement ”); pursuant to which Borrower has executed and
delivered the Existing Notes (as defined in Article I).
B.
The Borrower and Lender desire to completely amend, restate and
replace the Existing Credit Agreement pursuant to the terms and
conditions set forth herein.
NOW THEREFORE, the parties agree
that the Existing Credit Agreement is amended and restated in its
entirety by this Agreement on the following terms and
conditions.
ARTICLE I.
DEFINITIONS
Section 1.1
Definitions . For all
purposes of this Agreement, except as otherwise expressly provided,
the following terms have the meanings assigned to them in this
Section or in the Section referenced after such
term:
“ Accounts ”
means all of the Borrower’s accounts, as such term is defined
in the UCC, including each and every right of the 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 the Borrower or by some other person who subsequently
transfers such person’s interest to the 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) which the
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 but not limited to 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.
“ Advance ” means
a Revolving Advance or a Term Advance.
“ Affiliate ” or
“ Affiliates ” means Nortech Medical
Services, Inc., a Minnesota corporation, Myron Kunin and any
other Person controlled by, controlling or under common control
with the Borrower, including any Subsidiary of the Borrower. For
purposes of this definition, “ control ,” when
used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise.
“ Agreement ”
means this Second Amended and Restated Credit and Security
Agreement.
“ Availability ”
means the difference of (i) the Borrowing Base and
(ii) the sum of (A) the outstanding principal balance of
the Revolving Note and (B) the L/C Amount.
“ Banking Day ”
means a day on which the Federal Reserve Bank of New York is open
for business.
“ Base LIBOR ”
means the rate per annum for United States dollar deposits quoted
by Lender for the purpose of calculating effective rates of
interest for loans making reference to the Daily Three Month LIBOR
Rate, as the Inter-Bank Market Offered Rate in effect from time to
time for delivery of funds for three (3) months in amounts
approximately equal to the principal amount of such loans.
Borrower understands and agrees that Lender may base its quotation
of the Inter-Bank Market Offered Rate upon such offers or other
market indicators of the Inter-Bank Market as Lender in its
discretion deems appropriate, including but not limited to, the
rate offered for U.S. dollar deposits on the London Inter-Bank
Market.
“ Book Net Worth
” means the aggregate of the common and preferred
stockholders’ equity in any Person, determined in accordance
with GAAP.
“ Borrowing Base
” means, at any time, an amount equal to the lesser
of:
(a)
the Maximum Line; or
(b)
subject to change in the Lender’s sole discretion, the sum
of:
(i)
80% of Eligible
Accounts; plus
(ii)
the lesser of:
(1) $4,000,000 or (2) 30% of Eligible Inventory;
provided , however , that portion of Eligible
Inventory consisting of raw material shall not exceed the lesser of
$3,000,000 or 20% of such raw material Inventory; less
(c)
the Borrowing Base Reserve, less
(d)
Obligations that Borrower owes to Lender that have not been
advanced on the Revolving Note, less
2
(e)
Obligations that are not otherwise described in this
Section 1.1, including Obligations that Lender in its sole
discretion finds on the date of determination to be equal to
Lender’s net credit exposure with respect to any swap (or
other interest rate hedge), derivative, foreign exchange, deposit,
treasury management, purchasing card or similar transaction or
arrangement extended to the Borrower by Lender.
“ Borrowing Base
Reserve ” means, as of any date of determination, an
amount or a percent of a specified category or item that Lender
establishes in its sole discretion from time to time to reduce
availability under the Borrowing Base (a) to reflect events,
conditions, contingencies or risks which affect the assets,
business or prospects of Borrower, or the Collateral or its value,
or the enforceability, perfection or priority of Lender’s
Security Interest in the Collateral, or (b) to reflect
Lender’s judgment that any collateral report or financial
information relating to Borrower and furnished to Lender may be
incomplete, inaccurate or misleading in any material
respect.
“ Business Day ”
means any day except a Saturday, Sunday or any other day on which
commercial banks in Minnesota are authorized or required by law to
close.
“ Capital Expenditures
” means for a period, any expenditure of money during such
period for the lease, purchase or other acquisition of any capital
asset, or for the lease of any other asset whether payable
currently or in the future.
“ Change of Control
” means the occurrence of any of the following
events:
(a)
Any Person or “ group ” (as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934) is or becomes the “ beneficial owner ” (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of
1934, except that a Person will be deemed to have “
beneficial ownership
” of all
securities that such Person has the right to acquire, whether such
right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% percent of the
voting power of all classes of voting stock of the Borrower,
excluding Myron Kunin.
(b)
During any consecutive two-year period, individuals who at the
beginning of such period constituted the board of Directors of the
Borrower (together with any new Directors whose election to such
board of Directors, or whose nomination for election by the owners
of the Borrower, was approved by a vote of 66-2/3% of the Directors
then still in office who were either Directors at the beginning of
such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a
majority of the board of Directors of the Borrower then in
office.
(c)
Michael Degen ceases to actively manage the Borrower’s
day-to-day business activities.
“ Collateral ”
means all of the Borrower’s Accounts, chattel paper, deposit
accounts, documents, Equipment, General Intangibles, goods,
instruments, Inventory, Investment Property,
3
letter-of-credit rights, letters of credit, all
sums on deposit in any Collateral Account, and any items in any
Lockbox; together with (i) all substitutions and replacements
for and products of any of the foregoing; (ii) in the case of
all goods, all accessions; (iii) all accessories, attachments,
parts, equipment and repairs now or hereafter attached or affixed
to or used in connection with any goods; (iv) all warehouse
receipts, bills of lading and other documents of title now or
hereafter covering such goods; (v) all collateral subject to
the Lien of any Security Document; (vi) any money, or other
assets of the Borrower that now or hereafter come into the
possession, custody, or control of the Lender; (vii) all sums
on deposit in the Special Account; and (viii) proceeds of any
and all of the foregoing.
“ Commitment ”
means the Lender’s commitment to make Advances to, and
to cause the Issuer to issue Letters of Credit for the account of,
the Borrower pursuant to Article II.
“ Constituent Documents
” means with respect to any Person, as applicable, such
Person’s certificate of incorporation, articles of
incorporation, by-laws, certificate of formation, articles of
organization, limited liability company agreement, management
agreement, operating agreement, shareholder agreement, partnership
agreement or similar document or agreement governing such
Person’s existence, organization or management or concerning
disposition of ownership interests of such Person or voting rights
among such Person’s owners.
“ Credit Facility
” means the credit facility being made available to the
Borrower by the Lender under Article II.
“ Daily Three Month
LIBOR ” means, for any day, the rate of interest equal to
LIBOR then in effect for delivery for a three (3) month
period. When interest is determined in relation to Daily
Three Month LIBOR, each change in the interest rate shall become
effective each Business Day that Lender determines that Daily Three
Month LIBOR has changed.
“ Debt ” means of
a Person as of a given date, 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 for such Person and 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 interest rate equal to three percent (3%) over the
Floating Rate, which interest rate shall change when and as the
Floating Rate changes.
4
“ Director ”
means a director if the Borrower is a corporation, a governor if
the Borrower is a limited liability company, or a partner if the
Borrower is a partnership.
“ ERISA ” means
the Employee Retirement Income Security Act of 1974.
“ ERISA Affiliate
” means any trade or business (whether or not incorporated)
that is a member of a group which includes the Borrower and which
is treated as a single employer under Section 414 of the
IRC.
“ Eligible Accounts
” means all unpaid Accounts arising from the sale or lease of
goods or the performance of services, net of any unapplied credits
or deposits from Account debtors, but excluding any such Accounts
having any of the following characteristics:
|
(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, including progress billings, and that
portion of Accounts for which an invoice has not been sent to the
applicable account debtor;
|
|
|
|
|
|
(iv)
|
|
That portion of Accounts owed by account debtors
located in the states of New Jersey, Indiana, or West Virginia (or
any other state that requires a creditor to file a business
activity report or similar document in order to bring suit or
otherwise enforce its remedies against such account debtor in the
courts or through any judicial process of such state), unless the
Borrower has qualified to do business in such state, or has filed a
notice of business activities report with the applicable division
of taxation, the department of revenue, or with such other state
offices, as appropriate, for the then-current year, or is exempt
from such filing requirement;
|
|
|
|
|
|
(v)
|
|
Accounts constituting (i) proceeds of
copyrightable material unless such copyrightable material shall
have been registered with the United States Copyright Office, or
(ii) proceeds of patentable inventions unless such patentable
inventions have been registered with the United States Patent and
Trademark Office;
|
|
|
|
|
|
(vi)
|
|
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 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);
|
|
|
|
|
|
(vii)
|
|
Accounts owed by an account debtor located
outside the United States which are not: (A) backed by a bank
letter of credit naming the Lender as beneficiary or
|
5
|
|
|
assigned to the Lender, in the Lender’s
possession or control, and with respect to which a control
agreement concerning the letter-of-credit rights is in effect, and
acceptable to the Lender in all respects, in its sole discretion,
or (B) covered by a foreign receivables insurance policy acceptable
to the Lender in its sole discretion;
|
|
|
|
|
|
(viii)
|
|
Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone out of
business;
|
|
|
|
|
|
(ix)
|
|
Accounts owed by an Owner, Subsidiary,
Affiliate, Officer or employee of the Borrower;
|
|
|
|
|
|
(x)
|
|
Accounts not subject to a duly perfected
security interest in the Lender’s favor or which are subject
to any Lien in favor of any Person other than the
Lender;
|
|
|
|
|
|
(xi)
|
|
That portion of Accounts that has been
restructured, extended, amended or modified;
|
|
|
|
|
|
(xii)
|
|
That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or excise
taxes;
|
|
|
|
|
|
(xiii)
|
|
Accounts owed by an Account debtor, regardless
of whether otherwise eligible, to the extent that the aggregate
balance of such Accounts exceeds 15% of the aggregate amount of all
Accounts;
|
|
|
|
|
|
(xiv)
|
|
Accounts owed by an Account debtor, regardless
of whether otherwise eligible, if 15% (or 25% with respect to
Accounts owing by General Electric Company and its affiliates,
Semitool, Inc. and Northrop Grumman Corporation) or more of
the total amount due under Accounts from such debtor is ineligible
under clauses (i), (ii) or (xi) above;
|
|
|
|
|
|
(xv)
|
|
Accounts owed by an account debtor, regardless
of whether otherwise eligible Accounts denominated in any currency
other than United States Dollars; and
|
|
|
|
|
(xvi)
|
|
Accounts, or portions
thereof, otherwise deemed ineligible by the Lender in its sole
discretion.
|
“ Eligible Inventory
” means all Inventory of the Borrower, at the lower of cost
or market value as determined in accordance with GAAP; but
excluding any Inventory having any of the following
characteristics:
|
(i)
|
|
Inventory that is: in-transit; located at any
warehouse, job site or other premises not approved by the Lender in
writing; located outside of the states, or localities, as
applicable, in which the Lender has filed financing statements to
perfect a first priority security interest in such Inventory;
covered by any negotiable or non-negotiable warehouse receipt, bill
of lading or other document of title; on consignment from any
Person; on consignment to any Person or subject to any
|
6
|
|
|
bailment unless such consignee or bailee has
executed an agreement with the Lender;
|
|
|
|
|
|
(ii)
|
|
Supplies, packaging, parts or sample
Inventory;
|
|
|
|
|
|
(iii)
|
|
Work-in-process Inventory;
|
|
|
|
|
|
(iv)
|
|
Inventory that is damaged, obsolete, slow moving
(twelve-months or greater) 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 purchased or manufactured by the
Borrower pursuant to a license unless the applicable licensor has
agreed in writing to permit the Lender to exercise its rights and
remedies against such Inventory;
|
|
|
|
|
|
(viii)
|
|
Inventory that is subject to a Lien in favor of
any Person other than the Lender;
|
|
|
|
|
|
(ix)
|
|
All Inventory at any location other than the
premises owned or leased by the Borrower in Bemidji, Blue Earth,
Fairmont and Merrifield, Minnesota and Augusta,
Wisconsin;
|
|
|
|
|
|
(x)
|
|
Inventory stored at any location:
(a) holding less than 10% of the aggregate value of
Borrower’s Inventory, or (b) with an aggregate value of
$500,000, or less; and
|
|
|
|
|
(xi)
|
|
Inventory otherwise deemed
ineligible by the Lender in its sole discretion.
|
“ Environmental Law
” means any federal, state, local or other governmental
statute, regulation, law or ordinance dealing with the protection
of human health and the environment.
“ Equipment ”
means all of the Borrower’s equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired,
including but not limited to 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 the Borrower.
“ Event of Default
” has the meaning specified in Section 7.1.
“ Existing Notes
” means the Revolving Note and the Real Estate Term
Note.
“ Financial Covenants
” means the covenants set forth in Section 6.2.
7
“ Floating Rate ”
means the Daily Three Month LIBOR plus five percent (5.0%) for
amounts owing under the Notes.
“ Funding Date ”
has the meaning given in Section 2.1.
“ GAAP ” means
generally accepted accounting principles, applied on a basis
consistent with the accounting practices applied in the financial
statements described in Section 5.6.
“ General Intangibles
” means all of the Borrower’s general intangibles, as
such term is defined in the UCC, whether now owned or hereafter
acquired, including all present and future Intellectual Property
Rights, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, the right to use the
Borrower’s name, and the goodwill of the Borrower’s
business.
“ Guarantor(s) ”
means any Person now or hereafter guarantying the
Obligations.
“ Hazardous Substances
” means pollutants, contaminants, hazardous substances,
hazardous wastes, petroleum and fractions thereof, and all other
chemicals, wastes, substances and materials listed in, regulated by
or identified in any Environmental Law.
“ IRC ” means the
Internal Revenue Code of 1986.
“ Infringe ” when
used with respect to Intellectual Property Rights means any
infringement or other violation of Intellectual Property
Rights.
“ Intangible Assets
” means as to any Person all intangible assets as determined
in accordance with GAAP and including Intellectual Property Rights,
goodwill, accounts due from Affiliates, Directors, Officers or
employees, deposits, deferred charges or treasury stock or any
securities or Debt of such Person or any other securities unless
the same are readily marketable in the US or entitled to be used as
a credit against federal income tax liabilities, non-compete
agreements and any other assets designated from time to time by the
Lender, in its sole discretion.
“ Intellectual Property
Rights ” means all actual or prospective rights arising
in connection with any intellectual property or other proprietary
rights, including all rights arising in connection with copyrights,
patents, service marks, trade dress, trade secrets, trademarks,
trade names or mask works.
“ Interest Expense
” means for a fiscal year-to-date period, a Person’s
total gross interest expense during such period (excluding interest
income), and shall in any event include (i) interest expensed
(whether or not paid) on all Debt, (ii) the amortization of
debt discounts, (iii) the amortization of all fees payable in
connection with the incurrence of Debt to the extent included in
interest expense, and (iv) the portion of any capitalized
lease obligation allocable to interest expense.
8
“ Inventory ”
means all of the Borrower’s inventory, 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.
“ Investment Property
” means all of the 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.
“ Issuer ” means
the issuer of any Letter of Credit.
“ L/C Amount ”
means the sum of (i) the aggregate face amount of any issued
and outstanding Letters of Credit and (ii) the unpaid amount
of the Obligation of Reimbursement.
“ L/C Application
” means an application and agreement for letters of credit in
a form acceptable to the Issuer and the Lender.
“ Letter of Credit
” has the meaning specified in Section 2.4.
“ LIBOR ” means
the rate per annum (rounded upward, if necessary, to the nearest
whole 1/8 th
of 1%) and determined pursuant
to the following formula:
|
|
LIBOR Rate =
|
Base LIBOR
|
|
|
|
|
100% - LIBOR Reserve
Percentage
|
|
“ LIBOR Reserve
Percentage ” means the reserve percentage prescribed by
the Board of Governors of the Federal Reserve System (or any
successor) for “Eurocurrency Liabilities” (as defined
in Regulation D of the Federal Reserve Board, as amended), adjusted
by Wells Fargo for expected changes in such reserve percentage
during the applicable Interest Period.
“ Licensed Intellectual
Property ” has the meaning given in
Section 5.11(b).
“ Lien ” means
any security interest, mortgage, deed of trust, pledge, lien,
charge, encumbrance, title retention agreement or analogous
instrument or device, including the interest of each lessor under
any capitalized lease and the interest of any bondsman under any
payment or performance bond, in, of or on any assets or properties
of a Person, whether now owned or hereafter acquired and whether
arising by agreement or operation of law.
“ Loan Documents
” means this Agreement, the Notes, the Security Documents,
any L/C Application and any other agreement, document or instrument
delivered by the Borrower, or any guarantor or Affiliate to the
Lender.
“ Material Adverse
Effect ” means any of the following:
9
(i)
a material
adverse effect on the business, operations, results of operations,
prospects, assets, liabilities or financial condition of the
Borrower;
(ii)
a material
adverse effect on the ability of the Borrower to perform its
obligations under the Loan Documents;
(iii)
a material
adverse effect on the ability of the Lender to enforce the
Obligations or to realize the intended benefits of the Security
Documents, including a material adverse effect on the validity or
enforceability of any Loan Document or of any rights against any
guarantor, or on the status, existence, perfection, priority
(subject to Permitted Liens) or enforceability of any Lien securing
payment or performance of the Obligations; or
(iv)
any claim against
the Borrower or any Affiliate or threat of litigation which if
determined adversely would cause the Borrower to be liable to pay
an amount exceeding $200,000 or would be an event described in
clauses (i), (ii) and (iii) above.
“ Maturity Date ”
means June 30, 2010 for the Revolving Note and May 31,
2012 for the Real Estate Term Note.
“ Maximum Line ”
means $12,000,000 unless said amount is reduced pursuant to
Section 2.13, in which event it means such lower
amount.
“ Mortgages ”
means (i) that Mortgage, Security Agreement, Fixture Financing
Statement and Assignment of Leases and Rents dated January 31,
2002; and (ii) that certain combination Mortgage, Security
Agreement, Fixture Financing Statement and Assignment of Leases and
Rents dated February 2, 2007, each as executed by the
Borrower, as mortgagor, in favor of the Lender, as mortgagee,
granting the Lender a first priority mortgage lien and assignment
of leases and rents in the Borrower’s facilities located in
Bemidji, Fairmont and Merrifield, Minnesota, and Eau Claire County,
Wisconsin, respectively.
“ Multiemployer Plan
” means a multiemployer plan (as defined in
Section 4001(a)(3) of ERISA) to which the Borrower or any
ERISA Affiliate contributes or is obligated to
contribute.
“ Net Income ”
means for any period, the after-tax net income from continuing
operations, less extraordinary losses or losses from discontinued
operations, as determined in accordance with GAAP.
“ Net Loss ”
means for any period, the pre-tax net loss from continuing
operations, including extraordinary losses or losses from
discontinued operations, as determined in accordance with
GAAP.
“ Note ” means
the Revolving Note, or the Real Estate Term Note, and “
Notes ” means the Revolving Note, and the Real Estate
Term Note.
10
“ Obligation of
Reimbursement ” has the meaning given in
Section 2.6(a).
“ Obligations ”
means each Note, the Obligation of Reimbursement and each and every
other debt, liability and obligation of every type and description
which the Borrower may now or at any time hereafter owe to the
Lender, whether such debt, liability or obligation now exists or is
hereafter created or incurred, whether it arises in a transaction
involving the Lender alone or in a transaction involving other
creditors of the Borrower, and whether it is direct or indirect,
due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and
several, and including all indebtedness of the Borrower arising
under any Loan Document or guaranty between the Borrower and the
Lender, whether now in effect or hereafter entered into.
“ Officer ” means
with respect to the Borrower, an officer if the Borrower is a
corporation, a manager if the Borrower is a limited liability
company, or a partner if the Borrower is a partnership.
“ Owned Intellectual
Property ” has the meaning given in
Section 5.11(a).
“ Owner ” means
with respect to the Borrower, each Person having legal or
beneficial title to an ownership interest in the Borrower or a
right to acquire such an interest.
“ Pension Plan ”
means a pension plan (as defined in Section 3(2) of
ERISA) maintained for employees of the Borrower or any ERISA
Affiliate and covered by Title IV of ERISA.
“ Permitted Lien
” has the meaning given in Section 6.3(a).
“ 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.
“ Plan ” means an
employee benefit plan (as defined in Section 3(3) of
ERISA) maintained for employees of the Borrower or any ERISA
Affiliate.
“ Premises ”
means all premises where the Borrower conducts its business and has
any rights of possession, including the premises legally described
in Exhibit C attached hereto.
“ Real Estate Term Note
” means that certain Amended and Restated Real Estate Term
Note dated February 2, 2007 made payable by the Borrower to
the order of the Lender in the original principal amount of
$3,348,750.00, and any note or notes issued in substitution
therefor.
“ Reportable Event
” means a reportable event (as defined in Section 4043
of ERISA), other than an event for which the 30-day notice
requirement under ERISA has been waived in regulations issued by
the Pension Benefit Guaranty Corporation.
“ Revolving Advance
” has the meaning given in Section 2.1.
11
“ Revolving Note
” means that certain Amended and Restated Revolving Note of
even date herewith made payable by the Borrower to the order of
Lender in the original principal amount of $12,000,000.00, and any
note or notes issued in substitution therefor.
“ Security Documents
” means this Agreement, the Mortgages, any Subordination
Agreement and any other document delivered to the Lender from time
to time to secure the Obligations.
“ Security Interest
” has the meaning given in Section 3.1.
“ Special Account
” means a specified cash collateral account maintained by a
financial institution acceptable to the Lender in connection with
Letters of Credit, as contemplated by Section 2.5.
“ Subordination
Agreement ” means individually and collectively, each
Debt Subordination Agreement now or hereafter executed by any
Person in the Lender’s favor, acknowledged by the Borrower,
and accepted by the Lender from time to time.
“ Subordinated Debt
” means any indebtedness that has been subordinated to the
Obligations pursuant to a Subordination Agreement.
“ Subsidiary ”
means any corporation of which more than 50% of the outstanding
voting equity interests or equity interests having general voting
power under ordinary circumstances to elect a majority of the board
of directors, board of governors or similar governing body of such
entity, irrespective of whether or not at the time interest of any
other class or classes shall have or might have voting power by
reason of the happening of any contingency, is at the time directly
or indirectly owned by the Borrower, by the Borrower and one or
more other Subsidiaries, or by one or more other
Subsidiaries.
“ Term Advance ”
has the meaning specified in Section 2.8.
“ Termination Date
” means the earliest of (i) the Maturity Date,
(ii) the date the Borrower terminates the Credit Facility, or
(iii) the date the Lender demands payment of the Obligations
after an Event of Default pursuant to Section 7.2.
“ UCC ” means the
Uniform Commercial Code as in effect in the state designated in
Section 8.15 as the state whose laws shall govern this
Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
Section 1.2
Other Definitional Terms; Rules of Interpretation
. The words “ hereof
”, “ herein ” and “ hereunder
” and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance
with GAAP. All terms defined in the UCC and not otherwise defined
herein have the meanings assigned to them in the UCC. References to
Articles, Sections, subsections, Exhibits, Schedules and the like,
are to Articles, Sections and subsections of, or Exhibits or
Schedules
12
attached to, this Agreement unless otherwise
expressly provided. The words “ include ”,
“ includes ” and “ including
” shall be deemed to be followed by the phrase “
without limitation ”. Unless the context in which used
herein otherwise clearly requires, “ or ” has
the inclusive meaning represented by the phrase “
and/or ”. Defined terms include in the singular number
the plural and in the plural number the singular. Reference to any
agreement (including the Loan Documents), document or instrument
means such agreement, document or instrument as amended or modified
and in effect from time to time in accordance with the terms
thereof (and, if applicable, in accordance with the terms hereof
and the other Loan Documents), except where otherwise explicitly
provided, and reference to any promissory note includes any
promissory note which is an extension or renewal thereof or a
substitute or replacement therefor. Reference to any law, rule,
regulation, order, decree, requirement, policy, guideline,
directive or interpretation means as amended, modified, codified,
replaced or reenacted, in whole or in part, and in effect on the
determination date, including rules and regulations
promulgated thereunder.
ARTICLE II.
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1
Revolving Advances
. The Lender agrees, on the terms
and subject to the conditions herein set forth, to make advances to
the Borrower from time to time from the date all of the conditions
set forth in Section 4.1 are satisfied (the “ Funding
Date ”) to the Termination Date (the “ Revolving
Advances ”). The Lender shall have no obligation to make
a Revolving Advance to the extent the amount of the requested
Revolving Advance exceeds Availability. 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 2.1, the Borrower may borrow,
prepay pursuant to Section 2.13 and re-borrow.
The Borrower acknowledges that the
amount of principal and accrued but unpaid interest outstanding
under the Revolving Note as of the date hereof is $6,274,597.48 and
that such existing indebtedness shall continue to be evidenced by
the Revolving Note. The Borrower further acknowledges that
the aggregate face amount of all outstanding Letters of Credit as
of the date hereof is $0.
Section 2.2
Procedures for Requesting
Advances . The Borrower
shall comply with the following procedures in requesting Revolving
Advances:
(a)
Time for Requests
. The Borrower
shall request each Advance not later than 2:00 p.m.,
Minneapolis, Minnesota time on the Banking Day the Advance is to be
made. Each such request shall be effective upon receipt by the
Lender, shall be in writing or by telephone or telecopy
transmission, to be confirmed in writing by the Borrower if so
requested by the Lender, shall be by (i) an Officer of the
Borrower; or (ii) a person designated as the Borrower’s
agent by an Officer of the Borrower in a writing delivered to the
Lender; or (iii) a person whom the Lender reasonably believes
to be an Officer of the Borrower or such a designated agent. The
Borrower shall repay all Advances even if the Lender does not
receive such confirmation and even if the person requesting an
Advance was not in fact authorized to do so. Any request for an
Advance, whether written or
13
telephonic, shall
be deemed to be a representation by the Borrower that the
conditions set forth in Section 4.2 have been satisfied as of
the time of the request.
(b)
Disbursement . Upon fulfillment of the
applicable conditions set forth in Article IV, the Lender
shall disburse the proceeds of the requested Advance by crediting
the same to the Borrower’s demand deposit account maintained
with the Lender unless the Lender and the Borrower shall agree in
writing to another manner of disbursement.
Section 2.3
Increased Costs; Capital
Adequacy; Funding Exceptions .
(a)
Increased Costs; Capital
Adequacy . If the Lender determines at
any time that its Return has been reduced as a result of any
Rule Change, such Lender may so notify the Borrower and
require the Borrower, beginning fifteen (15) days after such
notice, to pay it the amount necessary to restore its Return to
what it would have been had there been no Rule Change. For
purposes of this Section 2.3:
(i)
“
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, including
rules requiring financial institutions to maintain total
capital in amounts based upon percentages of outstanding loans,
binding loan commitments and letters of credit.
(ii)
“
L/C Rule ” means any law, rule,
regulation, guideline, directive, requirement or request regarding
letters of credit, 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, including those that impose taxes,
duties or other similar charges, or mandate reserves, special
deposits or similar requirements against assets of, deposits with
or for the account of, or credit extended by any Related Lender, on
letters of credit.
(iii)
“
Related Lender ” includes (but is not
limited to) the Lender, any parent of the Lender, any assignee of
any interest of the Lender hereunder and any participant in the
Credit Facility.
(iv)
“
Return ”, for any period,
means the percentage determined by dividing (i) the sum of
interest and ongoing fees earned by the Lender under this Agreement
during such period, by (ii) the average capital such Lender is
required to maintain during such period as a result of its being a
party to this Agreement, as determined by such Lender based upon
its total capital requirements and a reasonable attribution formula
that takes account of the Capital Adequacy Rules and L/C
Rules then in effect, costs of issuing or
14
maintaining any
Advance or Letter of Credit and amounts received or receivable
under this Agreement or the Notes with respect to any Advance or
Letter of Credit. 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.
(v)
“
Rule Change ” means any change in
any Capital Adequacy Rule or L/C Rule occurring after the
date of this Agreement, or any change in the interpretation or
administration thereof by any governmental or regulatory authority,
but the term does not include any changes that at the Funding Date
are scheduled to take place under the existing Capital Adequacy
Rules or L/C Rules or any increases in the capital that
the Lender is required to maintain to the extent that the increases
are required due to a regulatory authority’s assessment of
that Lender’s financial condition.
The initial notice sent by the
Lender shall be sent as promptly as practicable after such Lender
learns that its Return has been reduced, shall include a demand for
payment of the amount necessary to restore such Lender’s
Return for the quarter in which the notice is sent, and shall state
in reasonable detail the cause for the reduction in its Return and
its calculation of the amount of such reduction. Thereafter, such
Lender may send a new notice during each calendar quarter setting
forth the calculation of the reduced Return for that quarter and
including a demand for payment of the amount necessary to restore
its Return for that quarter. The Lender’s calculation in any
such notice shall be conclusive and binding absent demonstrable
error.
Section 2.4
Letters of Credit
.
(a)
The Lender
agrees, on the terms and subject to the conditions herein set
forth, to cause an Issuer to issue, from the Funding Date to the
Termination Date, one or more irrevocable standby or documentary
letters of credit (each, a “ Letter of Credit ”) for the
Borrower’s account by guaranteeing payment of the
Borrower’s obligations or being a co-applicant. The Lender
shall have no obligation to cause an Issuer to issue any Letter of
Credit if the face amount of the Letter of Credit to be issued
would exceed the lesser of:
(i)
$1,000,000 less
the L/C Amount, or
(ii)
Availability.
Each Letter of Credit, if any, shall
be issued pursuant to a separate L/C Application entered into
between the Borrower and the Lender for the benefit of the Issuer,
completed in a manner satisfactory to the Lender and the Issuer.
The terms and conditions set forth in each such L/C Application
shall supplement the terms and conditions hereof, but if the terms
of any such L/C Application and the terms of this Agreement are
inconsistent, the terms hereof shall control.
(b)
No Letter of
Credit shall be issued with an expiry date later than the
Termination Date in effect as of the date of issuance.
15
(c)
Any request to
cause an Issuer to issue a Letter of Credit shall be deemed to be a
representation by the Borrower that the conditions set forth in
Section 4.2 have been satisfied as of the date of the
request.
Section 2.5
Special Account
. If the Credit Facility is
terminated for any reason while any Letter of Credit is
outstanding, the Borrower shall thereupon pay the Lender in
immediately available funds for deposit in the Special Account an
amount equal to the L/C Amount. The Special Account shall be an
interest bearing account maintained for the Lender by any financial
institution acceptable to the Lender. Any interest earned on
amounts deposited in the Special Account shall be credited to the
Special Account. The Lender may apply amounts on deposit in the
Special Account at any time or from time to time to the Obligations
in the Lender’s sole discretion. The Borrower may not
withdraw any amounts on deposit in the Special Account as long as
the Lender maintains a security interest therein. The Lender agrees
to transfer any balance in the Special Account to the Borrower when
the Lender is required to release its security interest in the
Special Account under applicable law.
Section 2.6
Payment of Amounts Drawn Under
Letters of Credit; Obligation of Reimbursement
. The Borrower acknowledges that the
Lender, as co-applicant, will be liable to the Issuer for
reimbursement of any and all draws under Letters of Credit and for
all other amounts required to be paid under the applicable L/C
Application. Accordingly, the Borrower shall pay to the Lender any
and all amounts required to be paid under the applicable L/C
Application, when and as required to be paid thereby, and the
amounts designated below, when and as designated:
(a)
The Borrower
shall pay to the Lender on the day a draft is honored under any
Letter of Credit a sum equal to all amounts drawn under such Letter
of Credit plus any and all reasonable charges and expenses that the
Issuer or the Lender may pay or incur relative to such draw and the
applicable L/C Application, plus interest on all such amounts,
charges and expenses as set forth below (the Borrower’s
obligation to pay all such amounts is herein referred to as the
“ Obligation of
Reimbursement ”).
(b)
Whenever a draft
is submitted under a Letter of Credit, the Borrower authorizes the
Lender to make a Revolving Advance in the amount of the Obligation
of Reimbursement and to apply the proceeds of such Revolving
Advance thereto. Such Revolving Advance shall be repayable in
accordance with and be treated in all other respects as a Revolving
Advance hereunder.
(c)
If a draft is
submitted under a Letter of Credit when the Borrower is unable,
because a Default Period exists or for any other reason, to obtain
a Revolving Advance to pay the Obligation of Reimbursement, the
Borrower shall pay to the Lender on demand and in immediately
available funds, the amount of the Obligation of Reimbursement
together with interest, accrued from the date of the draft until
payment in full at the Default Rate. Notwithstanding the
Borrower’s inability to obtain a Revolving Advance for any
reason, the Lender is irrevocably authorized, in its sole
discretion, to
16
make a Revolving
Advance in an amount sufficient to discharge the Obligation of
Reimbursement and all accrued but unpaid interest
thereon.
(d)
The
Borrower’s obligation to pay any Revolving Advance made under
this Section 2.6, shall be evidenced by the Revolving Note and
shall bear interest as provided in Section 2.10.
Section 2.7
Obligations Absolute
. The Borrower’s obligations
arising under Section 2.6 shall be absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the
terms of Section 2.6, under all circumstances whatsoever,
including (without limitation) the following
circumstances:
(a)
any lack of
validity or enforceability of any Letter of Credit or any other
agreement or instrument relating to any Letter of Credit
(collectively the “ Related Documents ”);
(b)
any amendment or
waiver of or any consent to departure from all or any of the
Related Documents;
(c)
the existence of
any claim, setoff, defense or other right which the Borrower may
have at any time, against any beneficiary or any transferee of any
Letter of Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), or other person
or entity, whether in connection with this Agreement, the
transactions contemplated herein or in the Related Documents or any
unrelated transactions;
(d)
any statement or
any other document presented under any Letter of Credit proving to
be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect
whatsoever;
(e)
payment by or on
behalf of the Issuer under any Letter of Credit against
presentation of a draft or certificate which does not strictly
comply with the terms of such Letter of Credit; or
(f)
any other
circumstance or happening whatsoever, whether or not similar to any
of the foregoing.
Section 2.8
Term Advances
.
(a)
The Borrower
acknowledges that Lender previously made a single advance to the
Borrower on each of January 31, 2002 and February 2, 2007
(the “ Term
Advances ”), the first in the
amount of $2,500,000.00 and the second in the amount of
$1,668,194.51. The Borrower’s obligation to pay the
Term Advances is evidenced by the Real Estate Term Note and is
secured by the Collateral as provided in Article III and as
described in any Security Documents, including but not limited to
the Mortgages. The
17
Borrower
acknowledges that, as of the date hereof, the outstanding principal
balance of the Real Estate Term Note is $ 2,772,020.73.
Section 2.9
Payments and Interest on Term
Notes . The outstanding
principal balance of the Term Notes shall continue to accrue
interest and be due and payable as specifically set forth in the
Term Notes and on the Termination Date, the entire unpaid principal
balance of the Term Notes, and all unpaid interest accrued thereon,
shall in any event be due and payable. At the option of the
Lender, it may on any date that principal and interest is due on
the Notes automatically deduct the amount of such payments, or
cause the same to be automatically deducted, from the
Borrower’s deposit accounts maintained with the Lender its
Affiliates.
(a)
If the Lender at
any time obtains an appraisal of any the real property subject to
the Mortgages as permitted under Section 6.10(d) herein,
and the appraisal shows the aggregate outstanding principal balance
of the Real Estate Term Note to exceed seventy-five percent (75%)
of the “as is” market value as vacant of such
facilities, then the Borrower, upon demand by the Lender, shall
immediately prepay the Real Estate Term Note in the amount of such
excess, together with any applicable prepayment fee.
Section 2.10
Interest; Default Interest;
Participations; Usury .
(a)
Revolving Note and Real Estate Term
Note Interest Rates. Except as provided in
Subsections 2.10 (b) and
(d) below, the principal amount of each Advance evidenced by
the Revolving Note and the Real Estate Term Note shall bear
interest at the Floating Rate.
(b)
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.
(c)
Participations . If any Person shall acquire
a participation in the Advances under this Agreement, the Borrower
shall be obligated to the Lender to pay the full amount of all
interest calculated under this Section, along with all other fees,
charges and other amounts due under this Agreement, regardless if
such Person elects to accept interest with respect to its
participation at a lower rate than the Floating Rate, or otherwise
elects to accept less than its prorata share of such fees, charges
and other amounts due under this Agreement.
(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 2.11
Fees .
(a)
Letter of Credit Fees
. Borrower
shall pay to Bank (i) fees upon the issuance of each Letter of
Credit equal to four and one-half of one percent (4.50%)
per
18
annum (computed
on the basis of a 360-day year, actual days elapsed) of the face
amount thereof, and (ii) fees upon the payment or negotiation
of each drawing under any Letter of Credit and fees upon the
occurrence of any other activity with respect to any Letter of
Credit (including without limitation, the transfer, amendment or
cancellation of any Letter of Credit) determined in accordance with
Bank’s standard fees and charges then in effect for such
activity.
(b)
Audit Fees. The Borrower shall pay the
Lender, on demand, audit fees in connection with any audits or
inspections conducted by the Lender of any Collateral or the
Borrower’s operations or business at the rates established
from time to time by the Lender as its audit fees (which fees are
$125 per hour per auditor), together with all actual out-of-pocket
costs and expenses incurred in conducting any such audit or
inspection.
(c)
Termination and Line Reduction
Fees. If the Credit Facility
is terminated (i) by the Lender during a Default Period that
begins before a Maturity Date, (ii) by the Borrower
(A) as of a date other than a Maturity Date or (B) as of
a Maturity Date but without the Lender having received written
notice of such termination at least 90 days before such Maturity
Date, or if the Borrower reduces the Maximum Line, the Borrower
shall pay to the Lender a fee in an amount equal to one percent
(1.0%) of the Maximum Line (or the reduction of the Maximum Line,
as the case may be).
(d)
Waiver of Termination Fees
. The
Borrower will not be required to pay the termination fees otherwise
due under subsection (d) if such termination is made because
of refinancing by an affiliate of the Lender.
(e)
Unused Line Fee. The Borrower agrees to pay to
the Lender an unused line fee at the rate of 0.50% per annum on the
average daily Unused Amount from the date of this Agreement to and
including the Termination Date, due and payable monthly in arrears
on the first day of the month and on the Termination Date.
For the purposes of this Section 2.11(e), “
Unused Amount ” means the Maximum
Line reduced by the sum of (1) outstanding Revolving Advances
and (2) the L/C Amount.
(f)
Other Fees. The Lender may from time to
time, upon five (5) days prior notice to the Borrower during a
Default Period, charge additional fees for Revolving Advances made
in excess of the Borrowing Base, for late delivery of reports, in
lieu of imposing interest at the Default Rate, and for other
reasons. The Borrower’s request for a Revolving Advance at
any time after such notice is given and such five (5) day
period has elapsed shall constitute the Borrower’s agreement
to pay the fees described in such notice.
Section 2.12
Time for Interest Payments;
Payment on Non-Banking Days; Computation of Interest and
Fees .
(a)
Time For Interest Payments
. Interest
accruing on Advances shall be due and payable in arrears on the
last day of each month and on the Termination Date.
19
(b)
Payment on Non-Banking Days
. Whenever any
payment to be made hereunder shall be stated to be due on a day
which is not a Banking Day, such payment may be made on the next
succeeding Banking Day, and such extension of time shall in such
case be included in the computation of interest on the Advances or
the fees hereunder, as the case may be.
(c)
Computation of Interest and
Fees .
Interest accruing on the outstanding principal balance of the
Advances and fees hereunder outstanding from time to time shall be
computed on the basis of actual number of days elapsed in a year of
360 days.
Section 2.13
Voluntary Prepayment; Reduction
of the Maximum Line; Termination of the Credit Facility by the
Borrower . Except as
otherwise provided herein, the Borrower may prepay the Advances in
whole at any time or from time to time in part. The Borrower may
terminate the Credit Facility or reduce the Maximum Line at any
time if it (i) gives the Lender at least 30 days’ prior
written notice and (ii) pays the Lender termination or Maximum
Line reduction fees in accordance with Section 2.11(c).
Any reduction in the Maximum Line must be in an amount of not less
than $500,000 or an integral multiple thereof. If the Borrower
reduces the Maximum Line to zero, all Obligations shall be
immediately due and payable. Subject to termination of the Credit
Facility and payment and performance of all Obligations, the Lender
shall, at the Borrower’s expense, release or terminate the
Security Interest and the Security Documents to which the Borrower
is entitled by law.
Section 2.14
Mandatory Prepayment
. Without notice or demand, if the
sum of the outstanding principal balance of the Revolving Advances
plus the L/C Amount shall at any time exceed the Borrowing Base,
the Borrower shall (i) first, immediately prepay the Revolving
Advances to the extent necessary to eliminate such excess; and
(ii) if prepayment in full of the Revolving Advances is
insufficient to eliminate such excess, pay to the Lender in
immediately available funds for deposit in the Special Account an
amount equal to the remaining excess. Any payment received by the
Lender under this Section 2.14 or under Section 2.13 may
be applied to the Obligations, in such order and in such amounts as
the Lender, in its discretion, may from time to time
determine.
Section 2.15
Revolving Advances to Pay
Obligations .
Notwithstanding anything in Section 2.1 to the contrary, the
Lender may, in its discretion at any time or from time to time,
without the Borrower’s request and even if the conditions set
forth in Section 4.2 would not be satisfied, make a Revolving
Advance in an amount equal to the portion of the Obligations from
time to time due and payable.
Section 2.16
Use of Proceeds
. The Borrower shall use the
proceeds of Advances and each Letter of Credit for ordinary working
capital purposes.
Section 2.17
Liability Records
. The Lender may maintain from time
to time, at its discretion, records as to the Obligations. All
entries made on any such record shall be presumed correct until the
Borrower establishes the contrary. Upon the Lender’s demand,
the Borrower will admit and certify in writing the exact principal
balance of the Obligations that the Borrower then
20
asserts to be outstanding. Any billing statement
or accounting rendered by the Lender shall be conclusive and fully
binding on the Borrower unless the Borrower gives the Lender
specific written notice of exception within 30 days after
receipt.
Section 2.18
Collateral Account and Sweep of
Funds.
(a)
Implementation of Collateral
Account . At the request of
Lender, the Borrower shall execute and deliver documentation
necessary to establish a bank account to be operated and maintained
in Borrower’s name exclusively for the benefit of the Lender
(the “ Collateral
Account ”). The Borrower
understands that it shall have no right to make or countermand
withdrawals from the Collateral Account. Amounts in the
Collateral Account shall not bear interest and Borrower shall take
all necessary steps to grant the Lender a first perfected security
interest in all of the funds on deposit in the Collateral Account
from time to time and all proceeds thereof, to secure the
Obligations.
(b)
Use of Collateral Account
. Upon the
creation of the Collateral Account at Lender’s request, all
amounts collected through the Borrower’s lockbox arrangement
shall be deposited into the Collateral Account. In addition,
any funds received directly by the Borrower, whether as payments on
Accounts, or otherwise, shall be deposited into the Collateral
Account. All deposits in the Collateral Account shall
constitute proceeds of Collateral and shall not constitute payment
of the Obligations. All items deposited in the Collateral
Account shall be subject to final payment. If any such item
is returned uncollected, the Borrower will immediately pay the
Lender, or for items deposited in the Collateral Account, the bank
maintaining such account, the amount of that item, or such bank may
charge any uncollected item to the Borrower’s commercial or
other account. The Borrower shall be liable as an endorser on
all items deposited in the Collateral Account, whether or not in
fact endorsed by the Borrower.
(c)
Sweep of Funds . The Lender shall from
time to time, in accordance with an agreement between the parties,
cause funds in the Collateral Account to be transferred to the
Lender’s general account for payment of the
Obligations. Amounts deposited in the Collateral Account
shall not be subject to withdrawal by the Borrower, except after
payment in full and discharge of all of the
Obligations.
ARTICLE III.
SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1
Grant of Security
Interest . The Borrower
hereby pledges, assigns and grants to the Lender a lien and
security interest (collectively referred to as the “
Security Interest ”) in the Collateral, as security
for the payment and performance of the Obligations. Upon request by
the Lender, the Borrower will grant the Lender a security interest
in all commercial tort claims it may have against any
Person.
Section 3.2
Notification of Account Debtors
and Other Obligors . The
Lender may at any time (whether or not a Default Period then
exists) notify any account debtor or other
21
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, in
the Lender’s name or in the Borrower’s name,
(a) demand, sue for, collect or receive any money or property
at any time payable or receivable on account of, or securing, any
such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify,
amend or change the obligations (including collateral obligations)
of any such account debtor or other obligor; and (b) 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
Assignment of
Insurance . As additional
security for the payment and performance of the Obligations, the
Borrower hereby assigns to the Lender any and all monies (including
proceeds of insurance and refunds of unearned premiums) due or to
become due under, and all other rights of the Borrower with respect
to, any and all policies of insurance now or at any time hereafter
covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and the Borrower
hereby directs the issuer of any such policy to pay all such monies
directly to the Lender. At any time, whether or not a Default
Period then exists, the Lender may (but need not), in the
Lender’s name or in the Borrower’s name, execute and
deliver proof of claim, receive all such monies, endorse checks and
other instruments representing payment of such monies, and adjust,
litigate, compromise or release any claim against the issuer of any
such policy.
Section 3.4
Occupancy . In addition to and without limiting the
Lender’s rights under the Mortgages, the Borrower agrees to
and grants each of the following rights to the Lender.
(a)
The Borrower
hereby irrevocably grants to the Lender the right to take exclusive
possession of the Premises at any time during a 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 may in good
faith deem to be related or incidental purposes.
(c)
The
Lender’s right to hold the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Credit Facility, and
(ii) 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, occupancy or use of any of the
Premises; provided ,
22
however , that if the Lender does pay
or account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall
reimburse the Lender promptly for the full amount thereof. In
addition, the Borrower will pay, or reimburse the Lender for, all
taxes, fees, duties, imposts, charges and expenses at any time
incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of
this Agreement or the provisions of this
Section 3.4.
Section 3.5
License . Without limiting the generality of any other
Security Document, the Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or
otherwise exploit all Intellectual Property Rights of the Borrower
for the purpose of: (a) completing the manufacture of any
in-process materials during any Default Period so that such
materials become saleable Inventory, all in accordance with the
same quality standards previously adopted by the Borrower for its
own manufacturing and subject to the Borrower’s reasonable
exercise of quality control; and (b) selling, leasing or
otherwise disposing of any or all Collateral during any Default
Period.
Section 3.6
Financing Statement
. The Borrower authorizes the Lender
to file from time to time where permitted by law, such financing
statements against collateral described as “all personal
property” as the Lender deems necessary or useful to perfect
the Security Interest. A carbon, photographic or other reproduction
of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as
a financing statement in any state to perfect the security
interests granted hereby. For this purpose, the following
information is set forth:
|
Name and address of Debtor:
|
|
Nortech Systems, Incorporated
1120 Wayzata Blvd. East,
Suite 201
Wayzata, MN 55391
Federal Employer Identification
No. 41-1681094
|
|
Name and address of Secured
Party:
|
|
Ann Spry
Wells Fargo Bank, N.A.
MAC N9305-198 90
South 7 th Street, 19 th Floor
Minneapolis, MN 55402
|
Section 3.7
Setoff . The Lender may at any time or from time to
time, at its sole discretion and without demand and without notice
to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In
addition, each other Person holding a participating interest in any
Obligations shall have the right to appropriate or setoff any
deposit or other liability then owed by such Person to the
Borrower, whether or not due, and apply the same to the payment of
said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating
interest.
23
Section 3.8
Collateral
. This Agreement does not
contemplate a sale of accounts, contract rights or chattel paper,
and, as provided by law, the Borrower is entitled to any surplus
and shall remain liable for any deficiency. The Lender’s duty
of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in
the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other
third person, and the Lender need no
